Midway Games Inc. Reports Second Quarter 2002 Results
Posted by Ben on Wednesday, July 31 2002

CHICAGO--(BUSINESS WIRE)--July 31, 2002--Midway Games Inc. (NYSE:MWY) announced today results of operations for the quarter ended June 30, 2002. The Company also provided revenue and earnings guidance for the quarter ending September 30, 2002 and reiterated the Company's previously stated guidance for the year ending December 31, 2002.

RESULTS

For the quarter ended June 30, 2002, revenues were $28.1 million and the pre-tax loss was $10.7 million excluding approximately $16.7 million of preferred stock charges and $0.5 million of charges associated with the consolidation of administrative facilities from Corsicana, Texas. The preferred stock charges for the quarter ended June 30, 2002 include a non-cash dividend of approximately $16.6 million and a cash dividend of approximately $0.1 million. During the quarter, investors converted $42.0 million of preferred stock into common stock accelerating the recognition of imputed preferred stock dividends (i.e. non-cash dividends) that otherwise would have been recognized in subsequent periods. The pro forma loss for the quarter excluding preferred stock and consolidation charges, and including a pro forma tax credit of approximately $4.0 million or $0.09 per share, was approximately $6.7 million or $0.15 per share. The pro forma tax credit is included solely for purposes of comparing our results to the consensus of analyst expectations as reported by First Call and is calculated assuming a 37% tax rate. Including the preferred stock and consolidation charges, Midway had a net loss attributable to common stock of $27.9 million or $0.61 per share in the quarter ended June 30, 2002.

Revenues for the second quarter rose 39% from $20.2 million in the prior year period due to higher sales of home videogame products. Home videogame revenues for the second quarter were $28.1 million, up 78% from approximately $15.7 million in the prior year period. Revenues from the recently exited coin-operated videogame business were immaterial during the second quarter, down from $4.5 million in the prior year period. The pre-tax loss of $10.7 million for the quarter, excluding preferred stock and consolidation charges, compares with a pre-tax loss of $20.8 million in the prior year period, excluding $0.9 million of preferred stock charges and approximately $8.8 million of restructuring and other one-time charges.

During the second quarter, Midway released nine new home videogame products, five for Sony's PlayStation(R)2 computer entertainment system, two for Microsoft's Xbox(TM) video game system, one for the Nintendo GameCube(TM), and one for Nintendo's Game Boy(R) Advance. Midway's top-selling games during the quarter included MLB SlugFest 20-03 and Legion: Legend of Excalibur for the PlayStation2, and Gauntlet: Dark Legacy for the Xbox.

Revenues for the six months ended June 30, 2002 were $59.1 million, up 34% from $43.9 million in the prior year period. Home videogame revenues for the six-month period were approximately $58.4 million, up 109% from $27.9 million in the prior year period. Revenues from the recently exited coin-operated videogame business were $0.7 million during the six-month period, down from approximately $16.0 million in the prior year period. The pre-tax loss for the six months ended June 30, 2002 was $15.8 million excluding approximately $19.3 million of preferred stock charges and $1.8 million of charges associated with the consolidation of administrative facilities, compared with a pre-tax loss of $43.0 million, excluding $0.9 million of preferred stock charges and $12.5 million of restructuring and other one-time charges, in the prior year period. The preferred stock charges for the six-month period include a non-cash dividend of approximately $18.6 million and a cash dividend of approximately $0.7 million. Including the preferred stock and consolidation charges, Midway had a net loss attributable to common stock of $36.9 million or $0.82 per share in the six months ended June 30, 2002.

GUIDANCE

For the quarter ending September 30, 2002, Midway expects to ship ten new home videogame products and anticipates net sales of between $50.0 million and $55.0 million. Midway expects a pre-tax loss of between $5.0 million and $7.0 million in the quarter ending September 30, 2002 prior to estimated preferred stock charges of approximately $0.3 million and excluding charges associated with the consolidation of administrative facilities estimated to be between $0.2 million and $0.4 million.

For the year ending December 31, 2002, Midway reiterates the previously stated guidance of net sales between $295.0 million and $310.0 million. The Company also reiterates previously stated guidance for pre-tax income between $25.0 million and $33.0 million for the full year, prior to estimated preferred stock charges of $19.8 million and excluding charges associated with the consolidation of administrative facilities estimated to be between $2.0 million and $2.2 million. The estimated preferred stock charges for the year include a non-cash dividend of approximately $18.9 million and a cash dividend of approximately $0.9 million. Due to net operating loss carry forwards, the Company does not anticipate incurring income tax expense in 2002.

Midway expects to ship 29 new home videogame products during the remaining two quarters of 2002 across multiple platforms and genres. The Company believes these products comprise the strongest home videogame lineup in Midway's history and that these products will produce record home videogame revenues in 2002. Following is an updated preliminary release schedule for the remainder of 2002: -0-

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Quarter

Ending(1) PlayStation 2 GameCube
--------- -------------- -----------------
9/30/02 NFL Blitz 20-03 MLB SlugFest 20-03
NHL Hitz 20-03 NFL Blitz 20-03
NHL Hitz 20-03


Game Boy
Xbox Advance
------------------- ------------------
Gravity Games Bike: NFL Blitz 20-03
Street. Vert. Dirt.

MLB SlugFest 20-03
NFL Blitz 20-03
NHL Hitz 20-03



Quarter
Ending(1) PlayStation 2 GameCube
--------- -------------- -----------------
12/31/02 Defender Defender
Dr. Muto Fireblade
Freaky Flyers Mortal Kombat:

Haven: Call of Deadly Alliance
the King
Mortal Kombat:
Deadly Alliance


Game Boy
Xbox Advance
------------------- ------------------
Defender Defender
Dr. Muto Gauntlet: Dark Legacy
Fireblade Justice League
Freaky Flyers MLB SlugFest 20-03
Mortal Kombat: Mortal Kombat:
Deadly Alliance Deadly Alliance
NHL Hitz 20-03


(1) Subject to Change - Release Dates Approximate - Expectations
as of 7/31/02
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CONFERENCE CALL


Midway Games Inc. is hosting a conference call and simultaneous webcast open to the general public at 4:45 p.m. EDT today, Wednesday, July 31, 2002. The conference call number is 212/896-6092 or 415/537-1889; please call five minutes in advance to ensure that you are connected prior to the presentation. Questions and answers will be reserved for call-in analysts and investors. Interested parties may also access the live call on the Internet at www.investor.midway.com or at www.companyboardroom.com. Please log-on fifteen minutes in advance to ensure that you are connected prior to the call's initiation. Following its completion, a replay of the call will be available for thirty days on the Internet via www.investor.midway.com or www.companyboardroom.com.

Midway Games Inc. is a leading developer and publisher of interactive entertainment software. Midway videogames are available for play on all major videogame platforms including the PlayStation(R)2 computer entertainment system, Xbox(TM) video game system from Microsoft, and Nintendo GameCube(TM) and Game Boy(R) Advance.

This press release contains forward-looking statements concerning future business conditions and the outlook for Midway Games Inc. (the "Company") based on currently available information that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in the forward-looking statements as a result of these risks and uncertainties, including, without limitation, the financial strength of the interactive entertainment industry, dependence on new product introductions and the ability to maintain the scheduling of such introductions, technological changes, dependence on major platform manufacturers and other risks more fully described under "Item 1. Business - Risk Factors" in the Company's current Transition Report on Form 10-K and the other filings made by the Company with the Securities and Exchange Commission. -0-

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MIDWAY GAMES INC.
Condensed Consolidated Statement of Operations
(in thousands, except per share amounts)
(Unaudited)

Three-Months Ended
June 30,
-----------------------
2002 2001(1)
------- -------
Revenues:
Home video $28,073 $15,750
Coin-operated video - 4,465
------- -------
Total revenues 28,073 20,215

Cost of sales:
Home video
-product costs and distribution 10,853 7,994

Home video
-royalties and product development 11,930 3,612
------- -------
Home video -total cost of sales 22,783 11,606
Coin-operated video - 4,362(5)
------- -------
Total cost of sales 22,783 15,968
------- -------
Gross profit 5,290 4,247

Research and development expense 6,658 15,732
Selling and marketing expense 5,845(2) 5,648
Administrative expense 5,030(2)(3) 7,506(3)(5)
Restructuring expense - 5,503(5)
------- -------
Operating loss (12,243) (30,142)
Other income and expense, net 1,021 477
------- -------
Loss before income taxes (11,222) (29,665)
Income taxes - -

------- -------
Net Loss (11,222) (29,665)
Preferred stock dividend:
Distributed 356 184
Imputed 16,341 672
-------- --------
Loss applicable to common stock $(27,919) $(30,521)
======== ========
Basic and diluted loss
per share of common stock $ (0.61) $ (0.81)
======== ========
Average number
of shares outstanding 45,663 37,734
======== ========



Six-Months Ended

June 30,

------------------------

2002 2001(1)

-------- -------

Revenues:

Home video $58,338 $27,888

Coin-operated video 742 16,050

-------- -------

Total revenues 59,080 43,938



Cost of sales:

Home video

-product costs and distribution 21,111 14,111



Home video

-royalties and product development 19,990 7,556

-------- --------

Home video -total cost of sales 41,101 21,667

Coin-operated video 434 16,738(5)

-------- --------

Total cost of sales 41,535 38,405

-------- --------

Gross profit 17,545 5,533



Research and development expense 12,193 30,599

Selling and marketing expense 11,960 (2) 11,591

Administrative expense 11,314(2)(3) 13,036(3)(5)

Restructuring expense 1,210(4) 6,846(5)

------- --------
Operating loss (19,132) (56,539)

Other income and expense, net 1,501 1,022

------- --------
Loss before income taxes (17,631) (55,517)

Income taxes - -

------- --------
Net Loss (17,631) (55,517)

Preferred stock dividend:

Distributed 887 184

Imputed 18,334 672

-------- --------
Loss applicable to common stock $(36,852) $(56,373)

======== ========
Basic and diluted loss

per share of common stock $ (0.82) $ (1.49)

======= ========
Average number

of shares outstanding 44,675 37,726

======= ========



(1) Certain 2001 amounts have been reclassified to reflect current
period presentation.

(2) The Company incurred one-time charges of $507,000 and $630,000
during the three and six months ended June 30, 2002 relating
to the closing of administrative facilities located in
Corsicana, TX. The administrative operations will be
consolidated with existing operations in Chicago, IL and
Milpitas, CA.

(3) Administrative expense includes $980,000 and $1,961,000 of
amortization of goodwill for the three and six months ended
June 30, 2001 and none for the three and six months ended June
30, 2002 in accordance with the adoption of Statement of
Financial Accounting Standards Number 142, Goodwill and Other
Intangible Assets.

(4) The Company incurred a restructuring charge of $1,210,000
during the six months ended June 30, 2002 relating to the
closing of administrative facilities located in Corsicana, TX.
The administrative operations will be consolidated with
existing operations in Chicago, IL and Milpitas, CA.

(5) The company incurred restructuring charges and other one-time
charges during the three months and six months ended June 30,
2001 relating to the downsizing of the coin-operated videogame
business. The three months ended June 30, 2001 charges
consisted of $5,503,000 of restructuring charges, $965,000 of
one-time administrative charges and $2,420,000 related
primarily to the write-off of coin-operated video inventory.
The six months ended June 30, 2001 charges consisted of
$6,846,000 of restructuring charges, $965,000 of one-time
administrative charges and $4,716,000 related primarily to the
write-off of coin-operated video inventory.


MIDWAY GAMES INC.
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)


June 30, 2002 December 31, 2001
---------------- -----------------
Assets
Cash $ 58,070 $ 86,882
Short-term investments 36,000 41,000
Receivables, net 22,667 23,572
Income tax receivable 863 863
Inventories 5,306 2,203
Capitalized product
development costs 34,727 17,664
Other current assets 5,315 2,819
---------------- -----------------
Total current assets 162,948 175,003

Capitalized product
development costs 4,779 2,309
Property and equipment, net 20,755 19,559
Deferred income taxes 16,761 13,720
Goodwill, net 33,464 33,464
Other assets 2,583 2,350
---------------- -----------------
Total assets $ 241,290 $ 246,405
================ =================

Liabilities and Stockholders' Equity
Accounts payable $ 5,092 $ 5,462
Accrued compensation
and related benefits 3,760 3,493
Deferred income taxes 9,610 2,377
Accrued royalties 7,901 3,752
Other accrued liabilities 11,064 13,034
---------------- -----------------
Total current liabilities 37,427 28,118

Deferred income taxes 5,908 -
Other noncurrent liabilities 4,295 1,755

Redeemable convertible
preferred stock,
redeemable at $13,125
and $55,125 12,269 35,949
Stockholders equity:
Common stock 494 448
Additional paid-in capital 221,436 197,999
Accumulated deficit (19,249) (1,617)
Translation adjustment (261) (144)
Treasury stock (21,029) (16,103)
---------------- -----------------
Total stockholders' equity 181,391 180,583
---------------- -----------------
Total liabilities and
stockholders' equity $ 241,290 $ 246,405
===================================





MIDWAY GAMES INC.
Supplemental Quarterly Data

Home Videogame Releases
Three Months Ended June 30, 2002
--------------------------------

Title Platform
------ --------
Fireblade Sony PlayStation 2
Gravity Games Bike:
Street. Vert. Dirt. Sony PlayStation 2
Legion: Legend of Excalibur Sony PlayStation 2
MLB SlugFest 20-03 Sony PlayStation 2
Red Card Soccer Sony PlayStation 2
Gauntlet: Dark Legacy Microsoft Xbox
Red Card Soccer Microsoft Xbox
Red Card Soccer Nintendo GameCube
SpyHunter GameBoy Advance



Revenue by Platform
(in thousands)
Three Months Ended June 30,
Platform 2002 2001
------------------- --------- -----------
Sony PlayStation 2 $ 17,699 $ 9,672
Microsoft Xbox 5,497 0
Nintendo GameCube 2,690 0
Game Boy Advance 1,301 4,036
Sony PlayStation 814 1,189
Sega Dreamcast 0 974
Nintendo 64 0 1,286
Coin-Op and Other 72 3,058
-------- --------
Total Revenue $ 28,073 $ 20,215
======== ========
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--30--mj/ny*