U.S.

Gateway, Inc. Press Release

By CBSNews.com staff CBSNews.com staff

August 28, 2001 / 6:51 PM EDT / CBS

Official press release from Gateway. announcing the company's restructuring and job cuts.

Last month, Gateway, Inc. (GTW) announced that it was embarking on a significant acceleration of its strategic shift to transform the company from a traditional manufacturer of PCs to a leading provider of personalized technology solutions by better leveraging the company's existing retail footprint, its powerful brand and its beyond-the-box solutions leadership.

Today, Gateway unveiled additional measures of a sweeping plan to change fundamentally its underlying operations and cost structure in alignment with that strategic shift. These steps round out the company's restructuring, which began last month with the previously announced creation of its new U.S. Markets organization and Solutions groups.

The steps announced today include:

Formalizing six lines of business. In addition to the company's Hardware business, Gateway will also manage its operations along the following lines of higher-growth, higher-margin businesses: Communications, Applications, Learning, Financing and Services. Gateway will begin reporting revenue and gross profit for each of these lines of business starting in the fourth quarter.

An increased focus on these lines of business in the domestic U.S. market, where the company enjoys strength in its target customer segments, unparalleled brand awareness, a 296-store retail infrastructure and steadily growing solutions capabilities. As a result, the company announced today that it will immediately close all of its company-owned operations in Malaysia, Singapore, Japan, Australia and New Zealand. The company is currently engaged in the employee consultation process in key European markets regarding a proposal to exit those markets as well, with a definitive announcement regarding its European operations expected within the next 30 days.

Consolidated call center capabilities in which sales, service and support staff within centralized call centers will be aligned with specific geographic regions and territories in the U.S. in keeping with the company's new focus on local market execution. This consolidation will leverage the company's on-going move to better utilize its retail store network for sales, service and support, and will result in the closure of call centers in Hampton, Virginia; Vermillion, South Dakota; Salt Lake City, Utah; and Lake Forest, California. Call centers will remain in Sioux Falls and North Sioux City, South Dakota; Kansas City, Missouri; Rio Rancho, New Mexico; and Colorado Springs, Colorado.

Streamlined manufacturing operations based on the company's shift to a more simplified product line and the current demand environment. This new manufacturing model, which significantly improves production efficiency and flexibility for growth, will result in the closure of its Salt Lake City manufacturing facility and the development of more efficient manufactring operations in Hampton and North Sioux City.

New local management structure to deliver personalized technology solutions at the local level to all of the company's customers in the U.S. Since the announcement of the formation of the U.S. Markets group on July 19, the company has staffed the management of that organization and divided it into three primary regions -- East, Central and West. These three regions are sub-divided into 20 territories, with each territory having from eight to 26 Gateway retail locations along with field sales personnel, all of which are supported by a combination of local and centralized sales, service and support organizations.

The company's preliminary estimates indicate that the above steps, those previously announced related to the creation of the U.S. Markets organization and Solutions groups, and related reductions in administrative and support functions will result in pre-tax special charges for the third quarter of 2001 of approximately $475 million. This estimate includes an amount of approximately $200 million for the possible exit from the company's European markets.

This $475 million is comprised of cash and non-cash charges of $150 million and $325 million, respectively. These steps are estimated to save the company approximately $300 million in costs and expenses annually. Notwithstanding the use of cash described above, the company projects it will exit the year at approximately its current level of cash and marketable securities of $1 billion. The company believes that its current sources of working capital and liquidity will provide adequate flexibility for its financial needs for the foreseeable future.

These steps and reductions in administrative and support functions will result in approximately a 15% reduction of the company's U.S. workforce and approximately a 25% reduction in Gateway's worldwide workforce, including the possible exit of European markets.

"As tough as these decisions were to make, we're doing all the right things to create a new company with a unique competitive edge and a healthy, profitable future," said Ted Waitt, Gateway's Chairman and CEO. "We're planning to win by building a lean, nimble organization that is unified and focused on our customer base unlike any other time in our history. We intend to succeed market by market, customer by customer, as the only company that can deliver personalized technology solutions on a local basis."

Outlook
The company's guidance for the second half of the year is updated with an expectation to report a slight loss on a pre-tax income basis, excluding special charges, for the third quarter, while returning to profitability on a pre-tax income basis for the fourth quarter such that we expect to be marginally profitable for the entire second half of 2001 on a pre-tax basis, excluding special charges. The company also expects domestic unit volume to increase sequentially during the third and fourth quarters.