COMPANY PRESS RELEASE: Gateway 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.
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.
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.
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.
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.