WellsGardner Electronics Corp (WGA) filed Quarterly Report for the period ended 2009-09-30.
Wells-Gardner Electronics Corporation is a distributor and ISO 9001 certified manufacturer of color video monitors, video liquid crystal & plasma displays, coin doors, coin mechanisms and other related distribution products for a wide variety of markets including, but not limited to gaming machines, coin-operated video games, leisure and fitness, automotive, display, intranet, medical, service and video walls. Wellsgardner Electronics Corp has a market cap of $22.4 million; its shares were traded at around $2.15 with a P/E ratio of 43 and P/S ratio of 0.4.
Highlight of Business Operations:
For the third quarter ended September 30, 2009, net sales increased by 19% to $13,446,000 from $11,283,000 in third quarter 2008. Overall video display unit volume increased almost 7,000 units or 25% with a $2.1 million or 19% sales increase. Video display average selling price declined about 7% year over year in the third quarter. Parts sales increased $0.2 million and used games sales decreased $0.2 million in the third quarter 2009 compared to the same quarter 2008. Gaming sales for the third quarter 2009 increased by 23% to $12,812,000 from $10,422,000 in the third quarter 2008 due to an improving gaming market. Amusement sales decreased by 26% to $634,000 in the third quarter 2009 from $860,000 in the third quarter 2008 primarily due to lower replacement market sales. As a result, gaming sales accounted for 95% of total sales and amusement sales accounted for 5% of total sales in the third quarter 2009 compared to 92% and 8% respectively in the same quarter 2008.
For the nine months ended September 30, 2009, net sales decreased by 3% to $39,426,000 from $40,724,000 the nine months 2008. Even though video display unit volume increased 1%, video display sales decreased by 5% or $1.8 million as the average video display average selling price declined by 6%. Parts sales increased $0.9 million and used games sales decreased $0.4 million in the nine months 2009 compared to the same period 2008. Gaming sales for the nine months 2009 increased by 1% to $36,669,000 from $36,187,000 in the nine months 2008 despite difficult gaming market. Amusement sales decreased by 39% to $2,758,000 in the nine months 2009 from $4,537,000 in the nine months 2008 primarily due to lower replacement market sales. As a result, gaming sales accounted for 93% of total sales and amusement sales accounted for 7% of total sales the nine months 2009 compared to 89% and 11% respectively in the same period 2008.
Operating expense decreased by $96,000 in the nine months 2009 compared to the same period 2008. Due to the $1.3 million sales decline, operating expenses increased to 14.9% of sales in the nine months from 14.6% of sales in the same period last year. The operating expense reductions were due to a $62,000 decline in commission expenses, a $42,000 decline in IT depreciation expense and a $110,000 decline in other partially offset by a $68,000 increase in compensation and benefit expense and a $50,000 increase in occupancy expense. The Company continues to place emphasis on operating expense control.
Earnings plus non cash adjustments were $340,000. Accounts receivable decreased by $1,160,000 in the third quarter to $6,131,000 on September 30, 2009 due to the lower sales level compared to the second quarter 2009. In addition, accounts receivable days outstanding decreased to 42 days on September 30, 2009 from 46 days on June 30, 2009. Inventory decreased by $2,364,000 to $8,676,000 on September 30, 2009 compared to $11,040,000 on June 30, 2009. The primary cause of the inventory reduction was the Company s largest customer shifting from vendor managed inventory to invoice upon receipt. As a result, days cost of sales in inventory decreased to 72 days on September 30, 2009 from 85 days on June 30, 2009. Prepaid expenses increased by $466,000 in the third quarter due to higher LCD purchases. Due to subcontractors decreased more than due from subcontractors by $1,908,000 in the third quarter due to paying our subcontractors earlier than normal and lower production later in the quarter. Even though accounts payable days outstanding increased to 26 days on September 30, 2009 from 24 days at June 30, 2009, accounts payable decreased by $116,000 due to lower production later in the quarter. Accrued expenses increased by $219,000 in the third quarter.
Earnings plus non cash adjustments were $1,080,000. Accounts receivable decreased by $122,000 in the nine months to $6,131,000 on September 30, 2009 even though sales were slightly higher in the third quarter 2009 compared to the fourth quarter 2008 as accounts receivable days outstanding decreased to 42 days on September 30, 2009 from 44 days on December 31, 2008. Inventory decreased $3,110,000 to $8,676,000 on September 30, 2009 compared to $11,786,000 on December 31, 2008 due to the Company s largest customer shifting from vendor managed inventory to invoice upon receipt and continued emphasis on inventory control. Days cost of sales in inventory decreased to 72 days on September 30, 2009 from 96 days on December 31, 2008. Prepaid expenses decreased by $121,000 in the nine months 2009. Due to subcontractors increased more than due from subcontractors by $470,000 in the nine months 2009 due to paying our subcontractors earlier than normal and lower production late in the quarter. Accounts payable decreased by $553,000 in the nine months 2009 as accounts payable days outstanding declined to 26 days on September 30, 2009 compared to 31 days at December 31, 2008 due to our paying vendors slightly faster. Accrued expenses increased by $555,000 in the nine months 2009.
As of September 30, 2009, the Company had total outstanding bank debt of $1.5 million at an average interest rate of 5.3%. The loan is at three month Libor plus 5.00% with a minimum interest charge of $15,000 per month. All of the Company s debt is subject to variable interest rates at this time. An adverse change in interest rates during the time that this debt is outstanding would cause an increase in the amount of interest paid. If the debt would exceed approximately $3 million, then a 100 basis point increase in interest rates would result in an annual increase of approximately $30,000 in additional interest expense recognized in the financial statements. The Company may make payments towards the loans at any time without penalty. However, there is a minimum interest charge of $15,000 per month through August, 2010 which reduces to $10,000 per month through August, 2012.
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