International Game Technology (IGT) today announced that it would record a non-cash charge of approximately $78 million, or 26 cents per share in the fourth quarter to give effect to a reduction in the carrying value of its investment in Walker Digital Gaming Inc. In August, the company reconsidered its partnership with Walker Digital Gaming.

The company also expects to record about $13 million in charges related to a decline in the value of its Las Vegas Gaming International investment. IGT will also take into consideration $15 million of additional tax provisions.

The company said that the charges reflect its initiatives to review strategic investments and partnerships that focus on its gaming content, to increase the efficiency of its capital resources. These charges will severely affect the company’s margins and earnings.

International Game Technology is a leader in slot machine distribution and manufacturing.  IGT sells its games worldwide including the U.S.  It also makes systems that monitor slot machine play. However, the company faces strong competition from Bally Technologies Inc. (BYI) and WMS Industries Inc. (WMS) in the U.S.

The company expects to report fourth quarter results on Nov 5. Management provided a cautious revenue outlook for 2009, citing a weak and uncertain economic environment, both in the U.S. and in international markets.

The company expects the Gaming segment to remain weak in the next few quarters. IGT lowered its earnings outlook for 2009 in the last quarter to 75-80 cents per share from the previous expectation of earnings per share of 75-85 cents.

However, we remain encouraged by the company’s strong balance sheet and substantial free cash flow that could drive future growth.

We have a Neutral rating on the stock.

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