Light & Wonder (LNW) Q4 2006 earnings summary

Executive summary

• FY06 revenue rose 15% YoY to $897.2M, driven by acquisitions, instant-ticket demand and new contracts; consolidated operating income fell to $125.6M and net income to $66.8M.

• Strategic expansion included acquisitions of EssNet, Global Draw, Shoreline, Games Media and ILC, alongside major investments in printing capacity and pari-mutuel infrastructure.

Financial highlights

• FY06 revenue was $897.2M vs. $781.7M; service revenue increased 25% to $799.2M, while sales revenue declined 31% to $98.0M.

• Operating income was $125.6M vs. $131.0M; net income was $66.8M vs. $75.3M; basic/diluted EPS was $0.73/$0.70 vs. $0.84/$0.81.

• Q4 revenue was $232.1M, operating income $20.1M, net income available to common shareholders $7.9M, and diluted EPS $0.08; Q4 employee termination costs were $13.5M.

• Operating cash flow was $128.5M, including $49.4M used by working-capital changes; cash and equivalents ended at $27.8M.

Outlook and guidance

• Planned FY07 spending included replacement of ~6,000 pari-mutuel and 9,000 fixed-odds terminals for a total cost of ~$60M.

• Global Draw had contracts to deploy over 9,000 terminals in the U.K. during 2007; digital AWP replacement was expected to begin as market rules changed.

• Management expected service-contract renewals and new contracts to generate positive cash flow and operating income; liquidity and financing access remain important to funding contract start-up costs.

• The Italian instant-ticket joint venture reported record January 2007 sales of €733M, described as an annualized run rate exceeding €8.5B.