MWY Midway Games

Midway Games Inc. (NYSE: MWY) today announced results of operations for the three month period ended June 30, 2005. The Company also updated its guidance for the year ending December 31, 2005 and provided revenue and earnings guidance for the third quarter ending September 30, 2005. SECOND QUARTER RESULTS Net revenues for the 2005 second quarter were $36.9 million, compared with 2004 second quarter net revenues of $47.3 million. The 2005 second quarter loss applicable to common stock was $29.9 million or a loss of $0.35 per share, compared with a 2004 second quarter loss applicable to common stock of $11.2 million or a loss of $0.17 per share. The second quarter results were below previously provided expectations primarily due to lower-than-forecasted sales of Unreal Championship 2, as well as the writedown of capitalized product development costs for upcoming releases and the need for additional reserves for markdowns. Other recent operating and financial highlights include: -- During the 2005 second quarter, Midway released Area 51 for PlayStation 2, Xbox, and PC, and Unreal Championship 2 for Xbox in North America and Europe. Area 51 was a top 5-selling Xbox game and #6 overall game for the month of May in the U.S. according to NPD Funworld. In addition, in the United Kingdom, Area 51 was in the top 10 for four weeks according to Chart Track; -- Several of Midway's upcoming games shown at this year's E3 industry trade event in Los Angeles received nominations for Game Critics Awards including Best Fighting Game for Mortal Kombat: Shaolin Monks and Best Sports Game for Blitz: The League; -- Also at E3, Midway announced its first next generation title, Stranglehold, which is being developed in collaboration with world-renowned action film director, John Woo, and starring Chow Yun-Fat. In addition, the Company announced Unreal Tournament 2007 for PC, in development at Epic Games, Inc.; -- Midway announced on June 27, 2005, a strategic relationship with MTV, a division of Viacom, Inc., to jointly market three upcoming video game titles, beginning with the release of L.A. RUSH, expected to ship in the 2005 fourth quarter; -- Midway announced this morning an agreement with Warner Bros. Interactive Entertainment for the rights to publish interactive games based on the upcoming computer animated motion picture The Ant Bully. This is the second animated film in partnership with Warner Bros. Interactive Entertainment, along with the previously announced adaptation of Happy Feet; and, -- Midway announced this morning that it had acquired development studio Ratbag Holdings Pty Ltd., based in Australia, expanding the Company's internal product development organization globally. David F. Zucker, president and chief executive officer, commented, "Extending our reputation for producing high-quality frontline titles, Midway's second quarter product releases, Area 51 and Unreal Championship 2, generated an enthusiastic response from critics and the gaming community. Importantly, our upcoming holiday lineup is garnering early positive feedback from reviewers." Mr. Zucker continued, "Our efforts to expand our publishing business through strategic partnerships such as with MTV and Warner Bros. Interactive Entertainment, and to grow our internal product development capabilities through acquisitions and organic growth, demonstrate that Midway's turnaround strategy continues to gain momentum. We are committed to creating high-quality innovative content for this and the next console cycle, and we have assembled excellent internal development teams and global marketing resources to support this goal." OUTLOOK For the quarter ending September 30, 2005, the Company expects net revenues of approximately $30 million, with a net loss of approximately $19 million. During the quarter, Midway expects to release Mortal Kombat: Shaolin Monks for PlayStation 2 and Xbox, Midway Arcade Treasures 3 for PlayStation 2, Xbox, and GameCube, and a compilation of Midway Arcade Treasures 2 and 3 for the PC. Midway also expects to ship The Suffering: Ties that Bind for PlayStation 2, Xbox, and PC at the end of September, 2005, although due to the timing of its shipment at the end of the quarter, the Company expects to recognize the associated revenues in the fourth quarter. During the fourth quarter of 2005, Midway expects to release Gauntlet: Seven Sorrows for PlayStation 2 and Xbox, Blitz: The League for PlayStation 2 and Xbox, Ed, Edd n Eddy: The Mis-Edventures for PlayStation 2, Xbox, GameCube, GameBoy Advance, and PC, and L.A. RUSH for PlayStation 2 and Xbox. In addition, the Company also expects to release its first two PlayStation Portable (PSP) titles: Mortal Kombat: Deception Unchained and Midway Arcade Treasures: Extended Play during the quarter. "We are very excited about our product lineup for the next two quarters as we look to launch a diverse lineup of games that include several key Midway franchises, new family-friendly products and our first-ever PSP titles. We are committed to investing in our internal development resources and recruiting top industry talent, as evidenced by our acquisition of Ratbag, to establish the infrastructure necessary to build scale and succeed in the next generation. In addition, with the expectation of a crowded fourth quarter market for real-time strategy titles, we believe it is prudent to shift Rise & Fall: Civilizations at War to 2006 to benefit from a less competitive release window," added Mr. Zucker. For the year ending December 31, 2005, Midway has revised its revenue expectations in part due to the rescheduling of the release date for Rise & Fall: Civilizations at War to the first quarter of 2006 from the fourth quarter of 2005. As such, for the year ending December 31, 2005, the Company now expects net revenues of approximately $200 million, as compared to the Company's previous estimate of $225 million. Additionally, the Company now expects a net loss of approximately $60 million, an increase from the Company's prior expectation of a net loss of approximately $47 million. 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, Thursday, August 4, 2005. The conference call number is (706) 758-2388; please call five 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.fulldisclosure.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 August 6 at 6:45 p.m. EDT, by dialing 800/633-8284 or 402/977-9140 (international callers). The access code for the replay is 21251505. Additionally, a replay of the call will be available for twelve months on the Internet via www.investor.midway.com. ABOUT MIDWAY Headquartered in Chicago, IL with offices in San Diego, CA, Seattle, WA, Austin, TX, Los Angeles, CA, Munich, Germany, London, UK, and Adelaide, AUS, Midway Games Inc. (NYSE:MWY) is a leading developer and publisher of interactive entertainment software for major video game systems. More information about Midway can be obtained at www.midway.com. This press release contains "forward-looking statements" within the meaning of the federal securities laws 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, the upcoming console platform transition and other technological changes, dependence on major platform manufacturers, adequacy of capital resources and other risks more fully described under "Item 1. Business - Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and in the more recent filings made by the Company with the Securities and Exchange Commission. -0- *T MIDWAY GAMES INC. Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited) Three-Months Ended Six-Months Ended June 30, June 30, ------------------- ------------------- 2005 2004 2005 2004 ------------------- ------------------- Net revenues $36,926 $47,286 $50,741 $67,417 Cost of sales: Product costs and distribution 13,904 17,395 18,970 26,570 Royalties and product development 21,165 13,295 24,695 19,620 --------- --------- --------- --------- Total cost of sales 35,069 30,690 43,665 46,190 --------- --------- --------- --------- Gross profit 1,857 16,596 7,076 21,227 Research and development expense 10,444 8,518 19,410 13,587 Selling and marketing expense 15,779 12,618 23,059 21,696 Administrative expense 4,469 4,425 8,649 8,734 --------- --------- --------- --------- Operating loss (28,835) (8,965) (44,042) (22,790) Interest income 490 257 1,118 355 Interest expense (371) (394) (724) (572) Other income and (expense), net (806) (64) (1,439) (2) --------- --------- --------- --------- Loss before income taxes (29,522) (9,166) (45,087) (23,009) Provision for income taxes 328 328 656 656 --------- --------- --------- --------- Net loss (29,850) (9,494) (45,743) (23,665) Preferred stock dividends: Distributed 63 876 126 1,379 Imputed 1 833 3 1,143 --------- --------- --------- --------- Loss applicable to common stock $(29,914) $(11,203) $(45,872) $(26,187) ========= ========= ========= ========= Basic and diluted loss per share of common stock $(0.35) $(0.17) $(0.53) $(0.43) ========= ========= ========= ========= Average number of shares outstanding 85,941 67,177 85,792 61,503 ========= ========= ========= ========= *T -0- *T MIDWAY GAMES INC. Consolidated Balance Sheets (In thousands) June 30, December 31, 2005 2004 ------------ ------------ (Unaudited) Assets Current assets: Cash and cash equivalents $59,221 $118,313 Receivables, net 13,169 15,724 Inventories 5,495 6,893 Capitalized product development costs 41,131 27,850 Prepaid expenses and other current assets 5,693 6,570 ------------ ------------ Total current assets 124,709 175,350 Capitalized product development costs 1,047 809 Property and equipment, net 19,279 15,470 Goodwill 39,577 39,533 Other assets 11,770 11,155 ------------ ------------ Total assets $196,382 $242,317 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $8,814 $6,673 Accrued compensation and related benefits 2,947 5,183 Accrued royalties 2,186 3,493 Accrued selling and marketing 2,742 3,525 Current portion of long-term debt 3,333 3,333 Other accrued liabilities 11,006 11,249 ------------ ------------ Total current liabilities 31,028 33,456 Long-term debt 8,611 10,278 Deferred income taxes 7,429 6,773 Other noncurrent liabilities 681 340 Redeemable convertible preferred stock, Series D, redeemable at $4,460 4,456 4,453 Stockholders' equity: Common stock 881 879 Additional paid-in capital 393,365 392,177 Accumulated deficit (236,355) (190,612) Accumulated translation adjustment (873) (1,420) Deferred compensation (3,213) (4,379) Treasury stock (9,628) (9,628) ------------ ------------ Total stockholders' equity 144,177 187,017 ------------ ------------ Total liabilities and stockholders' equity $196,382 $242,317 ============ ============ *T -0- *T MIDWAY GAMES INC. Net Revenue by Platform (in thousands) Three-Months Ended June 30, ------------------------ Platform 2005 2004 -------- -------- Sony PlayStation 2 $13,801 37.4% $28,822 61.0% Microsoft Xbox 18,087 49.0% 16,527 34.9% Nintendo Gamecube 210 0.6% 348 0.7% Nintendo Game Boy Advance 174 0.5% 35 0.1% Personal Computer 2,153 5.8% 0 0.0% Royalties and Other 2,501 6.7% 1,554 3.3% -------- -------- Total $36,926 100.0% $47,286 100.0% ======== ======== *T -0- *T MIDWAY GAMES INC. Net Revenue by Geography (in thousands) Three-Months Ended June 30, ------------------------ Region 2005 2004 -------- -------- North America $24,798 67.2% $42,255 89.4% International 12,128 32.8% 5,031 10.6% -------- -------- Total $36,926 100.0% $47,286 100.0% ======== ======== *T