* * *
Achieves Sequential Revenue Growth
POWAY, Calif., July 18 /PRNewswire-FirstCall/ -- Gateway, Inc. (NYSE: GTW)
today reported second quarter 2002 revenue of $1 billion and a net loss
attributable to common stockholders of $61 million, or $0.19 per share. This
performance is consistent with guidance and represents sequential unit growth
which is a reversal of the normal seasonal decline of seven percent. The
company has not experienced sequential unit growth in the second quarter since
1997.
"Gateway is growing again. The introduction of our new notebook and
desktop PC designs, combined with our value pricing strategy, enabled Gateway
to make significant progress against our plan to return to sustained
profitability," said Ted Waitt, Gateway chairman and CEO. "Our hard work is
starting to pay off, and we're going to keep building on this momentum for the
back-to-school buying season in the third quarter."
Q2 Performance Highlights
The company achieved several other important successes in the second
quarter:
-- Gateway reaffirmed its technology leadership with a new portable PC
line that helped lift quarterly notebook unit sales to 20 percent of
the sales mix. The company also introduced a sleek new lineup of
desktop PCs during the quarter with industry-leading value and
features. Gateway's redesigned PCs were recognized with honors
including "Best Buy" awards for home and office computers in the July
issue of PC World and an "Editors' Choice" award from CNet in April.
In addition, Gateway's small business solutions were recognized with
an "Editors' Choice" award in PC Magazine's April issue.
-- The company's limited retail inventory program continued to drive
incremental sales in Gateway stores. Sales of in-stock units
accounted for seven percent of total units for the quarter.
-- Gateway was named number one in repurchase brand loyalty for PCs in
MetaFacts' Annual Technology User Profile survey(1).
Quarterly Sales
During the second quarter, Gateway sold 651,000 units, representing a
slight increase sequentially and an 18 percent decrease year-over-year on a
comparable basis. This unit increase has been driven largely by the company's
value pricing strategy adopted in the first quarter of this year.
Unit sales to government and education customers were stronger than
anticipated during the peak second quarter buying season. As expected,
consumer unit sales declined sequentially, but at a rate lower than the
company typically experiences in the second quarter.
The company's average unit price (AUP) increased slightly to $1,544 during
the quarter, compared to $1,538 in the first quarter. This AUP increase can
be attributed primarily to the company's increased mix of higher-priced
products and upgrades.
Sales of non-PC products and services in the second quarter were
17 percent of revenue and 49 percent of gross margin dollars, with $89 million
of revenue recorded at the point of sale and $85 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
consistent with the previous quarter.
Pre-Tax Loss
Gateway's gross margin for the quarter was 14.3 percent, compared to
14.1 percent in the previous quarter, which excludes first quarter special
charges. This increase resulted primarily from product mix changes and cost
reductions.
Selling, general and administrative (SG&A) expenses decreased to
$242 million, compared to $255 million for the previous quarter, which
excludes first quarter special charges, as Gateway began to realize the
benefits of the restructuring actions it recently implemented.
Other income, net declined to $5 million from $18 million in the previous
quarter. In the second quarter this amount was negatively affected by net
losses on investments, including the write down in value of certain strategic
investments, as compared to the first quarter which was favorably affected by
the net gain on investments and settlement of an acquisition liability.
The company had a pre-tax loss in the second quarter of $93 million.
Balance Sheet Highlights
Gateway maintained its strong liquidity position, exiting the second
quarter with more than $1 billion in cash and marketable securities. The
company's cash conversion cycle for the quarter declined to minus one day from
minus six days in the previous quarter as a result of the seasonal mix shift
to institutional sales at the end of the quarter, which was partially offset
by an improvement in the number of days of inventory on hand.
Outlook
The company expects revenue for the third quarter to increase sequentially
based in part on continued execution of its value pricing strategy. Gross
margin percentages are expected to improve sequentially based on leverage
associated with increased unit volume and continued cost improvements.
Gateway also expects SG&A expenses to increase above the second quarter level
in the third quarter based on variable SG&A associated with revenue increases
while declining as a percentage of revenue. Accordingly, the company
estimates the amount of the net loss per share to improve modestly from the
$0.19 experienced this quarter.
The company expects market conditions to remain challenging for the
remainder of the year, but is not changing its guidance of full-year 2002
revenue of $4.5 to $5.0 billion, a pre-tax loss (excluding special charges) of
$200 to $250 million, and a year-end balance of more than $1 billion in cash
and marketable securities.
"We said 2002 would be the year Gateway starts growing again and so far,
we've made meaningful progress against that goal," said Waitt. "We've
reclaimed the role of technology leader with industry-leading products, and
we're executing more effectively than we have in a long time. From here,
watch for Gateway to continue to grow our core PC business, expand our digital
solutions business and further leverage our cost structure."
Conference Call
Gateway will host a conference call on Thursday, July 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. In 2001, Gateway's products and
services received more than 45 awards and accolades and the company was ranked
number one in repurchase brand loyalty for PCs(2). For more information,
visit Gateway's Web site at http://www.gateway.com.
(1,2) Source: MetaFacts Technology User Profile, 2001 Annual Edition.
Based on a survey of 6,799 home PC owners.
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 Six months
ended June 30 ended June 30
2002 2001 2002 2001
Net sales $1,004,915 $1,500,875 $1,997,156 $3,534,385
Cost of goods sold 861,335 1,220,769 1,728,941(1) 3,056,974
Gross profit 143,580 280,106 268,215 477,411
Selling, general,
and administrative
expenses 241,860 333,546 579,800(2) 1,106,806
Operating loss (98,280) (53,440) (311,585) (629,395)
Other income
(loss), net 5,472 22,872 23,232 (15,343)
Loss before income
taxes and
cumulative effect
of change in
accounting principle (92,808) (30,568) (288,353) (644,738)
Benefit for income
taxes (34,340) (9,782) (106,692) (144,899)
Loss before cumulative
effect of change in
accounting principle (58,468) (20,786) (181,661) (499,839)
Cumulative effect of
change in accounting
principle, net -- -- -- (23,851)
Net loss $(58,468) $(20,786) $(181,661) $(523,690)
Preferred stock
dividends and
accretion (2,777) -- (5,764) --
Net loss attributable
to common
stockholders $(61,245) $(20,786) $(187,425) $(523,690)
Basic and diluted net
loss per share before
cumulative effect of
change in accounting
principle $(0.19) $(0.06) $(0.58) $(1.55)
Basic and diluted
net loss per share $(0.19) $(0.06) $(0.58) $(1.62)
Basic and diluted
weighted average
shares outstanding 324,026 323,014 324,002 322,941
(1) Includes $15.6 million recorded in the first quarter of 2002
associated with the closure of certain sites and severance
obligations.
(2) Includes $83.0 million recorded in the first quarter of 2002
associated with the closure of certain sites, severance obligations
and the write down of capital assets.
Gateway, Inc.
Consolidated Balance Sheet
(in thousands)
June 30, 2002 December 31, 2001
ASSETS: (unaudited)
Current assets:
Cash and cash equivalents $425,422 $730,999
Marketable securities 601,003 435,055
Accounts receivable, net 258,312 219,974
Inventory 101,116 120,270
Other 529,693 616,626
Total current assets 1,915,546 2,122,924
Property, plant, and equipment, net 509,166 608,429
Intangibles, net 29,181 36,304
Other assets 152,190 219,200
$2,606,083 $2,986,857
LIABILITIES AND EQUITY:
Current liabilities:
Accounts payable $333,025 $341,122
Accrued liabilities 372,988 468,609
Accrued royalties 88,209 135,698
Other current liabilities 191,308 200,599
Total current liabilities 985,530 1,146,028
Other long-term liabilities 58,178 82,636
Total liabilities 1,043,708 1,228,664
Series C preferred stock 194,284 193,109
Stockholders' equity 1,368,091 1,565,084
$2,606,083 $2,986,857
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 Media, 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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