EX-99.1 2 c47580exv99w1.htm EX-99.1: PRESS RELEASE EX-99.1
EXHIBIT 99.1
(MIDWAY LOGO)
FOR IMMEDIATE RELEASE
CONTACT:
Geoffrey Mogilner
Midway Games Inc.
(773) 961-2222
gmogilner@midway.com
MIDWAY REPORTS 2008 Q3 RESULTS
Chicago, Illinois, November 10, 2008 — Midway Games Inc. (NYSE: MWY) today announced results of operations for the three month period ended September 30, 2008. The Company also provided revenue and earnings guidance for the fourth quarter and full year ending December 31, 2008.
THIRD QUARTER RESULTS
Net revenues for the 2008 third quarter were $51.4 million, compared to the 2007 third quarter net revenues of $36.7 million and in line with prior guidance of approximately $52 million. The 2008 third quarter net loss was $75.9 million, or a loss of $0.83 per basic and diluted share, compared with a 2007 third quarter net loss of $33.5 million, or a loss of $0.37 per basic and diluted share, and below the Company’s revised guidance of a loss of $0.70, primarily due to additional amortization and writedowns of capitalized product development costs.
On a non-GAAP basis, excluding the impact of stock option expense and other non-cash items, the 2008 third quarter loss was $66.3 million or a loss of $0.72 per basic and diluted share, below the Company’s revised non-GAAP guidance of a loss of $0.60. For the 2007 third quarter, on a non-GAAP basis, the Company reported a loss of $28.0 million, or a loss of $0.31 per basic and diluted share. A reconciliation of non-GAAP results to GAAP results is provided at the end of this press release.
“In the second and third quarters of 2008 we have focused on addressing several critical issues that were affecting the ability of our company to achieve success, and the third quarter results and associated non-cash charges reflect that effort,” said Matt Booty, president and CEO. “Our current focus is the upcoming launch of Mortal Kombat vs. DC Universe, which aligns our Company with the exceptional Warner Bros. brand of DC Comics. We expect that the fourth quarter will represent significant progress toward completion of these efforts, and that we will enter 2009 with a renewed focus on Midway’s key strengths.”
OPERATING HIGHLIGHTS
During the third quarter, Midway executed on several operational milestones, including the combination of its Southern California studios, the optimization of its Austin facility and cancellation of an associated unannounced game, and the entrance into a receivables factoring agreement to offset the costs related to manufacturing its fall game releases. These operational milestones, combined with the Company’s favorable exit from underperforming licenses early in the fourth quarter, are designed to ensure successful launches, minimize costs, and focus resources on Midway’s strongest licenses, core game franchises such as Mortal Kombat, TNA iMPACT! and Wheelman, as well as future licenses and new IP.

 

 

Other recent operating highlights include:
•   During the third quarter, Midway released three well-received games: TNA iMPACT! for Xbox 360, PS3, PS2, and Wii worldwide, and in North America Unreal Tournament III for Xbox 360 and Mortal Kombat: Kollection for the PS2.
•   In August, Midway’s expansive line-up for this holiday season and beyond was received very positively at Games Convention 2008 in Leipzig, Germany, with more than 200,000 consumers and press in attendance.
•   In October, Midway launched Blitz: The League II, with significant media support from the game’s cover athlete, Lawrence Taylor.
•   On October 30, 2008, Midway announced that Matthew V. Booty was appointed by the Board of Directors as President and CEO of the company, and on November 5, 2008, Midway announced that Ryan G. O’Desky has been named CFO and Senior Vice President — Finance.
“During the quarter we executed on a series of strategic and financial moves that reinforce our commitment to developing games that meet clear profitability and scheduling goals. While some of those steps negatively impacted earnings, they were necessary to ensure we are better positioned for long-term success,” noted Matt Booty, president and CEO. “More importantly, we launched three high quality games, and completed the final touches on our highly anticipated fourth quarter releases.”
OUTLOOK
During the fourth quarter, the Company has already released worldwide Blitz: The League II for PS3 and Xbox 360, Game Party 2 for the Wii, and Touchmaster II and Mechanic Master for Nintendo DS. Midway also announced that it expects its flagship game Mortal Kombat vs. DC Universe for Xbox 360 and PS3 to be available in stores on November 16th in North America and November 21st in Europe. For the fourth quarter ending December 31, 2008, Midway expects the following:
  •   Net revenues of approximately $105 million, with net loss of approximately $0.20 per basic and diluted share.
 
  •   On a non-GAAP basis, Midway expects a fourth quarter loss of approximately $0.07 per basic and diluted share, which excludes approximately $0.13 of stock option expense, non-cash convertible debt interest expense, and deferred income tax expense related to goodwill.
For the full year ending December 31, 2008, Midway expects the following:
  •   Net revenues of approximately $210 million, with a net loss of approximately $1.78 per basic and diluted share.
 
  •   On a non-GAAP basis, Midway expects a full year loss of approximately $1.37 per basic and diluted share, which excludes approximately $0.41 of stock option expense, non-cash convertible debt interest expense, and deferred income tax expense related to goodwill.
NON-GAAP FINANCIAL MEASURES
Midway has included non-GAAP financial measures in its quarterly results and 2008 fourth quarter and full year outlook. Midway does not intend for the presentation of the non-GAAP financial measures to be isolated from, a substitute for, or superior to the information that has been presented in accordance with

 

 

GAAP. In addition, information used in the non-GAAP financial measures may be presented differently from non-GAAP financial measures used by other companies. The non-GAAP financial measures used by Midway include non-GAAP basic and diluted loss per share.
Midway considers the non-GAAP financial measures used herein, when used together with the corresponding GAAP measures, to be helpful in providing meaningful additional information regarding its performance by excluding specific items that may not be indicative of Midway’s core business or projected operating results. These non-GAAP financial measures exclude the following items:
Stock Option Expense. Midway adopted SFAS No. 123R, “Share-Based Payment” beginning January 1, 2006, in which it began to recognize as an expense the fair value of its stock options. A non-GAAP measurement that excludes stock option expense identifies this component of compensation expense that does not require a cash outlay.
Non-cash convertible debt interest expense. In accordance with GAAP, Midway is required to record discounts on its convertible senior notes as a result of decreases in the conversion prices of these notes. These amounts are amortized as interest expense through the first date on which the holders may redeem the notes. There is no cash outlay associated with this interest expense. A non-GAAP measurement that excludes the convertible debt non-cash interest expense allows for a more direct comparison to prior periods, and also distinguishes this interest expense from the remainder of the interest expense, which requires (or required) a cash outlay by Midway.
Deferred tax expense related to goodwill. Midway recognizes deferred tax expense related to increases in the difference between the book basis and tax basis of goodwill. Goodwill is not amortized for book purposes but is amortized for tax purposes. This increase in the book to tax basis difference causes an increase in the related deferred tax liability balance that cannot be offset against deferred tax assets. Given the nature of this deferred tax expense, a non-GAAP measurement that excludes this expense is deemed appropriate.
In the future, Midway may consider whether other significant items should be excluded when arriving at non-GAAP measures of financial performance.
CONFERENCE CALL
Midway Games Inc. is hosting a conference call and simultaneous webcast open to the general public at 4:30 P.M. EST today, Monday, November 10, 2008. The conference call number is (866) 271-0675 or (617) 213-8892 (international callers). The passcode for the call is 23581791. Please call ten minutes in advance to ensure that you are connected prior to the presentation. Interested parties may also access the live call on the Internet at www.investor.midway.com or at www.earnings.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 can be accessed until November 17 by dialing (888) 286-8010 or (617) 801-6888 (international callers). The passcode for the replay is 37635497. Additionally, a replay of the call will be available for twelve months on the Internet via www.investor.midway.com.

 

 

ABOUT MIDWAY
Midway Games Inc. (NYSE:MWY), headquartered in Chicago, Illinois, with offices throughout the world, is a leading developer and publisher of interactive entertainment software for major video game systems and personal computers. More information about Midway and its products can be found at www.midway.com.
FORWARD-LOOKING STATEMENTS
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 concerning future business conditions and the outlook for Midway Games Inc. (the “Company”) based on currently available information that involves 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 performance of the interactive entertainment industry, dependence on new product introductions and the ability to maintain the scheduling of such introductions, decisions by Sumner Redstone or his affiliates with respect to his ownership or trading of our common stock and other risks more fully described under “Item 1A. Business — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and in any more recent filings made by the Company with the Securities and Exchange Commission. Each forward-looking statement, including, without limitation, financial guidance, speaks only as of the date on which it is made, and Midway undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances, except as required by law.
— tables follow —

 

 

page 5
Midway Games Inc., 11/10/08
MIDWAY GAMES INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
Net revenues
   $ 51,359     $ 36,747     $ 104,711     $ 79,618  
 
                                
Cost of sales:
                                
Product costs and distribution
     20,554       13,472       46,398       31,141  
Royalties and product development
     50,072       24,196       80,703       36,643  
 
                        
Total cost of sales
     70,626       37,668       127,101       67,784  
 
                        
Gross profit (loss)
     (19,267 )     (921 )     (22,390 )     11,834  
 
                                
Research and development expense
     9,244       6,245       22,055       20,250  
Selling and marketing expense
     15,282       14,173       33,894       29,174  
Administrative expense
     5,181       5,000       16,976       15,936  
Other charges
     11,661       —       11,661       (783 )
 
                        
Operating loss
     (60,385 )     (26,339 )     (106,726 )     (52,743 )
Interest income
     81       498       340       2,075  
Interest expense
     (13,256 )     (8,429 )     (35,494 )     (17,600 )
Other income (expense), net
     (2,129 )     1,160       (1,353 )     2,003  
 
                        
Loss before income taxes
     (75,689 )     (33,110 )     (143,233 )     (66,265 )
Provision for income taxes
     256       417       1,509       1,381  
 
                        
Net loss
   $ (75,945 )   $ (33,527 )   $ (144,742 )   $ (67,646 )
 
                        
 
                                
Loss per share of common stock:
                                
Basic and diluted
   $ (0.83 )   $ (0.37 )   $ (1.58 )   $ (0.74 )
 
                        
 
                                
Weighted average number of shares outstanding:
                                
Basic and diluted
     91,641       91,180       91,554       91,095  
 
                        
— balance sheet follows —

 

 

page 6
Midway Games Inc., 11/10/08
MIDWAY GAMES INC.
Consolidated Balance Sheets
(In thousands)
                 
    September 30,     December 31,  
    2008     2007  
    (unaudited)          
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 10,353     $ 27,524  
Restricted cash
     231       —  
Receivables, net
     21,644       44,527  
Inventories
     8,586       3,772  
Capitalized product development costs
     48,628       51,252  
Prepaid expenses and other current assets
     17,843       13,362  
 
            
Total current assets
     107,285       140,437  
Restricted cash
     888       —  
Assets held for sale
     2,793       —  
Capitalized product development costs
     60       2,947  
Property and equipment, net
     10,937       19,298  
Goodwill
     41,109       41,307  
Other assets
     4,451       9,372  
 
            
Total assets
   $ 167,523     $ 213,361  
 
            
 
                
Liabilities and Stockholders’ Equity (Deficit)
                
Current liabilities:
                
Accounts payable
   $ 22,360     $ 29,642  
Accrued compensation and related benefits
     6,512       6,134  
Accrued royalties
     21,213       12,769  
Accrued selling and marketing
     4,041       5,645  
Deferred revenue
     3,421       2,940  
Current portion of long-term debt
     59,975       —  
Convertible senior notes, less unamortized discount
     55,794       —  
Other accrued liabilities
     15,890       14,190  
 
            
Total current liabilities
     189,206       71,320  
 
                
Convertible senior notes, less unamortized discount
     50,639       82,198  
Long-term debt
     28,952       19,167  
Deferred income taxes
     11,700       10,715  
Other noncurrent liabilities
     536       880  
 
                
Stockholders’ equity (deficit):
                
Common stock
     935       933  
Additional paid-in capital
     522,337       521,031  
Accumulated deficit
     (625,215 )     (480,474 )
Accumulated translation adjustment
     (1,784 )     (2,629 )
Treasury stock
     (9,783 )     (9,780 )
 
            
Total stockholders’ equity (deficit)
     (113,510 )     29,081  
 
            
Total liabilities and stockholders’ equity (deficit)
   $ 167,523     $ 213,361  
 
            
— supplemental data follows —

 

 

page 7
Midway Games Inc., 11/10/08
MIDWAY GAMES INC.
Consolidated Non-GAAP Operating Results
(In thousands, except per share amounts)
(unaudited)
The following table reconciles Midway’s net loss and basic and diluted loss per share as presented in its Consolidated Statements of Operations as prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America with its non-GAAP loss and non-GAAP basic and diluted loss per share. Midway’s non-GAAP loss and non-GAAP basic and diluted loss per share exclude stock option expense, convertible debt non-cash interest expense, and deferred tax expense related to goodwill.
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
Net loss
   $ (75,945 )   $ (33,527 )   $ (144,742 )     (67,646 )
 
                                
Stock option expense (1)
     234       175       515       1,343  
Convertible debt non-cash interest expense
     9,104       4,999       24,235       8,004  
Deferred tax expense related to goodwill
     329       329       985       985  
 
                        
 
                                
Non-GAAP loss
   $ (66,278 )   $ (28,024 )   $ (119,007 )   $ (57,314 )
 
                        
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2008     2007     2008     2007  
Basic and diluted loss per share of common stock
     (0.83 )     (0.37 )   $ (1.58 )   $ (0.74 )
 
                                
Stock option expense (1)
     0.00       0.00       0.01       0.01  
Convertible debt non-cash interest expense
     0.10       0.06       0.26       0.09  
Deferred tax expense related to goodwill
     0.01       0.00       0.01       0.01  
 
                        
 
                                
Non-GAAP basic and diluted loss per share of common stock
   $ (0.72 )   $ (0.31 )   $ (1.30 )   $ (0.63 )
 
                        
 
(1)   Excludes stock option costs capitalized as product development costs.

 

 

page 8
Midway Games Inc., 11/10/08
MIDWAY GAMES INC.
Net Revenues by Platform
(in thousands)
                                 
    Three Months        
    Ended September 30,        
    2008             2007          
Sony PlayStation 3
   $ 7,870       15.3 %   $ —       0.0 %
Microsoft Xbox 360
     19,005       37.0 %     25,655       69.8 %
Nintendo Wii
     9,794       19.1 %     2,137       5.8 %
Sony PlayStation 2
     8,023       15.6 %     1,946       5.3 %
Microsoft Xbox
     (38 )     (0.1 )%     (55 )     (0.1 )%
Nintendo Gamecube
     (1 )     0.0 %     103       0.3 %
Sony PlayStation Portable
     579       1.1 %     1,239       3.4 %
Nintendo Dual Screen
     2,264       4.4 %     1,806       4.9 %
Nintendo Game Boy Advance
     4       0.0 %     164       0.4 %
Personal Computer
     1,310       2.6 %     3,729       10.1 %
Royalties and other
     2,549       5.0 %     23       0.1 %
 
                            
 
                                
Total
   $ 51,359       100.0 %   $ 36,747       100.0 %
 
                            
                                 
    Nine Months        
    Ended September 30,        
    2008             2007          
Sony PlayStation 3
   $ 23,997       22.9 %   $ —       0.0 %
Microsoft Xbox 360
     25,201       24.1 %     33,544       42.1 %
Nintendo Wii
     29,288       28.0 %     10,128       12.7 %
Sony PlayStation 2
     10,532       10.1 %     8,971       11.3 %
Microsoft Xbox
     (13 )     0.0 %     730       0.9 %
Nintendo Gamecube
     (9 )     0.0 %     841       1.1 %
Sony PlayStation Portable
     2,153       2.0 %     2,779       3.5 %
Nintendo Dual Screen
     6,732       6.4 %     5,342       6.7 %
Nintendo Game Boy Advance
     26       0.0 %     1,403       1.8 %
Personal Computer
     1,362       1.3 %     13,865       17.4 %
Royalties and other
     5,442       5.2 %     2,015       2.5 %
 
                            
 
                                
Total
   $ 104,711       100.0 %   $ 79,618       100.0 %
 
                            

 

 

page 9
Midway Games Inc., 11/10/08
MIDWAY GAMES INC.
Net Revenues by Geography
(in thousands)
                                 
    Three Months        
    Ended September 30,        
    2008             2007          
North America
   $ 36,146       70.4 %   $ 18,814       51.2 %
International
     15,213       29.6 %     17,933       48.8 %
 
                            
 
                                
Total
   $ 51,359       100.0 %   $ 36,747       100.0 %
 
                            
                                 
    Nine Months        
    Ended September 30,        
    2008             2007          
North America
   $ 58,606       56.0 %   $ 48,792       61.3 %
International
     46,105       44.0 %     30,826       38.7 %
 
                            
 
                                
Total
   $ 104,711       100.0 %   $ 79,618       100.0 %
 
                            
# # #