Exits Year With $1.2 Billion in Cash and Marketable Securities
Commits to Long-Term Growth Strategy
POWAY, Calif., Jan. 24 /PRNewswire-FirstCall/ -- Gateway Inc. (NYSE: GTW)
today reported fourth quarter 2001 net income of $5.1 million or $0.02 per
share on revenue of $1.1 billion, excluding the effects of an extraordinary
gain. Net income including the effects of the extraordinary gain relating to
the company's early extinguishment of its long-term debt was $9.4 million or
$0.03 per share.
Gateway's continued efforts to simplify its operations and reduce its cost
structure, coupled with a shift to higher margin sales contributed to its
profit during the quarter.
"We said we'd return to profitability in the fourth quarter and we did,"
said Ted Waitt, Chairman and CEO. "We made dramatic improvements against our
key priorities for the year, controlled every lever of the business to deliver
on that goal and managed our cost structure to the lowest absolute level it's
been in years."
2001 Accomplishments
Gateway's key accomplishments in 2001 included:
-- Streamlining its cost structure. Through restructuring and alignment
initiatives the company has driven absolute SG&A to approximately
Q4 1998 levels, when the company had half as many stores.
-- Strengthening the balance sheet. Gateway exited the year with almost
double the cash and marketable securities position of the prior year,
no long-term debt and improved cash conversion metrics.
-- Dramatically improving its product quality and customer satisfaction.
Gateway increased its customer satisfaction scores based on its
internal measures by 15 percent to an all-time high and continues to
maintain this satisfaction level, while scores among competitors
slip. This was driven by a renewed focus on customer satisfaction
and operational excellence, plus a simplified new product line which
includes recommended configurations designed to better meet
customers' needs. Currently about half of Gateway desktops sold are
these recommended configurations.
-- Re-establishing a technology leadership position. The company led
the industry by being the first to market and ship systems
pre-installed with the new Microsoft Windows XP operating system and
was the most aggressive to market and sell cutting-edge Intel
Pentium 4 and flat panel display technology, achieving a mix in the
quarter of approximately 70 percent for both Windows XP and Pentium 4
and approximately 35 percent for flat panels.
-- Advancing its solutions strategy. With an industry-leading push in
broadband through its exclusive nationwide network of retail stores,
Gateway increased broadband subscribers by 250 percent sequentially
in the fourth quarter alone and recently expanded its broadband
services offer to more than half of its retail markets.
Quarterly Sales
Domestic unit sales decreased 17 percent sequentially to 681,000. Total
unit sales, including discontinued international operations in the third
quarter, declined by 24 percent sequentially. While unit sales decreased, the
company's average unit price (AUP) increased to $1,667 during the quarter,
compared to $1,574 for the third quarter, due to a shift in sales to
higher-end systems, continued sales of beyond-the-box products and services
and a lower level of sales discounting.
During the quarter the company's government segment continued to show
strength in a top three position. In the consumer segment unit sales declined
six percent sequentially, while the company increased its mix to higher-end,
more profitable systems. Unit sales for small and medium business and
education declined sequentially 26 percent and 52 percent, respectively.
During the quarter, sales of non-PC products and services were 19 percent
of revenue and 38 percent of gross margin dollars, with $115 million of
revenue recorded at the point of sale and $95 million not at the point of
sale. Gateway's average selling price (ASP), which is the sum of PC and
non-PC products and services sold at the point of sale was $1,527 for the
quarter, up from $1,460 for the previous quarter.
Pre-tax Income
The company's gross margin for the fourth quarter was 21.2 percent,
compared to 16.8 percent in the previous quarter, which excludes the impact of
special charges. Previous quarter gross margin, excluding special charges and
international operations was 17.9 percent. This increase is primarily the
result of cost reductions, selling a mix of higher-margin products and
services, and less sales discounting.
Due to the company's continued focus on cost containment, Gateway's
selling, general and administrative (SG&A) expenses declined 27 percent to
$240 million from $330 million the previous quarter, excluding special
charges, representing an almost 50 percent decline from the year ago levels.
The SG&A decline was positively impacted by actions taken to streamline the
company's operations, including the closure of its company-owned international
operations and other cost reduction efforts.
During the first quarter of 2002, Gateway continues to focus on cost
reduction and alignment of its operations with its solutions strategy. This
has resulted in the closure of select company sites and other restructuring
actions, which will require a special charge in the first quarter of 2002 in
the range of $75 - $100 million, which is expected to generate annual savings
of approximately $100 million.
Full Year 2001
Gateway reported full year 2001 revenue of $6.1 billion and a net loss of
$1 billion or a loss of $3.20 per share. Net loss excluding special charges
amounted to $132 million or a loss of $0.41 per share. Total unit sales for
the year were 3.6 million, a 28 percent decline over the prior year.
Gateway recorded domestic full year revenue of $5.5 billion with
3.2 million units sold. This represents a 33 percent and 24 percent year over
year decline, respectively.
SG&A for the year was $2 billion versus $1.5 billion for 2000. Excluding
special charges and international operations, SG&A declined to $1.1 billion
from $1.3 billion in 2000 primarily as a result of the company's continued
effort to streamline its cost structure that had significantly increased
during the last half of 2000.
Balance Sheet Highlights
Gateway continued to strengthen its liquidity position during the fourth
quarter ending the year with $1.2 billion in cash and marketable securities.
The company retired its long-term debt through the issuance of Series C
redeemable convertible preferred stock, which resulted in an extraordinary
gain of $4.3 million, net of taxes. The company also added $200 million to
equity by issuing convertible preferred stock to America Online, Inc. for cash
as part of the strategic alliance entered into in 1999.
Outlook
The company intends to regain momentum by investing in its core PC
business through the adoption of a more aggressive pricing and marketing
strategy in 2002. The company believes this strategy will significantly
increase unit volume above levels otherwise anticipated. At the same time,
the company intends to continue to develop and refine its solutions business
as a complement to the more aggressive PC pricing strategy.
Based on this strategy, the company expects to experience a pre-tax loss,
before special charges, for the next few quarters while it regains market
share in its core PC business.
Gateway's strong liquidity position, cash flow profile and access to
capital resources makes the company comfortable that this is a prudent
strategy to achieve sustainable long-term profitability and market share
growth.
Summary
"We plan to consistently execute this strategy through 2002 and exit the
year as a robust, growing company with more than $1 billion in cash and an
intensely satisfied customer base," said Waitt.
"We've made a lot of progress in 2001 and now it's time to grow,"
continued Waitt. "We have a great brand, a unique distribution model and the
commitment to provide the best value to our customers for their technology
solutions and that's exactly what we're going to do. We have the liquidity
and financial resources necessary to forgo short-term profits to regain
long-term growth and sustainable profitability."
Conference Call
Gateway will host a conference call for analysts on Thursday, Jan. 24,
2002 at 5:30 p.m. EST. The call will be accessible via live audio webcast at
http://www.gateway.com .
Please also see the attached financial schedules.
About Gateway
Gateway (NYSE: GTW), a personal technology company, improves people's
lives through a combination of the latest and best hardware, communication
tools, applications, training and service, all wrapped in a custom financing
package. The company takes a localized approach, utilizing its Web site, call
centers and nationwide network of Gateway retail stores to build direct
relationships with consumers, small and medium businesses and government and
education institutions. A Fortune 500(R) company founded in 1985, Gateway is
ranked as the most admired American company in the Computers and Office
Equipment industry in a Fortune magazine survey (1) and is the top brand in
customer loyalty and for first-time home computer purchases of Wintel-based
PCs(2). For more information, visit Gateway's Web site at http://www.gateway.com .
Special Note
This press release contains forward-looking statements that involve risks
and uncertainties, as well as assumptions that, if they do not materialize or
prove incorrect, could cause Gateway's results to differ materially from those
expressed or implied by such forward-looking statements. All statements,
other than statements of historical fact, are statements that could be deemed
forward-looking statements, including any projections or preliminary estimates
of earnings, revenues, or other financial items; any statements of plans,
strategies and objectives of management for future operations; any statements
regarding proposed new products, services or developments; any statements
regarding future economic conditions or performance; statements of belief and
any statement of assumptions underlying any of the foregoing. The risks that
contribute to the uncertain nature of these statements include, among others,
competitive factors and pricing pressures, including the impact of aggressive
pricing cuts by larger competitors; general conditions in the personal
computing industry, including changes in overall demand and average selling
prices, shifts from desktops to mobile computing products and information
appliances and the impact of new microprocessors and operating software; the
ability to transform the company to a technology solutions provider and
restructure its operations and cost structure; component supply shortages;
short product cycles; the ability to access new technology; infrastructure
requirements; risks of international business; foreign currency fluctuations;
ability to grow in e-commerce; risks of minority equity investments; risks
relating to new or acquired businesses, joint ventures and strategic
alliances; risks related to financing customer orders; changes in accounting
rules; the impact of litigation and government regulation generally; inventory
risks due to shifts in market demand; changes in product, customer or
geographic sales mix; the impact of employee reductions and management changes
and additions; and general economic conditions, and other risks described from
time to time in Gateway's Securities and Exchange Commission periodic reports
and filings. Gateway assumes no obligation to update these forward-looking
statements to reflect events that occur or circumstances that exist after the
date on which they were made.
(1) Fortune Magazine, "America's Most Admired Companies,"
February 19, 2001.
(2) From the Harris Interactive Consumer TechPoll(SM) study of 140,000 PC
owners who use the Internet, released March 5, 2001.
Gateway, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three months ended Year ended
December 31, December 31,
2001 2000 2001 2000
(unaudited) (unaudited)
Net sales $1,135,380 $2,446,343 $6,079,524 $9,600,600
Cost of goods sold 894,659 1,983,919 5,241,332 7,541,606
Gross profit 240,721 462,424 838,192 2,058,994
Selling, general,
and administrative
expenses 240,005 487,676 2,022,122 1,547,701
Operating income (loss) 716 (25,252) (1,183,930) 511,293
Other income (loss), net 7,372 (157,628) (106,383) (102,693)
Income (loss) before
income taxes,
extraordinary item
and cumulative effect
of change in accounting
principle 8,088 (182,880) (1,290,313) 408,600
Provision (benefit)
for income taxes 2,992 (54,707) (275,908) 155,266
Income (loss) before
extraordinary item
and cumulative effect
of change in accounting
principle 5,096 (128,173) (1,014,405) 253,334
Extraordinary gain on
early extinguishment
of debt, net of income
taxes 4,341 -- 4,341 --
Cumulative effect of
change in accounting
principle, net of
income taxes -- -- (23,851) (11,851)
Net income (loss) $9,437 $(128,173) $(1,033,915) $241,483
Basic net income (loss)
per share:
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle $0.02 $(0.40) $(3.14) $ 0.79
Extraordinary item 0.01 -- 0.01 --
Cumulative effect
of change in
accounting principle -- -- (0.07) (0.04)
Net income (loss) $0.03 $(0.40) $(3.20) $ 0.75
Diluted net income
(loss) per share:
Income (loss) before
extraordinary item
and cumulative effect
of change in accounting
principle $0.02 $(0.40) $(3.14) $ 0.76
Extraordinary item 0.01 -- 0.01 --
Cumulative effect of
change in accounting
principle -- -- (0.07) (0.03)
Net income (loss) $0.03 $(0.40) $(3.20) $ 0.73
Basic weighted average
shares outstanding 323,965 323,252 323,289 321,742
Diluted weighted average
shares outstanding 327,341 323,252 323,289 331,320
Gateway, Inc.
Consolidated Balance Sheet
(in thousands)
December 31, December 31,
2001 2000
ASSETS: (unaudited)
Current assets:
Cash and cash equivalents $730,999 $483,997
Marketable securities 435,055 130,073
Accounts receivable, net 219,974 544,755
Inventory 120,270 315,069
Other 616,626 793,166
Total current assets 2,122,924 2,267,060
Property, plant, and equipment, net 608,429 897,414
Intangibles, net 36,304 165,914
Other assets 219,200 822,156
$2,986,857 $4,152,544
LIABILITIES AND EQUITY:
Current liabilities
Accounts payable $341,122 $785,345
Accrued liabilities 468,609 556,323
Accrued royalties 135,698 138,446
Other current liabilities 200,599 150,920
Total current liabilities 1,146,028 1,631,034
Other long-term liabilities 82,636 141,171
Total liabilities 1,228,664 1,772,205
Series C preferred stock 193,109 --
Stockholders' equity 1,565,084 2,380,339
$2,986,857 $4,152,544
Gateway, Inc.
Analysis of Consolidated Statement of Operations
(in thousands)
(unaudited)
For the year ended December 31, 2001:
Excluding
As Reported Special Special International Continuing
Charges Charges Operations Operations
Net sales $6,079,524 $-- $6,079,524 $551,335 $5,528,189
Cost of goods
sold 5,241,332 216,327(1) 5,025,005 496,844 4,528,161
Gross
profit 838,192 (216,327) 1,054,519 54,491 1,000,028
Selling,
general, and
administrative
expenses 2,022,122 759,170(2) 1,262,952 145,525 1,117,427
Operating
loss (1,183,930) (975,497) (208,433) (91,034) (117,399)
Other income
(loss), net (106,383) (149,714)(3) 43,331 525 42,806
Loss before
income taxes,
extraordinary
item and
cumulative
effect of
change in
accounting
principle (1,290,313) (1,125,211) (165,102) (90,509) (74,593)
Benefit for
income taxes (275,908) (223,357) (52,551) (25,240) (27,311)
Loss before
extraordinary
item and
cumulative
effect of
change in
accounting
principle (1,014,405) (901,854) (112,551) (65,269) (47,282)
Extraordinary
gain on early
extinguishment
of debt, net
of income taxes 4,341 -- 4,341 -- 4,341
Cumulative effect
of change in
accounting
principle,
net of income
taxes (23,851) -- (23,851) -- (23,851)
Net loss $(1,033,915) $(901,854) $(132,061) $(65,269) $(66,792)
Loss before
extraordinary
item and
cumulative
effect of
change in
accounting
principle
per share $(3.14) $(2.79) $(0.35)(4) $(0.20) $(0.15)
Net loss
per share $(3.20) $(2.79) $(0.41) $(0.20) $(0.21)
(1) Represents a write-down of the Company's consumer loan portfolio
prior to its disposition by sale and costs associated with the
shutdown of domestic and international manufacturing sites, such as
asset write-downs and severance.
(2) Consists of impairment of the goodwill and other assets acquired in
the acquisition of NECX Direct, and other costs associated with
restructuring decisions which included, among other things, the exit
of company-owned international operations and the alignment and
closure of call centers.
(3) Represents the write-down of a number of the company's investments
and long-term receivables, partially offset by a gain on the sale of
a consumer loan portfolio.
(4) Includes the $75,000 operating loss associated with the consumer
loan portfolio, or $0.16 Loss before extraordinary item and
cumulative effect of change in accounting principle per share.
For the quarter ended September 30, 2001:
For the quarter ended September 30, 2001, Net sales were $1,409,759,
including international net sales of $106,691.
For the quarter ended September 30, 2001, gross profit was $120,060,
including $116,366 and $2,899 in special charges (consisting of
costs associated with closing manufacturing sites) and international
gross profit, respectively.
For the quarter ended September 30, 2001, SG&A was $675,311, including
special charges of $345,369 (consisting of costs associated with the
exit of company-owned international operations and the alignment and
closure of call centers.)
For the year ended December 31, 2000:
For the year ended December 31, 2000 SG&A was $1,547,701, including
$43,368 and $238,740 in special charges in Q4 (consisting of
impairment of ALR goodwill, severance and asset writedowns) and
international SG&A, respectively.
SOURCE Gateway, Inc.
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Related links:
http://www.gateway.com
CONTACT:
Media, Donna Kather, +1-858-848-2657,
donna.kather@gateway.com, or Ashley Wood, +1-858-848-3874,
ashley.wood@gateway.com, or Investor Relations, Marlys Johnson,
+1-605-232-2709, marlys.johnson@gateway.com, all of Gateway Inc.
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