Third Quarter Gross Margin Rates Improved by 79%
CHICAGO, Nov. 6 /PRNewswire-FirstCall/ -- Wells-Gardner Electronics Corporation (AMEX:WGA) announced sales for the third quarter ending September 30, 2006 were $15.1 million, a 1% increase from $14.9 million the same quarter 2005. Third quarter net earnings were $326,000 or $0.04 per share compared to net loss of $(993,000) or $(0.11) per share in the same period the prior year.
Sales for the nine months ending September 30, 2006 were $48.9 million, an increase of 3% over $47.4 million in the same period the prior year. Net earnings for the nine months ending September 30, 2006 were $95,000 or $0.01 per share compared to a loss of ($2.3) million or ($0.27) per share for the same period in the prior year. The nine months 2005 earnings included non- recurring charges of ($625,000) or ($0.07) per share relating to the termination of an officer, the termination of an acquisition and inventory revaluation reserves.
"The Company continued its increase in profitability in the third quarter," said Anthony Spier, Wells Gardner's Chairman and Chief Executive Officer. "Gross margins continue to improve and were 17.7% in the third quarter 2006, which is an increase of 79% over the 9.9% margin in the same period the prior year. In fact the margins in the last four quarters have increased every quarter from 11.9% in the 4th quarter 2005 to 13.4% in the first quarter 2006 and 15.1% in the second quarter 2006. The margin improvement was primarily due to continued improvement in LCD margins resulting from improved production and procurement efficiency as well as the increasing percentage of our LCD production from Mainland China, which reached 72% in the third quarter. Year to date LCD sales increased to over 44,600 an increase of 109% from 21,300 in the prior year period. CRT monitor sales decreased by 36% and the company is contemplating moving the Malaysian CRT monitor production to Mainland China by the end of 2007." "Sales of LCD replacement kits directly to casinos continue to be strong with sales of 1201 LCD replacement kits in the third quarter for revenue of approximately $800,000, compared to no sales in the same period in the prior year as this business did not start until October 2005. This business is expected to continue to have impressive growth for the next several years." "The company met its third quarter bank covenants under our new Wells Fargo Bank credit agreement," said Jim Brace, Vice President and CFO. "Our bank debt has increased $1.0 million since year end 2005 due primarily to our sales growth, which increased receivables by $3.1 million. As we reported in the first quarter 2006, we have elected to adopt a change in our method of inventory accounting whereby we recognize in transit LCD inventory. The impact of this change added $1.7 million to our inventory compared to year end 2005. Notwithstanding this change, inventory turnover was 3.5 turns at the end of the third quarter, which is lower than the second quarter and the same as the first quarter.
Outlook "As we have noted previously, we have taken a number of steps to return to profitability," Anthony Spier noted. "We have improved the purchasing of LCD panels and metal parts, our production processes and our scheduling which has resulted in reduced airfreight costs. We have also started benefiting from the new, improved and less expensive CRT board sets." The Company expects 2006 sales to be between $64 million and $66 million. The company expects margins to remain in the high teens and operating income to be positive again in the 4th quarter.
Management expects 2007 sales to be between $70 million and $72 million due to new shipments planned by our customers to Pennsylvania, Florida racinos, and Macau and the continued growth of the LCD replacement kits directly to casinos. There is further potential upside in sales to the Florida tribal casinos, the potential gaming expansion in California and the expected reopening of the Russian market in the second half of 2007.
Founded in 1925, Wells-Gardner Electronics Corporation is a distributor and manufacturer of color video monitors and other related distribution products for a variety of markets including, but not limited to, gaming machine manufacturers, casinos, coin-operated video game manufacturers and other display integrators. During 2000, the Company formed a 50/50 joint venture named Wells-Eastern Asia Displays ("WEA") to manufacture video monitors in Malaysia. In addition, the Company acquired American Gaming & Electronics, Inc. ("AGE"), a leading parts distributor to the gaming markets, which sells parts and services to over 700 casinos in North America with offices in Las Vegas, Nevada, Egg Harbor Township, New Jersey and McCook, Illinois. AGE also sells refurbished gaming machines on a global basis as well as installs and services some brands of new gaming machines in casinos in North America.
This press release contains forward-looking statements within the meaning of the federal securities laws. Those statements include statements regarding the intent, belief or expectations of the Company and its management. Readers are cautioned that the forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those expressed in any forward-looking statement. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, development of competing technologies, availability of adequate credit, interruption or loss of supply from key suppliers, our ability to increase production at our Malaysian joint venture, increased competition, the regulatory process and regulatory and legislative changes affecting the gaming industry. Wells-Gardner assumes no obligation to update the information contained in this release to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. For additional investor information, please contact Jim Brace - Wells Gardner at (708) 290-2120 or Alan Woinski - Gaming USA Corporation, USA at (201) 599-8484.
WELLS-GARDNER ELECTRONICS CORPORATION
Condensed Consolidated Statements of Earnings (Loss) (unaudited)
Three Months and Nine Months Ended September 30, 2006 Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Net sales $15,085,000 $14,879,000 $48,874,000 $47,411,000 Cost of sales 12,421,000 13,408,000 41,374,000 42,061,000 Gross margin 2,664,000 1,471,000 7,500,000 5,350,000 Engineering,
selling &
administrative
expenses 2,148,000 2,331,000 6,865,000 7,546,000
Operating earnings
(loss) 516,000 (860,000) 635,000 (2,196,000) Interest expense 207,000 114,000 583,000 279,000 Investment in
Joint Venture (18,000) (4,000) (35,000) (206,000) Tax and other (income)
expense, net 1,000 23,000 (8,000) 49,000
Net earnings (loss) $326,000 $(993,000) $95,000 $(2,318,000) Earnings per share:
Basic earnings (loss)
per share $0.04 $(0.11) $0.01 $(0.27)
Diluted earnings
(loss) per share $0.04 $(0.11) $0.01 $(0.27) Basic average common
shares outstanding 9,187,181 8,642,115 9,154,117 8,629,716
Diluted average
common shares
outstanding 9,215,773 8,642,115 9,180,662 8,629,716
DATASOURCE: Wells-Gardner Electronics Corporation CONTACT: Jim Brace of Wells Gardner, +1-708-290-2120, or Alan Woinski of Gaming USA Corporation, USA, +1-201-599-8484 Web site: http://www.wgec.com/
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