<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
------------------------------------------------
Commission file number 001-12367
----------
MIDWAY GAMES INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
Delaware 22-2906244
- --------------------------------------------------------------------------------------------------------------
<S> <C>
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
3401 North California Ave., Chicago, IL 60618
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (773) 961-2222
-----------------------------
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by |X| whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 37,802,000 shares of common
stock, $.01 par value, were outstanding at February 5, 1999 after deducting
698,000 shares held as treasury shares.
<PAGE> 2
MIDWAY GAMES INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO
PART I. FINANCIAL INFORMATION:
<S> <C> <C>
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Income -
Three and six months ended December 31, 1998 and 1997................ 2
Condensed Consolidated Balance Sheets -
December 31, 1998 and June 30, 1998.................................. 3-4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1998 and 1997.......................... 5
Notes to Condensed Consolidated Financial Statements................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 7-10
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings.................................................... 11
ITEM 6. Exhibits and Reports on Form 8-K..................................... 11
SIGNATURE ..................................................................... 12
</TABLE>
<PAGE> 3
PART I-FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS
MIDWAY GAMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------ ----------------------------
1998 1997 1998 1997
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES
Home video.............................................. $ 89,112 $ 76,997 $ 158,802 $ 117,056
Coin-operated video..................................... 36,549 48,060 56,198 81,741
---------- ---------- ----------- ------------
Total revenues.............................................. 125,661 125,057 215,000 198,797
Cost of sales............................................... 65,678 61,357 105,790 99,986
---------- ---------- ----------- ------------
Gross profit................................................ 59,983 63,700 109,210 98,811
Research and development expense............................ 22,458 17,952 38,206 32,075
Selling expense............................................. 14,943 11,693 28,402 17,841
Administrative expense...................................... 5,594 4,963 10,111 9,001
---------- ---------- ----------- ------------
Operating income............................................ 16,988 29,092 32,491 39,894
Interest and other income................................... 317 557 690 1,424
---------- ---------- ----------- ------------
Income before tax provision................................. 17,305 29,649 33,181 41,318
Provision for income taxes.................................. (6,615) (11,267) (12,684) (15,701)
========== ========== =========== ============
Net income.................................................. $ 10,690 $ 18,382 $ 20,497 $ 25,617
========== ========== =========== ============
Net income per share of common stock - basic and diluted.... $ 0.29 $ 0.48 $ 0.55 $ 0.67
========== ========== =========== ============
Weighted average shares outstanding......................... 37,145 38,500 37,397 38,500
========== ========== =========== ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
MIDWAY GAMES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................$ 28,325 $ 26,136
Short-term investments...................................................... -- 12,000
--------- ---------
28,325 38,136
Receivables, less allowances of $9,647 and $7,017........................... 91,788 86,198
Inventories, at lower of cost (Fifo) or market:
Raw materials and work in progress....................................... 14,002 9,441
Finished goods........................................................... 19,306 13,838
--------- ---------
33,308 23,279
Deferred income taxes....................................................... 5,747 4,966
Other current assets........................................................ 11,220 9,607
--------- ---------
Total current assets..................................................... 170,388 162,186
Property and equipment.......................................................... 24,830 21,830
Less: accumulated depreciation................................................. (14,615) (12,210)
--------- ---------
10,215 9,620
Excess of purchase cost over amount assigned to net assets acquired, net of
accumulated amortization of $10,732 and $8,772............................. 43,268 45,228
Other assets.................................................................... 11,692 10,389
========= =========
$ 235,563 $ 227,423
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
MIDWAY GAMES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................................................ $ 16,907 $ 18,358
Accrued compensation and related benefits................................... 8,140 8,776
Income taxes payable........................................................ 904 2,580
Accrued royalties........................................................... 5,554 4,191
Other accrued liabilities................................................... 12,895 9,995
------------ -------------
Total current liabilities................................................ 44,400 43,900
Deferred income taxes........................................................... 4,434 4,434
Other noncurrent liabilities.................................................... 2,431 2,440
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued -- --
Common stock, $.01 par value, 100,000,000 shares authorized, 38,500,000
shares issued ........................................................... 385 385
Additional paid-in capital.................................................. 98,488 98,488
Retained earnings........................................................... 104,514 84,017
------------ -------------
203,387 182,890
Treasury Stock, at cost (1,448,000 and 463,200 shares)...................... (19,089) (6,241)
------------ -------------
Total stockholders' equity............................................... 184,298 176,649
============ =============
$ 235,563 $ 227,423
============ =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
MIDWAY GAMES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
December 31,
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income...................................................................... $ 20,497 $ 25,617
Adjustments to reconcile net income to net cash (used) provided by operating
activities:
Depreciation and amortization............................................ 5,527 4,088
Receivables provision.................................................... 9,271 6,636
Deferred income taxes.................................................... (781) (1,037)
Decrease resulting from changes in operating assets and liabilities...... (28,477) (47,904)
---------- ---------
Net cash provided (used) by operating activities................................ 6,037 (12,600)
INVESTING ACTIVITIES:
Purchase of property and equipment.............................................. (3,000) (2,507)
Net change in short-term investments............................................ 12,000 1,000
---------- ---------
Net cash provided (used) by investing activities................................ 9,000 (1,507)
FINANCING ACTIVITIES:
Purchase of treasury stock...................................................... (12,848) --
---------- ---------
Net cash (used) by financing activities......................................... (12,848) --
---------- ---------
(Decrease) increase in cash and cash equivalents................................ 2,189 (14,107)
Cash and cash equivalents at beginning of period................................ 26,136 51,862
---------- ---------
Cash and cash equivalents at end of period...................................... $ 28,325 $ 37,755
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 7
MIDWAY GAMES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information, the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Due to the seasonality of the Company's businesses, operating
results for the quarter and six months ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998.
2. TRANSACTIONS WITH WMS INDUSTRIES INC. PRIOR TO THE APRIL 6, 1998
SPIN-OFF
The condensed consolidated income statement for the quarter and six
months ended December 31, 1997 includes transfers and allocations of
costs and expenses from WMS Industries Inc. (WMS) or other WMS
subsidiaries primarily for activities relating to the Midway
coin-operated video games business. Cost of sales includes material,
labor and labor fringes transferred from the other WMS subsidiaries at
cost based on the standard cost of material adjusted to estimated
actual using engineered bills of material and actual labor with
standard labor fringes applied. Cost of sales also includes allocations
of manufacturing overhead cost incurred in the production of
coin-operated video games for Midway. Research and development expenses
includes allocations for certain shared facilities and personnel.
Selling and administrative expenses includes certain allocations
relating to general management, treasury, accounting, human resources,
insurance and selling and marketing. These allocations were determined
by using various factors such as dollar amount of sales, number of
personnel, square feet of building space, estimates of time spent to
provide services and other appropriate costing measures. In the opinion
of management these transfers of cost of sales and allocations were
made on a reasonable basis to properly reflect the share of costs
incurred by WMS on behalf of the Company.
The income statement for the quarter and six months ended December 31,
1997 may not necessarily be representative of results that would have
been attained if the Company operated as a separate independent entity.
The Company has been charged for the specific production costs,
excluding manufacturing overhead, of the coin-operated video games
produced by a subsidiary of WMS that totaled $24,348,000 in the quarter
and $41,525,000 in the six months ended December 31, 1997. In addition,
certain other costs have been allocated to the Company based on various
factors noted above. Charges to the Company from WMS and WMS
subsidiaries for the allocations in the quarter and six months ended
December 31, 1997 were (in thousands):
<TABLE>
<CAPTION>
Three Six
Months Months
------ ------
<S> <C> <C>
Manufacturing overhead $2,036 $3,375
Research and development expense 148 319
Selling expense 466 916
Administrative expense 567 1,092
</TABLE>
3. LITIGATION
See item 1 of part II for the status of litigation.
6
<PAGE> 8
MIDWAY GAMES INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report on Form 10-Q contains certain forward looking statements
concerning future business conditions and the outlook for 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 certain risks and uncertainties,
including, without limitation, the financial strength of the amusement games
industry, dependence on new product introductions and the ability to maintain
the scheduling of such introductions, technological changes, dependence on
dedicated platform manufacturers and other risks more fully described under
"Risk Factors Affecting Future Performance" in the Company's prospectus filed
with its registration statement on form S-8 on December 4, 1998 (File
333-68373).
FINANCIAL CONDITION
During the six months ended December 31, 1998 cash provided by operating,
investing and financing activities was $2,189,000 compared with cash used of
$14,107,000 in the six months ended December 31, 1997.
Cash provided by operating activities before changes in operating assets and
liabilities was $34,514,000 in the six months ended December 31, 1998 compared
to $35,304,000 in the six months ended December 31, 1997.
The changes in the operating assets and liabilities, as shown in the condensed
statements of cash flows on page 5, resulted in a cash outflow of $28,477,000 in
the six months ended December 31, 1998, compared with a cash outflow of
$47,904,000 in the six months ended December 31, 1997, which outflows were
primarily due to increased receivables in both periods, increased inventories in
the December 31, 1998 period, reduced inventories in the December 31, 1997
period from their comparable balances at the respective June 30 year ends.
Cash used for the purchase of property and equipment during the six months ended
December 31, 1998 was $3,000,000 compared with $2,507,000 for the six months
ended December 31, 1997.
During the six months ended December 31, 1998, $12,848,000 was used to acquire
984,800 shares of the Company's common stock held in the treasury. The Board of
Directors authorized the purchase of up to two million shares of which 1,448,000
had been purchased as of December 31, 1998.
The home video game business is highly seasonal and significant working capital
is required to finance high levels of inventories and accounts receivable during
certain months of the fiscal year. In addition, certain platform manufacturers
that manufacture home video games for the Company require letters of credit for
the full purchase price at the time a purchase order is accepted.
The Company has established a line of credit for $50,000,000 and an additional
letter of credit line of up to $30,000,000. The revolving credit agreement
extends to October 31, 1999 and contains usual bank line of credit terms. There
were no borrowings under the credit line at December 31, 1998 and $6,776,000 of
letters of credit were outstanding. Management believes that cash and cash
equivalents, short-term investments, cash flow from operations and amounts
available under the line of credit will be adequate to fund the anticipated
levels of inventories and accounts receivable required in the operation of the
business and the Company's other presently anticipated needs including the
purchase of shares of the Company's common stock.
7
<PAGE> 9
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1997
Revenues increased $604,000 from $125,057,000 in the quarter ended December 31,
1997 to $125,661,000 in the quarter ended December 31, 1998.
Home video game revenues increased to $89,112,000 in the fiscal 1999 second
quarter from $76,997,000 in the prior year period. Revenues for the fiscal 1999
second quarter included $7,472,000 from the sale of video games for the Nintendo
Game Boy, primarily for the Color Game Boy introduced in the United States by
Nintendo in November 1998. Shipments of next generation units increased 18.4% in
the second quarter of fiscal 1999 compared to the prior year period with the
largest increase from Sony PlayStation units. However, next generation video
game revenues increased only 2.2% primarily because of the change in sales mix
to lower priced Sony PlayStation units and a unit sales price decrease initiated
in part by the video game platform manufacturers.
During the December 31, 1998 quarter, the Company released eight new home video
game products on three platforms. New products shipped included four for
Nintendo 64, one for Sony PlayStation, and three for Color Game Boy. Midway's
best selling video games during the quarter were NFL Blitz, Rush2:Extreme Racing
USA, Twisted Edge Extreme Snowboarding, Wipe Out 64 and Mortal Kombat 4.
Coin-operated video game revenues in the December 31, 1998 quarter were
$36,549,000 compared to $48,060,000 in the prior year second quarter due to
decreased units shipped and a product mix that included fewer sit down driving
games that have a higher sales price. The current year second quarter included
initial sales of Carnevil and Guantlet Legends and continuing sales of NFL Blitz
'99, Site 4:Area 51 and Touchmaster.
Gross profit decreased to $59,983,000 (47.7% of revenues) in the quarter ended
December 31, 1998 from $63,700,000 (50.9% of revenues) in the quarter ended
December 31, 1997. The decrease in gross profit was primarily from the change in
mix of units sold. Home video game gross profit decreased to 53.5% of revenues
in the quarter ended December 31, 1998 compared to 55.0% in the prior year
second quarter because of the change in the mix of units sold. Coin-operated
video games gross profit decreased to 33.7% of revenues in the quarter ended
December 31, 1998 compared to 44.3% in the prior year second quarter because of
decreased sales and lower margin on games sold in the December 31, 1998 quarter.
Research and development expenses increased $4,506,000 or 25.1% from $17,952,000
(14.4% of revenues) in the quarter ended December 31, 1997 to $22,458,000 (17.9%
of revenues) in the quarter ended December 31, 1998.
Selling expense increased $3,250,000 from $11,693,000 (9.4% of revenues) in the
quarter ended December 31, 1997 to $14,943,000 (11.9% of revenues) in the
quarter ended December 31, 1998. The increase was primarily due to higher home
video game selling expense needed to support higher home video game revenues
plus an increased level of advertising for NFL Blitz.
Administrative expense increased $631,000 from $4,963,000 (4.0% of revenues) in
the quarter ended December 31, 1997 to $5,594,000 (4.4% of revenues) in the
quarter ended December 31, 1998.
Operating income in the quarter ended December 31, 1998 decreased $12,104,000
from $29,092,000 (23.3% of revenues) in the quarter ended December 31, 1997 to
$16,988,000 (13.5% of revenues) in the quarter ended December 31, 1998. The
decreases result from a lower gross margin percentage as well as higher research
and development expense and selling expense for home video games.
Interest and other income decreased from $557,000 in the December 31, 1997
quarter to $317,000 in the December 31, 1998 quarter. The decrease is primarily
from a lower level of cash and cash equivalents and short-term investments.
8
<PAGE> 10
Net income was $10,690,000, $0.29 per share, compared with net income of
$18,382,000, $0.48 per share, in the prior year period. The number of shares
used in calculating per share earnings decreased by 3.5% to 37,145,000 in the
fiscal 1999 second quarter from the prior year period because of the purchase of
treasury shares pursuant to the previously announced stock repurchase plan.
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH
SIX MONTHS ENDED DECEMBER 31, 1997
Revenues increased $16,203,000 from $198,797,000 in the six months ended
December 31, 1997 to $215,000,000 in the six months ended December 31, 1998.
Home video game revenues increased to $158,802,000 in the fiscal 1999 first half
from $117,056,000 in the prior year period. Revenues for the fiscal 1999 first
half included $7,472,000 from the sale of video games for the Nintendo Game Boy,
primarily for the Color Game Boy introduced in the United States by Nintendo in
November 1998. Shipments of next generation units increased 47% in the first
half of fiscal 1999 compared to the prior year period with the largest
percentage increase from Sony PlayStation units. However, next generation video
game revenues increased only 33% primarily because of the change in sales mix to
lower priced Sony PlayStation units and a unit sales price decrease initiated in
part by the video game platform manufacturers.
During the six months ended December 31, 1998 quarter, the Company released ten
new home video game products on four platforms. New products shipped included
four for Nintendo 64, two for Sony PlayStation, three for Color Game Boy, and
one for PCs.. Midway's best selling video games during the first half were NFL
Blitz, Rush2:Extreme Racing USA, GEX:Enter the Gecko, Wipe Out 64, Twisted Edge
Extreme Snowboarding and Mortal Kombat 4.
Coin-operated video game revenues in the December 31, 1998 six months were
$56,198,000 compared to $81,741,000 in the prior year first half due to
decreased units shipped and a product mix that included fewer sit down driving
games that have a higher sales price. The current year first half included
initial sales of Carnevil, Guantlet Legends, NFL Blitz '99, Vapor Trax, Site
4:Area 51 and continuing sales of Radical Bikers and Touchmaster.
Gross profit increased to $109,210,000 (50.8% of revenues) in the six months
ended December 31, 1998 from $98,811,000 (49.7% of revenues) in the six months
ended December 31, 1997. Gross profit in the six months ended December 31, 1998
was increased because of a $4,225,000 reduction to cost of sales due to a net
recovery relating to purchased parts overcharges from certain coin-operated game
suppliers in prior years. Home video game gross profit increased to 54.1% of
revenues in the six months ended December 31, 1998 compared to 54.0% in the
prior year.
Research and development expenses increased $6,131,000 or 19.1% from $32,075,000
(16.1% of revenues) in the six months ended December 31, 1997 to $38,206,000
(17.8% of revenues) in the six months ended December 31, 1998.
Selling expense increased $10,561,000 from $17,841,000 (9.0% of revenues) in the
six months ended December 31, 1997 to $28,402,000 (13.2% of revenues) in the six
months ended December 31, 1998. The increase was primarily due to higher home
video game selling expense needed to support higher home video game revenues
plus an increased level of advertising for NFL Blitz.
Administrative expense increased $1,110,000 from $9,001,000 (4.5% of revenues)
in the six months ended December 31, 1997 to $10,111,000 (4.7% of revenues) in
the six months ended December 31, 1998.
Operating income in the six months ended December 31, 1998 decreased $7,403,000
from $39,894,000 (20.1% of revenues) in the six months ended December 31, 1997
to $32,491,000 (15.1% of revenues) in the six months ended December 31, 1998.
Operating income in the six months ended December 31, 1998 was increased by
$4,225,000 because of a reduction to cost of sale as described above. The
decreases result primarily from higher research and development expense and
selling expense only partly recovered from the increase in gross profit from
higher revenues in the six months ended December 31, 1998 compared to the first
half of the prior year.
9
<PAGE> 11
Interest and other income decreased from $1,424,000 in the December 31, 1997
half year to $690,000 in the December 31, 1998 half year. The decrease is
primarily from a lower level of cash and cash equivalents and short-term
investments.
Net income was $20,497,000, $0.55 per share, in the first half of fiscal 1999
compared with net income of $25,617,000, $0.67 per share, in the prior year
period. Net income for the December 31, 1998 half year was increased by
$2,620,000, $0.07 per share, because of a reduction in coin-operated video game
cost of sales described above. The number of shares used in calculating per
share earnings decreased by 2.9% to 37,397,000 in the fiscal 1999 first half
from the prior year first half because of the purchase of treasury shares
pursuant to the previously announced stock repurchase plan.
YEAR 2000 UPDATE (YEAR 2000 READINESS DISCLOSURE)
The term Y2K is used to refer to a world wide computer-related problem where
software programs and embedded programs in microprocessors will not work
properly when processing a date later than December 31, 1999. This problem
results from using only two digits to represent the year in a date and assuming
19 to be the first two digits of the year. Many existing programs will continue
to assume a 19 as the first and second digit while a 20 or greater is required.
A method of fixing the problem is to rewrite the program to provide for a four
digit year field. This Y2K problem has resulted in significant remediation costs
and worldwide concern about the future operations of businesses and other
institutions.
Since 1996, we have worked to make our systems Y2K compliant together with WMS,
our Chicago information services provider. Systems utilized by our subsidiary,
Atari Games Corporation, have been made compliant with a software upgrade, and
testing of the systems is ongoing. Accounting and finance systems utilized by
our other major subsidiary, Midway Home Entertainment Inc. have been made Y2K
compliant, and the remaining systems, such as the customer interface and
shipping systems will be made compliant by July 1999 with a planned software
upgrade, each at nominal cost.
We believe that there are no Y2K issues with respect to the functionality of any
of our products sold in the past or to be sold in the future. We also believe
that there are no Y2K issues with respect to the functionality of the hardware
platforms for which we sell home video games.
WMS provides contract manufacturing services to us. WMS has assured us in
writing that the systems used in their contract manufacturing are Y2K compliant.
WMS also has notified us that the assembly of the coin-operated video games
should not be affected by malfunctioning tools or equipment using embedded
microprocessors, as the assembly process is not heavily reliant on such tools or
equipment.
We may be exposed to potential Y2K problems because we rely on distributors,
large customers and coin-operated video game component suppliers. We are in the
process of contacting certain suppliers and customers to assess the potential
problems, if any. We have not made a determination as to our customers' or
suppliers' levels of Y2K compliance at this time. If needed, to avoid potential
Y2K problems detected by our suppliers, we will adjust the coin-operated title
release dates and at worst we would expect a short-term delay in shipments of
our products. If such a delay should occur, we do not expect to experience a
material and adverse effect on operating results for any reportable period.
Midway does not have a contingency plan for undetected Y2K problems. Those
problems, if they occur, will be dealt with immediately upon occurrence. The
effect on Midway of such occurrence cannot be determined at this time.
This discussion of Y2K risks and readiness contains certain forward-looking
statements concerning future conditions and our business outlook based on
currently available information that involve risks and uncertainties. The actual
state of our Y2K readiness and exposure could differ materially from that
anticipated in the forward-looking statements as a result of certain risks and
uncertainties, including, without limitation, the ability to obtain supplies and
energy, make deliveries, communicate with business partners, the Y2K readiness
of customers and other business partners and the other risks described above.
10
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GT Interactive Software Corp. ("GT Interactive") distributes certain of the
Company's home video games in certain territories, as more fully described in
"Item I. Business" in the Company's Annual Report on Form 10-K for the year
ended June 30, 1998, which descriptions are incorporated herein by this
reference. On January 25, 1999, GT interactive filed suit against the Company
and certain of its subsidiaries in the Supreme Court of the State of New York,
County of New York, alleging breach of contract, tortious interference with
prospective business relations, defamation, and other related claims arising
from the distribution arrangements between GT Interactive and the Company. In
its complaint, GT Interactive seeks compensatory and punitive damages, and
injunctive relief. The Company believes that the claims made by GT Interactive
are without merit and the Company intends to vigorously defend against this
lawsuit and to file substantial counterclaims against GT Interactive.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
99 "Item 1-Business" in the Annual Report on Form 10-K OF Midway Games
Inc. for the fiscal year ended June 30, 1998 (File No: 001-12367),
incorporated herein by reference to such Annual Report.
(b) Reports on Form 8-K.
None
11
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDWAY GAMES INC.
(Registrant)
Dated: February 10, 1999 By: /s/ Harold H. Bach, Jr.
---------------------------------
Harold H. Bach, Jr.
Executive Vice President-Finance
Principal Financial and
Chief Accounting Officer
12
<PAGE> 14
EXHIBIT INDEX
No. Description
--- -----------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 28,325
<SECURITIES> 0
<RECEIVABLES> 101,435
<ALLOWANCES> (9,647)
<INVENTORY> 33,308
<CURRENT-ASSETS> 170,388
<PP&E> 24,830
<DEPRECIATION> (14,615)
<TOTAL-ASSETS> 235,563
<CURRENT-LIABILITIES> 44,400
<BONDS> 0
0
0
<COMMON> 385
<OTHER-SE> 183,913
<TOTAL-LIABILITY-AND-EQUITY> 235,563
<SALES> 215,000
<TOTAL-REVENUES> 215,000
<CGS> 105,790
<TOTAL-COSTS> 105,790
<OTHER-EXPENSES> 38,206
<LOSS-PROVISION> 9,271
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,181
<INCOME-TAX> 12,684
<INCOME-CONTINUING> 20,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,497
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
