Light & Wonder (LNW) Q4 2010 earnings summary

Executive summary

• FY10 strategic refocus followed the Racing Business sale; priorities included growing returns and free cash flow from deployed assets, expanding distribution, and pursuing new geographies and digital channels.

• Global Draw won a four-year Ladbrokes contract for ~7,600 terminals, with rollout planned for 2011; Northstar’s Illinois Lottery management agreement was scheduled to begin in 2011, subject to legal uncertainty.

Financial highlights

• FY10 revenue was $882.5m, down 5% YoY; instant-ticket revenue rose 3% to $465.1m, while services fell 11% to $363.1m and sales fell 16% to $54.3m.

• Operating income was $58.7m versus a $0.027m loss in FY09; net loss was $149.2m versus $39.9m, with FY10 income-tax expense of $143.9m.

• Operating cash flow was $170.6m; cash and equivalents were $124.3m at year-end, down from $260.1m, and total debt was $1,396.7m.

Outlook and guidance

• Strategy targets growth from existing contracts and infrastructure, broader retail distribution, international expansion, new game content, and lottery internet and mobile offerings.

• 2011 priorities included Iowa lottery systems deployment, the Ladbrokes terminal rollout, and expansion of Global Draw beyond the U.K.; no numeric earnings guidance was stated.

• Cash flow, available cash, and revolver capacity were expected to cover liquidity needs, including anticipated capex, for the next 12 months, subject to contract renewals and financing conditions.