Acquired by GTECH in 2015, International Game Technology designed, manufactured, and marketed casino-style gaming equipment, systems, and game content for land-based, online real-money and online social gaming, primarily in North America.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
Subsequent to the end of the quarter during the period of January 2, 2000 to January 29, 2000, we purchased 11.0 million shares, or approximately 13% of our outstanding common stock pursuant to an issuer-tender offer.
On December 30, 2001, IGT completed the previously announced planned merger with Anchor pursuant to which Anchor became a wholly-owned subsidiary of IGT in a stock for stock exchange. Anchor shareholders received one share of IGT common stock for each share of Anchor common stock owned. All rights to purchase shares of Anchor common stock previously granted under Anchor's stock option plans were converted into rights to purchase shares of IGT common stock on the same terms as existed prior to the signing of the merger agreement. The exercise prices of Anchor options assumed by IGT are equal to their original exercise prices. The aggregate purchase price paid for Anchor was approximately $988.4 million, plus the assumption of Anchor's debt of $337.0 million, net of discount. The purchase price includes 14,901,920 outstanding shares of Anchor common stock, which were exchanged for IGT shares valued at $59.50 per share, $93.0 million for Anchor stock options assumed by IGT, $3.7 million of Anchor shares held by IGT prior to the merger, and $5.0 million of estimated transaction costs. The $59.50 share price was determined based on the average closing market prices of IGT's common stock for the seven trading days ended July 12, 2001, which represents the three trading days before and after the merger announcement on July 9, 2001. This transaction will be accounted for as a purchase under the newly issued SFAS No. 141, Business Combinations. No Anchor results were included in the first quarter of fiscal 2002.
Subsequent to the completion of the Anchor acquisition on December 30, 2001, we divested certain acquired operations inconsistent with IGT's core business strategy. In fiscal 2004, we completed the sale of IGT OnLine Entertainment Systems, Inc. and the lottery systems business of VLC, Inc., collectively referred to as OES, for total cash proceeds of $151.5 million resulting in a gain of $56.8 million, net of tax.
In conjunction with the preparation of this quarterly report for the period ended June 30, 2005, we determined it appropriate to classify restricted cash separately from cash and equivalents on our balance sheets. We are required by gaming regulators to maintain sufficient reserves in restricted accounts for the purpose of funding payments to progressive jackpot winners. Restricted cash totaling $60.1 million at June 30, 2005 and $86.5 million at September 30, 2004 has been presented separately on our balance sheets as a component of restricted cash and investments. The net change in restricted cash is reflected as an increase in investing cash flows of $26.5 million for the nine months ended June 30, 2005 and a decrease of $234,000 for the nine months ended June 30, 2004, rather than as a component of net change in cash as presented previously. Restricted cash provided from our initial VIE consolidations at March 30, 2004 was also reclassified, reducing investing cash flows and net change in cash by $47.5 million for the nine months ended June 30, 2004, and included in supplemental disclosures for non-cash fair value of assets. These reclassifications had no impact on operating cash flows.
On June 13, 2012, we executed an ASR transaction with Goldman, Sachs & Co. such that IGT paid Goldman $400.0 million on June 19, 2012 and Goldman delivered 21.0 million shares to IGT in June 2012, 1.8 million shares in July 2012, and 4.0 million shares on August 6, 2012, resulting in 26.8 million shares delivered to date.
July 16, 2014 -- International Game Technology (NYSE:IGT), today announced that it has entered into a definitive merger agreement with GTECH S.p.A. for the acquisition of IGT by GTECH for $6.4 billion, comprised of $4.7 billion in cash and stock and the assumption of $1.7 billion in net debt.