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Thursday January 21, 5:06 pm Eastern Time
Company Press Release
Gateway Reports Record Fourth Quarter
NORTH SIOUX CITY, S.D.--(BUSINESS WIRE)--Jan. 21, 1999--Gateway today
reported record sales of 1,151,000 PCs, a 35% increase from fourth quarter 1997; record sales of $2.31
billion and record earnings per diluted share of $0.81 for the fourth quarter ending December 31, 1998.
''We delivered record results across all major aspects of our business in the fourth quarter,'' said Ted Waitt,
Chairman and Chief Executive Officer of Gateway. ''Improved execution and solid fundamentals allowed us to
exit the year with excellent momentum. We grew twice as fast as the market overall, and even faster in the
consumer segment, allowing us to achieve record market share for the 32nd consecutive quarter.''
Quarterly Sales Cross $2 Billion Mark For the First Time In Gateway History
Fourth quarter revenue was $2.31 billion, up 17% from the $1.98 billion recorded a year ago.
Gateway's record unit growth was due to strong sales across all geographic areas. The Americas region grew
34.5% in units and 15.9% in revenue over 1997's fourth quarter. Europe turned the corner this quarter with a
20.9% increase in units and a 1.6% increase in revenue compared to fourth quarter last year due to successful
launches of Your:)Ware(SM) and Gateway Country® stores. Growth in Asia Pacific continued its momentum
with an increase of 73.9% in units and an increase of 50.6% in revenues compared to the fourth quarter of
1997.
Average unit prices (AUPs) decreased 14% to $2003 in the fourth quarter compared to $2326 last year and
decreased 2% compared to the third quarter of 1998.
With the addition of 59 stores in the fourth quarter, Gateway Country expanded to 144 stores in the U.S. at year
end 1998.
Gross Margins Increase For the Fifth Consecutive Quarter
Due to aggressive supplier management, effective pricing management, a richer product mix and continued
declining component costs, gross margins increased for the fifth consecutive quarter, hitting another record
high this quarter of 21.6% compared with 18% last year and up from 20.8% in the third quarter of this year.
Selling, General & Administrative (SG&A) Improves 1.1 Points on a Sequential Basis
SG&A spending totaled $310.6 million or 13.5% of sales up from last year's level of $215.5 million or 10.9% of
sales and up from third quarter's level of $264.5 million or 14.6% of sales. The increase is attributable to
supporting the strong unit growth this quarter plus the long-term investments in the infrastructure to improve
scalability.
Operating Income Grows at 34%
Operating Income for the fourth quarter of 1998 was $188 million compared to $140 million a year ago. Other
income increased to $14 million, more than doubling from fourth quarter 1997.
Net Income Grew 39% on 17% Sales Growth
In the fourth quarter, net income rose to $129 million or $0.81 per diluted share compared to $93 million or
$0.59 per diluted share in the fourth quarter last year. Earnings per diluted share of $0.81 is a 37%
improvement from one year ago.
Cash Flow Reaches $1.3 Billion Level
Cash and marketable securities' increases were driven by strong working capital performance. Strong
inventory management programs once again resulted in record highs for the company. Inventory turns were 40
compared to 21 a year ago and 33 last quarter. The cash conversion cycle continues to improve to a negative
5 days. The effective tax rate for the quarter was 36% which was consistent throughout the year.
Jeff Weitzen, President and Chief Operating Officer, commented, ''We were able to deliver these results
because our execution continuously improved over the year with fourth quarter being our best. Our phone, retail
and web channels all performed well and even more importantly, in harmony, giving customers a superior
buying experience. Gateway's brand awareness continues to grow as does our market share. We are
effectively managing all of our costs, expenses and inventory levels which led to our record margins, inventory
turns and cash.''
1998 Highlights
''1998 was a very successful year for Gateway,'' said Waitt. ''We built a great foundation for future growth by
dramatically enhancing our management team, adding over 100 new Country locations, and adding new
administrative, manufacturing, IT and support facilities. We also launched Your:)Ware diversifying our business
into financing and the Internet. We accomplished all this while simultaneously increasing our revenue, market
share and earnings to record levels.''
Unit shipments for the year ended December 31, 1998, increased 37% to 3,541,000 units compared to
2,580,000 units shipped in 1997.
Sales in 1998 increased 19% to $7.47 billion compared to $6.29 billion in 1997.
Net income for the year was $346.4 million or $2.18 earnings per diluted share compared to $109.8 million in
1997 or $.70 earnings per diluted share.
A revolutionary way to buy a PC, ''Your:)Ware,'' was launched in 1998.
Gateway Country added 107 stores during the year.
Gateway experienced strong growth in its Internet service business with the gateway.net(SM) subscriber base
exceeding 200,000 by year end.
Gateway aggressively strengthened its senior management team throughout the year, adding nine key senior
officers to the management ranks.
Inventory turns grew from 21 to 40 over the course of the year.
The Company announced further expansion to several new business locations in 1998: San Diego, Irvine, and
Lakewood, Colorado.
Gateway's brand building efforts gained significant momentum in 1998. Total brand awareness increased from
87% at the end of 1997 to 95% at the end of 1998, while unaided awareness grew 10 points during the same
period.
We exited the year with a 9.6% share of the total U.S. market.
Business Outlook
''We are exiting the year with good momentum, solid fundamentals and a strong foundation for growth. In 1999,
we will capitalize on this foundation, continue to grow consumer market share, improve our position in the
business market, continue to expand internationally and rapidly expand our Internet business,'' said Waitt.
Annual Meeting
The 1999 Annual Meeting of shareholders of Gateway will be held on May 20, 1999, at the Sioux City
Convention Center, 801 Fourth Street, Sioux City, Iowa, at 9:00 a.m. local time.
Special Note
The above statements include forward-looking statements based on current management expectations.
Factors that could cause future results to differ from these expectations include the following: general economic
conditions; growth in the personal computer industry; competitive factors and pricing pressures; component
supply shortages; risks relating to acquired businesses; and inventory risks due to shifts in market demand.
Additional factors are described in the Company's reports filed with the Securities and Exchange Commission.
About Gateway
Gateway (NYSE: GTW - news), a Fortune 500 company founded in 1985, provides complete computing
solutions for clients worldwide. The Company has manufacturing facilities in the United States, Ireland and
Malaysia and employs over 19,000 people worldwide. Gateway products and services consistently win top
awards from leading industry publications. Revenue for the year 1998 was $ 7.5 billion. For further information,
visit Gateway at www.gateway.com.
Gateway, the stylized Gateway logo, Gateway Country and Your:)Ware are trademarks or registered
trademarks of Gateway 2000, Inc.
-0-
Gateway
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three months Twelve months
ended December 31, ended December 31,
----------------------- ----------------------
1998 1997 1998 1997
------------------------ ----------------------
Net sales $2,305,573 $1,976,835 $7,467,925 $6,293,680
Cost of goods sold 1,807,288 1,621,795 5,921,651 5,217,239
------------------------- ----------------------
Gross profit 498,285 355,040 1,546,274 1,076,441
Selling, general and
administrative
expenses 310,602 215,489 1,052,047 786,168
Nonrecurring expenses - - - 113,842
------------------------- ----------------------
Operating income 187,683 139,551 494,227 176,431
Other, net 14,103 6,994 47,021 27,189
------------------------- ----------------------
Income before
income taxes 201,786 146,545 541,248 203,620
Provision for
income taxes 72,643 53,635 194,849 93,823
------------------------- ----------------------
Net income $129,143 $92,910 $346,399 $109,797
========================= ======================
Net income per share:
Basic $0.83 $0.60 $2.23 $0.71
========================= ======================
Diluted $0.81 $0.59 $2.18 $0.70
========================= ======================
Diluted weighted
average shares
outstanding 159,567 156,526 158,929 156,201
========================= ======================
Gateway
Consolidated Balance Sheets
(in thousands)
December 31, December 31,
1998 1997
------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $1,169,810 $593,601
Marketable securities 158,657 38,648
Accounts receivable, net 558,851 510,679
Inventory 167,924 249,224
Other 172,944 152,531
------------- ----------------
Total current assets 2,228,186 1,544,683
Property, plant, and
equipment, net 530,988 376,467
Intangibles, net 65,944 82,590
Other assets 65,262 35,531
------------- ----------------
$2,890,380 $2,039,271
============= ================
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
Notes payable and
current maturities
of long-term obligations $11,415 $13,969
Accounts payable 718,071 488,717
Accrued liabilities 415,265 271,250
Accrued royalties 167,873 159,418
Other current liabilities 117,050 70,552
-------------- ----------------
Total current liabilities 1,429,674 1,003,906
Long-term obligations, net of
current maturities 3,360 7,240
Warranty and other liabilities 112,971 98,081
--------------- ----------------
Total liabilities 1,546,005 1,109,227
--------------- ----------------
Stockholders' equity
Common stock 1,566 1,541
Additional paid-in-capital 365,986 299,483
Retained earnings 980,908 634,509
Other (4,085) (5,489)
--------------- ----------------
Total stockholders' equity 1,344,375 930,044
--------------- ----------------
$2,890,380 $2,039,271
=============== ================
TOP FOURTH QUARTER 1998 AWARDS
U.S. Industry Publications
Portables
Windows Magazine, WinList, Solo 3100XL
PC World, Best Buy, Solo 2500SE
Portable Computing Direct Shopper, Lizzie Award, Solo 3100
LapTop Buyers Guide, Best Buy, Solo 3100XL
G-Series
PC Magazine, The Best PC Editors' Choice, G6-450 PC Magazine,
Mainstream Home PCs Editors' Choice, G6-333C Maximum PC, Gear
of the Year, System of the Year, GX-450XL Computers.com, Home
PCs, Editors' Choice, G6-450
E-Series
PC World, Top 20 Power Desktops, E-4200 Windows Magazine,
WinList, E-4200 400 PC World, Top 20 Budget Desktops, E-3200
400 PC Novice Buyers Guide, Top Pick for Business, E-3200
Workstation
Computer Graphics Shoppers Guide, Top Pick, E-5200 and E-5250
European Industry Publications
United Kingdom/Ireland
Computer Buyer, Best Service for PC Purchase, Gateway PC Pro,
PC Pro Labs Award for Quality, Solo 9100 PC Magazine,
Editors' Choice, Solo and G6-300 PC Direct, Expert Buyer -
Recommended, G6-450 PC Home, Gold Award, G6-350 Computer
Active, Best Desktop PC, G6-333
Germany
PC Professionell, Empfehlung der Redaktion, Solo 3100SE PC
go!, Testsieger, Solo 2500 266LS CHIP, Produkt des Jahres,
G6-400 PC Professionell, 1 Platz Top 10 Index, G6-333C
Tomorrow, 1 Platz Midrange Notebooks, Solo 2500 266LS
Stiftung Warentest, Unser Rat, G6-266
Benelux
Computer Idee, Editors' Choice Best Service for PC's, Gateway
Computer Idee, Editors' Choice for Home PC, G6-333C PC World,
Best Home Desktop PC, G-Series PC World, Best Buy, G6-333
Sweden
PC Format, 1st Place - Best in Test, G6-450XL
France
PC Achat, Meilleur produit 99, G6-450XL SVM, Meilleur produit
pour moins de 15000fr., Solo 2500SE L'Essentiel du
Management, Le meilleur parmi huit autres, G6-350 Windows
News, Choix de la redaction, G6-350
Asia/Pacific Industry Publications
Japan
Nikkei Personal Computer, Ranked No.3 and No.4 in Portable PC
Performance, Solo 9100XL, 5150LS Nikkei Personal Computer,
Ranked No.4 in Portable PC Performance, Solo 5150LS Nikkei
Personal Computer, Ranked No.1 in Portable PC Performance,
Solo 3100XL Hello! PC, Editor's Choice Model, G6-333C,
GP6-450
Australia
Internet.au, Editor's Choice, G6-300
PC Authority, Speed Award, G6-450XL
PC Magazine, Merit Award, G6-450
PC Authority, Value Award, G6-350
South Asia
PC World-Malaysia, No.1 in Power Desktops, G6-350XL
PC World-Malaysia, No.1 in Power Notebooks, October and
December, Solo 5150LS PC World-Malaysia, Top 3 Products of
the Year:
Power Notebooks, Solo 5100 Multimedia Desktops, G6-400XL
Power Desktops, G6-350
PC World-Singapore, No.1 in Power Desktops, G6-350XL and
G6-400XL PC World-Singapore, No.1 in Budget Desktops, two
consecutive months, E-1200 PC World-Singapore, No.1 in Power
Notebooks, Solo 2500LS
PC World-Singapore, Top 3 Products of the Year:
Power Notebooks, Solo 5100 Multimedia Desktops, G6-400XL
Power Desktops, G6-333 Business Desktops, E-1200
Microsoft Magazine, Favorite Product of the Year, E-1200 333
CFO Asia Buyers Guide, No.1 in Pentium II Portables, Solo
2500SE
Contact:
Media Contact:
Angela Peacock, Corporate Communications
(605)232-1686
angela.peacock@gateway.com
or
Investor Relations Contact:
Marlys Johnson, Investor Relations
(605)232-2709
marlys.johnson@gateway.com |
