MIDWAY TO TAKE $14 MILLION RESTRUCTURING CHARGE

Midway said in SEC filing it was consolidating Milpitas facility into its existing San Diego product development offices: “The company believes that consolidating its internal California product development operations into one studio will lead to a more efficient and cost-effective product development function.” But it said “the company’s selling and marketing functions also located in the Milpitas facility will continue operating from that location.” Publisher said Milpitas studio “had been developing 2 titles scheduled for release in 2004” and “these 2 titles are no longer in production.” Midway had told analysts in conference call in Dec. that company had shifted its 2003 slate of games to include more adult-oriented titles (CED Dec 26 p5). That comment came as Midway slashed its earnings forecast and CEO Neil Nicastro said it was exploring opportunities to streamline operations that, if adopted, could result in nonrecurring charges reducing expected pretax earnings.

In SEC filing, Midway also said: “The closure of the Milpitas internal product development operations affects 116 employees, 103 of whom are directly associated with product development, either through a reduction in staff or relocation to the company’s San Diego, California, studio. The employment of 74 employees, 68 of whom were directly associated with product development, was terminated effective February 7, 2003. Prior to the staff reduction, Midway employed approximately 675 employees throughout the world, approximately 470 of whom were directly associated with product development.” Company said about $9.2 million of $14 million for restructuring would be noncash charges, including “accruals to record employee severance, facilities expenses and to eliminate capitalized product development assets related to the 2 titles no longer in production.”

GKM’s Williams said: “As games become bigger, development time can become longer, leading to higher development costs. In addition, we believe that marketing and license expenses are also rising. We believe that developers will look to move jobs overseas in an attempt to reduce development expenses. While Midway has not announced an intention to do this, we expect the company to consider a strategy along these lines as this cycle continues to evolve.”

Williams said: “We remain neutral on the shares of [the company’s stock] until we gain confidence in the quality of the company’s software and management’s ability to execute in an increasingly competitive interactive entertainment environment. Although the company had recent success with Mortal Kombat: Deadly Alliance, the balance of its product portfolio has performed below expectations. [Midway] indicated that it is taking steps to remedy this issue by introducing products that appeal to the older demographic, however the success of new brands in the current videogame retail environment has been less than encouraging, giving us pause. We continue to exercise caution until we gain comfort in the company’s product portfolio. By taking steps to reduce overhead associated with its studios, and given the company’s control of some key intellectual property, we believe [Midway] can still be the target of a buyout or takeover.” Other game industry analysts have expressed similar concerns about investing in Midway in recent weeks.

On more positive note, Midway referred Mon. to NPDFunworld data that its MLB SlugFest 20-03 was top-selling baseball videogame for PlayStation 2 (PS2) console in 2002. Game shipped for PS2 in June and versions for GameCube and Xbox followed in Aug. Midway Vp-Mktg. Helene Sheeler said: “It is incredible to have become the best-selling PlayStation 2 baseball videogame the first year we have been on the market. We will continue to build off this success.” Company plans to ship followup to game -- MLB SlugFest 20-04 -- next month for Game Boy Advance, GameCube, PS2, Xbox.