1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999
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Commission file number 001-12367
MIDWAY GAMES INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-2906244
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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: 38,052,000 shares of common
stock, $.01 par value, were outstanding at May 3, 1999 after deducting 698,000
shares held as treasury shares.
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MIDWAY GAMES INC.
INDEX
PAGE NO
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PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Income -
Three and nine months ended March 31, 1999 and 1998.................. 2
Condensed Consolidated Balance Sheets -
March 31, 1999 and June 30, 1998..................................... 3-4
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 1999 and 1998............................ 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 4. Submission of Matters to a Vote of Security-Holders.................. 11
ITEM 5. Other Information.................................................... 11
ITEM 6. Exhibits and Reports on Form 8-K..................................... 12
SIGNATURE ..................................................................... 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIDWAY GAMES INC.
---------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
REVENUES
Home video ................................................ $ 39,870 $ 52,916 $ 198,672 $ 169,972
Coin-operated video ....................................... 40,460 41,431 96,658 123,172
--------- --------- --------- ---------
Total revenues ................................................ 80,330 94,347 295,330 293,144
Cost of sales ................................................. 47,904 50,978 153,694 150,964
--------- --------- --------- ---------
Gross profit .................................................. 32,426 43,369 141,636 142,180
Research and development expense .............................. 17,210 17,334 55,416 49,409
Selling expense ............................................... 8,909 10,006 37,311 27,847
Administrative expense ........................................ 4,891 5,629 15,002 14,630
--------- --------- --------- ---------
Operating income .............................................. 1,416 10,400 33,907 50,294
Interest and other income ..................................... 387 902 1,077 2,326
--------- --------- --------- ---------
Income before tax provision ................................... 1,803 11,302 34,984 52,620
Provision for income taxes .................................... (747) (4,295) (13,431) (19,996)
--------- --------- --------- ---------
Net income .................................................... $ 1,056 $ 7,007 $ 21,553 $ 32,624
========= ========= ========= =========
Net income per share of common stock - basic and diluted ...... $ 0.03 $ 0.18 $ 0.58 $ 0.85
========= ========= ========= =========
Weighted average shares outstanding ........................... 37,546 38,500 37,446 38,500
========= ========= ========= =========
See notes to condensed consolidated financial statements.
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MIDWAY GAMES INC.
---------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
March 31, June 30,
1999 1998
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 51,355 $ 26,136
Short-term investments .................................................... -- 12,000
--------- ---------
51,355 38,136
Receivables, less allowances of $7,558 and $7,017 ......................... 81,002 86,198
Inventories, at lower of cost (Fifo) or market:
Raw materials and work in progress ..................................... 14,440 9,441
Finished good .......................................................... 17,531 13,838
--------- ---------
31,971 23,279
Deferred income taxes ..................................................... 5,747 4,966
Other current assets ...................................................... 12,884 9,607
--------- ---------
Total current assets ................................................... 182,959 162,186
Property and equipment ......................................................... 25,532 21,830
Less: accumulated depreciation ................................................ (15,725) (12,210)
--------- ---------
9,807 9,620
Excess of purchase cost over amount assigned to net assets acquired, net of
accumulated amortization of $11,713 and $8,772 ............................ 42,287 45,228
Other assets ................................................................... 11,121 10,389
--------- ---------
$ 246,174 $ 227,423
========= =========
See notes to condensed consolidated financial statements.
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MIDWAY GAMES INC.
---------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
March 31, June 30,
1999 1998
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................ $ 26,530 $ 18,358
Accrued compensation and related benefits ................................... 7,319 8,776
Income taxes payable ........................................................ 320 2,580
Accrued royalties ........................................................... 2,220 4,191
Other accrued liabilities ................................................... 9,790 9,995
--------- ---------
Total current liabilities ................................................ 46,179 43,900
Deferred income taxes ............................................................ 4,434 4,434
Other noncurrent liabilities ..................................................... 2,358 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, 38,750,000
and 38,500,000 shares issued ............................................. 388 385
Additional paid-in capital .................................................. 96,447 98,488
Retained earnings ........................................................... 105,570 84,017
--------- ---------
202,405 182,890
Treasury Stock, at cost ( 698,000 and 463,200 shares) ...................... (9,202) (6,241)
--------- ---------
Total stockholders' equity ............................................... 193,203 176,649
--------- ---------
$ 246,174 $ 227,423
========= =========
See notes to condensed consolidated financial statements.
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MIDWAY GAMES INC.
---------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Nine months ended
March 31,
--------------------
1999 1998
-------- --------
OPERATING ACTIVITIES:
Net income ...................................................................... $ 21,553 $ 32,624
Adjustments to reconcile net income to net cash (used) provided by operating
activities:
Depreciation and amortization ............................................ 8,340 6,115
Receivables provision .................................................... 11,851 9,698
Deferred income taxes .................................................... (781) (1,037)
Decrease resulting from changes in operating assets and liabilities ...... (17,053) (47,918)
-------- --------
Net cash provided (used) by operating activities ................................ 23,910 (518)
INVESTING ACTIVITIES:
Purchase of property and equipment .............................................. (3,843) (3,699)
Net change in short-term investments ............................................ 12,000 (13,800)
-------- --------
Net cash provided (used) used by investing activities ........................... 8,157 (17,499)
Financing activities:
Proceeds from the sale of 750,000 shares of common stock ........................ 6,000 --
Purchase of 984,800 shares of treasury stock..................................... (12,848) --
-------- --------
Net cash used by financing activities ........................................... (6,848) --
-------- --------
Increase (decrease) in cash and cash equivalents ................................ 25,219 (18,017)
Cash and cash equivalents at beginning of period ................................ 26,136 51,862
-------- --------
Cash and cash equivalents at end of period ...................................... $ 51,355 $ 33,845
======== ========
See notes to condensed consolidated financial statements.
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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 nine months ended March 31, 1999 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 nine
months ended March 31, 1998 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 include allocations for certain shared facilities
and personnel. Selling and administrative expenses include 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 nine months ended March 31, 1998
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 $20,891,000 in the quarter and $62,416,000
in the nine months ended March 31, 1998. 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 nine months ended March 31, 1998 were (in thousands):
Three Nine
Months Months
------ ------
Manufacturing overhead $1,991 $5,366
Research and development expense 150 469
Selling expense 561 1,477
Administrative expense 521 1,613
3. LITIGATION
See item 1 of part II for the status of litigation.
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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, the outcome of certain legal proceedings to
which the Company is a party 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-3 on April 1, 1999 (File 333-73347).
FINANCIAL CONDITION
During the nine months ended March 31, 1999 cash provided by operating,
investing and financing activities was $25,219,000 compared with cash used of
$18,017,000 in the nine months ended March 31, 1998.
Cash provided by operating activities before changes in operating assets and
liabilities was $40,963,000 in the nine months ended March 31, 1999 compared to
$47,400,000 in the nine months ended March 31, 1998.
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 $17,053,000 in
the nine months ended March 31, 1999, compared with a cash outflow of
$47,918,000 in the nine months ended March 31, 1998, which outflows were
primarily due to increased receivables and inventories in the March 31, 1999
period and an increase in other long-term assets and increased receivables in
the March 31, 1998 period from their comparable balances at the respective June
30 year ends.
Cash used for the purchase of property and equipment during the nine months
ended March 31, 1999 was $3,843,000 compared with $3,699,000 for the nine months
ended March 31, 1998.
During the nine months ended March 31, 1999, $12,848,000 of cash 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 March 31, 1999.
During the nine months ended March 31, 1999 the Company received proceeds of
$6,000,000 from the sale of 750,000 shares of common stock under an employee
Stock Incentive Plan which were from treasury shares. Also during the nine
months ended March 31, 1999 the Company sold 250,000 shares of previously
unissued common stock in a public offering which resulted in a net receivable at
March 31, 1999 of $1,849,000 which was collected on April 5, 1999.
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 March 31, 1999 and $7,391,000 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.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1998
Revenues decreased $14,017,000 from $94,347,000 in the quarter ended March 31,
1998 to $80,330,000 in the quarter ended March 31, 1999.
Home video game revenues decreased to $39,870,000 in the fiscal 1999 third
quarter from $52,916,000 in the prior year period. Revenues for the fiscal 1999
third quarter included $6,663,000 from the sale of video games for the Nintendo
Color Game Boy introduced in the United States by Nintendo in November 1998. The
decrease in home video game revenues is primarily due to fewer titles being
acquired from third party developers for release during the March 31, 1999
quarter and delays in the introduction of certain internally developed home
video games.
During the March 31, 1999 quarter, the Company released seven new home video
game products on three platforms. New products shipped included three 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, California Speed,
Rampage2:Universal Tour, 720(degree) skate boarding and Mortal Kombat Trilogy.
Coin-operated video game revenues in the March 31, 1999 quarter were $40,460,000
compared to $41,431,000 in the prior year third quarter. The current year third
quarter included initial sales of HydroThunder, NBA Showtime:NBA on NBC and
War:Final Assault and continuing sales of Carnevil, Guantlet Legends, Site
4:Area 51 and Touchmaster.
Gross profit decreased to $32,426,000 (40.4% of revenues) in the quarter ended
March 31, 1999 from $43,369,000 (46.0% of revenues) in the quarter ended March
31, 1998. The decrease in gross profit was primarily from the change in the mix
of units sold. Home video game gross profit decreased to 49.9% of revenues in
the quarter ended March 31, 1999 compared to 51.1% in the prior year third
quarter because of the change in the mix of units sold. Coin-operated video
games gross profit decreased to 31.0% of revenues in the quarter ended March 31,
1999 compared to 39.4% in the prior year third quarter primarily because of a
change in the mix in games sold in the March 31, 1999 quarter.
Research and development expenses decreased $124,000 from $17,334,000 (18.4% of
revenues) in the quarter ended March 31, 1998 to $17,210,000 (21.4% of revenues)
in the quarter ended March 31, 1999.
Selling expense decreased $1,097,000 from $10,006,000 (10.6% of revenues) in the
quarter ended March 31, 1998 to $8,909,000 (11.1% of revenues) in the quarter
ended March 31, 1999.
Administrative expense decreased $738,000 from $5,629,000 (6.0% of revenues) in
the quarter ended March 31, 1998 to $4,891,000 (6.1% of revenues) in the quarter
ended March 31, 1999.
Operating income in the quarter ended March 31, 1999 decreased $8,984,000 from
$10,400,000 (11.0% of revenues) in the quarter ended March 31, 1998 to
$1,416,000 (1.8% of revenues) in the quarter ended March 31, 1999. The decrease
results primarily from lower revenues and the decrease in gross profit
percentage due to sales mix.
Interest and other income decreased from $902,000 in the March 31, 1998 quarter
to $387,000 in the March 31, 1999 quarter. The decrease is primarily from a
lower level of cash and cash equivalents and short-term investments.
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Net income was $1,056,000, $0.03 per share, compared with net income of
$7,007,000, $0.18 per share, in the prior year period. The number of shares used
in calculating per share earnings decreased by 2.5% to 37,546,000 in the fiscal
1999 third quarter from the prior year period.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED WITH
NINE MONTHS ENDED MARCH 31, 1998
Revenues increased $2,186,000 from $293,144,000 in the nine months ended March
31, 1998 to $295,330,000 in the nine months ended March 31, 1998.
Home video game revenues increased to $198,672,000 in the fiscal 1999 nine-month
period from $169,972,000 in the prior year period. Revenues for the fiscal 1999
nine-month period included $14,135,000 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. Home video game unit shipments, other than
Game Boy units, increased 10% in the nine-month period of fiscal 1999 compared
to the prior year period with the largest percentage increase from lower priced
Sony PlayStation units.
During the nine months ended March 31, 1999 the Company released seventeen new
home video game products on four platforms. New products shipped included seven
for Nintendo 64, three for Sony PlayStation, six for Color Game Boy, and one for
PCs.. Midway's best selling video games during the nine months were NFL Blitz,
Rush2:Extreme Racing USA, GEX:Enter the Gecko, Wipe Out 64, Twisted Edge Extreme
Snowboarding, Mortal Kombat 4, California Speed, Rampage2:Univesal
Tour, 720(degree) skate boarding and Mortal Kombat Trilogy.
Coin-operated video game revenues in the nine months ended March 31, 1999 were
$96,658,000 compared to $123,172,000 in the prior year nine-month period 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 nine-month period
included initial sales of Carnevil, Guantlet Legends, NFL Blitz '99, Vapor Trax,
Site 4:Area 51, HydroThunder, NBA Showtime:NBA on NBC and War:Final Assault and
continuing sales of Radikal Biker and Touchmaster.
Gross profit was $141,636,000 (48.0% of revenues) in the nine months ended March
31, 1999 from $142,180,000 (48.5% of revenues) in the nine months ended March
31, 1998. Gross profit in the nine months ended March 31, 1999 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 53.2% of
revenues in the nine months ended March 31, 1999 compared to 53.1% in the prior
year.
Research and development expenses increased $6,007,000 or 12.2% from $49,409,000
(16.9% of revenues) in the nine months ended March 31, 1998 to $55,416,000
(18.8% of revenues) in the nine months ended March 31, 1999.
Selling expense increased $9,464,000 from $27,847,000 (9.5% of revenues) in the
nine months ended March 31, 1998 to $37,311,000 (12.6% of revenues) in the nine
months ended March 31, 1999. 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 $372,000 from $14,630,000 (5.0% of revenues) in
the nine months ended March 31, 1998 to $15,002,000 (5.1% of revenues) in the
nine months ended March 31, 1999.
Operating income in the nine months ended March 31, 1999 decreased $16,387,000
from $50,294,000 (17.2% of revenues) in the nine months ended March 31, 1998 to
$33,907,000 (11.5% of revenues) in the nine months ended March 31, 1999.
Operating income in the nine months ended March 31, 1999 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 on a relatively flat gross profit in the nine months ended March
31, 1999 compared to the nine-month period of the prior year.
Interest and other income decreased from $2,326,000 in the March 31, 1998
nine-month period to $1,077,000 in the March 31, 1999 nine-month period. The
decrease is primarily from a lower level of cash and cash equivalents and
short-term investments.
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Net income was $21,553,000, $0.58 per share, in the fiscal 1999 nine-month
period compared with net income of $32,624,000, $0.85 per share, in the prior
year period. Net income for the March 31, 1999 nine-month period 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 2.7% to 37,446,000 in the fiscal 1999 nine-month
period from the prior year nine-month period primarily 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. Accounting and finance systems
utilized by our subsidiary, Atari Games Corporation, have been made compliant
with a software upgrade, and testing of the systems is ongoing. In addition,
some personal computers and servers utilized by Atari Games Corporation for game
development will be upgraded by September 1999 at a nominal cost. 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 are expected to 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 have
contacted certain suppliers and customers to assess the potential problems, if
any. A determination as to our customers' or suppliers' levels of readiness
cannot be made however; based on the significant level of responses received
from suppliers and customers, it appears that they are either Y2K ready or
working towards becoming Y2K ready. The Company will continue to follow up with
those customers and suppliers who have not responded or indicated their Y2K work
is in process. 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.
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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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Annual Meeting of Stockholders of the Company was held on February 3, 1999.
The matters submitted to a vote of the Company's stockholders were (1) the
election of four (4) Class III members to the Board of Directors; (2) the
ratification of the Midway Games Inc. 1999 Stock Option Plan; and (3) the
ratification of the appointment of Ernst & Young LLP as independent auditors for
the 1999 fiscal year.
(1) The Company's stockholders re-elected four (4) Class III Directors, as
follows
Class III Director Nominee For Withheld
----------------------------- ---------- -----------
Harold H. Bach, Jr 31,820,858 1,210,127
Byron C. Cook 31,823,317 1,207,668
Gerald O. Sweeney, Jr 31,423,277 1,607,758
Richard D. White 31,791,796 1,239,189
(2) Stockholders voted 27,718,333 shares (77.5% of the shares represented of the
meeting) in favor of ratifying the Midway Games Inc. 1999 Stock Option Plan;
4,170,553 shares (11.25% of the shares represented at the meeting) voted
against approval; 142,099 shares (less than 0.04% of the shares represented
at the meeting) abstained from voting.
(3) Stockholders voted 32,771,168 shares (99.2% of the shares represented at the
meeting) in favor of the ratification of the appointment of Ernst & Young
LLP as independent auditors for the 1999 fiscal year; 186,071 shares (0.56%
of the shares represented at the meeting) voted against approval; 73,746
(less than 0.02% of the shares represented at the meeting) abstained from
voting.
ITEM 5. OTHER INFORMATION
During the fiscal quarter ended March 31, 1999, the Company and Byron C. Cook,
Executive Vice President - Home Video of the Company, entered into an three-year
renewable employment agreement effective as of July 1, 1998, pursuant to which
Mr. Cook's base salary is $325,000 per annum, or such greater amount as may be
determined by the Board of Directors. Mr. Cook has agreed not to engage in
business in competition with the Company for a period of one year after he
leaves the Company. Mr. Cook is also entitled to participate in the Company's
employee benefit plans generally available to executives of the Company. In
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the event of a change of control of the Company (as defined in the agreement),
Mr. Cook, is entitled, if he terminates his employment within 60 days
thereafter, to a severance payment of up to three times his base annual salary.
The agreement may be terminated by the Company upon 30 days' notice for cause
(as defined in the agreement).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 1 to Credit Agreement dated as of October 15, 1996.
10.2 Employment Agreement between the Registrant and Byron C. Cook.
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),
is hereby incorporated herein by reference to such Annual Report.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K with the Securities and Exchange
Commission on March 30, 1999 with respect to Item 5.
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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: May 14, 1999 By: /s/ Harold H. Bach, Jr.
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Harold H. Bach, Jr.
Executive Vice President-Finance
Principal Financial and
Chief Accounting Officer
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EXHIBIT INDEX
No. Description
10.1 Amendment No. 1 to Credit Agreement Dated As of October 15, 1996.
10.2 Employment Agreement between the Registrant and Byron C. Cook
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),
is hereby incorporated herin by reference to such Annual Report.