Company Also Announces Sale of $500 Million in Customer Financing Receivables;
Publishes New Investor Relations Metrics
SAN DIEGO, Feb. 28 /PRNewswire/ -- Gateway, Inc. (NYSE: GTW) today issued
financial guidance on its first quarter and an outlook for 2001. The company
also revised its financial results for 2000.
Gateway said that its plans for growing its business in 2001, which
include additional investment in customer satisfaction initiatives and
competitive pricing to ensure the company is providing the best overall value
in the market, have caused a reevaluation in its first quarter 2001 guidance.
The company said it now expects to break even on an operating income basis,
before the impact of non-recurring charges, in the first quarter of 2001 and
that unit sales in the first quarter are expected to be down slightly
year-over-year in line with previous top-line expectations.
Gateway also stated that it estimates its charge to first quarter earnings
will total between $150 million and $275 million, including the previously
announced estimate of $50 million for job eliminations and related matters.
The increased charge is the result of new management's decision to refocus on
the Company's core business model. The charge relates primarily to
restructuring Gateway's operations, including the possible closing of
under-performing retail store locations, planned modification of or exit from
certain international markets, and write-down related to IT projects, in
addition to the previously announced reduction in force and management
departures.
"As for the rest of 2001, we expect to continue operating the business on
a break-even basis through the first half of the year, with a planned return
to profitability and unit growth on a year-over-year basis during the second
half," said Ted Waitt, Gateway chairman and chief executive officer.
The company also announced that, in connection with its year-end audit, it
is restating its previously reported quarterly financial results during the
first three quarters of 2000 and revising previously announced full-year
financial results to reflect the retroactive adoption of new accounting
principles as well as a revision in the accounting treatment for certain
items.
The new accounting principles include the previously announced adoption of
EITF 00-10, "Accounting for Shipping and Handling Revenues and Costs," which
requires that freight charges billed to customers be included in net sales and
the related expense be included in cost of goods sold. Certain technical
support costs have also been reclassified from SG&A to Costs of Goods Sold.
These reclassifications have been retroactively applied and had no impact on
previously reported net income.
In addition, during the fourth quarter Gateway adopted Securities and
Exchange Commission Staff Accounting Bulletin No. 101 (SAB 101), which
provides specific guidelines on revenue recognition timing, and retroactively
changed its policy on revenue recognition for the year, so as to recognize
revenue on delivery rather than shipment of product.
Also as a part of the revised results, the company increased by
$75 million the fourth quarter pre-tax charge to earnings related to the
write-down of the company's investments in technology-based companies. The
impact on earnings of the restatement and revision of previously announced
fourth quarter results lowered full-year net income by about $74.5 million, or
$0.22 per share. Approximately $0.14 of this impact is related to the
write-down of such investments in the fourth quarter. Approximately $0.03 is
related to an increase in the loan-loss reserve on its finance receivables
portfolio due to a change in methodology applied, and $0.03 due to other
accounting matters. Other accounting matters primarily relate to revenue
recognition adjustments and also include the correction of certain accounting
irregularities relating to a foreign subsidiary that were immaterial in
amount. The adoption of SAB 101 had an impact of $0.03 in the first quarter
with an offsetting benefit of $0.01 for the fiscal year 2000.
As a result of the full year changes, which include adoption of the new
accounting principles, Gateway reported fiscal 2000 profits of $241.5 million
on revenues of $9.6 billion, or $0.73 per diluted share, a decrease of
45 percent from 1999. Operating income in 2000 was $511.3 million, or
$0.96 per diluted share, a decrease of 19 percent from 1999. Further
information on these adjustments is shown on the attached financial tables.
Separately, the company announced that on February 16, 2001, it sold
approximately $500 million in finance receivables to a third party at book
value with no recourse. Following the sale, the company held about
$300 million in finance receivables before reserves for loans to its
customers. Cash from the sale will be used for general corporate purposes.
As of February 16, Gateway had a balance of about $1.0 billion in cash and
marketable securities.
"As our cost-cutting steps take hold, and our value proposition gains
traction in the marketplace, we're looking forward to showing continued
improvement against our key metrics and exiting the year stronger than ever.
The combination of our direct relationship with the customer and our beyond
the box strategy positions us for sustainable, profitable growth over the long
haul," said Waitt. "By next year, we expect to be operating the business at a
5 percent net income level, growing faster than the market."
The company also announced today that it will augment the historical
financial reporting metrics that it releases periodically. Key metrics
consist of revenue; gross margin percentage; selling, general and
administrative costs; other income and expense; earnings per share; cash flow;
unit sales and average unit prices. Gateway will continue to report revenue
results on total business and by business units, and it will report PC and
non-PC revenue, profit and recurring profit. Gateway's policy on guidance
pursuant to SEC Regulation FD is posted on the company's Investor Relations
page on http://www.gateway.com.
To hear management discussion of the information in this news release,
please access a live webcast of Gateway's 2001 analyst meeting, which is
available through http://www.gateway.com at 1:45 PM PST on Feb. 28, 2001.
About Gateway
Gateway (NYSE: GTW), a Fortune 250 company founded in 1985, focuses on
building lifelong relationships with consumers, small and medium businesses
and government and education institutions by helping our clients meet all
their technology needs. Gateway is ranked by Fortune magazine as the most
admired American company in the Computers and Office Equipment industry (1).
The company had total global revenue of $9.6 billion in 2000. For more
information, visit our 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 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 unit prices, shifts from
desktops to mobile computing products and information appliances and the
impact of new microprocessors and operating software; 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. The Company 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 5,
2001.
Gateway
Consolidated Statements of Operations
For the year ended December 31, 2000
(in thousands, except per share amounts)
First Second Third Fourth Full Year
Quarter Quarter Quarter Quarter 2000
(Restated) (Restated) (Restated) (Revised) (Revised)
Net sales $2,398,950 $2,207,017 $2,548,290 $2,446,343 $9,600,600
Cost of goods
sold 1,880,448 1,707,646 1,969,593 1,983,919 7,541,606
Gross profit 518,502 499,371 578,697 462,424 2,058,994
Selling,
general and
administrative
expenses 332,238 335,782 392,005 487,676 1,547,701
Operating
income (loss) 186,264 163,589 186,692 (25,252) 511,293
Other, net 17,599 19,633 17,703 (157,628) (102,693)
Income (loss)
before income
taxes 203,863 183,222 204,395 (182,880) 408,600
Income tax expense
(benefit) 72,372 65,044 72,557 (54,707) 155,266
Net income
(loss) before
cumulative
effect of change
in accounting
principle $131,491 $118,178 $131,838 $(128,173) $253,334
Cumulative effect
of change in
accounting
principle 11,851 -- -- -- 11,851
Net income $119,640 $118,178 $131,838 $(128,173) 241,483
Net income per
share before
cumulative
effect of change
in accounting
principle:
Basic $0.41 $0.37 $0.41 $(0.40) $0.79
Diluted $0.40 $0.36 $0.40 $(0.40) $0.76
Net income per
share after
cumulative
effect of change
in accounting
principle:
Basic $0.37 $0.37 $0.41 $(0.40) $0.75
Diluted $0.36 $0.36 $0.40 $(0.40) $0.73
Basic weighted
average shares
outstanding 320,013 321,265 322,408 323,252 321,742
Diluted weighted
average shares
outstanding 332,541 331,727 333,681 323,252 331,320
First Second Third Fourth Full Year
Quarter Quarter Quarter Quarter 2000
(As previously reported)
Net sales $2,337,884 $2,141,875 $2,530,093 $2,373,352 $9,653,133
Cost of goods
sold 1,809,747 1,643,546 1,946,489 1,930,509 7,570,464
Gross profit 528,137 498,329 583,604 442,843 2,082,669
Selling,
general and
administrative
expenses 334,936 329,688 364,477 487,176 1,546,033
Operating
income (loss) 193,201 168,641 219,127 (44,333) 536,636
Other, net 17,703 19,945 17,482 (82,314) (27,184)
Income (loss)
before
income taxes 210,904 188,586 236,609 (126,647) 509,452
Income tax
expense
(benefit) 74,871 66,948 83,996 (32,331) 193,484
Net income $136,033 $121,638 $152,613 $(94,316) $315,968
Net income
per share:
Basic $0.43 $0.38 $0.47 $(0.29) $0.98
Diluted $0.41 $0.37 $0.46 $(0.29) $0.95
Basic weighted
average shares
outstanding 320,013 321,265 322,408 323,252 321,742
Diluted weighted
average shares
outstanding 332,541 331,727 333,681 323,252 331,320
Gateway
Impact of Changes (1)
(in thousands)
First Second Third Fourth Full Year
Quarter Quarter Quarter Quarter 2000
ADJUSTMENTS IMPACTING
NET INCOME
Net Sales
Accounting
pronouncements(2) $(26,246) $(3,123) $(2,179) $60,259 $28,711
Foreign
subsidiary
adjustments(4) (2,270) (8,440) (2,368) 13,078 --
Other adjustments(5) (6,649) (200) (74,049) (346) (81,244)
Total revisions
to net sales $(35,165) $(11,763) $(78,596) $72,991 $(52,533)
Gross profit
Accounting
pronouncements(2) (5,553) (3,930) 1,159 15,172 6,848
Foreign subsidiary
adjustments (4) (114) (422) (118) 654 --
Loan loss reserves(6) -- -- (13,987) 686 (13,301)
Other adjustments(5) (1,103) (200) (18,988) 3,069 (17,222)
Total revisions to
gross profit $(6,770) $(4,552) $(31,934) $19,581 $(23,675)
Operating income
Accounting
pronouncements(2) (5,553) (3,930) 1,159 15,172 6,848
Foreign subsidiary
adjustments (4) (114) (422) (118) 654 --
Loan loss reserves(6) -- -- (13,987) 686 (13,301)
Other adjustments(5) (1,270) (700) (19,489) 2,569 (18,890)
Total revisions to
operating income $(6,937) $(5,052) $(32,435) $19,081 $(25,343)
Net income
Accounting
pronouncements(2) (3,582) (2,535) 748 9,615 4,246
Foreign subsidiary
adjustments(4) (75) (272) (77) 424 --
Loan loss reserves(6) -- -- (9,022) 775 (8,247)
Other adjustments(5) (885) (653) (12,424) 2,250 (11,712)
Write-down of
investments(7) -- -- -- (46,921) (46,921)
Total revisions to
net income before
cumulative effect of
change in accounting
principle $(4,542) $(3,460) $(20,775) $(33,857) $(62,634)
Cumulative effect of
change in accounting
principle (11,851) -- -- -- (11,851)
Total revisions
to net income $(16,393) $(3,460) $(20,775) $(33,857) $(74,485)
Total revisions to
net income (loss)
per diluted share
before cumulative
effect of change
in accounting
principle $(0.01) $(0.01) $(0.06) $(0.11) $(0.19)
ADJUSTMENTS NOT
IMPACTING NET INCOME(3)
Total revisions to
net sales 96,231 76,905 96,793 -- --
Total revisions
to gross profit (2,867) 5,594 27,027 -- --
Total revisions to
operating income -- -- -- -- --
1. Changes show impact of restatement of the first three quarters and
revisions of the previously announced results of the fourth quarter of
fiscal 2000, excluding adjustments not impacting net income.
2. Effective January 1, 2000, the Company changed its revenue recognition
policy consistent with the guidance contained in Staff Accounting
Bulletin No. 101. The new policy recognizes that the risks and
rewards of ownership in many transactions do not substantively
transfer to customers until the product has been delivered to the
customer, even though legal title has transferred upon shipment. The
Company's previous policy was to recognize revenue upon product
shipment from the Company's manufacturing facilities. The new policy
defers revenue recognition of certain quarter and year-end shipments
to future periods.
3. During the fourth quarter, the Company reclassified freight billed to
customers from selling, general and administrative expenses to net
sales, and has reclassified related freight costs from selling,
general and administrative expenses to cost of sales pursuant to FASB
Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping
and Handling Fees and Costs." Additionally, technical support expenses
have been reclassified from selling, general and administrative
expenses to cost of goods sold. The first, second and third quarterly
financial information for 2000 and all information for 1999 have been
restated for these reclassifications. These reclassifications were not
material to previously reported gross profit and had no impact on
quarterly operating income (loss) or net income (loss) as previously
reported in 2000 or 1999.
4. Although the Company believes that these amounts are immaterial, it
has corrected certain accounting irregularities relating to a foreign
subsidiary's revenue caused by some former personnel of the
subsidiary.
5. Other adjustments primarily consist of revenue recognition items.
6. In connection with the audit of its 2000 financial statements, the
Company changed its methodology in determining its allowance for
losses on customer finance receivables retroactive to the third
quarter.
7. Additional net income adjustment of $75 million ($46.9 million after
tax) made after the fourth quarter earnings release related to long-
term investments. Total write-down for other than temporary decline of
long-term investments in the fourth quarter of 2000 is $152 million.
SOURCE Gateway, Inc.
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Related links:
http://www.gateway.com
CONTACT:
John W. Spelich, Public Relations,
858-799-2657, john.spelich@gateway.com, or Marlys D. Johnson,
Investor Relations, 605-232-2709, marlys.johnson@gateway.com,
both of Gateway, Inc.
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