Wells-Gardner Electronics Corporation

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Wells-Gardner Electronics Corporation

9500 West 55th Street
McCook, Illinois 60525
U.S.A.
Telephone: (708) 290-2100
Toll Free: (800) 336-6630
Fax: (708) 290-2200
Web site:http://www.wellsgardner.com

Public Company
Incorporated: 1925 as Wells Radio Manufacturing Company
Employees: 205
Sales: $50.6 million (2000)
Stock Exchanges: American
Ticker Symbol: WGA
NAIC: 334119 Other Computer Peripheral Equipment Manufacturing; 334419 Other Electronic Component Manufacturing

Wells-Gardner Electronics Corporation designs, manufacturers, and distributes color video monitors, liquid crystal and plasma displays, coin doors and mechanisms, and related supplies. While the company’s primary market is the gaming industry, Wells-Gardner products are also used for coin-operated video games, leisure and fitness machines, automotive analysis systems, and medical displays. Most of the company’s inventory is manufactured through a joint venture in Malaysia. A subsidiary, American Gaming & Electronics, provides parts and service to the gaming industry in North America and refurbishes used gaming machines for international markets.

Early History in Radio and Television Manufacturing

Albert S. Wells and Frank Dillbauer formed the Wells Radio Manufacturing Company in Chicago in 1925. The company produced radios for private label brands, including Montgomery Ward and Gambles, as well as under its own name. George Gardner, whom Wells knew from employment with a Milwaukee business which sold batteries and power generators, joined the company in 1926, and the company took the name WellsGardner & Company to reflect the new ownership. WellsGardner did well through the end of the prosperous 1920s and survived the Great Depression.

In 1936, Wells-Gardner began production of what would become two of its most memorable radios: the Airline model 62-197 and the distinct “movie dial” radio for Montgomery Ward. The movie dial sets were distinguished by their chrome chassis and black crackle finishes. The top-of-the-line model contained 13 tubes and electric tuning, generating a 20-watt output over two 12-inch speakers. The Airline model 62-197 radio channeled 30 watts of power through two 12-inch speakers; its chrome and black exterior was enhanced by modern chrome-plated speakers. Moreover, its three shortwave bands proved optimal for tracking overseas news during World War II. A prototype of this Airline model was highlighted at the “Century of Progress” World’s Fair held in Chicago in 1933-34. Wells-Gardner stamped its radios “W.G. 24.”

During World War II, Wells-Gardner produced radio-related equipment, including receivers and transmitters. The company often produced these items far below the budget allowed by wartime contracts, receiving many commendations for the effort, including the Army-Navy “E” award in 1944. That year revenues peaked at $21.5 million with net income reaching $450,000; the following year, the last year of the war, revenues declined rapidly to $8.9 million.

The company returned to production of civilian goods as a public company traded on the American Stock Exchange in 1945. In addition to manufacturing radios, Wells-Gardner began to manufacture television sets for Montgomery Ward, Gambles, Western Auto (for auto analysis systems), J.C. Penney, White’s (in Texas), and W.T. Grant. During this postwar era, Wells-Gardner manufactured an estimated 3 percent of all televisions in the United States. The company also began manufacturing high fidelity stereo systems, electric organs, and various consumer electronics. The company’s factory had expanded from 140,600 square feet in the 1940s to 270,000 square feet. Wells-Gardner owned the building, machinery, and equipment.

Production peaked with the popularity of color television in 1966. Sales rose from $25 million in 1960 to $46.3 million in 1966, with net income of $1.9 million. Unfilled orders at the end of the year valued at $20.1 million. In 1967 Wells-Gardner acquired Rocket Manufacturing, a woodworking company which produced television and radio cabinets at two plants in Illinois and Indiana, adding 200,000 square feet of production capacity.

A Shift in Manufacturing Emphasis in 1970s

In the late 1960s and early 1970s, American electronic manufacturing entered a period of decline as good quality, lower priced Japanese products overtook the market. In 1974 Wells-Gardner lost $1 million on sales of $33 million, as Montgomery Ward switched to overseas production of its private label televisions. The company did Generale some business as a final quality control inspector for foreign-built sets, but this did not compensate for the loss of manufacturing business. Wells-Gardner produced the last of several of its products at this time: its last electronic organ in 1969, its last black and white television in 1971; its last radio in 1974; and its last console stereo and portable color television in 1975. Wells-Gardner verged on bankruptcy in 1977, with a $3 million net loss on $8.2 million in sales. A 44 percent decline in revenue from 1976 resulted from market saturation of 19” color televisions as well as market resistance to 25-inch sets after a problem with a competent part in 1976.

The company survived on short-term loans and two new manufacturing opportunities. The first involved a contract to assemble 19-inch and 25-inch television receivers for Teknika Electronics Corporation, using parts engineered and manufactured overseas by its parent company, The General Corporation of Japan. The second opportunity was presented when Bally Manufacturing asked the company to make video monitors for arcade games. Albert Wells was reportedly so intent on the opportunity that he ordered the doors locked, refusing to let his managers and engineers go home until they had determined how to fill the purchase order.

Using subassembly parts from Teknika, the engineers made a few changes to the basic television receiver to create a video game monitor. As a result, game monitors contributed to total revenues of $14 million in 1978, though the company still suffered a loss of $1 million. This was the fifth consecutive year in which Wells-Gardner had reported a loss, but the change in manufacturing proved positive in the short term. Seeking to develop more products for the video monitor market, the company doubled its engineering staff to 64.

Wells-Gardner was almost alone in the game monitor market when PacMan, Centipede, Space Invaders, and other coin-operated video games became popular. In fact, it was the only company to produce monitors for PacMan. Sales skyrocketed with the introduction of a color game monitor in 1979. In 1980 the game monitors became the major product of the company, exceeding television sales by 230 percent. Revenues and net income peaked at $79.5 million and $7.7 million, respectively, in 1981; video game monitors comprised 89.2 percent of sales, at $68.6 million. Other new products included a monochromatic graphic display game monitor, 13-inch and 19-inch color game monitors, and data display monitors for computers. During this time, the company sold the Rocket woodworking plant in Indiana and began to manufacture cabinets for video games at the plant in Chicago. Also, in 1980 Teknika introduced three new models of portable color televisions in 1980, increasing production 60 percent in 1981.

As quickly as revenues rose, revenues fell due to a decline in demand from coin-operated game manufacturers. Consolidation and bankruptcies in the game manufacturing industry lowered demand, as did market saturation of existing games and lack of new, replacement games due to economic recession. While Wells-Gardner maintained a dominant position in the market, foreign competition necessitated lower price points. Video monitors comprised $22.8 million of total sales of $28.1 million in 1983, with a profit of only $115,000. An increase in color television sales and data display monitors offset the decline in revenues. Sales of Teknika sets rose 73 percent, while computer monitors rose 678 percent, with several new customers such as NBI, Teletype, and Mohawk Data Sciences. With two new products, a 13-inch color raster used in video slot machines and video card games and a 19-inch XY color monitors for three-dimensional effects, Wells-Gardner was ready for a revival in demand for game monitors.

Fluctuating Fortunes in the 1980s

The company’s financial situation continued to fluctuate through the rest of the 1980s and into the 1990s. Revenues declined 58 percent in 1984, to $17.8 million, and in 1985 an important contract for video lottery machines was canceled. Demand for video game monitors rebounded in 1986 and 1987, but in 1988 a contract to produce Teknika televisions for Fujitsu expired and was not renewed. In 1989 a major client discontinued products which used Wells-Gardner’s video display monitors.

Key Dates:

1925:: Wells Radio Manufacturing Company is founded.
1936:: Company begins manufacturing “movie dial” radios for Montgomery Ward.
1945:: Company goes public.
1960:: Name is changed to Wells Gardner & Company.
1966:: Production of color television sets peaks.
1974:: Lower-priced, better quality Japanese products cuts market share; company produces its last radio.
1978:: Wells-Gardner begins manufacturing video game monitors.
1980:: Production of video monitors exceeds production of televisions.
1991:: Company produces its last television.
2000:: A joint venture, WEA, based in Malaysia, is established for overseas manufacturing.
2001:: Company obtains three-year, $35 million contract for gaming monitors.

Wells-Gardner experienced a brief and final upswing in its television manufacturing in 1990, when D&H Distributing sought to revive the Majestic brand of televisions, popular in the 1930s to 1950s, for two-step marketing by a new affiliate company, Majestic Industries, Inc. A three-year contract with Wells-Gardner involved a line of 11 television sets, with 20- to 27-inch screens, including five console sets. Sales were estimated at $35 million with first year sales at $10 million, with production utilizing 50 percent of Wells-Gardner’s excess factory capacity. However, a slow consumer market resulted in disappointing retail sales. Majestic Industries discontinued the line of television sets in February 1991, and this marked the last time Wells-Gardner produced a television.

Soon thereafter, the company instituted a restructuring plan which involved a voluntary early retirement plan for some of its workforce and a write-off of inventory and equipment, valued at $1 million. Wells-Gardner also discontinued its distribution of switching power supplies and touch screen panel lines. The company had acquired the business with Energetic Systems, Inc. in 1987 and sold it in 1990.

Unexpectedly, sales of video monitors increased in 1990, with demand rising for larger screens to be used on coin-operated video games and other amusement applications. The strength of Wells-Gardner at the time was its ability to partially customize monitors to client needs, thus enabling it to provide supplies for nine of the ten most popular video arcade games. Revenues climbed to $45.1 million. In 1992 a sudden demand for monitors for video lottery terminals resulted in a 150 percent increase in revenues. James Industries acted as representative for Wells-Gardner in international markets, finding new business for coin-operated video games in Europe, Mexico, and Central America, with notable success in Britain and Mexico. The company also expanded into new areas of business, manufacturing monitors for automotive test and diagnostic equipment, such as emissions testing, and leisure equipment, such as Liferower exercise equipment and scoring monitors in bowling alleys.

New Leadership in the 1990s

When Anthony Spier, a board member since 1990, became CEO and chairman at Wells-Gardner in 1994, he confronted a number of persistent problems: erratic revenues; oscillation between profit and loss; competitive pricing from off-shore manufacturers of video monitors; low inventory turnover; rapid obsolescence; and a lack of shareholder benefits.

Revenues were in decline when Spier took the helm at Wells-Gardner, as the video game market slowed. The popularity of “Mortal Kombat” arcade game invigorated sales of game monitors in 1992, but market saturation and lack of exciting new games resulted in lower revenues in 1993 and 1994. This decline was offset by orders for video lottery monitors from Loto-Quebec in 1994; Wells-Gardner obtained 100 percent of the Loto-Quebec order from three terminal manufacturing customers. The company benefited from being the only manufacturer of a state-of-the-art touch screen monitor, introduced in 1994.

Reduction of overhead was a major factor in cultivating financial stability, enabling the company to profit, even in periods of slack demand. Since late 1992, the company had reduced overhead by 25 percent, to an annual break-even point of $33 million. Spier sought to reduce that figure to $30 million, and toward that end he streamlined the product line from 75 models to 25 models, minimizing losses related to obsolescence and slow inventory turnover. Moreover, the company implemented use of standardized, interchangeable components in new products, while maintaining development of advanced technology within those standards. Standard VGA and SVGA high-resolution color monitors were upgraded with the intent of serving 75 percent of demand. Overseas production also reduced costs for a competitive price advantage. Standardization reconciled the difficulty of forecasting demand for the unpredictable video game market and the need for 12 to 16 weeks lead time to order components and assemblies. Also, the company attained ISO 9001 quality certification for manufacturing of color monitors, becoming the first in its industry to do so.

Wells-Gardner possessed several strengths from which to renew itself, such as freedom from long-term debt and a reputation in the industry for responsiveness to client needs. Wells-Gardner was the dominant supplier for video lottery monitors and coin-operated video game monitors, supplying five of the six leading manufacturers of lottery terminals and nine of the ten major producers of game manufacturers. The company was also the leading supplier of monitors for automotive diagnostics, as well as the number-two supplier of bowling score monitors to such bowling equipment manufacturers as AMF and Brunswick.

The company used its strengths to expand into new markets. While sales of coin-operated video monitors and video lottery monitors declined 52 percent in 1995, the company entered new markets and grew within other markets. Sales of products for casino gaming and the bartop market more than tripled, and sales to leisure and fitness companies grew 42 percent on the release of a new 27-inch VGA monitor. Video-wall displays and presentation and transportation applications provided new markets for Wells-Gardner products, while a new service group for refurbishing monitors also performed well. Although the automotive diagnostics market was in decline (as that industry consolidated and switched to personal computers), productivity improved with lower overhead on fixed costs, while quality improved with a reject rate below 9 percent, compared to 20 percent in April 1994.

By 1997, Wells-Gardner’s transition to stability was secure. The company recorded a modest profit for the second year in a row, with sales at $42.9 million and net income of $775,000. Offshore manufacturing improved profit margins, and the 32 products launched since January 1995 accounted for 94 percent of revenues. In 1997 Wells-Gardner introduced 12 voltage-free products for use worldwide, including the WG2 line of high value monitors. Over the next few years Wells-Gardner received a steady stream of revenues and contracts for new business in medical, gaming, amusement, and video wall markets.

Into the 21st Century

At the end of the 1990s Wells-Gardner pursued a strategy of growth through acquisition and diversification in services related to the gaming industry. The company decide to serve four segments: monitor manufacturing; distribution of parts produced by Wells-Gardner and other companies; installation and service of new gaming equipment; and refurbishment of used equipment for international clients. The June 1998 acquisition of the coin door business of Coin Controls, Inc., for $3.2 million, included rights to worldwide distribution and manufacturing of coin doors and coin mechanical products. In February 1999 the company began to distribute JCM and Mars dollar bill validators with the coin door products often placed side-by-side. A January 2000 agreement with Pacific Electronics Corporation involved distribution of power supplies, line filters and motors, and other items.

New products at this time involved flat panel displays and digitally controlled multiscan products for the gaming industry. The flat panel monitors—in 12-, 14-, 15-, and 18-inch models—used plasma and liquid crystal display technology. The lightweight monitors needed less space and used less power as they provided high contrast ratios. The technology adjusted to touch screen applications for gaming, industrial, bartop, and digital information display markets. Wells-Gardner’s marketing emphasized digital technology for ease of installation and long-term usage. While Wells-Gardner held a second place in the gaming market, as the leader in digital technology, estimated at 18 months development time, Spier believed the company could attain the dominant market position in 2002. Production of new monitors continued overseas as Wells-Gardner formed Wells Eastern Asia Displays (WEA). a joint venture with Eastern Asia Technology, Ltd., of Singapore.

In January 2000 Wells-Gardner acquired American Gaming and Electronics, Inc. (AG&E), the largest independent distributor of gaming parts and service in North American, serving 500 casinos. AG&E also remanufactured used gaming equipment and sold new gaming machines in New Jersey and Connecticut. With offices in Las Vegas, New Jersey, and Florida, under Wells-Gardner AG&E opened offices in Palm Springs, California, to take advantage of legalized gambling on Indian reservations, as well as in Chicago and Reno. AG&E obtained a distribution and service agreement to provide computer touch screen display products to Micro Touch Systems, Inc. and Money Controls. A contract with a major manufacture gave AG&E the first right of refusal on used gaming equipment for refurbishment.

International business expanded with the opening of a sales, service, and distribution network in the summer of 2000. The company appointed Eurocoin in the Netherlands and S&M in Germany to sell Wells-Gardner products abroad.

Sales in 2000 reached $50.6 million with net earnings of $851,000. While net earnings were not stable, with a net loss in 1999, Wells-Gardner paid a dividend for the third year in a row. Based on revenues from 1995 to 1999, the company was named one of the 50 fastest growing companies in the Chicago area. Also in 2000, the company sold its factory and headquarters in Chicago, relocating to the nearby suburb of McCook in June 2001. Spier hoped to attract a stronger workforce at a more desirable location on the northwest side of Chicago. Wells-Gardner looked poised for a stable future as, in April 2001, the company obtained a three-year contract for gaming monitors, valued at $35-$45 million, intended for worldwide distribution.