SOURCE: Wells-Gardner Electronics Corp.

February 13, 2007 16:05 ET

Wells-Gardner Announces Fiscal 2006 Earnings of $343,000 Compared to a Loss of $(3) Million

2006 Gross Margin Rates Improved to 16.0% From 11.3% in 2005

CHICAGO, IL -- (MARKET WIRE) -- February 13, 2007 -- Wells-Gardner Electronics Corporation (AMEX: WGA) announced sales for the fourth quarter ending December 31, 2006 were $15.9 million, a 18.8% increase from $13.4 million the same quarter 2005. Fourth quarter net earnings were $247,000 or $0.03 per share compared to net loss of $(679,000) or $(0.08) per share in the same period in the prior year. The fourth quarter 2005 earnings included non-recurring charges of ($230,000) or ($0.03) per share relating to increasing inventory reserves.

Sales for the fiscal 2006 ending December 31, 2006 were $64.7 million, an increase of 6.5% over $60.8 million in the prior year. Net earnings for fiscal 2006 were $343,000 or $0.04 per share compared to a loss of ($3.0) million or ($0.35) per share in the prior year. The fiscal 2005 earnings included non-recurring charges of ($931,000) or ($0.11) per share relating to the separation of an officer, the termination of an acquisition and inventory reserves.

"The Company had a much improved performance in 2006 due to two main issues, gross margin and the growth of LCD sales," said Anthony Spier, Wells Gardner's Chairman and Chief Executive Officer. "Gross margins improved to 16.0% in fiscal 2006 compared to 11.3% in the prior year. This was due to continued improvement in both LCD and CRT monitor margins resulting from production and procurement efficiency as well as the increasing percentage of our LCD production from Mainland China, which reached 85% in the fourth quarter. LCD sales in fiscal 2006 increased to 61,400 or 105% from 30,100 in fiscal 2005. The revenue from the LCD sales was $36.9 million in fiscal 2006 compared to $18.0 million in 2005.

"Sales of LCD replacement kits directly to casinos continue to be strong with sales of over 5000 in fiscal 2006, compared to less than 700 in fiscal 2005. Sales in the fourth quarter of 1469 LCD replacement kits generated revenue exceeding $1.0 million. This was particularly impressive as this was the highest quarterly sales of these LCDs since the program began and casinos historically purchase the least in the fourth quarter. This business is expected to continue to have impressive growth for the next several years."

"Fourth quarter earnings were slightly less than the third quarter even though sales and margins were slightly better," said Jim Brace, Vice President and CFO, due to higher operating expenses in the fourth quarter 2006 to settle a lawsuit and the timing of the G2E show expenses and bank fees. The company met its fourth quarter covenants under the Wells Fargo Bank credit agreement. Our bank debt has increased $1.0 million since year end 2005 due primarily to our sales growth, which increased receivables by $2.0 million."

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 air freight costs. We are continuing to benefit from the new, improved and less expensive CRT board sets."

Management expects 2007 sales to be between $67 million and $70 million. We expect LCD monitor average selling prices to decline about five percent but margins to be slightly better than our full year 2006 margins. Unit shipments are expected to increase over ten percent in 2007 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 and the potential gaming expansion in California.

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 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 Twelve Months Ended December 31, 2006



                        Three Months Ended         Twelve Months Ended
                           December 31,                December 31,
                    --------------------------  --------------------------
                        2006          2005          2006          2005
                    ------------  ------------  ------------  ------------
Net sales           $ 15,875,000  $ 13,363,000  $ 64,748,000  $ 60,773,000
Cost of sales         13,025,000    11,819,000    54,398,000    53,880,000
                    ------------  ------------  ------------  ------------
Gross margin           2,850,000     1,544,000    10,350,000     6,893,000
Engineering,
 selling &
 administrative
 expenses              2,390,000     2,064,000     9,255,000     9,639,000
                    ------------  ------------  ------------  ------------
Operating earnings
 (loss)                  460,000      (520,000)    1,095,000    (2,746,000)
Interest expense         224,000       166,000       806,000       444,000
Investment in Joint
 Venture                   3,000             -       (32,000)     (206,000)
Tax and other
 (income) expense,
 net                     (14,000)       (7,000)      (22,000)       12,000
                    ------------  ------------  ------------  ------------
Net earnings (loss) $    247,000  $   (679,000) $    343,000  $ (2,996,000)
                    ============  ============  ============  ============

Earnings per share:
Basic earnings
 (loss) per share   $       0.03  $      (0.08) $       0.04  $      (0.35)
Diluted earnings
 (loss) per share   $       0.03  $      (0.08) $       0.04  $      (0.34)

Basic average
 common shares
 outstanding           9,258,765     8,644,773     9,180,350     8,633,511
Diluted average
 common shares
 outstanding           9,316,900     8,648,527     9,219,213     8,737,539


Contact Information

  • For additional investor information, please contact:
    Jim Brace
    Wells Gardner
    (708) 290-2120

    Alan Woinski
    Gaming USA Corporation, USA
    (201) 599-8484