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Mikohn Gaming Announces Q4 2000 Results and New Strategy

These charges include $9.8 million related to assets written down for product lines to be phased out or where development will be deferred and $7.2 million primarily related to higher than normal reserves for receivables and inventory that arose as a result of a special review process conducted in conjunction with the strategic repositioning initiative.

After giving effect to these charges, the net loss for the year was $18.9 million, equal to $1.72 per share, which compares with net income of $0.9 million, or 9 cents per share in 1999. Revenues for the year were $100.8 million, compared to $106.9 million in 1999.

Including the charges, the net loss for the fourth quarter totaled $21.5 million, equal to $1.95 per share, compared with a net loss of $2.0 million, or 18 cents per share, in the corresponding quarter of 1999. Revenues for the quarter were $24.2 million, compared with $26.9 million in the year earlier period.

David J. Thompson, chairman and chief executive officer, commented: ``In the year 2000, the recurring revenues from our branded games generated more gross profit than the sales of all our other products combined. Revenues from slot operations climbed 144 percent in the past year. In contrast, system sales were down $5.2 million and sales of international operations were down $11 million, $7.6 million of which was caused by de-consolidation of the company's Australian operations arising from the divestiture of a 50% share in the company's Australian subsidiary at the end of 1999.

``Mikohn's branded slot and table games product lines are by far our most profitable and offer the greatest opportunities going forward. Through our strategic repositioning, we are moving aggressively to accelerate growth in these areas and to complete a strategic shift of our business to a recurring revenue model. All of our products have been reviewed in terms of return on investment and growth potential. In view of the current and anticipated demand for our new slot games, it is vitally important that we re-deploy the company's resources from lower return traditional products in order to support the growth of our high-margin slot and table games.''

Mikohn's strategic repositioning includes the following elements:

Defer projects that do not offer the potential of immediate returns

Write-down assets of lower margin products lines

Position business units to divest product lines that are not aligned with the company's current strategic focus

Establish joint ventures with qualified partners to increase profitable growth and spread risk

Consolidate interior sign and electronics manufacturing.

``The strategic repositioning and a staff reduction of 50 people is expected to produce annualized cost savings of at least $4 to $5 million going forward. The staff reduction has already been accomplished.''

According to Thompson, the past year did not meet expectations. He cited soft demand in Europe and Australia; a substantial decrease in the systems business due to the lack of new multi-site slot projects; low profitability in exterior signage reflecting development costs of the new LED unit; flat results in interior signs and electronics with few new casino openings and increased competition; and only slight revenue growth in the highly profitable table games segment.

At the same time, he noted that slot operations continued to be Mikohn's highest growth business unit. Powered by the success of the company's video slot games based on installation during the past year of an additional 1,800 YAHTZEE and BATTLESHIP games, the company's daily revenue from slot operations increased from $15,000 per day to $70,000 per day. At year-end, the company had almost 2,500 games installed, 2,000 of which were YAHTZEE and BATTLESHIP games with contracts for approximately 900 more units in backlog.

``Our original YAHTZEE Video game continues to be a strong performer,'' Thompson emphasized, ``and the BATTLESHIP All Aboard(TM) game gives every indication of being our second hit game.'' He added that Mikohn's pipeline includes a new video slot based on another powerful Hasbro brand - CLUE, plus a video slot for RIPLEY'S BELIEVE IT OR NOT.``

``Our strategic repositioning is focused on accelerating the growth of high-margin, recurring revenues. With our strong new games, solid backlog in leased slots, cost savings and staff reductions from the repositioning, we are optimistic about our opportunities in the coming year.

First quarter results will be affected by software ``bugs'' in the platform used for YAHTZEE and BATTLESHIP games that were substantially corrected by the end of February. While we anticipate modest results in the first quarter, if we add 1,800 video games, the same number added in 2000, and experience no growth in all other areas, we should achieve earnings per share of 40 to 60 cents for full year 2001.``

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