Light & Wonder (LNW) Q4 2007 earnings summary

Executive summary

• FY2007 revenue rose 17% to $1,046.7M, driven by acquisitions, international growth and Italian instant-ticket sales; operating income fell to $105.8M from $125.6M.

• Net income was $65.4M versus $66.8M; diluted EPS was $0.68 versus $0.70. Adjusted for the $26.3M impairment and other identified items, reported results included substantial one-time charges.

• International expansion and high-volume instant-ticket production were central growth priorities, with China initiatives and new contracts supporting future expansion.

Financial highlights

• Revenue increased 17% to $1,046.7M; services revenue rose 16% to $922.4M and sales revenue rose 18% to $124.3M.

• Operating income declined to $105.8M from $125.6M; depreciation and amortization increased 51% to $160.4M, including $26.3M of impairment charges.

• Net income was $65.4M, down from $66.8M; diluted EPS was $0.68, down from $0.70.

• Operating cash flow was $186.4M; capital expenditures were $34.7M and wagering-system expenditures were $173.7M.

Outlook and guidance

• International revenue was expected to exceed 50% of total revenue in 2009 if prevailing growth patterns continued; 45% of FY2007 revenue came from outside the U.S.

• China Sports Lottery instant-ticket and validation programs were progressing; nearly 1B tickets had shipped to China in early 2008, with contracts covering a 90,000-terminal validation network.

• The 25,000-terminal Sisal rollout was expected to generate approximately $90M over three years, with delivery and installation starting in April 2008.

• Management expected cash flow from operations, available cash and revolver capacity to meet foreseeable liquidity needs, including anticipated capital expenditures, subject to contract renewals and financing conditions.