Cost of gaming operations declined $0.7 million primarily reflecting the low costs associated with the revenues from interactive products and services and a more favorable jackpot expense experience on wide-area progressive games. As a result, cost of gaming operations as a percent of gaming operations revenues improved 350 basis points.
Research and development expenses in the December 2012 quarter increased $3.0 million year over year to $26.7 million. The expected increase reflects the incremental expense from two interactive acquisitions in the June 2012 quarter and higher development costs, including an increase in staffing required for porting WMS’ library of slot gaming content for distribution as interactive products and services, coupled with a modest increase in spending to support the development of the Company’s innovative new casino gaming products.
Selling and administrative expenses in the December 2012 quarter increased $4.7 million year over year and $3.5 million on a quarterly sequential basis to $37.9 million. The increase reflects $2.5 million of costs incurred in the process leading up to the recently announced definitive merger agreement with Scientific Games Corporation, the impact of the two acquisitions in the June 2012 quarter, the previously planned increase in online marketing costs to expand the player base for interactive products, a modest increase to support the overall growth of interactive products and services, and the incremental expenses related to the Company’s implementation of an upgraded enterprise-wide ERP system partially offset by ongoing cost savings initiatives.
Depreciation and amortization expense of $29.0 million in the December 2012 quarter increased $7.8 million on a year over year basis and $1.0 million on a quarterly sequential basis. The year-over-year increase reflects the Company’s investment in its installed base of participation gaming machines over the last 12 months, depreciation associated with the completion of a major new facility, implementation of an upgraded enterprise-wide ERP system and the amortization of finite-lived intangible assets from the two acquisitions completed in the June 2012 quarter.
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