SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-22784
GATEWAY, INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
42-1249184 (I.R.S. Employer Identification No.) |
14303 Gateway Place
Poway, California 92064
(Address of
principal executive offices, zip code)
Registrant’s telephone number, including area code: (858) 848-3401
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days
Yes x No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)
Yes x No o
As of May 12, 2003 there were 324,072,364 shares of the Common Stock of Gateway, $.01 par value per share, outstanding. As of May 12, 2003 there were no shares of Gateway’s Class A Common Stock, $.01 par value per share, outstanding.
Gateway, Inc
Form 10-Q
For the period ended March 31, 2003
Table of Contents
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| Part I |
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Financial Information |
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| Item 1. |
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Financial Statements |
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1 | |
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2 | |
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3 | |
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4 | |
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| Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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| Item 3. |
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28 | |
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| Item 4. |
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28 | |
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| Part II |
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Other Information |
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| Item 1. |
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30 | |
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| Item 6. |
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30 |
| 31 |
Item 1.
Financial Statements
Gateway, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the three
months ended March 31, 2003 and 2002
(in thousands, except per share amounts)
(unaudited )
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Three Months Ended March 31, |
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2003 |
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2002 |
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| Net sales |
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$ |
844,451 |
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$ |
992,241 |
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| Cost of goods sold |
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738,217 |
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867,606 |
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| Gross profit |
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106,234 |
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124,635 |
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| Selling, general and administrative expenses |
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308,347 |
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337,940 |
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| Operating loss |
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(202,113 |
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(213,305 |
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| Other income, net |
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4,414 |
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17,760 |
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| Loss before income taxes |
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(197,699 |
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(195,545 |
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| Benefit for income taxes |
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— |
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(72,352 |
) |
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| Net loss |
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$ |
(197,699 |
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$ |
(123,193 |
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| Preferred stock dividends and accretion |
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(2,782 |
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(2,987 |
) |
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| Net loss attributable to common stockholders |
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$ |
(200,481 |
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$ |
(126,180 |
) |
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| Basic and diluted net loss per share |
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$ |
(0.62 |
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$ |
(0.39 |
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| Weighted average shares outstanding: |
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| Basic and diluted |
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324,072 |
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323,976 |
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The accompanying notes are an integral part of the consolidated condensed financial statements.
1
Gateway, Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 2003 and December 31, 2002
(in thousands, except per share
amounts)
(unaudited)
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March 31, |
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December 31, |
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| ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
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$ |
406,157 |
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$ |
465,603 |
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| Marketable securities |
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809,035 |
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601,118 |
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| Accounts receivable, net |
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141,270 |
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197,817 |
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| Inventory |
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78,880 |
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88,761 |
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| Other, net |
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263,052 |
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602,073 |
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| Total current assets |
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1,698,394 |
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1,955,372 |
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| Property, plant and equipment, net |
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414,207 |
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481,011 |
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| Intangibles, net |
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20,965 |
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23,292 |
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| Other assets, net |
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49,571 |
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49,732 |
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$ |
2,183,137 |
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$ |
2,509,407 |
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| LIABILITIES AND EQUITY |
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| Current liabilities: |
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| Accounts payable |
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$ |
229,033 |
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$ |
278,609 |
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| Accrued liabilities |
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291,503 |
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364,741 |
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| Accrued royalties |
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56,405 |
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56,684 |
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| Other current liabilities |
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226,530 |
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240,315 |
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| Total current liabilities |
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803,471 |
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940,349 |
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| Long-term liabilities |
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135,429 |
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127,118 |
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| Total liabilities |
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938,900 |
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1,067,467 |
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| Contingencies (Note 6) |
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| Series C redeemable, convertible preferred stock, $.01 par value, $200,000 liquidation value, 50 shares authorized, issued and outstanding |
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195,994 |
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195,422 |
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| Stockholders’ equity: |
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| Series A convertible preferred stock, $.01 par value, $200,000 liquidation value, 50 shares authorized, issued and outstanding |
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200,000 |
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200,000 |
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| Preferred stock, $.01 par value, 4,900 shares authorized; none issued and outstanding |
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— |
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— |
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| Class A common stock, nonvoting, $.01 par value, 1,000 shares authorized; none issued and outstanding |
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— |
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— |
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| Common stock, $.01 par value, 1,000,000 shares authorized; 324,072 shares issued and outstanding |
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3,240 |
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3,240 |
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| Additional paid-in capital |
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732,760 |
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732,760 |
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| Retained earnings |
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106,898 |
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307,379 |
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| Accumulated other comprehensive income |
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5,345 |
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3,139 |
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| Total stockholders’ equity |
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1,048,243 |
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1,246,518 |
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$ |
2,183,137 |
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$ |
2,509,407 |
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The accompanying notes are an integral part of the consolidated condensed financial statements.
2
Gateway, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2003 and 2002
(in
thousands)
(unaudited)
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Three Months Ended March 31, |
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2003 |
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2002 |
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| Cash flows from operating activities: |
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| Net loss |
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$ |
(197,699 |
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$ |
(123,193 |
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| Adjustments to reconcile net loss to net cash provided by operating activities: |
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| Depreciation and amortization |
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47,453 |
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38,266 |
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| Provision for uncollectible accounts receivable |
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3,217 |
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3,564 |
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| Write-downs of property and equipment |
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41,035 |
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52,973 |
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| Gain on investments |
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(297 |
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(706) |
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| Gain on settlement of an acquisition liability |
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— |
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(9,882 |
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| Other, net |
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644 |
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374 |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
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53,330 |
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35,993 |
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| Inventory |
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9,881 |
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4,853 |
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| Other assets |
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334,491 |
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146,560 |
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| Accounts payable |
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(49,281 |
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(10,787 |
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| Accrued liabilities |
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(73,238 |
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(31,962 |
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| Accrued royalties |
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(279 |
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(49,745 |
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| Other liabilities |
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(4,623 |
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(11,336 |
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| Net cash provided by operating activities |
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164,634 |
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44,972 |
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| Cash flows from investing activities: |
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| Capital expenditures |
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(13,500 |
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(18,830 |
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| Purchases of available-for-sale securities, net |
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(207,620 |
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(131,739 |
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| Proceeds from the sale of financing receivables |
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— |
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9,896 |
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| Other, net |
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— |
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(330 |
) |
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| Net cash used in investing activities |
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(221,120 |
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(141,003 |
) |
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| Cash flows from financing activities: |
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| Payments of preferred dividends |
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(2,960 |
) |
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— |
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| Stock options exercised |
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— |
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249 |
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| Net cash (used in) provided by financing activities |
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(2,960 |
) |
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249 |
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| Net decrease in cash and cash equivalents |
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(59,446 |
) |
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(95,782 |
) |
| Cash and cash equivalents, beginning of period |
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465,603 |
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730,999 |
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| Cash and cash equivalents, end of period |
|
$ |
406,157 |
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$ |
635,217 |
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The accompanying notes are an integral part of the consolidated condensed financial statements.
3
Gateway, Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.
General:
The accompanying unaudited consolidated condensed financial statements of Gateway, Inc. (“Gateway”) as of March 31, 2003 and for the three months ended March 31, 2003 and 2002 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2002 and, in the opinion of management, reflect all adjustments necessary to fairly state the consolidated financial position, results of operations and cash flows for the interim periods. All adjustments noted above are of a normal, recurring nature. The results for the interim periods are not necessarily indicative of results to be expected for any other interim period or the entire year. These financial statements should be read in conjunction with Gateway’s audited consolidated financial statements and notes thereto for the year ended December 31, 2002, which are included in Gateway’s 2002 Annual Report on Form 10-K, filed with the Securities and Exchange Commission.
The significant accounting policies used in the preparation of the consolidated condensed financial statements of Gateway are as follows:
(a)
Basis of Presentation:
The consolidated condensed financial statements include the accounts of Gateway and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior years’ financial statements to conform to current year presentation. These reclassifications had no impact on previously reported net loss or stockholders’ equity.
(b)
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates under different assumptions or conditions.
(c)
Cash and Cash Equivalents:
Gateway considers all highly liquid debt instruments and money market funds with an original maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of t