POWAY, Calif., April 18 /PRNewswire-FirstCall/ -- Gateway, Inc.
(NYSE: GTW) today reported first quarter 2002 revenue of $992 million and a
net loss of $123 million, including the pre-tax effects of $99 million of
special charges, or $0.39 per share, which is consistent with prior guidance.
Excluding special charges, the net loss for the quarter was $61 million, or
$0.20 per share.
As a result of the value pricing strategy it adopted in late January,
Gateway showed significant month-to-month unit growth during the quarter and
expects to show overall market share gains in its key U.S. consumer and small
and medium business (SMB) segments, based on preliminary industry data.
"By offering significant value at every price point, we took market share
in the first quarter, and we don't intend to let up," said Ted Waitt, Gateway
chairman and CEO. "We've sharpened our focus and these results clearly show
that we are achieving the desired results from our aggressive value pricing
strategy, thereby advancing toward long-term sustainable profitability."
Q1 Performance Highlights
Beyond demonstrating progress in executing its value pricing strategy, the
company achieved several other important successes in the first quarter:
-- Gateway PCs and servers powered the Olympic Winter Games -- some
5,300 computers, supported by Gateway technicians and staff, performed
flawlessly during the 16-day event.
-- The company's products continued to receive recognition. The Gateway
700XL, for example, won "Editors' Choice" awards from PC Magazine and
C/Net. Gateway also won PC Magazine's "Editors' Choice for Small
Business Solutions" award.
-- The company successfully rolled out a program to carry limited
inventory of pre-built Gateway PCs that customers can take home
immediately, which generated incremental sales.
-- Gateway finalized a total redesign of its PC products, adding sleek new
designs and industry-leading features in preparation for a series of
new product launches that begin next week.
-- The company took a number of actions which are expected to generate
approximately $100 million in annual cost savings.
Quarterly Sales
During the first quarter, Gateway sold 645,000 units in the U.S., down 30
percent year over year, but down only 5 percent sequentially, representing
Gateway's smallest first quarter sequential decline in the past eight years.
The company's average unit price decreased to $1,538 during the quarter,
compared to $1,667 for the fourth quarter, an anticipated result of the
company's value pricing strategy.
The company's first quarter consumer unit sales bucked seasonal trends,
with positive sequential unit growth. Unit sales to SMB customers were
sequentially flat.
Sales of non-PC products and services in the first quarter were 18 percent
of revenue and 49 percent of gross margin dollars, with $99 million of revenue
recorded at the point of sale and $80 million not at the point of sale.
Gateway's average selling price, which is the sum of PC and non-PC products
and services sold at the point of sale, was $1,414 for the quarter, down from
$1,527 for the previous quarter.
Pre-Tax Loss
The company's gross margin for the quarter was 12.6 percent, compared to
21.2 percent in the previous quarter. Gross margin for the quarter, excluding
special charges, was 14.1 percent. This decrease was anticipated and is
primarily attributable to price reductions associated with the company's value
pricing strategy.
Selling, general and administrative (SG&A) expenses increased to $338
million, compared to $240 million for the previous quarter, due primarily to
special charges recorded in the period of $83 million. SG&A expenses,
excluding special charges, increased to $255 million, as compared to the
previous quarter, due in part to the company's increased marketing efforts in
the first quarter.
As discussed above, the company recorded special charges of $99 million
this quarter, which is in line with previous estimates for restructuring and
other actions that included the closure of select company sites.
Balance Sheet Highlights
Gateway improved its strong liquidity position, exiting the first quarter
with more than $1.2 billion in cash and marketable securities, while its cash
conversion cycle for the quarter improved to minus 6 days.
Outlook
"With our costs in line, Gateway now is successfully executing an
aggressive growth strategy that's driven by industry-leading products,
outstanding customer value and service, and the expansion of our digital
solutions business," said Waitt. "Gateway is proving that its strategy is
working, and we're positioned for long-term growth."
Gateway intends to continue its value pricing strategy and to outperform
historical growth trends. As a result, instead of the sequential decline
typically experienced during the second quarter, the company expects revenue
for the second quarter to be relatively flat as compared to the first quarter
of 2002. Sequential quarterly improvement is also expected in terms of the
amount of SG&A expenses which is targeted to decline to a level comparable to
the fourth quarter of 2001. Accordingly, the company estimates the amount of
the net loss per share to improve slightly from the $0.20 experienced this
quarter.
The company did not change its full year 2002 guidance that was provided
on February 27, 2002 at its annual analyst meeting.
"This quarter's results establish the baseline from which the performance
milestones we outlined at our analyst meeting should be assessed going
forward," said Waitt. "Our first quarter results demonstrate progress -
Gateway has taken market share while maintaining a strong liquidity position.
From here, it's all about consistently executing against our strategy and
building on the momentum we've established to grow our core PC business,
expand our solutions business and leverage our cost structure."
Conference Call
Gateway will host a conference call on Thursday, Apr. 18 at 5:30 p.m. EDT.
The call will be accessible via live audio webcast at http://www.gateway.com .
About Gateway
Gateway, Inc. (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 offered with 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. 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 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 among
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. 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.
Gateway, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three months ended March 31
2002 2001
(unaudited)
Net sales $992,241 $2,033,510
Cost of goods sold 867,606 1,836,205
Gross profit 124,635 197,305
Selling, general, and
administrative expenses 337,940 773,260
Operating loss (213,305) (575,955)
Other income, net 17,760 (38,215)
Loss before income taxes and
cumulative effect of change
in accounting principle (195,545) (614,170)
Benefit for income taxes (72,352) (135,117)
Loss before cumulative effect of
change in accounting principle (123,193) (479,053)
Cumulative effect of change
in accounting principle, net -- (23,851)
Net loss $(123,193) $(502,904)
Preferred stock dividends and accretion (2,987) --
Net loss attributable to
common stockholders $(126,180) $(502,904)
Basic and diluted loss per share
before cumulative effect of change
in accounting principle $(0.39) $(1.48)
Basic and diluted net loss per share $(0.39) $(1.56)
Basic and diluted weighted
average shares outstanding 323,976 322,868
Gateway, Inc.
Consolidated Balance Sheet
(in thousands)
March 31, December 31,
2002 2001
ASSETS: (unaudited)
Current assets:
Cash and cash equivalents $635,217 $730,999
Marketable securities 566,794 435,055
Accounts receivable, net 180,418 219,974
Inventory 115,417 120,270
Other 501,472 616,626
Total current assets 1,999,318 2,122,924
Property, plant, and equipment, net 529,551 608,429
Intangibles, net 32,743 36,304
Other assets 185,770 219,200
$2,747,382 $2,986,857
LIABILITIES AND EQUITY:
Current liabilities:
Accounts payable $330,883 $341,122
Accrued liabilities 448,648 468,609
Accrued royalties 85,953 135,698
Other current liabilities 194,154 200,599
Total current liabilities 1,059,638 1,146,028
Other long-term liabilities 55,914 82,636
Total liabilities 1,115,552 1,228,664
Series C preferred stock 193,717 193,109
Stockholders' equity 1,438,113 1,565,084
$2,747,382 $2,986,857
Gateway, Inc.
Analysis of Consolidated Statement of Operations
For the Three Months ended March 31, 2002
(in thousands, except per share amounts)
(unaudited)
Excluding
Special
As Reported Special Charges Charges
Net sales $992,241 $-- $ 992,241
Cost of goods sold 867,606 15,604(1) 852,002
Gross profit 124,635 (15,604) 140,239
Selling, general, and
administrative expenses 337,940 83,043(2) 254,897
Operating loss (213,305) (98,647) (114,658)
Other income, net 17,760 -- 17,760
Loss before income taxes (195,545) (98,647) (96,898)
Benefit for income taxes (72,352) (36,499) (35,853)
Net loss $(123,193) $(62,148) $(61,045)
Preferred stock dividends
and accretion (2,987) -- (2,987)
Net loss attributable
to common stockholders $(126,180) $(62,148) $(64,032)
Net loss per share $(.39) $(0.19) $(0.20)
(1) Represents costs associated with the closure of certain sites and
severance obligations.
(2) Represents costs associated with the closure of certain sites,
severance obligations and the write down of capital assets.
SOURCE Gateway, Inc.
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Related links:
http://www.gateway.com
CONTACT:
media, Brad Williams +1-858-848-2511,
brad.williams@gateway.com, or Ashley Wood, +1-858-848-3874,
ashley.wood@gateway.com, or investors, Marlys Johnson,
+1-605-232-2709, marlys.johnson@gateway.com, all of Gateway, Inc.
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