Light & Wonder (LNW) Q4 2011 earnings summary

Executive summary

• Core revenue grew 10% in 2011 excluding the Racing Business sold in October 2010, with year-over-year and sequential revenue growth in every quarter. Return on invested capital rose 170 bps vs. 2010.

• Reported revenue was $878.7m, while net loss narrowed to $12.6m from $149.2m in 2010; 2010 included a $149.6m U.S. deferred-tax valuation allowance.

Financial highlights

• Revenue was $878.7m vs. $882.5m in 2010; instant-ticket revenue increased to $493.3m, services declined to $331.7m, and sales were $53.7m.

• Operating income rose to $83.8m from $58.7m; net loss was $12.6m, or $0.14 per diluted share, vs. a $149.2m loss, or $1.61 per share, in 2010.

• Interest expense was $104.7m; earnings from equity investments were $29.4m; loss on early extinguishment of debt was $4.2m.

• Operating cash flow was $171.1m; investing cash outflow was $161.1m and financing cash outflow was $24.6m.

Outlook and guidance

• 2012 results were expected to benefit from new Properties Plus opportunities in Iowa, Tennessee and Missouri, and the Illinois video gaming systems contract beginning to contribute.

• Expected first-half 2012 restructuring costs of $4m-$6m from exiting analog Barcrest AWP machines and reorganizing Games Media; the William Hill contract loss was also expected to affect 2012 results.

• Management cited growth opportunities in outsourcing, internet/mobile lottery distribution, new gaming jurisdictions and international instant-ticket markets; timing and regulatory permissions remained uncertain.