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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K
         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 2000

                         Commission file number 0-22784


                                  GATEWAY, INC.


   INCORPORATED IN DELAWARE                           I.R.S. EMPLOYER NUMBER
                                                            42-1249184

                  4545 TOWNE CENTRE COURT, SAN DIEGO, CA 92121

                        TELEPHONE NUMBER: (858) 799-3401


SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

    TITLE OF EACH CLASS                NAME OF EACH EXCHANGE ON WHICH REGISTERED
    -------------------                -----------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE           NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS                  NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE

         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 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 ___.

         Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]

         The aggregate market value of the voting stock held by
non-affiliates of the registrant on February 15, 2001 (based on the last sale
price on the New York Stock Exchange as of such date) was approximately
$4,644,563,274. At such date, there were 322,911,531 shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of Gateway's definitive proxy statement relating to its
2001 annual meeting of stockholders to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
to which this Report relates, are incorporated by reference in Part III of
this Form 10-K.

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FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-K, including "Business Factors That
May Affect Gateway's Business and Future Results" set forth below, contains
forward-looking statements that involve risks and uncertainties, as well as
assumptions that, if they do not materialize or prove incorrect, could cause
the results of Gateway, Inc., together with its subsidiary companies
("Gateway" or the "Company") 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 forward-looking statements contained herein involve risks and
uncertainties including, but not limited to, 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 unit prices, shifts from desktops to
mobile computing products and information appliances and the impact of new
microprocessors and operating software; 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 lay-offs and management
changes; and general economic conditions. To learn more about the risks and
uncertainties that the Company faces, you should read the risk factors set
forth in Gateway's Securities and Exchange Commission periodic reports and
filings, including but not limited to the items discussed elsewhere in this
Report. 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.

                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Gateway is a leading direct marketer of personal computers ("PCs")
and related products and services to consumers and businesses. Gateway
develops, manufactures, markets, and supports a broad line of desktop and
portable PCs, servers and workstations used by individuals, families, small
and medium businesses, government agencies, educational institutions, and
large businesses. Gateway also offers diversified products and services
"beyond the box," such as software, peripherals, Internet access services,
training programs, support programs and financing programs.

         The Company is one of the leading suppliers of PCs to the U.S.
consumer market, with a market share greater than 20% in 2000 based on
revenue, placing Gateway in the top two manufacturers of consumer PCs in the
U.S. in 2000, according to Gartner Group/Dataquest U.S. PC Quarterly
Statistics. Gateway's strategy is to deliver the best value to its customers
by offering quality, high-performance PCs and other products and services
employing the latest technology at competitive prices and by providing
outstanding service and support along with quality Internet access. Internet
users can access information about Gateway and its products and services at
HTTP://WWW.GATEWAY.COM.

         Gateway was incorporated as "Gateway 2000 Inc." in Iowa on August
15, 1986, merged into a South Dakota corporation of the same name effective
December 29, 1989, and merged into a Delaware corporation of the same name
effective February 20, 1991. Gateway's common stock trades on the New York
Stock Exchange under the symbol GTW.

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BUSINESS SEGMENTS

         During 2000, Gateway organized its global operations into four
operating segments: (a) the consumer segment in the United States, (b) the
business segment in the United States, (c) Europe, the Middle East and
Africa, and (d) Asia Pacific (including Australasia). The corporate
headquarters for Gateway is located in San Diego, California. For further
information on the Company's operating segments see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 13 of
the Notes to the Consolidated Financial Statements. The products and sales
channels employed by the business segments are substantially similar although
some are in different stages of development in the segments.

BUSINESS OPERATIONS

         DIRECT MARKETING AND DISTRIBUTION. Gateway sells its products
directly to PC customers primarily through three complementary distribution
channels - phone sales, its Internet web site, HTTP://WWW.GATEWAY.COM, and the
Gateway Country-Registered Trademark- stores. In April 1996, Gateway became
the first major PC manufacturer to provide consumers the ability to custom
configure, order and pay for a personal computer via the World Wide Web.
Gateway Country stores allow customers to test Gateway's products and have
their questions answered by highly trained sales representatives. Unlike
traditional retail stores, Gateway Country stores generally do not maintain
an inventory of computers for sale, keeping inventory risks and related costs
low. Customers can order a computer while at the store, can visit the Gateway
website later and place an order over the Internet, or can call to ask
further questions and order their computer over the telephone. Gateway
believes that more than 50% of its consumer customers take advantage of at
least two of these channels before making their purchases.

         Gateway believes that this direct distribution and multi-channel
approach provides several competitive advantages. First, Gateway believes it
can offer competitive pricing by avoiding the additional markups, inventory
and occupancy costs associated with distributors, dealers and traditional
retail stores. Second, by alleviating the need for the high levels of
finished goods inventory required by traditional retail channels, Gateway
believes it can respond more quickly to changing customer demands - offering
new products on a timely basis and reducing its exposure to the risk of
product obsolescence. Third, Gateway believes that working directly with
customers promotes brand awareness and customer loyalty as evidenced by the
high number of repeat customers.

         Gateway markets its products directly to customers, primarily by
placing advertisements on television, newspapers, magazines, radio, the
Internet (including links from the websites of certain of Gateway's
e-commerce partners), its Internet website, HTTP://WWW.GATEWAY.COM, local
promotions and trade show appearances. Gateway also conducts national
television advertising campaigns. Gateway believes its creative marketing,
including use of its famous trademarked "BLACK AND WHITE SPOT" design on
product packaging, has helped generate significant brand awareness and a
loyal customer base.

         As of December 31, 2000, Gateway had expanded its Gateway Country
stores to 327 stores in the United States from 242 stores at December 31,
1999, allowing customers direct interaction with sales representatives.
Customers can also order products over the telephone up to eighteen hours a
day and seven days a week in the U.S. and six days a week elsewhere in the
world.

         Gateway has sold over 21.6 million PCs to date, and maintains a
database of its customers. To provide a broader range of services to these
customers, Gateway has introduced a number of marketing and communication
techniques. These include sales catalogs, customer magazines, and the Gateway
Moola credit card that gives consumers a rebate applicable toward future
Gateway-TM- purchases. Since 1995, Gateway has maintained a web site on the
Internet. Gateway's Internet web site offers information about Gateway
events, new product offerings and technical support advice. In addition,
regular surveys of Gateway's customers also give Gateway valuable marketing,
service and product information.

         BUSINESS SALES. During 2000, the Company expanded sales and marketing
activities focused on its core market segments: small and medium business,
education and government. In 2000, the Company redesigned its Business Solutions
center in Gateway Country stores and added approximately 300 dedicated Business
Sales Representatives to address the technology needs of small and medium
business clients.

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         To complement its business sales efforts, Gateway also deployed a
program of 200 third-party Network Solutions Providers who work side-by-side
with the Company's Business Sales Representatives and business sales force to
deliver localized consultation and integration services to business,
education and government clients in essentially all the top markets across
the United States.

         In addition to its Gateway Country-Registered Trademark- store and
telephone sales channels, Gateway enhanced customer sales options with
Internet-based tools. The company offered business, education and government
clients personalized websites, called eSource sites, to facilitate their
order and order management requirements. Additionally the company added the
Gateway eMarketplace to facilitate both online purchases and sales of a wide
range of technology and products that help businesses run.

         Gateway's Custom Integration Services (CIS) program continued to
reduce the time and expense associated with the deployment of new business
systems. Gateway's CIS group accelerates technology deployment for clients
through factory installation of unique software images, development of image
restoration products, asset tagging installation of customer hardware and
software to meet clients' individual requirements.

         In 2000 Gateway expanded its sales force and demonstrated technology
leadership in the education market through the Company's work with a number
of K-12 and higher education institutions, including the deployment of the
first totally wireless campus at Buena Vista University in Storm Lake, Iowa.

         INTERNET BUSINESS - ACCESS AND E-COMMERCE. Gateway began offering
Internet service in November 1997, when it became the first major PC
manufacturer to offer nationwide Internet provider service directly to its
customers. The GATEWAY.NET-Registered Trademark- Internet service offers
electronic mail, Internet access, and an array of news, entertainment,
family-oriented topics, weather, sports, Internet tips and tutorials.

         Since October 1999, Gateway has had a wide-ranging relationship with
America Online, Inc. ("AOL") intended to accelerate distribution of each
company's products and services, including Internet service on either AOL or
gateway.net (now managed by AOL) offered by Gateway in connection with
product sales. By the end of the fourth quarter of 2000, Gateway's joint
Internet service activities with America Online had almost two million
customers.

         In February 1999, Gateway purchased a minority ownership share in
the e-commerce operations of NECX Direct. NECX created the first
Internet-based, transaction-capable, e-commerce site in 1993, and in 1998,
its site won the U.S. News and World Report "Best of the Web" award, PC
Magazine's "Editor's Choice" for Computer Hardware and PC World's "Best"
Online Buying Experience award. In March 2000, Gateway exercised its option
to acquire the balance of NECX. During 2000, the NECX website was integrated
with Gateway's website at HTTP://WWW.GATEWAY.COM, where it is now called the
"Accessory Store." Through Gateway.com, Gateway's customers are now able to
purchase an entire computing solution from one website offering personalized
PCs plus thousands of peripherals, software and related products.

         YOUR:)WARE-REGISTERED TRADEMARK- PROGRAM - CUSTOMIZED COMPUTERS. In
1998, Gateway introduced the Your:)Ware program that combines two unique
features to address customer concerns about obsolescence of PCs. Under the
Your:)Ware program, customers can trade in a Gateway computer and get a
credit toward the purchase of a new system. During 2000, Gateway expanded its
trade-in program to accept any brand of Pentium class personal computer for
credit toward the purchase of a new Gateway-TM- system, subject to the terms
and conditions of the program. Gateway also offers its Your:)Ware For
Business-SM- program designed to provide customized solutions, one-to-one
account management and a technology refresh program for small and medium
sized businesses. The Your:)Ware For Education-SM- program is designed to offer
training, customized software and hardware and dedicated support to K-12
school systems. In the future, Gateway plans to introduce its
Your:)Ware-Registered Trademark- 2.0 which includes photoware, musicware, and
other vertical applications.

         FINANCING PROGRAMS. In early 1999, Gateway announced the creation of
an internal division to manage the financing of customer PCs by the Company
and its third-party financing partners. During 2000 the Gateway

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program provided more than $2 billion in financing business related to the
Your:)Ware program and through more traditional financing vehicles for
customer purchases. For business customers, Gateway maintains relationships
with a number of leasing companies to provide leasing options tailored to
meet the needs of these customers.

         QUALITY PRODUCT, SERVICE AND SUPPORTS. Gateway believes that as PC
customers have become increasingly sophisticated in their purchasing
decisions, quality and reliability have become increasingly important.
Gateway works closely with its suppliers to develop high-quality components,
manufactured to Gateway's specifications. Gateway believes that customers
judge quality by evaluating the performance and reliability of a company's
products, as well as a company's ability to provide comprehensive service and
support for its PCs. To provide superior service and support to its
customers, Gateway utilizes trained customer and technical support
representatives to assist customers with the resolution of technical
questions relating to Gateway's products.

         LATEST TECHNOLOGY. Gateway works directly with a wide range of
suppliers to evaluate the latest developments in PC-related technology.
Gateway believes that these relationships, together with market information
obtained from its direct customer relationships, the flexibility of
build-to-order manufacturing, low inventory and short production lead times
allow Gateway to rapidly introduce and deliver appealing new products and
software.

         COMPETITIVE PRICING. Gateway offers its products at competitive
prices by seeking to achieve a low-cost operating structure. First, in
addition to the cost advantages of marketing and selling its products
directly to its customers, Gateway endeavors to minimize overhead expenses.
During 2000, Gateway operated manufacturing facilities in South Dakota,
Virginia, Utah, Ireland and Malaysia, locations with relatively low costs
associated with facilities, work forces and taxes. In January 2001, Gateway
announced its intention to move its California server manufacturing
operations to South Dakota by the end of March 2001. Second, Gateway's
in-house engineering personnel work closely with component suppliers in
developing and implementing new technology, reducing the investment usually
associated with a traditional, in-house research and development group.
Finally, Gateway believes its large volume of business affords it certain
economies of scale, which lower its unit costs and contribute to operating
efficiencies.

         GROWTH INITIATIVES. The growth in Gateway's net sales to date has
resulted primarily from the sale of desktop and portable PCs to individuals,
home offices, small and medium businesses, and to governmental entities and
educational institutions in the U.S. market. Gateway's sales have continued
to grow because of the ongoing diversification of its revenue stream with the
introduction and expansion of new products and services, including financing
options, software, peripheral devices, Internet access and training programs.
Gateway believes that its growth in these areas benefits from its Gateway
Country-Registered Trademark- stores, which allow direct interaction with
retail customers and small business customers, and the enhancement of its
outside sales force which serves businesses, government agencies and
educational institutions.

         For a discussion of certain risks associated with Gateway's
operations, see "Factors That May Affect Gateway's Business and Future
Results" beginning on page 9 of this Report.

PC PRODUCTS

         Gateway offers a broad line of PCs and PC-based products, including
desktop and portable PCs, servers and workstations. Gateway-TM- PCs are
custom-configured with a choice of microprocessors of varying clock speeds,
memory and storage capacities, as well as other options, all as specified by
the customer. The following are the key products within this class:

         DESKTOP PCS. Gateway offers a series of desktop PC products,
developed to serve targeted customer segments. Desktops represented over 80%
of sales in fiscal 2000.

         PORTABLE PCS. Gateway offers a series of portable PC products to
provide portable computing capabilities for users who operate in both a
mobile and networked environment. The systems can be designed for either home
or business use and are available with docking stations and various
multimedia applications. Portables are a growing element of Gateway's
business, representing about 11% of sales in fiscal 2000.

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         SERVERS. Gateway principally offers Gateway-ALR-Registered
Trademark- branded servers for business customers. Every Gateway ALR server has
an adaptable design and can be custom built with a variety of options to fit
the customer's needs.

         INTERNET AND NETWORKING APPLIANCES. During the fourth quarter of
2000, Gateway introduced a number of products to address the expected growth
of networked products in the home. These early products are expected to prove
a key testing ground for future opportunities in the Internet appliance arena.

BEYOND THE BOX PRODUCTS AND SERVICES

         A key element of Gateway's growth strategy is expansion of "beyond
the box" product and service offerings, which are products and services sold
in addition to the base PC. Gateway offers an assortment of beyond the box
PC-related products and services, such as peripheral products and software,
Internet access services, financing programs, training programs and services
and support.

         PERIPHERAL PRODUCTS AND SOFTWARE. Gateway offers a variety of
products manufactured or published by third parties including monitors,
printers, fax/modems, CD-ROM drives, external storage devices, and third
party software titles.

         INTERNET ACCESS SERVICES. Gateway's joint Internet service
activities with AOL had more than two million subscribers at the end of 2000.
Through this service, Gateway intends to continue pursuing the seamless
integration of the hardware and Internet experience. During 2000, Gateway and
AOL also jointly offered broadband Internet access in selected markets.

         FINANCING PROGRAMS. In 2000, the Gateway finance program, including
third party financing partners, provided over $2 billion through financing
programs directed toward purchasers of Gateway-TM- PCs. Gateway customers are
offered a variety of traditional lending programs, as well as participation
in Gateway's Your:)Ware-Registered Trademark- program. Gateway also offers a
number of leasing programs for business customers.

         TRAINING. Through the growth of Gateway Country-Registered
Trademark- stores, Gateway now has approximately 6,000 classroom seats
throughout the country, offering training on general PC usage, popular
third-party software, Internet usage and networking services.

         SERVICES AND SUPPORT. Gateway has partnered with a number of third
parties to provide and strengthen Gateway's service offerings to consumers
and businesses of all sizes. In addition, with 327 Gateway Country stores
located within in the U.S., Gateway offers a unique ability among PC
manufacturers to service directly what it sells.

PRODUCT DEVELOPMENT

         Gateway's expenditures on research and development in each of the
last three years were less than 1% of net sales, as the Company primarily
relies on third party suppliers and other technology developers for research,
development and engineering. Gateway maintains close and cooperative
relationships with many of its suppliers and with other technology
developers. These relationships and Gateway's own engineering staff have
enabled Gateway to evaluate the latest developments in PC technology and to
quickly introduce new products and new product features to the market.
Gateway believes that its strong relationships with its suppliers will
continue to give Gateway access to new technology and enhance its ability to
bring the latest technology to market on a timely basis. Direct relationships
with its customers also enable Gateway to obtain valuable market information,
which it uses to assist in developing new product offerings.

MANUFACTURING

         Gateway has designed its manufacturing process to provide products
custom-configured to conform to customer specifications. Gateway uses production
teams to assemble most of its desktop PCs with each member of a production team
trained to do several tasks, increasing flexibility and efficiency. From time to
time, Gateway also

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uses third-party suppliers to manufacture portables and other products on
behalf of the Company. Gateway's production teams perform quality control
tests on each PC, and Gateway's quality assurance staff inspects samples of
completed PCs to ensure that the PCs meet Gateway's quality specifications
and applicable regulatory requirements. Each PC is generally shipped from
Gateway's manufacturing facilities ready-for-use, with an operating system
and certain application software already installed. Replacement parts are
also generally shipped directly from Gateway to its customers.

         Gateway's desktop and portable computer manufacturing operations in
North Sioux City, South Dakota; Hampton, Virginia; Dublin, Ireland; and
Malacca, Malaysia have been assessed and certified as meeting the
requirements of the International Organization for Standardization (ISO)
9002. ISO 9002 certification recognizes Gateway's compliance with
international standards for quality assurance.

PRODUCT WARRANTIES AND TECHNICAL SUPPORT

         PRODUCT WARRANTIES. Gateway believes its product warranties are an
important part of achieving customer satisfaction and maintaining Gateway's
image. Gateway provides competitive warranty packages on all of its
manufactured products, ranging from one year to five years. In many cases,
customers have the option of customizing their limited warranty to suit their
particular needs.

         E-SUPPORT SOLUTIONS. Gateway's e-support solutions approach combines
preloaded automated system-repairing software and online diagnostic and
computer maintenance programs to deliver automated technical support for its
customers.

         OTHER TECHNICAL SUPPORT OPTIONS. Gateway provides a number of other
basic technical support options to its customers through its website, as well
as through a variety of other methods, including e-mail, fax, and telephone
support. Many of these technical support options are available to customers
without charge. To expand the range of choices available to customers,
Gateway has also introduced a number of fee-based support options, ranging
from software tutorial services for consumers to advanced network support for
small and medium sized businesses.

PATENTS, TRADEMARKS AND LICENSES

             Gateway holds a number of U.S. and foreign patents and has a
number of U.S. and foreign patent applications pending. In addition to its
own engineering resources, Gateway works closely with PC component suppliers
and other technology developers to stay abreast of the latest developments in
PC technology. Gateway has obtained patent licenses for certain technologies
where such licenses are necessary or advantageous, some of which require
significant royalty payments. In addition, Gateway has entered into patent
cross-licenses to provide access to other technology.

         Gateway owns and uses a number of trademarks on or in connection
with its products and services, including Gateway, Your:)Ware, the "BLACK AND
WHITE SPOT" design, the Gateway Stylized Logo, Gateway Country, Gateway.net,
Solo, and "You've Got a Friend in the Business", among others. Many of these
trademarks are registered in the United States and other countries. Gateway
believes the GATEWAY and the famous "BLACK AND WHITE SPOT" design trademarks
have strong brand name recognition in the United States marketplace and in
many countries throughout the world.

         Because software used on Company-manufactured PCs generally is not
owned by the Company, Gateway has entered into software licensing or
cross-licensing arrangements with a number of software developers, including
Microsoft Corporation. For example, Gateway has licenses with Microsoft
Corporation for Windows 98, Windows NT, Windows 2000, and Windows ME, and
Microsoft Office software products, among others.

COMPETITION

         The PC industry is highly competitive, especially with respect to
pricing and the introduction of new products and product features. Gateway
competes primarily by adding new performance features to products while
minimizing corresponding price increases. Gateway believes its direct sales
model, Gateway Country-Registered Trademark- stores,

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customer service and support, and sales offering of "beyond the box" products
and services are additional competitive advantages.

         Competitive factors in Gateway's markets include price, availability
of new technology, variety of products and features offered, availability of
products and software, marketing and sales capability, and service and
support. Gateway believes it competes favorably with respect to each of these
factors.

         Gateway's results, however, could be adversely affected if it is not
able to introduce new products or product features as quickly as its
competitors or if its competitors offer products at significantly lower
prices than Gateway. In recent years, Gateway and many of its competitors
have regularly lowered prices, and Gateway expects these pricing pressures to
continue. Softness in the PC market in the fourth quarter of 2000 has led a
number of Gateway's competitors to aggressively cut pricing to spur sales and
gain market share. If cost reductions or changes in product mix do not
mitigate these pricing pressures, these competitive price pressures could
substantially reduce the Company's profits.

INTERNATIONAL OPERATIONS

         Gateway has operated in Europe ("Gateway Europe") since opening a
sales, service and production facility in Dublin, Ireland through Gateway
Ireland Ltd. in 1993. Currently, Gateway Europe has operations in most other
European countries, including Ireland, the United Kingdom, France, Germany,
Italy, the Netherlands, Sweden, Cyprus, Switzerland, Denmark and Spain.
Gateway Europe has e-commerce, Internet access service and retail operations
in Ireland, the United Kingdom, France and the Netherlands. Gateway Europe
uses a netowrk of resellers throughout the Middle East and Africa.

         Gateway has been doing business in the Asia Pacific region ("Gateway
Asia Pacific") since 1995. Since then, Gateway Asia Pacific has continued to
expand in the region, and today has manufacturing operations in Malacca,
Malaysia to provide products for the region. Gateway Asia Pacific has
operations in Singapore, Malaysia, Australia, New Zealand and Japan.

         In 1999, Gateway entered the Canadian computer market with product,
service and support offerings for Canadian business, government and education
customers. During 2000, Gateway expanded its presence in Canada with the
opening of Gateway Country-Registered Trademark- stores to sell products and
services to small businesses and consumers.

EMPLOYEES

         As of December 31, 2000, Gateway had approximately 24,600 full-time
employees, of whom 21,100 were in the U.S., 1,800 were in Europe and 1,700
were in other foreign countries. Gateway believes employee relations are
generally good.

BACKLOG

         Gateway's backlog of unfilled orders was approximately $70 million,
at both year-end 2000 and 1999. The Company does not believe that backlog is
a meaningful indicator of sales that can be expected for any period, and
there can be no assurance that the backlog at any point in time will
translate into sales in any subsequent period, particularly in light of the
Company's policy of allowing customers to cancel or reschedule orders under
certain circumstances.

SEASONALITY

         Gateway's operating results have been subject to seasonality and to
quarterly and annual fluctuations. Factors involved include new product
developments or introductions, availability of components, changes in product
mix and pricing and product reviews and other media coverage. Historically,
Gateway's sales have increased in the third and fourth quarters due, in part,
to back-to-school and holiday spending; however, in the fourth quarter 2000
sales did not follow the historical trend in light of general economic and
industry trends.

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FACTORS THAT MAY AFFECT GATEWAY'S BUSINESS AND FUTURE RESULTS

         The statements contained in this report contain a number of
forward-looking statements based on current management expectations. In
addition to other information contained in this report, the following factors
could affect the Company's future business, consolidated position, results of
operations or cash flows, and could cause future results to differ materially
from those expressed in any of the forward-looking statements in this Report.

COMPETITIVE MARKET CONDITIONS. The Company encounters aggressive competition
in its industry with numerous competitors vying for market share. Competition
is driven in large part by price and availability of new technology and
products. A number of the Company's larger competitors have aggressively cut
prices to spur sales and gain market share in light of recent softness in the
PC industry. The Company believes it can counter these competitive forces by
continuing to react quickly to expected and perceived customer product
requirements and desires, and by maintaining relationships with its suppliers
to bring products quickly to market. There can, however, be no assurance that
it will be able to successfully continue to do so in an ever-changing
marketplace. Adverse general economic or business conditions also impact
demand for Gateway's products and services. In addition, the Company expects
the industry trend of declining average unit prices for PCs to continue.
Gateway intends to attempt to mitigate the impact of falling prices and
changes in product mix by continuing to diversify its revenue stream with new
products, software bundles, Internet services, financing and other service
and support offerings. If prices are not offset by reduced costs or increased
sales of other products and services, Gateway's profits could be adversely
impacted.

SUPPLIERS. Gateway requires a high volume of quality components for the
manufacture of its products, substantially all of which it obtains from
outside suppliers. While Gateway attempts to have multiple suppliers for such
components, in some circumstances it maintains single-source supplier
relationships. Failures of suppliers to meet component delivery schedules
have occasionally disrupted normal production schedules at Gateway and
Gateway may continue to experience production disruptions. Reliance on third
party suppliers also subjects Gateway to the risks of a shortage of
components, the possibility of defective parts produced by others, and
increases in component costs (which can adversely affect Gateway's
profitability).

PRODUCT CYCLES. Short product life cycles resulting from rapid changes in
technology and consumer preferences and declining product prices characterize
the PC industry. Gateway's internal engineering personnel work closely with
PC component suppliers and other technology developers to evaluate the latest
developments in PC-related technology. However, Gateway may not have access
to or the right to use new technology or may be unable to incorporate such
new technology in its products or features in a timely manner. The increasing
reliance on the Internet is creating new dynamics in the computer industry,
causing an emphasis on speed and connectivity rather than stand-alone
computing power. As a new generation of Internet devices is introduced, sales
of traditional desktop and other personal computers may decline and Gateway's
products will be subject to competition from consumer electronics companies,
telecommunications companies and other major consumer competitors.

ACCESS TO TECHNOLOGY. There can be no assurance that Gateway will continue to
have access to existing or new third-party technology for use in its
products. If Gateway or its suppliers are unable to obtain licenses necessary
to use protected technology in Gateway's products on commercially reasonable
terms, Gateway may be forced to market products without certain desirable
technological features. Gateway could also incur substantial costs to
redesign its products around other parties' protected technology or to defend
patent or copyright infringement actions against Gateway.

INFRASTRUCTURE REQUIREMENTS. The Company's business creates ongoing demands
for personnel, facilities, information and internal control systems and other
infrastructure requirements. If the Company is not successful in continuing
to develop its infrastructure, it could experience disruptions in operations,
which could have an adverse financial impact. The Company could be impacted
by its announced workforce reduction to occur in the first quarter of 2001.

INTERNATIONAL OPERATIONS. Gateway has expanded its operations into Europe,
the Asia Pacific region and Canada. International expansion involves
additional business risks such as foreign currency fluctuation, government
regulation, liability for foreign taxes and product sales, competition with
locally strong competitors, operating losses

9
<PAGE>

until critical mass is reached, and delivery and support logistics. In 2001,
the Company intends to rationalize and refocus its international business
activities, including exiting from marginal locations. There can be no
assurance that Gateway will effectively manage these additional risks.

FINANCIAL INSTRUMENTS. In an effort to minimize the impact of currency
fluctuations, Gateway engages in hedging programs involving forward exchange
contracts. Factors that could impact the effectiveness of hedging programs
include volatility of currency markets, reliability of sales forecasts, and
availability of hedging instruments.

E-COMMERCE. Gateway has developed its e-commerce business in part through
investment in existing companies and continued expansion of its e-commerce
site offering Gateway-TM- branded products as well as complementary products
from other manufacturers. E-commerce is still a relatively new and emerging
distribution channel whose success is dependent on a variety of factors,
including its continued acceptance by consumers. Gateway's success using
e-commerce depends on such factors as the satisfactory performance,
reliability and availability of Gateway's web site; the reliability and
efficiency of its computer and communications hardware systems; its ability
to compete with a growing number of rival e-commerce sites; its ability to
evolve, update and improve its services and offerings in response to changing
demands; and the consumer demand for its products. Expansion in this area has
required investment in start-up activities and initial operating losses in
this portion of Gateway's business.

RISKS OF MINORITY INVESTMENTS. Gateway holds and expects to continue to
consider investments in minority interests in companies having operations or
technology in areas within Gateway's strategic focus. Many of these
investments are in early stage companies, investment funds or Internet or
e-commerce companies where operations are not yet sufficient to establish
them as profitable concerns. Certain of these investments are in publicly
traded companies whose share prices are highly volatile. Adverse changes in
market conditions such as occurred in year 2000, and poor operating results
of certain of these underlying investments have resulted and may in the
future result in Gateway incurring losses or an inability to recover the
original carrying value of its investment.

RISKS OF ACQUISITIONS, JOINT VENTURES AND STRATEGIC ALLIANCES. Gateway has
entered into certain strategic alliances, acquired certain businesses that it
believes are complementary to its operations and anticipates making possible
acquisitions and entering into possible joint ventures in the future. While
Gateway believes it will effectively integrate such businesses, joint
ventures, or strategic alliances with its own, Gateway may be unable to
successfully do so without losing key employees or business relationships. In
addition, in the case of acquisitions, Gateway may be unable to smoothly
integrate the acquired companies' marketing, production, development,
distribution and management systems resulting in the Company's inability to
realize hoped for cost savings and/or sales growth. Gateway's operating
results could be adversely affected by any problems arising during or from
such process or the inability to effectively integrate any current or future
acquisitions.

RISK OF FINANCE RECEIVABLES. Gateway has the economic risk associated with
finance receivables held or retained by the Company from Gateway customers in
connection with the financing of their purchases of Gateway products. The
quality of creditworthiness of these borrowers is diverse. As such, there is
no assurance that Gateway's allowance for losses on finance receivables will
be adequate if consumer delinquencies or bankruptcies occur or if general
economic conditions deteriorate. In addition, when Gateway finances the sale
of its products, its receipt of the full purchase price for the products is
deferred over the life of the receivable which may adversely impact the
Company's ability to generate cash from operations.

INVENTORY RISKS. By distributing directly to its customers, Gateway has been
able to avoid the need to maintain high levels of finished goods inventory.
This has minimized costs and allows Gateway to respond more quickly to
changing customer demands, reducing its exposure to the risk of product
obsolescence. A decrease in market demand or an increase in supply, among
other factors, could result in higher component inventory levels which could
have a negative effect on Gateway's profitability.

CUSTOMER OR GEOGRAPHIC SALES MIX. Gateway's profits differ slightly depending
on the product sold, the customer segment and the geographic market involved.
As a result, Gateway's profitability in any fiscal period will depend, in
part, on the corresponding mix of customers, products and geographic markets.

10
<PAGE>

GENERAL ECONOMIC CONDITIONS. Gateway's revenue growth and profitability
depends significantly on the overall demand for personal computers and
related products and services. Softening demand for these products and
services caused by worsening economic conditions has resulted and may in the
future result in decreased revenues or growth rates and similar effects on
results of operations. Recently, the U.S. economy has weakened with a
resulting impact on Gateway's sales and operating profits. Further delays or
reductions in consumer and business spending on personal computers and
related products could have a material adverse effect on demand for the
Company's products and services and consequently on Gateway's future business.

ITEM 2. PROPERTIES

         Gateway occupies leased space of approximately 182,120 square feet
in San Diego, California for its corporate headquarters. The Company owns
space in North Sioux City, South Dakota housing a production facility,
customer sales and support center, training center, administration and
warehouse space totalling 856,800 square feet of space. The Company also
leases facilities in North Sioux City used for manufacturing and warehouse
space as well as leased space in Vermillion, South Dakota used for customer
service and warehouse space.

         Gateway owns facilities with a total of 218,000 square feet of space
in Sioux Falls, South Dakota that serve as a base for the sale and
fulfillment of orders for add-on PC components, the receipt of returned
merchandise and the fulfillment of orders for customer replacement parts. The
Company also leases space in Sioux Falls for remanufacturing operations.

         Gateway owns a facility in Kansas City, Missouri housing a customer
sales and support center and owns or leases facilities in Rio Rancho, New
Mexico and Colorado Springs, Colorado for customer support centers. The
Company also leases space in Lakewood, Colorado for an Information Technology
and Support Center, and space in Lake Forest, California for its business
operations.

         Gateway owns facilities in Hampton, Virginia and Salt Lake City,
Utah and leases space in Lake Forest, California which currently house
manufacturing, customer support, sales, warehouse space, and office space at
each location respectively. As of February 28, 2001 Gateway also leases
Gateway Country-Registered Trademark- store space in 326 locations throughout
the United States and Canada.

         Gateway's European operations are based in Dublin, Ireland, where
Gateway owns a facility housing the European headquarters, production
facility, customer sales and support center and warehouse space. The Company
also leases office and showroom space in other European locations.

         In Malacca, Malaysia, Gateway owns a manufacturing facility designed
to serve Gateway's markets in the Asia Pacific region. Gateway also leases a
showroom and call center space in Kuala Lumpur. In Australia, the company
leases a sales and distribution facility in Sydney as well as showroom space
in numerous Australian locations. In Japan, the company leases facilities in
Yokohama and Tokyo used for customer sales and support centers and warehouse
space and leases showroom space in Tokyo and Osaka. In Singapore and Hong
Kong the Company leases sales and distribution facilities, and in New Zealand
the Company leases facilities for manufacturing, sales, customer support,
administration, showrooms and warehouse space.

         As indicated above, Gateway has four principal business segments:
U.S. Consumer; U.S. Business; Gateway Europe; and Asia Pacific. Because of
the interrelationship between Business and Consumer, most of Gateway's U.S.
facilities are used at least in part by each of these segments. Management
believes that Gateway's office, manufacturing, and Gateway Country store
space will be adequate for its business needs in the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

11

<PAGE>


On December 7, 2000, James Burton ("plaintiff") filed a complaint against
Gateway, one of its officers, and one director, in the United States District
Court for the Southern District of California for alleged violation of
federal securities laws. Also in December 2000 and January 2001, four similar
cases were filed in the same court by other plaintiffs. The complaints allege
among other things that the defendants misrepresented Gateway's financial
performance in securities filings and in statements to the public, and
purport to be class actions on behalf of purchasers of Gateway's stock
between October 13, 2000 and November 29, 2000. The Complaints seek damages
and attorney's fees. On December 18, 2000, the Court entered an Order
directing counsel for the lead plaintiffs to file a single consolidated
complaint within 60 days after the Court's designation of a "lead plaintiff."
The Company's obligation to indemnify its officers and directors under the
aforementioned lawsuits is insured, to the extent of the limits of the
applicable insurance policies. The Company intends to vigorously defend these
actions, and believes that in the event that it is not fully successful,
insurance coverage will be available to defray a portion, or substantially
all, the expense of defending and settling the lawsuits or paying a
judgement. However, the Company is unable to predict the ultimate outcome of
the litigation. There can be no assurance the Company will be successful in
defending the lawsuits or that if unsuccessful, that insurance will be
available to pay all or any portion of the expense of the lawsuits. The
Company's consolidated financial statements do not include any adjustments
related to these matters.

Addditionally, Gateway is a party to various lawsuits and administrative
proceedings that arise in the ordinary course of its business. Gateway
evaluates such lawsuits and proceedings on a case by case basis, and its
policy is to vigorously contest any such claims which it believes are without
merit. Gateway's management believes that the ultimate resolution of any such
pending matter will not materially and adversely affect Gateway's
consolidated financial position, operating results or cash flows.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.










12

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

         Gateway common stock is quoted on the New York Stock Exchange under
the trading symbol "GTW". The following table sets forth the quarterly high
and low price per share for the Common Stock as quoted at the close of
trading on such date in 1999 and 2000 and as adjusted for a two-for-one stock
split on September 7, 1999:

<TABLE>
<CAPTION>

                                             High               Low
                                            ------            ------
      <S>                                  <C>               <C>
       1999:
                1st quarter                 $41.25            $26.81
                2nd quarter                 $38.34            $28.53
                3rd quarter                 $53.88            $30.03
                4th quarter                 $82.50            $46.88

       2000:
                1st quarter                 $73.00            $53.31
                2nd quarter                 $61.31            $46.81
                3rd quarter                 $70.94            $48.25
                4th quarter                 $56.98            $16.82
</TABLE>

HOLDERS OF RECORD

         As of February 22, 2001, there were 4,480 holders of record of the
Common Stock. There were no issued and outstanding shares of the Class A Common
Stock as of such date.

DIVIDENDS

         Gateway management believes the best use of retained earnings is to
fund internal growth and for general corporate purposes. As a result, Gateway
has not declared any cash dividends on Common Stock since it was first publicly
registered and does not anticipate paying any cash dividends on Common Stock in
the foreseeable future.

13

<PAGE>

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The following historical data were derived from the Company's
consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants. This financial data
should be read in conjunction with the consolidated financial statements and
notes thereto beginning on page 21 of this Report and in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 15 of this Report. In 2000, the Company adopted
FASB Emerging Issues Task Force No.00-10, "Accounting for Shipping and
Handling Fees and Costs", and has reclassified freight billed to customers
from selling, general and administrative expenses to net sales for all
periods presented. This change had no impact on reported net income. All data
presented has been recast to conform with the current presentation. The
information below is not necessarily indicative of the results of future
operations.

<TABLE>
<CAPTION>

                                               2000          1999         1998        1997         1996
                                               ----          ----         ----        ----         ----
                                                        (in thousands, except per share data)
       <S>                                <C>           <C>          <C>          <C>          <C>
         CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

         Net sales                         $9,600,600    $8,964,900   $7,703,279   $6,460,530    $5,151,353
         Net income                        $  241,483    $  427,944   $  346,399   $  109,797    $  250,679
         Net income per share:
              Basic                        $0.75         $     1.36   $     1.11   $     0.36    $     0.82
              Diluted                      $0.73         $     1.32   $     1.09   $     0.35    $     0.80


<CAPTION>
                                               2000          1999         1998        1997         1996
                                               ----          ----         ----        ----         ----
                                                                     (in thousands)
       <S>                                <C>           <C>          <C>          <C>          <C>
         CONSOLIDATED BALANCE SHEET DATA:

         Total assets                      $4,152,544    $3,954,688   $2,890,380   $2,039,271    $1,673,411
         Long-term obligations,
            net of current maturities      $    2,548    $    2,998   $    3,360   $    7,240    $    7,244

</TABLE>

14

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN THIS
DOCUMENT.

         This Report includes forward-looking statements made based on
current management expectations pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
guarantees of future performance and actual outcomes may differ materially
from what is expressed or forecasted. Factors that could cause future results
to differ from the Company's expectations include the factors described on
page 2 of this Report under "Forward-Looking Statements" as well as under
"Business - Factors that May Affect Gateway's Business and Future Results"
beginning on page 9 of this Report.

         During the fourth quarter of 2000, the Company adopted Securities
and Exchange Commission Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognition in Financial Statements." As a result, the Company changed its
revenue recognition policy retroactive to January 1, 2000 to recognize
revenue upon delivery rather than shipment of products. The cumulative effect
of this accounting change was $11.9 million, net of tax. The pro forma impact
of this accounting change on prior periods is not material.

         Pursuant to FASB Emerging Issues Task Force Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs", the Company has
reclassified freight billed to customers from selling, general and
administrative expenses ("SG&A") to net sales, and has reclassified related
freight costs from SG&A to cost of goods sold ("COGS"). Technical support
expenses have also been reclassified from SG&A to COGS. Prior year amounts
have been reclassified to conform with the current presentation.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
data derived from the Company's consolidated income statements:

<TABLE>
<CAPTION>

                                                  INCREASE                           INCREASE
                                   2000          (DECREASE)            1999          (DECREASE)          1998
                             -----------------  -------------   -----------------  -------------  ------------------
                                                             (dollars in thousands)
<S>                          <C>                <C>            <C>                <C>             <C>
Net sales                          $9,600,600        7%               $8,964,900       16%               $7,703,279
Gross profit                       $2,058,994       12%               $1,837,222       30%               $1,413,052
Percentage of net sales                 21.4%                              20.5%                              18.3%
Selling, general and
  administrative expenses          $1,547,701       25%               $1,241,552       35%                 $918,825
Percentage of net sales                 16.1%                              13.8%                              11.9%
Operating income                     $511,293      (14%)                $595,670       21%                 $494,227
Percentage of net sales                  5.3%                               6.6%                               6.4%
Net income                           $241,483      (44%)                $427,944       24%                 $346,399
</TABLE>

SALES

         Gateway reported net sales growth of 7% in 2000, following a 16%
increase in 1999. The Company shipped approximately 5.0 million systems in
2000 compared to 4.7 million systems in 1999 representing an increase of 7%.
1999 unit shipment growth over 1998 was 32%. Domestic and international sales
grew 7% and 6%, respectively, in 2000.

15

<PAGE>

                  The following table summarizes the Company's net sales for
the periods indicated by geographic region:

<TABLE>
<CAPTION>

                                           INCREASE                               INCREASE
                           2000           (DECREASE)            1999             (DECREASE)             1998
                     ------------------  --------------  -------------------  -----------------   ------------------
                                                         (dollars in thousands)
<S>                  <C>                 <C>             <C>                  <C>                <C>
Net sales:
   U.S. Consumer            $5,370,623        15%                $4,660,936         33%                  $3,493,132
   U.S. Business             2,839,292       (6%)                 3,020,209         (4%)                  3,135,873
   Non-segment                  34,339        --                         --          --                          --
                     ------------------                  -------------------                      ------------------
     The Americas           $8,244,254        7%                 $7,681,145         16%                  $6,629,005
   EMEA                        584,770        5%                    556,100         (5%)                    583,459
   Asia Pacific                771,576        6%                    727,655         48%                     490,815
                     ------------------                  -------------------                      ------------------
    Consolidated            $9,600,600        7%                 $8,964,900         16%                  $7,703,279
                     ==================                  ===================                      ==================
</TABLE>

          In the United States, the consumer and business segments
represented 56% and 30%, respectively, of total Company sales in 2000.
Consumer segment net sales and unit shipments grew 15% and 12%, respectively,
in 2000 over 1999. Consumer net sales were strong the first three quarters of
2000 driven by new marketing initiatives, continued retail expansion and
sales of products and services in addition to PCs ("beyond the box"). In the
fourth quarter, the consumer segment experienced a decline in both revenue
and unit shipments of 4% and 12%, respectively, compared to the fourth
quarter of 1999 due to a substantial decline in consumer demand for PC and PC
related products and services. The Company expects weak demand and increasing
pricing pressure in the PC markets to continue at least through the first
half of 2001.

         Beyond the box revenue including software and peripheral sales,
Internet access and portal income, financing, warranty and training revenue
accounted for $1.9 billion in 2000 sales compared to $800 million in 1999, or
an increase of 150%. Beyond the box revenue in 2000 was driven in part by an
expansion in Internet access and portal income through the alliance with
America Online, Inc. (AOL) and successful delivery of training programs in
the Gateway Country(R) store channel as well as the web. The Company
completed the acquisition of NECX Direct LLC (NECX) in 2000 that leverages
NECX's web capabilities and fulfillment engine for sales of software and
peripherals with the Gateway.com site featuring sales of desktops and
portables.

         In connection with its continued retail expansion in the United
States, the Company opened 93 Gateway Country-Registered Tradmark- stores in
2000 versus 83 in 1999, as well as 463 store-within-a-store locations as part
of a strategic alliance with a retail partner. As part of a strategic review
of the Company's direct sales policy and in response to the recent decline in
consumer demand and related sales outlook, the Company is curtailing retail
expansion plans in 2001 and expects to close a number of underperforming
retail locations. In addition, the Company's management is reviewing all of
its indirect retail business relationships worldwide with a view to
significantly modify or eliminate such activities.

         For the full year, the business segment experienced a decline in net
sales of 6% and unit shipments by 5% over the same period in 1999. The
segment was reorganized in the second half of 2000 in light of its declining
performance to focus on small and medium businesses, government and education
sectors. Through the addition of approximately 300 Business Sales
Representatives based at Gateway Country stores in the second half of 2000,
the Company now offers small and medium business customers localized presence
including the offering of installation services and training. In the fourth
quarter of 2000, this initiative led to double-digit business sales gains at
the store level. Education sales were soft in the fourth quarter and the
Company experienced a sales decline of 12% versus 1999 in this line of
business. Overall, the business segment had a 2% decline in net sales and a
4% increase in units for the fourth quarter.

         Average unit prices (AUPs) were essentially flat in 2000 compared to
a 13% decline experienced in 1999 over in 1998. The continued diversification
of the Company's revenue stream through beyond the box initiatives offset
declining PC prices overall in 2000. The Company experienced an aggressive
pricing environment triggered by some large competitors in the fourth quarter
of 2000, which resulted in AUPs declining in the consumer segment

16

<PAGE>

during the quarter. Management expects that the pricing environment will be
challenging for 2001.

         International net sales were 14% of total Company net sales in 2000
after giving effect to a substantial decline in demand in the second half of
the year that eliminated a portion of the gains made in the first two
quarters of 2000. For the full year, Europe, Middle East and Africa ("EMEA")
net sales and units increased 5% and 21% over 1999. In the fourth quarter,
EMEA region net sales and units declined 22% and 13%, respectively, over
1999. The decline was attributed to softening consumer demand particularly in
the United Kingdom where consumer retail market data reflected a decline of
40% year over year and significant competitive pricing pressure throughout
the region. The Asia Pacific region net sales increased 6% and units 16% over
1999. This performance compared with an increase in net sales of 48% and unit
growth of 65% in 1999. Similar to EMEA, consumer demand was soft in the Asia
Pacific region. Gateway saw a decline in net sales and units of 25% and 13%,
respectively, in the fourth quarter of 2000. Management is considering
actions in the first quarter of 2001 that include reduction in or departure
from certain unprofitable international markets where the Company does not
have sufficient scale. In addition, the Company is evaluating store closures
and product line refinements in order to focus the Company's resources on
international markets that have a better profile for success.

         U.S. Consumer and U. S. Business net sales represent units shipped
during the period. Non-segment sales represent a reconciliation to items
delivered during the period, in accordance with the Company's revenue
recognition policy.

GROSS PROFIT

         Gross profit in 2000 rose to $2.1 billion, an increase of
approximately 12% from 1999. As a percentage of sales, gross profit for 2000
increased to 21.4% from 20.5% in 1999 and 18.3% in 1998. In the fourth
quarter of 2000, gross profit was 18.9% and was impacted by the pricing
actions noted above. Management expects that margin pressures will continue
into 2001 given anticipated weak consumer demand and competitive actions.
Year over year improved margins were driven principally by the continued
diversification of the revenue stream from the sale of non-PC services and
products discussed above and active supplier management.

         The Company's consumer financing operations are reported as net
revenues in the case of interest and fee income and cost of sales in the case
of service fees and finance receivable losses. The Company's gross finance
receivables increased from $299 million at the end of 1999 to $779 million at
December 31, 2000. On February 16, 2001, the Company sold approximately $500
million of finance receivables, consisting of higher rated credits, to its
loan-servicing partner at book value. The Company continually assesses the
allowance for losses on a regular basis with corresponding adjustments made
based upon management's periodic review of historical experience, the nature
and volume of the portfolio, adverse situations that may affect the
customer's ability to repay and general economic conditions. The Company
significantly increased its allowance during the course of 2000 from $3.6
million at December 31, 1999 to $75 million at December 31, 2000 primarily
due to the increased participation of the Company in finance receivables and
the expansion of the consumer finance program to higher risk categories.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses (SG&A) increased 25% in
2000 over 1999 following an increase of 35% in 1999 over 1998. In 2000, the
Company continued to open Gateway Country-Registered Tradmark- stores as
discussed above, which added SG&A costs associated with each new store, added
sales personnel in other channels, experienced an increased depreciation
charge due to the capitalization of systems infrastructure, and increased
marketing in all segments. As a percentage of net sales, SG&A expenses were
16.1% in 2000, up from 13.8% in 1999 and 11.9% in 1998. The fourth quarter
SG&A expense as a percent of sales totaled 19.9%, which was primarily due to
ramping up a sales infrastructure based on a projected sales forecast that
did not materialize as well as a fourth quarter charge of $19.1 million
related to impairment of goodwill. In the first quarter of 2001, management
has taken a number of restructuring actions and is considering further
actions that will have the effect to reduce future SG&A expenses including,
among other things, organizational and facilities consolidation,
international market rationalization, and certain retail store closures,
including store-in-store operations. These actions will result in a charge to
the first quarter of 2001 that is estimated to range between $150 million and
$275 million. The actual charge could differ due to changes in management
plans or differences between actual costs and estimated amounts.

17

<PAGE>

OPERATING INCOME

         Operating income for 2000 totaled $511.3 million and declined $84
million or 14% compared to the same period in 1999. Operating income declined
to 5.3% of sales in 2000 from 6.6% in 1999. Operating income in 2000 for the
consumer segment was $575.7 million and represented an increase of 26% over
1999 due to successful expansion of the beyond the box strategy. Business
segment operating income was $359.2 million and declined 17% over 1999 in
line with net sales softness and deleveraging of fixed expenses noted
earlier. In 1999, operating profit increased 54% in the consumer segment from
1998 while the business segment declined 23% over 1998. Internationally, the
Company had an operating loss of $66 million in 2000 compared to an operating
income of $24 million in 1999 due to a challenging competitive environment.
Non-segment expenses for 2000 and 1999 totaled $357.7 million and $376.3
million, respectively, a decrease of 5%. Operating income for the segments
includes SG&A expenses directly attributable to the segment. Costs excluded
from the segments primarily consist of general and administrative expenses
that are managed on a corporate-wide basis.

OTHER INCOME (LOSS), NET

         Other income (loss), net includes primarily interest income and
expense, gains from the sale of investments, charges for other than temporary
declines of investments and foreign exchange transaction gains and losses.
Other income (loss), net resulted in a loss of $102.7 million including a
fourth quarter charge of $152 million due to other than temporary declines in
the Company's investment portfolio. Excluding the fourth quarter charge,
other income was $49.3 million compared to $67.8 million in 1999 from $47.0
million in 1998. The increase in 1999 over 1998 was due to the additional
investment income generated by increases in cash balances and marketable
securities.

INCOME TAXES

         The Company's annualized effective tax rate increased to 38% from
35.5% for 1999 and 36% in 1998. The effective tax rate for 2000 was
unfavorably impacted by shifts in the geographic distribution of the
Company's earnings from tax advantaged international jurisdictions to the
United States.

LIQUIDITY AND CAPITAL RESOURCES

         The following table presents selected financial statistics and
information for the periods indicated:

<TABLE>
<CAPTION>

                                                 2000                     1999                       1998
                                         ----------------------   ----------------------   -------------------------
                                                                   (dollars in thousands)
<S>                                      <C>                      <C>                      <C>
Cash and marketable securities                 $616,070                $1,336,371                 $1,328,467
Days of sales in accounts receivable              20                       23                         21
Days inventory on hand                            15                        8                         8
Days in accounts payable                          36                       40                         33
Cash conversion cycle                             (1)                      (9)                       (4)
</TABLE>

         At December 31, 2000, the Company had cash and cash equivalents of
$484.0 million, marketable securities of $130.1 million and an unsecured
committed credit facility with certain banks aggregating $300 million,
consisting of a revolving line of credit facility and a sub-facility for
letters of credit. At December 31, 2000, and presently, no amounts were
outstanding under the revolving line of credit. On February 2, 2001, the
Company received $200 million in connection with the investment agreement
with AOL, for which the Company issued AOL a convertible senior note. On
February 16, 2001, the Company sold approximately $500 million of financing
receivables to a third party at book value. As of February 16, 2001, the
Company had a balance of approximately $1 billion in cash and marketable
securities. Management believes the Company's current sources of working
capital, including amounts available under existing credit facilities, will
provide adequate flexibility for the Company's financial needs for at least
the next 12 months.

18

<PAGE>

         The Company generated $288.8 million in cash from operations during
2000, including $567.3 million of net income adjusted for non-cash items.
Significant factors impacting cash provided by operating activities include
an increase in inventory levels of $123.2 million and a decrease in accounts
payable and other accrued liabilities of $112.2 million, and an increase in
accounts receivable of $76.2 million. The adoption of SAB101 increased
inventory by $52.1 million and decreased receivables by $63.6 million as of
December 31, 2000. Additionally, component inventory increased due to the
decline in fourth quarter demand in 2000. The principal uses of cash included
approximately $410 million to purchase financing receivables net of proceeds
received for repayment, $315 million for capital expenditures (including
construction of Gateway Country stores, information systems and equipment),
and $247 million to purchase investments in unconsolidated affiliates. Cash
proceeds from the sale of marketable securities were $79.0 million, net of
purchases of securities. Management expects to reduce the purchase of finance
receivables and may limit construction of new stores during 2001.

         The Company anticipates that it will retain all earnings in the
foreseeable future for development of its business and will not distribute
earnings to its common stockholders as dividends.

         In October 1999, the Company entered into a strategic relationship
with AOL, pursuant to which AOL agreed to invest $800 million in the Company
over a three-year period, in a combination of cash and AOL stock. Under the
agreement, AOL has invested $300 million in cash and issued $100 million of
AOL common stock to Gateway; $400 million of the investment is scheduled to
be made in cash at the end of 2001.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
is effective for fiscal years beginning after June 15, 2000. The objective of
the statement is to establish accounting and reporting standards for
derivative instruments and hedging activities. The Company uses foreign
currency forward contracts, a derivative instrument, to hedge foreign
currency transactions and anticipated foreign currency transactions. This
pronouncement requires, among other items, mark-to-market accounting for
certain derivative financial instruments. The Company estimates that the
impact of the adoption of this pronouncement will result in an after-tax
charge of approximately $20 million in 2001.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The results of the Company's foreign operations are affected by
changes in exchange rates between certain foreign currencies and the United
States dollar. The functional currency for most of the Company's foreign
operations is the U.S. dollar. The functional currency for the remaining
operations is the local currency in which the subsidiaries operate. Sales
made in foreign currencies translate into higher or lower sales in U.S.
dollars as the U.S. dollar weakens or strengthens against other currencies.
Therefore, changes in exchange rates may negatively affect the Company's
consolidated net sales (as expressed in U.S. dollars) and gross margins from
foreign operations. The majority of the Company's component purchases are
denominated in U.S. dollars.

         The Company uses foreign currency forward contracts to hedge foreign
currency transactions and probable anticipated foreign currency transactions.
These forward contracts are designated as a hedge of international sales by
U.S. dollar functional currency entities and intercompany purchases by
certain foreign subsidiaries. The principal currencies hedged are the British
Pound, Japanese Yen, French Franc, Australian Dollar, Singapore Dollar, and
the Deutsche Mark over periods ranging from one to six months. Forward
contracts are accounted for on a mark-to-market basis, with realized and
unrealized gains or losses recognized currently. Gains or losses arising from
forward contracts that are effective as a hedge are included in the basis of
the designated transactions. Fluctuations in U.S. dollar currency exchange
rates did not have a significant impact on the Company's consolidated
financial position, results of operations or cash flows in any given
reporting period. Forward contracts designated to hedge foreign currency
transaction exposure of $228,151,000 and $303,393,000 were outstanding at
December 31, 2000 and 1999, respectively. The estimated fair value of these
forward contracts at December 31, 2000 and 1999 was $226,955,000 and
$303,917,000, respectively, based on quoted market prices.

19

<PAGE>

         Foreign currency exchange contracts are sensitive to changes in
foreign currency exchange rates. At December 31, 2000, a hypothetical 10%
adverse change in foreign currency exchange rates underlying the Company's
open forward contracts would result in an unrealized loss of approximately
$24.6 million. Unrealized gains/losses in foreign currency exchange contracts
represent the difference between the hypothetical rates and the current
market exchange rates. Consistent with the nature of an economic hedge, any
unrealized gains or losses would be offset by corresponding decreases or
increases, respectively, of the underlying transaction being hedged.

         The Company is not subject to material market risk with respect to
its investments classified as marketable securities as such investments are
readily marketable, liquid and do not fluctuate substantially from stated
value. Regarding long-term investments, Gateway holds and expects to continue
to consider investments in minority interests in companies having operations
or technology in areas within Gateway's strategic focus. Many of these
investments are in early stage companies, investment funds or Internet or
e-commerce companies where operations are not yet sufficient to establish
them as profitable concerns. Certain of these investments are in publicly
traded companies whose share prices are highly volatile. Adverse changes in
market conditions such as occurred in year 2000, and poor operating results
of certain of these underlying investments have resulted and may in the
future result in Gateway incurring losses or an inability to recover the
original carrying value of its investments.









20

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

FINANCIAL STATEMENTS:

<TABLE>

<S>                                                                                         <C>
Report of Independent Accountants...........................................................  22

Consolidated Income Statements for the years
         ended December 31, 2000, 1999 and 1998.............................................  23

Consolidated Balance Sheets at December 31, 2000 and 1999...................................  24

Consolidated Statements of Cash Flows for the years
         ended December 31, 2000, 1999 and 1998.............................................  25

Consolidated Statements of Changes in Stockholders' Equity and Comprehensive
         Income for the years ended December 31, 2000, 1999 and 1998........................  26

Notes to Consolidated Financial Statements..................................................  27

FINANCIAL STATEMENT SCHEDULE:

Schedule II -Valuation and Qualifying Accounts..............................................  45
</TABLE>


21

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholders and Board of Directors of Gateway, Inc.

In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the consolidated
financial position of Gateway, Inc. at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and the financial statement
schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the Consolidated Financial Statements, effective
January 1, 2000, the Company changed its revenue recognition policy
relating to product shipments.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

San Diego, California
February 27, 2001




22

<PAGE>

                                  GATEWAY, INC.
                         CONSOLIDATED INCOME STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                             2000                  1999                   1998
                                                      -------------------    ------------------    -------------------
<S>                                                  <C>                     <C>                  <C>
   Net sales                                                  $9,600,600            $8,964,900             $7,703,279
   Cost of goods sold                                          7,541,606             7,127,678              6,290,227
                                                      -------------------    ------------------    -------------------
          Gross profit                                         2,058,994             1,837,222              1,413,052
   Selling, general and
      Administrative expenses                                  1,547,701             1,241,552                918,825
                                                      -------------------    ------------------    -------------------
         Operating income                                        511,293               595,670                494,227
   Other income (loss), net                                    (102,693)                67,809                 47,021
                                                      -------------------    ------------------    -------------------
          Income before income taxes                             408,600               663,479                541,248
   Provision for income taxes                                    155,266               235,535                194,849
                                                      -------------------    ------------------    -------------------
   Net income before cumulative effect of change
     in accounting principle                                     253,334               427,944                346,399
                                                      -------------------    ------------------    -------------------
   Cumulative effect of change in accounting
     principle, net of tax                                      (11,851)                    --                     --
                                                      -------------------    ------------------    -------------------
          Net income                                          $  241,483            $  427,944             $  346,399
                                                      ===================    ==================    ===================
   Net income per share before cumulative effect
     of change in accounting principle:
      Basic                                                   $     0.79            $     1.36             $     1.11
                                                      ===================    ==================    ===================
      Diluted                                                 $     0.76            $     1.32             $     1.09
                                                      ===================    ==================    ===================
   Net income per share after cumulative effect
     of change in accounting principle:
      Basic                                                   $     0.75            $     1.36             $     1.11
                                                      ===================    ==================    ===================
      Diluted                                                 $     0.73            $     1.32             $     1.09
                                                      ===================    ==================    ===================

   Weighted average shares outstanding:
      Basic                                                      321,742               313,974                311,084
                                                      ===================    ==================    ===================
      Diluted                                                    331,320               324,421                317,857
                                                      ===================    ==================    ===================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

23

<PAGE>

                                  GATEWAY, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                            2000                  1999
                                                                    --------------------- ---------------------
<S>                                                                 <C>                   <C>
ASSETS
Current assets:
    Cash and cash equivalents                                                 $  483,997            $1,127,654
    Marketable securities                                                        130,073               208,717
    Accounts receivable, net                                                     544,755               646,339
    Inventory                                                                    315,069               191,870
    Other                                                                        793,166               522,225
                                                                    --------------------- ---------------------
       Total current assets                                                    2,267,060             2,696,805
Property, plant and equipment, net                                               897,414               745,660
Intangibles, net                                                                 165,914                52,302
Other assets                                                                     822,156               459,921
                                                                    --------------------- ---------------------
                                                                              $4,152,544            $3,954,688
                                                                    ===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                          $  785,345            $  898,436
    Accrued liabilities                                                          556,323               609,132
    Accrued royalties                                                            138,446               153,840
    Other current liabilities                                                    150,920               148,302
                                                                    --------------------- ---------------------
        Total current liabilities                                              1,631,034             1,809,710

Other long-term liabilities                                                      141,171               127,860
                                                                    --------------------- ---------------------
        Total liabilities                                                      1,772,205             1,937,570
                                                                    --------------------- ---------------------
Commitments and contingencies (Note 5)
Stockholders' equity:
    Preferred stock, $.01 par value, 5,000 shares
       Authorized; none issued and outstanding                                      --                    --
   Class A common stock, nonvoting, $.01 par value, 1,000
      shares authorized; none issued and outstanding                                --                    --
   Common stock, $.01 par value, 1,000,000 shares
      authorized; 323,955 shares and 320,016 shares
      issued in 2000 and 1999, respectively                                        3,239                 3,200
   Additional paid-in capital                                                    741,646               656,870
   Common stock  in treasury, at cost, 552 shares and 730
   shares in 2000 and 1999, respectively                                         (21,948)              (51,796)
   Retained earnings                                                           1,650,335             1,408,852
   Accumulated other comprehensive income (loss)                                   7,067                    (8)
                                                                    --------------------- ---------------------
          Total stockholders' equity                                           2,380,339             2,017,118
                                                                    --------------------- ---------------------
                                                                              $4,152,544            $3,954,688
                                                                    ===================== =====================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

24

<PAGE>

                                  GATEWAY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                        2000              1999               1998
                                                                  ----------------  ----------------  -----------------
<S>                                                               <C>               <C>               <C>
Cash flows from operating activities:
  Net income                                                           $  241,483        $  427,944         $  346,399
  Adjustments to reconcile net income to net cash
    Provided by operating activities:
      Depreciation and amortization                                       189,084           134,105            105,524
      Provision for uncollectible accounts receivable                      25,453            28,334              3,991
      Deferred income taxes                                               (54,717)           (2,876)           (58,425)
      Realized loss on investments                                        151,694               --                 --
      Write-down of long-lived assets                                      19,085               --                 --
      Other, net                                                           (4,795)            2,381                770
      Changes in operating assets and liabilities:
          Accounts receivable                                              76,191          (115,822)           (52,164)
          Inventory                                                      (123,196)          (23,947)            81,300
          Other assets                                                   (119,275)         (185,192)               451
          Accounts payable                                               (113,800)          181,704            228,921
          Accrued liabilities                                             (55,201)          195,299            144,899
          Accrued royalties                                               (15,395)          (14,033)             8,455
          Other current liabilities                                        61,982           105,723             76,278
          Warranty and other liabilities                                   10,179            (2,566)            21,252
                                                                  ----------------  ----------------  -----------------
    Net cash provided by operating activities                             288,772           731,054            907,651
                                                                  ----------------  ----------------  -----------------
Cash flows from investing activities:
      Capital expenditures                                               (314,804)         (338,211)          (235,377)
      Investments in other long term investments                         (246,900)         (126,931)                --
      Purchases of available-for-sale securities                          (80,968)         (146,759)          (168,965)
      Proceeds from maturities or sales of available-for-
          sale securities                                                 159,956            97,206             48,924
      Purchase of financing receivables, net of repayment                (409,603)         (315,207)                --
      Purchase of notes receivable                                       (62,500)                                  --
      Other, net                                                            1,539            (1,384)              (992)
                                                                  ----------------  ----------------  -----------------
    Net cash (used in) investing activities                              (953,280)         (831,286)          (356,410)
                                                                  ----------------  ----------------  -----------------
Cash flows from financing activities:
      Proceeds from issuances of notes payable                              3,000                --                 --
      Principal payments on long-term obligations and
         Notes payable                                                     (8,934)           (6,287)           (13,173)
      Purchase of treasury stock                                          (58,992)         (122,580)                --
      Proceeds from stock issuance                                          1,775           100,000
                                                                                                                    --
      Stock options exercised                                              83,346            83,341             36,159
                                                                  ----------------  ----------------  -----------------
    Net cash provided by financing activities                              20,195            54,474             22,986
                                                                  ----------------  ----------------  -----------------
  Foreign exchange effect on cash and cash
     Equivalents                                                              656             3,602              1,982
                                                                  ----------------  ----------------  -----------------
  Net increase (decrease) in cash and cash equivalents                   (643,657)          (42,156)           576,209
  Cash and cash equivalents, beginning of year                          1,127,654         1,169,810            593,601
                                                                  ----------------  ----------------  -----------------
  Cash and cash equivalents, end of year                               $  483,997        $1,127,654         $1,169,810
                                                                  ================  ================  =================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

25

<PAGE>

                                  GATEWAY, INC.
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
     COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                               Accumulated
                                                         Additional                               Other
                                     Common Stock         Paid-in      Treasury   Retained     Comprehensive
                                    Shares      Amount     Capital      Stock     Earnings     Income (Loss)         Total
                                  ----------  ---------- -----------  ---------  ----------    ---------------     ----------
<S>                               <C>         <C>        <C>         <C>         <C>           <C>                <C>
Balances at December 31, 1997        308,256    $3,080    $297,944        $--     $634,509        $(5,489)           $930,044
  Comprehensive income:
     Net income                           --        --          --         --      346,399             --             346,399
     Other comprehensive income:
       Foreign currency
         translation                      --        --          --         --           --          1,549               1,549
       Unrealized loss on
         available-for-sale
         securities                       --        --          --         --           --           (145)               (145)
                                                                                                                    ----------
            Comprehensive income                                                                                      347,803
  Stock issuances under employee
    plans, including tax benefit of
    $29,769                            4,846        49      65,879         --           --             --              65,928
   Stock issued to officer                36         2         598         --           --             --                 600
                                  ----------  ---------- -----------  ---------  ----------    ---------------     ----------
Balances at December 31, 1998        313,138     3,131     364,421         --      980,908         (4,085)          1,344,375
  Comprehensive income:
     Net income                          --         --          --         --      427,944             --             427,944
     Other comprehensive income:
       Foreign currency
         translation                     --         --          --         --           --          4,941               4,941
       Unrealized loss on
         available-for-sale
         securities                      --         --          --         --           --           (864)               (864)
                                                                                                                    ----------
            Comprehensive income                                                                                      432,021
  Purchase of treasury stock              --        --          --   (122,580)          --             --            (122,580)
  Stock issuances under employee
    plans, including tax benefit of
    $79,961                            4,153        42      92,476     70,784           --             --             163,302
  Issuance of common stock             2,725        27     199,973         --           --             --             200,000
                                  ----------  ---------- -----------  ---------  ----------    ---------------     ----------
Balances at December 31, 1999        320,016     3,200     656,870    (51,796)   1,408,852             (8)          2,017,118
  Comprehensive income:
     Net income                           --        --          --         --      241,483             --             241,483

     Other comprehensive income:
       Foreign currency
         translation                      --        --          --         --          --            (732)               (732)
       Unrealized gain on
         available-for-sale
         securities                       --        --          --         --          --           7,807               7,807
                                                                                                                    ----------
            Comprehensive income                                                                                      248,558
  Purchase of treasury stock              --        --          --    (58,992)         --              --             (58,992)

  Stock issuances under employee
    plans, including tax benefit
    of $56,105                         3,371        34      50,577     88,840          --              --             139,451
  Issuance of common stock               568         5      34,199         --          --              --              34,204
                                  ----------  ---------- ----------- ---------  ----------    ---------------      ----------
Balances at December 31, 2000        323,955    $3,239    $741,646   $(21,948)  $1,650,335         $7,067          $2,380,339
                                  ===========================================================================================
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

26

<PAGE>

                                  GATEWAY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Gateway, Inc. (the "Company") is a direct marketer of personal
computers ("PCs") and PC-related products and services. The Company develops,
manufactures, markets and supports a broad line of desktop and portable PCs,
servers, workstations and PC-related products used by individuals, families,
businesses, government agencies and educational institutions. The Company also
offers and supports PC-related services including training, financing and
Internet service.

         The significant accounting policies used in the preparation of the
consolidated financial statements of the Company are as follows:

         (a)      Basis of Presentation:

         The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

         (b)      Use of Estimates and Certain Concentrations:

         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 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.

         Certain components used by the Company in manufacturing of PC systems
are purchased from a limited number of suppliers. An industry shortage or other
constraints of any key component could result in delayed shipments and a
possible loss of sales, which could affect operating results adversely.

         (c)      Cash and Cash Equivalents:

         The Company 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 the short
maturities of these instruments.

         (d)      Marketable Securities and Long-Term Investments:

Marketable securities consist of mutual funds, commercial paper and debt
securities, with market values that approximate their amortized cost. Long-term
investments, including publicly traded equity securities, represent minority
investments in companies having operations or technology in areas related to the
Company's activities. Certain of the investments carry restrictions on immediate
disposition. Marketable securities are classified as available-for-sale and are
adjusted to their fair market value using quoted market prices. Investments in
public companies with restrictions related to the Company's ability to dispose
of the investment of less than one year are classified as available-for-sale and
are adjusted to their fair value based on one of the following methods: (i)
quoted market prices; (ii) current rates for similar issues; (iii) recent
transactions for similar issues; or (iv) present value of expected cash flows.
Unrealized gains and losses are recorded as a component of accumulated other
comprehensive income. Upon disposition of these investments, the specific
identification method is used to determine the cost basis in computing realized
gains or losses. Declines in value that are considered to be other than
temporary are reported in other income (loss), net. Held-to-maturity securities
are recorded at amortized cost. Amortization of related discounts or premiums is
included in the determination of net income.

         (e)      Finance Receivables:

         Finance receivables, included in other current assets and other assets,
consist of receivables due from customer installment purchases of the Company's
products and services net of allowance for losses. Finance charges on the
receivables are recognized using the interest method. Finance charge accruals
are generally suspended on accounts when they become 60 days contractually
delinquent. Receivable origination and commitment fees are deferred and
amortized as a component of finance charges over the life of

27

<PAGE>

the related receivable.

         The Company maintains an allowance for losses on finance receivables
at an amount that it believes is sufficient to provide for losses in its
existing receivables portfolio. The allowance is assessed on a regular basis
by management and is based upon management's periodic review of the
collectibility of the receivables with respect to historical experience, the
nature and volume of the portfolio, adverse situations that may affect the
customer's ability to repay and general economic conditions. Finance
receivables are charged to the allowance for losses when they are deemed to
be uncollectible, generally when the receivable becomes 180 days delinquent.
Although the allowance for losses on finance receivables reflected in the
Company's consolidated balance sheet at December 31, 2000 and 1999 is
considered adequate by the Company's management, there can be no assurance
that this allowance will prove to be adequate over time to cover ultimate
losses in connection with the Company's finance receivables.

         (f)      Inventory:

         Inventory, which is comprised of component parts, subassemblies and
finished goods, is valued at the lower of first-in, first-out (FIFO) cost or
market. On a quarterly basis, the Company compares on a part by part basis, the
amount of the inventory on hand and under commitment with its latest forecasted
requirements to determine whether write-downs for excess or obsolete inventory
are required.

         (g)      Property, Plant and Equipment:

         Property, plant and equipment are stated at cost. Depreciation is
provided using the straight-line method over the assets' estimated useful lives,
as follows:

<TABLE>
<CAPTION>
               ASSET CATEGORY                                       BOOK LIFE (YEARS)
               --------------                                       ----------------
    <S>                                                             <C>
       Office and Production Equipment                                    3-7
       Furniture & Fixtures                                                10
       Internal Use Software                                              3-5
       Vehicles                                                             3
       Leasehold Improvements                         10 or Lesser of Lease Life or Asset Category Life
       Buildings                                                            35
</TABLE>

         Amortization of leasehold improvements is computed using the shorter
of the lease term or the estimated useful life of the underlying asset. Upon
sale or retirement of property, plant and equipment, the related costs and
accumulated depreciation or amortization are removed from the accounts and
any gain or loss is included in the determination of net income.

          (h)     Intangible Assets:

         Intangible assets principally consist of goodwill, which is
amortized on a straight-line basis over ten years. During 2000, the Company
recorded a $19.1 million charge related to impairment of goodwill based on an
assessment of the related future net cash flows.

          (i)     Long-lived Assets:

         The Company reviews long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability is measured by comparing the sum of the
undiscounted future net cash flows expected to result from the use of the
asset and its eventual disposition is less than its carrying amount.

         (j)      Royalties:

         The Company has royalty-bearing license agreements that allow the
Company to sell certain hardware and software which is protected by patent,
copyright or license. Royalty costs are accrued and included in cost of goods
sold when products are shipped or amortized over the period of benefit when
the license terms are not specifically related to the units shipped.

28

<PAGE>

         (k)      Warranty and Other Post-Sales Support Programs:

         The Company provides currently for the estimated costs that may be
incurred under its warranty and other post-sales support programs.

         (l)      Revenue Recognition:

         During the fourth quarter of 2000, the Company adopted Securities and
Exchange Commission Staff Accounting Bulletin No. 101 (SAB 101), "Revenue
Recognized in Financial Statements." As a result, the Company changed its
revenue recognition policy effective January 1, 2000 to recognize revenue upon
delivery rather than shipment of products. The cumulative effect of this
accounting change was $11.9 million, net of tax. The pro forma impact of this
accounting change on prior periods is not material. See Note 14 for the impact
on previously reported quarterly financial information.

         The Company recognizes revenue from product sales upon delivery of the
product to its customers. Revenue from services that are rendered by the
Company, such as training and Internet service, is recognized as the services
are provided. Revenue from the sale of services that are rendered by third
parties are generally recognized at the time of sale. For sales involving
multiple elements, revenue is allocated to each element based on fair value.

         (m)      Advertising  Costs:

         Advertising costs are charged to expense as incurred. Advertising
expenses were $328.0 million, $256.8 million, and $280.8 million for 2000, 1999
and 1998, respectively.

         (n)      Income Taxes:

         The provision for income taxes is computed using the liability method,
under which deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the financial reporting
and tax bases of assets and liabilities. Deferred tax assets are reduced by a
valuation allowance when it is more likely than not that some portion or all of
the deferred tax assets will not be realized.

          (o)     Net Income Per Share (in thousands):

         Basic earnings per common share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share is computed using the combination of dilutive common stock
equivalents and the weighted average number of common shares outstanding during
the period. The number of stock options excluded from the dilutive calculation
for the year ended December 31, 2000, 1999, and 1998 were 14,077, 1,549, and 28,
respectively.

         The following table sets forth a reconciliation of shares used in the
computation of basic and diluted earnings per share:

<TABLE>
<CAPTION>

                                                      2000                      1999                    1998
                                               -------------------      ---------------------    --------------------
                                                                          (in thousands)
<S>                                            <C>                      <C>                      <C>
Net income for basic and diluted
   Earnings per share                                    $241,483                   $427,944                $346,399
                                               ===================      =====================    ====================
Weighted average shares for basic
   Earnings per share                                     321,742                    313,974                 311,084
Dilutive effect of stock options                            9,578                     10,447                   6,773
                                               -------------------      ---------------------    --------------------
Weighted average shares for diluted
   earnings per share                                     331,320                    324,421                 317,857
                                               ===================      =====================    ====================
</TABLE>

29

<PAGE>

          (p)     Stock-based Compensation:

         The Company measures compensation expense for its employee and
non-employee director stock-based compensation using the intrinsic value method.
Compensation charges related to other non-employee stock-based compensation are
measured using fair value methods.

          (q)     Foreign Currency:

         The Company considers the U.S. dollar to be its functional currency for
certain of its international operations and the local currency for all other.
For subsidiaries where the local currency is the functional currency, the assets
and liabilities are translated into U.S. dollars at exchange rates in effect at
the balance sheet date. Income and expense items are translated at the average
exchange rates prevailing during the period. Gains and losses from translation
are included in accumulated other comprehensive income (loss). Gains and losses
resulting from remeasuring monetary asset and liability accounts that are
denominated in currencies other than a subsidiary's functional currency are
included in "Other income (loss), net".

         The Company uses foreign currency forward contracts to hedge foreign
currency transactions and probable anticipated foreign currency transactions.
These forward contracts are designated as a hedge of international sales by U.S.
dollar functional currency entities and intercompany purchases by certain
foreign subsidiaries. The principal currencies hedged are the British Pound,
Japanese Yen, French Franc, Australian Dollar, Singapore Dollar and the Deutsche
Mark over periods ranging from one to six months. Forward contracts are
accounted for on a mark-to-market basis, with realized and unrealized gains or
losses recognized currently. Gains or losses arising from forward contracts
which are effective as a hedge are included in the basis of the designated
transactions. The related receivable or liability with counterparties to the
forward contracts is recorded in the consolidated balance sheet. Cash flows from
settlements of forward contracts are included in operating activities in the
consolidated statements of cash flows. Aggregate transaction gains and losses
included in the determination of net income are not material for any period
presented. Forward contracts designated to hedge foreign currency transaction
exposure of $228,151,000 and $303,393,000 were outstanding at December 31, 2000
and 1999, respectively. The estimated fair value of these forward contracts at
December 31, 2000 and 1999 was $226,955,000 and $303,917,000, respectively,
based on quoted market prices.

         The Company continually monitors its positions with, and the credit
quality of, the major international financial institutions which are
counterparties to its foreign currency forward contracts, and has not
experienced nonperformance by any of these counterparties.

         (r)       Segment Data:

          The company reports segment data based on the management approach
which designates the internal reporting that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable operating segments. The Company also discloses information about
products and services, geographical areas and major customers.

         (s)      Reclassifications:

         Pursuant to FASB Emerging Issues Task Force Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs", the Company has
reclassified freight billed to customers from selling, general and
administrative expenses to net sales, and has reclassified related freight costs
from selling, general and administrative expenses to cost of goods sold. In
addition, certain technical support costs have been reclassified from selling,
general and administrative expenses to cost of goods sold. These
reclassifications have no impact on reported net income. See Note 14 for the
impact of the reclassifications on quarterly and prior year data.

         (t)      New Accounting Pronouncements:

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 2000. The objective of the
statement is to establish accounting and reporting standards for derivative
instruments and hedging activities. The Company uses foreign currency forward
contracts, a derivative instrument, to hedge foreign currency transactions and
anticipated foreign currency transactions. This pronouncement requires, among
other items, mark-to-market accounting for certain derivative financial
instruments. The Company estimates that the impact of the adoption of this
pronouncement will result in an after-tax charge of approximately $20 million in
2001.


30

<PAGE>

2.       FINANCE RECEIVABLES:

         Finance receivables, included in other current assets and other assets,
consist of receivables due from customer installment purchases of the Company's
products and services net of allowance for losses. The components of net
financing receivables were as follows:

<TABLE>
<CAPTION>

                                                     2000                    1999
                                              --------------------     ------------------
                                                            (in thousands)
<S>                                           <C>                      <C>
As of December 31:

Gross Financing Receivables                              $779,117               $299,447
Unearned Income                                            (2,351)                     -
                                              --------------------     ------------------
Financing Receivables, net                                776,766                299,447
                                              --------------------     ------------------
Less current portion                                      361,112                122,466
                                              --------------------     ------------------
Amounts due after one year, net                          $415,654               $176,981
                                              ====================     ==================
</TABLE>

         On February 16, 2001, the Company sold approximately $500 million of
financing receivables to a third party at book value with no recourse. The
Company maintains an allowance for losses on finance receivables at an amount
that it believes is sufficient to provide for losses in its existing receivables
portfolio. Although the allowance for losses on finance receivables reflected in
the Company's consolidated balance sheet at December 31, 2000 is considered
adequate by the Company's management, there can be no assurance that this
allowance will prove to be adequate over time to cover ultimate losses in
connection with the Company's finance receivables. Changes in the allowance for
losses on finance receivables during the periods indicated were as follows:

<TABLE>
<CAPTION>

                                                       2000                       1999
                                              -----------------------      --------------------
                                                               (in thousands)
<S>                                           <C>                          <C>
As of December 31:

Balance at beginning of period                             $   3,635                   $     -
Provision for losses                                         121,856                     4,728
Recoveries on receivables charged off                            697                         8
Losses sustained                                             (51,081)                   (1,101)
                                              -----------------------      --------------------
Balance at end of period                                   $  75,107                   $ 3,635
                                              =======================      ====================
</TABLE>

3.       FINANCING ARRANGEMENTS:

         The Company is party to an unsecured bank credit agreement (the
"Agreement"), totaling $300 million. The Agreement consists of (1) a revolving
line of credit facility for committed loans and bid loans; and (2) a
sub-facility for letters of credit. Borrowings under the agreement bear interest
at the banks' base rate or, at the Company's option, borrowing rates based on a
fixed spread over the London Interbank Offered Rate (LIBOR). The Agreement
requires the Company to maintain a minimum tangible net worth and maximum debt
leverage ratio, as well as minimum fixed charge coverage. There were no
borrowings outstanding at the end of 2000 and 1999.


31

<PAGE>

4.       MARKETABLE SECURITIES AND LONG TERM INVESTMENTS:

         At December 31, 2000, the fair value of the Company's short-term and
         long-term investments is as follows (in thousands):

<TABLE>
<CAPTION>

                                                                        2000                                            1999
                                      ---------------------------------------------------------------------------  ---------------
                                                       GROSS           GROSS
                                                     UNREALIZED     UNREALIZED       REALIZED
                                         COST          GAINS          LOSSES          LOSSES         CARRYING           CARRYING
                                         ----          -----          ------          ------           VALUE              VALUE
                                                                                                       -----              -----
<S>                                   <C>           <C>            <C>             <C>             <C>              <C>
Equity                                   $  1,400         $   --          $(129)      $  (1,091)       $    180         $  1,584
Mutual Funds                              117,462             --           (389)             --         117,073          109,564
US Government and agencies                  5,000             --             --              --           5,000            4,916
Corporate Bonds                             7,820             --             --              --           7,820           92,653
                                      ------------  -------------  --------------  --------------  --------------  ---------------
Total marketable securities              $131,682         $   --          $(518)      $  (1,091)       $130,073         $208,717
                                      ============  =============  ==============  ==============  ==============  ===============
  Publicly traded equity investments     $181,403         $7,472          $(141)      $ (51,694)       $137,040         $135,613
  Other long term investments             302,103             --             --        (100,000)        202,103           77,252
                                      ------------  -------------  --------------  --------------  --------------  ---------------
 Total long-term investments             $483,506         $7,472          $(141)      $(151,694)       $339,143         $212,865
                                      ============  =============  ==============  ==============  ==============  ===============
</TABLE>

         At December 31, 1999, the cost of the Company's marketable securities
did not differ significantly from their respective fair values. Accordingly,
gross unrealized gains or losses are not presented above.

         During the second quarter of 2000, the Company invested $50 million in
OfficeMax, Inc. convertible preferred stock on April 28, 2000. In addition, the
Company entered into an agreement with ProAct Technologies ("ProAct"), formerly
known as Consumer Financial Network, to jointly market PCs, Internet access,
financing, training and other PC-related products and services to corporations
providing their employees with Internet-based services both in the office and at
home. As part of this transaction, the Company invested $150 million in ProAct
convertible preferred stock.

         During 1999, the Company entered into a strategic relationship with
America Online, Inc. (AOL) to combine certain of the companies' sales and
distribution channels and capabilities in the development of certain hardware,
software and Internet content. As part of the agreement, AOL agreed to invest
$800 million in the Company over a three-year period, in a combination of cash
and AOL stock. During 1999, AOL purchased 2,725,026 shares of the Company's
common stock in exchange for a combination of cash and 1,212,396 shares of AOL
common stock. On February 2, 2001, the Company received $200 million in
connection with the second closing of the investment agreement with AOL. The
Company issued AOL a convertible note due December 22, 2020.

         Due to significant declines in the market value of its investment
portfolio, the Company recorded a pre-tax charge to earnings of $152 million in
the fourth quarter of 2000.


32

<PAGE>

5.       COMMITMENTS AND CONTINGENCIES:

         The Company leases certain operating facilities and equipment under
noncancelable operating leases expiring at various dates through 2027. Rent
expense was approximately $88,725,000, $52,936,000 and $25,713,000 for 2000,
1999 and 1998, respectively.

         Future minimum lease payments under terms of these leases as of
December 31, 2000 are as follows:

<TABLE>
<CAPTION>

                                                        OPERATING
                                                         LEASES
                                                   ------------------
                                                     (in thousands)
<S>                                                <C>
        2001                                                $ 78,485
        2002                                                  75,186
        2003                                                  63,384
        2004                                                  48,540
        2005                                                  29,018
        Thereafter                                            94,938
                                                   ------------------
        Total                                               $389,551
                                                   ==================
</TABLE>

         The Company has entered into licensing and royalty agreements that
allow it to use certain hardware and software intellectual properties in its
products. Minimum royalty payments due under these agreements for the period
2000 through 2004 total approximately $229,553,000. Total royalty expense is
expected to be greater than this minimum amount for this period.

         On December 7, 2000, a complaint was filed against Gateway, one of its
officers, and one director, in the United States District Court for the Southern
District of California for alleged violation of federal securities laws. Also in
December 2000 and January 2001, four similar cases were filed in the same court
by other plaintiffs. The complaints allege among other things that the
defendants misrepresented Gateway's financial performance in securities filings
and in statements to the public, and purport to be class actions on behalf of
purchasers of Gateway's stock between October 13, 2000 and November 29, 2000.
The Complaints seek damages and attorney's fees. On December 18, 2000, the Court
entered an Order directing counsel for the lead plaintiffs to file a single
consolidated complaint within 60 days after the Court's designation of a "lead
plaintiff." The Company's obligation to indemnify its officers and directors
under the aforementioned lawsuits is insured, to the extent of the limits of the
applicable insurance policies. The Company intends to vigorously defend these
actions, and believes that in the event that it is not fully successful,
insurance coverage will be available to defray a portion, or substantially all,
the expense of defending and settling the lawsuits or paying a judgement.
However, the Company is unable to predict the ultimate outcome of the
litigation. There can be no assurance the Company will be successful in
defending the lawsuits or that if unsuccessful, that insurance will be available
to pay all or any portion of the expense of the lawsuits. The Company's
consolidated financial statements do not include any adjustments related to
these matters.

         Additionally, the Company is a party to various lawsuits and
administrative proceedings arising in the ordinary course of its business.
The Company evaluates such lawsuits and proceedings on a case-by-case basis,
and its policy is to vigorously contest any such claims which it believes are
without merit. The Company's management believes that the ultimate resolution
of such pending matters will not materially adversely affect the Company's
business, financial position, results of operations or cash flows.


33

<PAGE>

6.       INCOME TAXES:

         The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>

                                        2000                   1999                1998
                                 --------------------    -----------------    ----------------
                                                          (in thousands)
<S>                              <C>                     <C>                  <C>
       Current:
             United States                  $213,775             $238,799        $244,076
             Foreign                          (3,792)                (388)          9,198
       Deferred:
             United States                   (45,194)             (13,850)        (40,055)
             Foreign                          (9,523)              10,974         (18,370)
                                 --------------------    -----------------    ----------------
                                            $155,266             $235,535        $194,849
                                 ====================    =================    ================
</TABLE>

         Income before income taxes included approximately ($69,000,000),
$22,500,000 and ($13,100,000) related to foreign operations for the years ended
December 31, 2000, 1999 and 1998, respectively.

         A reconciliation of the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to income before
income taxes is as follows:

<TABLE>
<CAPTION>

                                                     2000                 1999                 1998
                                               ----------------    -----------------    -----------------
                                                                     (in thousands)
<S>                                            <C>                 <C>                  <C>
       Federal income tax at
          statutory rate                              $143,010              $232,218             $189,437
       Other, net                                       12,256                 3,317                5,412
                                               ----------------    -----------------    -----------------
       Provision for income taxes                     $155,266              $235,535             $194,849
                                               ================    =================    =================
</TABLE>


34

<PAGE>

         Deferred tax assets and deferred tax liabilities result from temporary
differences in the following accounts:

<TABLE>
<CAPTION>

                                                       2000                          1999
                                               ---------------------        -----------------------
                                                                 (in thousands)
<S>                                            <C>                          <C>
       U.S. deferred tax assets:
            Inventory                                      $  7,941                      $  13,245
            Accounts receivable                              29,208                          7,433
            Accrued liabilities                             117,529                         87,710
            Other liabilities                                56,463                         58,816
            Other                                            36,866                         11,651
                                               ---------------------        -----------------------
                 Total U.S.                                 248,007                        178,855
       Foreign deferred tax assets:
            Operating loss carryforwards                     35,583                         17,928
            Deferred costs                                        -                          6,662
            Other                                             7,006                          8,476
                                               ---------------------        -----------------------
                 Total foreign                               42,589                         33,066
                                               ---------------------        -----------------------
       Total deferred tax assets                            290,596                        211,921
                                               ---------------------        -----------------------
       U.S. deferred tax liabilities:
            Intangible assets                                60,001                         46,143
            Property, plant & equipment                      23,587                         13,684
            Other                                             1,768                          1,571
                                               ---------------------        -----------------------
       Total deferred tax liabilities                        85,356                         61,398
                                               ---------------------        -----------------------
       Net deferred tax assets                             $205,240                       $150,523
                                               =====================        =======================
</TABLE>

         At December 31, 2000 the Company has foreign net operating loss
carryforwards of $129,700,000 for income tax purposes. Of this amount,
$54,300,000 expires between 2001 and 2005. The remaining $75,400,000 can be
carried forward indefinitely. The Company has assessed its tax planning
strategies and the reversals of existing taxable temporary differences in
relation to the expiration of carryforwards and has determined that is it more
likely than not that the deferred tax asset recorded relating to foreign net
operating loss carryforwards will be realized.

7.       PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS PLAN

         The Company has 5,000,000 shares of preferred stock authorized for
issuance in one or more series, at a par value of $.01 per share. In conjunction
with the distribution of Preferred Share Purchase Rights, the Company's Board of
Directors designated 1,000,000 shares of preferred stock as Series B Junior
Participating Preferred Stock and reserved such shares for issuance upon
exercise of the Preferred Share Purchase Rights. At December 31, 2000 no shares
of preferred stock were outstanding.

         On January 19, 2000, the Board of Directors implemented a Preferred
Share Purchase Rights Plan (Rights Plan) to protect stockholders' rights in the
event of a proposed non-consensual takeover of the Company believed not to be in
the stockholders' best interests. Under the Rights Plan, the Company declared a
dividend of one preferred share purchase right (a Right) for each share of the
Company's common stock outstanding. Pursuant to the Rights Plan, each Right
entitles the registered holder to purchase from the Company a one one-thousandth
share of Series B Junior Participating Preferred Stock, $0.01 par value per
share, at a purchase price of $350. In general, with certain exceptions, the
Rights are exercisable only if a person or group (an Acquiring Person) acquires
beneficial ownership of 15% or more of the Company's outstanding shares of
common stock. Upon exercise, holders, other than Acquiring Person, will have the
right, subject to termination, to receive the Company's common stock or other
securities, cash or other assets having a market value, as defined, equal to
twice such purchase price. The Rights, which expire on January 18, 2010, are
redeemable in whole, but not in part, at the Company's option for a price of
$0.001 per Right.


35
<PAGE>

8.       STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN:

         The Company maintains various stock option plans for its employees.
Employee options are generally granted at the fair market value of the related
common stock at the date of grant. These options generally vest over a four-year
period from the date of grant or the employee's initial date of employment. In
addition, these options expire, if not exercised, ten years from the date of
grant. The Company also maintains option plans for non-employee directors.
Option grants to non-employee directors generally have an exercise price equal
to the fair market value of the related common stock on the date of grant. These
options generally vest over one to three-year periods and expire, if not
exercised, ten years from the date of grant.

         For all of the Company's stock option plans, options for 11,351,000,
5,544,000, and 5,456,000 shares of common stock were exercisable at December 31,
2000, 1999 and 1998 with a weighted average exercise price of $23.35, $12.67,
and $8.71, respectively. In addition, options for 61,000, 126,000, and 560,000
shares of Class A common stock were exercisable at December 31, 2000, 1999 and
1998 with a weighted average exercise price of $0.93, $0.94, and $0.97,
respectively. Class A common stock may be converted into an equal number of
shares of common stock at any time. There were 10,889,000, 4,504,000, and
22,530,000 shares of common stock available for grant under the plans at
December 31, 2000, 1999 and 1998, respectively.

         The following table summarizes activity under the stock option plans
for 2000, 1999, and 1998 (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                                             Weighted-           Class A            Weighted-
                                             Common           Average            Common              Average
                                             Stock             Price              Stock               Price
                                          -------------     -------------    ----------------    -----------------
<S>                                       <C>               <C>              <C>                 <C>
Outstanding, December 31, 1997               18,910               $11.49          1,120                  $1.01
   Granted                                   12,236                22.59           --                       --
   Exercised                                 (4,286)                8.30           (560)                  1.05
   Forfeited                                 (2,206)               16.38           --                       --
                                          -------------     -------------    ----------------    -----------------
Outstanding, December 31, 1998               24,654                17.10            560                   0.97
                                          -------------     -------------    ----------------    -----------------
   Granted                                   20,850                37.17           --                       --
   Exercised                                 (5,884)               14.12           (434)                  0.97
   Forfeited                                 (2,824)               25.14           --                       --
                                          -------------     -------------    ----------------    -----------------
Outstanding, December 31, 1999               36,796                28.60            126                   0.94
                                          -------------     -------------    ----------------    -----------------
   Granted                                   19,312                61.65           --                       --
   Exercised                                 (4,089)               20.48            (65)                  0.93
   Forfeited                                 (3,379)               35.70           --                       --
                                          -------------     -------------    ----------------    -----------------
Outstanding, December 31, 2000               48,640               $41.80             61                  $0.93
                                          =============     =============    ================    =================
</TABLE>

         The following table summarizes information about the Company's Common
Stock options outstanding at December 31, 2000 (in thousands, except per share
amounts):

<TABLE>
<CAPTION>

                             Options Outstanding                                                Options Exercisable

                                                Weighted-Average
  Range of Exercise Prices         Number           Remaining                              Number      Weighted-Average
                                Outstanding     Contractual Life     Weighted-Average    Exercisable       Price
                                at 12/31/00                               Price          at 12/31/00
------------------------------ --------------- -------------------- ------------------- -------------- --------------
<S>                            <C>             <C>                  <C>                 <C>            <C>
        $  .59-22.38               10,340             5.39                14.68             6,488          12.95
         22.53-32.88               13,846             8.20                30.58             3,356          30.11
         32.94-56.88               11,665             8.73                50.99             1,040          44.62
         57.00-82.50               12,850             8.94                67.18               528          66.20
</TABLE>


36

<PAGE>

         The weighted average fair value per share of options granted during
2000, 1999 and 1998 was $36.76, $22.51, and $13.67, respectively. The fair value
of these options was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
all grants in 2000, 1999 and 1998: dividend yield of zero percent; expected
volatility of 60 percent; risk-free interest rates ranging from 4.5 to 6.6
percent; and expected lives of the options of three and one-half years.

         The Company also offers eligible employees the opportunity to acquire
shares under an employee stock purchase plan. Under the plan, shares of the
Company's common stock may be purchased at 85% of the lower of the fair market
value on the first or last business day of each month. Employees may purchase
shares having a value up to 20% of their salary, subject to certain statutory
limits. Total shares issued to participating employees under the plan were
110,000 and 50,000 in 2000 and 1999, respectively.

         Had compensation cost under the plans been determined based on the
estimated fair value of the stock plans in 2000, 1999 and 1998, net income and
net income per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>

                                                       2000                      1999                   1998
                                               ---------------------     ---------------------    ------------------
                                                           (in thousands, except per share amounts)
<S>                                            <C>                       <C>                      <C>
Net income - as reported                                   $241,483                  $427,944              $346,399
Net income (loss) - pro forma                               (53,675)                 $319,494              $297,470

Net income per share - as reported
   Basic                                                      $0.75                     $1.36                 $1.11
   Diluted                                                    $0.73                     $1.32                 $1.09
Net income (loss)  per share - pro forma
   Basic                                                     $(0.17)                    $1.02                 $0.96
   Diluted                                                   $(0.17)                    $0.98                 $0.94
</TABLE>

         The pro forma effect on net income for 2000, 1999 and 1998 is not fully
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to the
vesting of grants made prior to 1997.

9.       RETIREMENT SAVINGS PLAN:

         The Company has a 401(k) defined contribution plan, which covers
employees who have attained 18 years of age and have been employed by the
Company for at least six months. Participants may contribute up to 20% of their
compensation in any plan year and receive a 50% matching employer contribution
of up to 6% of their annual eligible compensation. The Company contributed
$8,078,000, $6,433,000, and $4,730,000 to the Plan during 2000, 1999, and 1998,
respectively.

10.      ACQUISITION:

         During the first quarter of 1999, the Company paid $77.7 million for a
19.9% interest and an option to acquire the remaining 80.1% interest in NECX
Direct, LLC, an on-line e-commerce computer peripheral retailer. The Company
subsequently sold half of that interest to a third party. During the first
quarter of 2000, the Company issued 537,554 shares of common stock to exercise
its option to purchase the remaining 80.1% interest and entered into an
agreement to pay approximately $20 million in future periods. The transaction
was accounted for as a purchase business combination. The aggregate purchase
price of approximately $155 million, which includes the cost basis of the
original investment and liabilities assumed, has been allocated primarily to
goodwill that is being amortized over a ten year period. Pro forma statements of
operations reflecting the acquisition of NECX are not shown as they would not
differ materially from reported results.


37

<PAGE>

11.      SELECTED BALANCE SHEET INFORMATION:

<TABLE>
<CAPTION>

                                                                              2000                       1999
                                                                      ---------------------        ------------------
                                                                                      (in thousands)
<S>                                                                   <C>                          <C>
Accounts receivable, net:
        Accounts receivable                                                     $  557,479                $  662,811
        Allowance for uncollectible accounts                                       (12,724)                  (16,472)
                                                                      ---------------------        ------------------
                                                                                $  544,755                $  646,339
                                                                      =====================        ==================
Inventory:
        Components and subassemblies                                            $  252,085                $  183,321
        Finished goods                                                              62,984                     8,549
                                                                      ---------------------        ------------------
                                                                                $  315,069                $  191,870
                                                                      =====================        ==================
Property, plant and equipment, net:
        Land                                                                    $   18,766                $   18,758
        Leasehold improvements                                                     169,715                   107,317
        Buildings                                                                  202,100                   202,102
        Construction in progress                                                   159,386                   158,305
        Internal use software                                                      250,775                   172,501
        Office and production equipment                                            348,742                   319,585
        Furniture and fixtures                                                     134,009                    99,959
        Vehicles                                                                    25,203                    13,477
                                                                      ---------------------        ------------------
                                                                                 1,308,696                 1,092,004
       Accumulated depreciation and amortization                                  (411,282)                 (346,344)
                                                                      ---------------------        ------------------
                                                                                $  897,414                $  745,660
                                                                      =====================        ==================
Intangibles:
        Intangibles                                                             $  226,702                $   91,220
        Accumulated amortization                                                   (60,788)                  (38,918)
                                                                      ---------------------        ------------------
                                                                                $  165,914                $   52,302
                                                                      =====================        ==================
Other assets:
        Financing receivables, net of allowance for losses                      $  701,659                $  295,812
        Long-term investments                                                      339,143                   212,865
        Deferred income taxes                                                      290,596                   211,921
        Other                                                                      283,924                   261,548
                                                                      ---------------------        ------------------
                                                                                $1,615,322                $  982,146
        Less other current assets                                                 (793,166)                 (522,225)
                                                                      ---------------------        ------------------
                                                                                $  822,156                $  459,921
                                                                      ---------------------        ------------------
Accrued liabilities:
        Warranty                                                                $  127,770                $  142,729
        Other                                                                      428,553                   466,403
                                                                      ---------------------        ------------------
                                                                                $  556,323                $  609,132
                                                                      ---------------------        ------------------
Other current liabilities:
        Deferred revenue                                                        $  116,089                $  108,603
        Other                                                                       34,831                    39,699
                                                                      ---------------------        ------------------
                                                                                $  150,920                $  148,302
                                                                      ---------------------        ------------------
Other long-term liabilities
        Deferred revenue                                                        $   62,673                $   61,200
        Warranty                                                                    54,910                    47,246
        Other                                                                       23,588                    19,414
                                                                      ---------------------        ------------------
                                                                                $  141,171                $  127,860
                                                                      =====================        ==================
</TABLE>


38

<PAGE>

12.        SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION:

<TABLE>
<CAPTION>

                                                                      2000              1999              1998
                                                                  -------------     --------------    --------------
                                                                                   (in thousands)
<S>                                                               <C>               <C>               <C>
        Supplemental disclosure of cash flow information:
               Cash paid during the year for interest                 $  2,256           $  1,533          $    930
               Cash paid during the year for income taxes             $209,371           $218,944          $200,839
        Supplemental schedule of noncash investing and
            financing activities:
           Acquisitions
              Fair value of assets acquired                              4,962                  -                 -
              Less: Liabilities assumed                                 37,391                  -                 -
                                                                     ---------          ---------          --------
              Common stock issued for acquisitions
              Common stock issued in exchange for
                  common stock of investee                            $ 32,429           $100,000          $      -
</TABLE>

13.      SEGMENT DATA:

         The Company's segments are based on the geography and, in the United
States (U.S.), by customer class. Geographic segments include the U.S., Europe
Middle East Africa (EMEA) and Asia Pacific (A-P). Customer class segments in the
U.S. are Consumer and Business. The Company evaluates the performance of its
Consumer and Business segments based on sales and operating income, and does not
include segment assets or other income and expense items for management
reporting purposes. Management evaluates net sales by customer class based on
units shipped in the period. Non-segment sales represent the reconciliation of
this methodology to the Company's revenue recognition policy which is consistent
with accounting principles generally accepted in the United States. Segment
operating income includes selling, general and administrative expenses directly
attributable to the segment and excludes certain expenses managed outside the
reporting segment. Costs excluded from the segments primarily consist of general
and administrative expenses that are managed on a corporate-wide basis. Certain
non-segment operating expenses for prior years have been reclassified to segment
specific operating expenses to conform with current year presentation.


39

<PAGE>

         The following table sets forth summary information by segment:

<TABLE>
<CAPTION>

                                                    2000                  1999                  1998
                                               -----------------    -------------------    -----------------
                                                                     (in thousands)
<S>                                            <C>                  <C>                    <C>
       The Americas
         Net sales:
           Consumer                                   $5,370,623             $4,660,936           $3,493,132
           Business                                    2,839,292              3,020,209            3,135,873
                                             --------------------     ------------------   ------------------
                                                      $8,209,915             $7,681,145           $6,629,005
                                             --------------------     ------------------   ------------------
       Operating income:
         Consumer                                     $  575,746             $  473,124           $  296,390
         Business                                        359,216                474,599              560,752
                                             --------------------     ------------------   ------------------
                                                      $  934,962             $  947,723           $  857,142
                                             --------------------     ------------------   ------------------
       Income tax expense                                165,825                224,949              205,129
       Depreciation and amortization                     169,602                116,142               83,386
       Segment assets                                  3,666,901              3,449,240            2,473,627
       Long-lived assets                               1,798,682              1,124,467              522,972
       EMEA
         Net sales                                      $584,770               $556,100             $583,459
         Operating loss                                 (55,802)                (8,807)              (6,005)
         Income tax benefit                              (2,689)                  (734)              (3,048)
         Depreciation and amortization                    10,974                  9,235                9,820
         Segment assets                                  243,917                241,489              209,820
         Long-lived assets                                60,489                 61,676               57,548
       A-P
         Net sales                                    $  771,576             $  727,655           $  490,815
         Operating income (loss)                        (10,626)                 33,049                1,153
         Income tax expense (benefit)                    (7,870)                 11,320              (7,232)
         Depreciation and amortization                     8,508                  8,728               12,318
         Segment assets                                  241,726                263,959              206,933
         Long-lived assets                                40,564                 38,739               30,184
</TABLE>

         A reconciliation of the segments net sales and operating income is as
follows:

<TABLE>
<CAPTION>

                                                    2000                  1999                  1998
                                               -----------------    -------------------    -----------------
                                                                     (in thousands)
<S>                                            <C>                  <C>                    <C>
         Net sales:
           Segment sales                               $9,566,261             $8,964,900          $7,703,279
           Non-segment sales                               34,339                     --                  --
                                              --------------------    ------------------- -------------------
            Total sales                                $9,600,600             $8,964,900          $7,703,279
                                              ====================    =================== ===================
         Operating income:
            Segment operating income                   $  868,534             $  971,965          $  852,290
            Non-segment operating expenses                357,241                376,295             358,063
                                              --------------------    ------------------- -------------------
              Total operating income                   $  511,293             $  595,670          $  494,227
                                              ====================    =================== ===================
</TABLE>

40

<PAGE>



14.      SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

         The following tables contain selected unaudited consolidated quarterly
financial data for the Company. All amounts have been restated and revised from
previously announced results for 2000:

2000:

<TABLE>
<CAPTION>

                                              1st Quarter    2nd Quarter     3rd Quarter     4th Quarter
                                              (Restated)      (Restated)     (Restated)       (Revised)
                                             -------------- --------------- -------------- ----------------
<S>                                          <C>            <C>             <C>            <C>
Net sales                                       $2,398,950      $2,207,017     $2,548,290       $2,446,343
Gross profit                                       518,502         499,371        578,697          462,424
Operating income (loss)                            186,264         163,589        186,692         (25,252)
Net income                                      $  119,640      $  118,178     $  131,838       $(128,173)
Net income per share:
       Basic                                    $     0.37      $     0.37     $     0.41       $   (0.40)
       Diluted                                  $     0.36      $     0.36     $     0.40       $   (0.40)
Basic weighted average shares outstanding          320,013         321,265        322,408          323,252
Diluted weighted average shares outstanding        332,541         331,727        333,681          323,252

Stock sales price per share:
       High                                     $    73.00      $    61.31     $    70.94       $    56.98
       Low                                      $    53.31      $    46.81     $    48.25       $    16.82
</TABLE>

<TABLE>
<CAPTION>

                                              1st Quarter    2nd Quarter     3rd Quarter    4th Quarter
                                             -------------- --------------- -------------- ---------------
                                                                (previously reported)
<S>                                          <C>            <C>             <C>            <C>
Net sales                                       $2,337,884      $2,141,875     $2,530,093      $2,373,352
Gross profit                                       528,137         498,329        583,604         442,843
Operating income (loss)                            193,201         168,641        219,127        (44,333)
Net income                                      $  136,033      $  121,638     $  152,613      $ (94,316)
  Net income per share:
       Basic                                    $     0.43      $     0.38     $     0.47      $   (0.29)
       Diluted                                  $     0.41      $     0.37     $     0.46      $   (0.29)
Basic weighted average shares outstanding          320,013         321,265        322,408         323,252
Diluted weighted average shares outstanding        332,541         331,727        333,681         323,252
</TABLE>


41

<PAGE>

         The following table sets forth the adjustments made in 2000 to
previously reported amounts. Total adjustments include both adjustments
impacting net income and adjustments not impacting net income.

<TABLE>
<CAPTION>

                                                            1st Quarter    2nd Quarter     3rd Quarter      4th Quarter
                                                          -------------    ------------    -------------    ------------
<S>                                                       <C>              <C>             <C>              <C>

ADJUSTMENTS IMPACTING NET INCOME
                       NET SALES
   Accounting pronouncements (1)                             $(26,246)       $ (3,123)        $ (2,179)        $ 60,259
   Foreign subsidiary adjustments (3)                          (2,270)         (8,440)          (2,368)          13,078
   Other adjustments (4)                                       (6,649)           (200)         (74,049)           (346)
                                                          -------------    ------------    -------------    ------------
   TOTAL REVISIONS TO NET SALES                              $(35,165)       $(11,763)        $(78,596)        $ 72,991
                                                          -------------    ------------    -------------    ------------
                      GROSS PROFIT
   Accounting pronouncements (1)                               (5,553)         (3,930)            1,159          15,172
   Foreign subsidiary adjustments (3)                            (114)           (422)            (118)             654
   Loan loss reserves (5)                                            -                         (13,987)             686
   Other adjustments (4)                                       (1,103)           (200)         (18,988)           3,069
                                                          -------------    ------------    -------------    ------------
   TOTAL REVISIONS TO GROSS PROFIT                           $ (6,770)       $ (4,552)        $(31,934)        $ 19,581
                                                          -------------    ------------    -------------    ------------
                    OPERATING INCOME
   Accounting pronouncements (1)                               (5,553)         (3,930)            1,159          15,172
   Foreign subsidiary adjustments (3)                            (114)           (422)            (118)             654
   Loan loss reserves (5)                                            -               -         (13,987)             686
   Other adjustments (4)                                       (1,270)           (700)         (19,489)           2,569
                                                          -------------    ------------    -------------    ------------
   TOTAL REVISIONS TO OPERATING INCOME                       $ (6,937)       $ (5,052)        $(32,435)        $ 19,081
                       NET INCOME
   Accounting pronouncements (1)                               (3,582)         (2,535)              748           9,615
   Foreign subsidiary adjustments (3)                             (75)           (272)             (77)             424
   Loan loss reserves (5)                                            -               -          (9,022)             775
   Other adjustments (4)                                         (885)           (653)         (12,424)           2,250
   Write-down of investments (6)                                     -               -                -        (46,921)
                                                          -------------    ------------    -------------    ------------
   TOTAL REVISIONS TO NET INCOME BEFORE CUMULATIVE
    EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                 $ (4,542)       $ (3,460)        $(20,775)       $(33,857)
                                                          -------------    ------------    -------------    ------------
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
                                                              (11,851)               -                -               -
                                                          -------------    ------------    -------------    ------------
TOTAL REVISIONS TO NET INCOME                                $(16,393)       $ (3,460)        $(20,775)       $(33,857)
                                                          -------------    ------------    -------------    ------------
TOTAL REVISIONS TO NET INCOME (LOSS)                         $  (0.04)       $  (0.01)        $  (0.06)       $  (0.11)
        ADJUSTMENTS NOT IMPACTING NET INCOME (2)
TOTAL REVISIONS TO NET SALES                                    96,231          76,905           96,793               -
TOTAL REVISIONS TO GROSS PROFIT                                (2,867)           5,594           27,027               -
TOTAL REVISIONS TO OPERATING INCOME                                  -               -                -               -
</TABLE>

42

<PAGE>

<TABLE>
<CAPTION>
                                                                         As Revised (2)

     1999:                                 1st Quarter            2nd Quarter         3rd Quarter        4th Quarter
                                         ----------------     ----------------     ---------------    ------------------
<S>                                      <C>                  <C>                  <C>                <C>
            Net sales                        $ 2,181,901          $ 1,969,376         $ 2,263,900           $ 2,549,723
            Gross profit                         429,098              396,682             472,971               538,471
            Operating income                     140,807              122,923             158,779               173,161
            Net income                            99,579               89,225             113,151               125,989
            Net income per share:
                     Basic                         $0.32                $0.28               $0.36                 $0.40
                     Diluted                       $0.31                $0.28               $0.35                 $0.38
            Weighted average shares
                 Outstanding:
                     Basic                       312,994              312,886             313,719               316,260
                     Diluted                     321,194              320,314             323,912               330,617
            Stock sales price per share:
                     High                    $     41.25          $     38.34         $     53.88           $     82.50
                     Low                     $     26.81          $     28.53         $     30.03           $     46.88

</TABLE>

1.   Effective January 1, 2000, the Company changed its revenue recognition
     policy consistent with the guidance contained in SEC Staff Accounting
     Bulletin No. 101. The new policy recognizes that the risks and rewards
     of ownership in many transactions do not substantively transfer to
     customers until the product has been delivered and other conditions
     satisfied, regardless of whether legal title has transferred.

2.   During the fourth quarter, the Company reclassified freight billed to
     customers from selling, general and administrative expenses to net sales,
     and has reclassified related freight costs from selling, general and
     administrative expenses to cost of sales pursuant to FASB Emerging Issues
     Task Force Issue No. 00-10, Accounting for Shipping and Handling Fees and
     Costs. Additionally, technical support expenses have been reclassified from
     selling, general and administrative expenses to cost of goods sold. The
     first, second and third quarterly financial information for 2000 and all
     information for 1999 have been restated for these reclassifications. These
     reclassifications were not material to previously reported gross profit and
     had no impact on quarterly operating income (loss) or net income (loss) as
     previously reported in 2000 or 1999.

3.   The Company has corrected accounting irregularities by some former
     personnel in a foreign subsidiary, resulting in no impact to full year net
     income.

4.   Other adjustments primarily consist of revenue recognition items, including
     $27 million in revenue and $6 million in net income that is expected to be
     recognized in future periods. In addition, $46 million in revenue relates
     to the sale of computers and other equipment that represented a sale of
     fixed assets.

5.   The Company changed its methodology in determining its allowance for losses
     on customer finance receivables.

6.   Additional net income adjustment of $46.9 million ($75 million before tax)
     made after the fourth quarter earnings release related to long-term
     investments. Total write-down for other than temporary decline of long-term
     investments in the fourth quarter of 2000 is $152 million.


43

<PAGE>

15.      SUBSEQUENT EVENTS

         On February 2, 2001, the Company received $200 million in connection
with the second closing of the investment agreement with AOL. The Company
issued AOL a convertible note due December 22, 2020. Additionally, On
February 16, 2001, the Company sold approximately $500 million of financing
receivables to a third party at book value with no recourse.


44

<PAGE>

                                  GATEWAY, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                              Balance at        Additions        Deductions      Balance at
                                                             Beginning of       Charged to          from           End of
                                                                Period           Expense         Allowance         Period
                                                           -----------------  ---------------  ---------------  -------------
<S>                                                        <C>                <C>              <C>              <C>
YEAR ENDED DECEMBER 31, 1998:
   Allowance for uncollectible accounts
       (deducted from accounts receivable)                  $        20,064    $       3,586    $       8,702    $    14,948
                                                           =================  ===============  ===============  =============

YEAR ENDED DECEMBER 31, 1999:
   Allowance for uncollectible accounts
       (deducted from accounts receivable)                  $        14,948    $      28,334    $      26,810    $    16,472
                                                           =================  ===============  ===============  =============

YEAR ENDED DECEMBER 31, 2000:
   Allowance for uncollectible accounts
       (deducted from accounts receivable)                  $        16,472    $      25,453    $      29,201    $    12,724
                                                           =================  ===============  ===============  =============
</TABLE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          None.


45

<PAGE>

                                    PART III

Part III of this report is incorporated by reference to Gateway's definitive
Proxy Statement relating to its Annual Meeting of Stockholders, which will be
filed with the Commission within 120 days of the end of fiscal year 2000.



                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K

(a)       The following documents are filed as a part of this Report:

          (1)      Financial Statements and Financial Statement Schedule. See
                   Index to Consolidated Financial Statements and Financial
                   Statement Schedule at Item 8 on page 21 of this Report.

          (2)      Exhibits. Exhibits identified in parentheses below as on file
                   with the Securities and Exchange Commission are incorporated
                   herein by reference as exhibits hereto.


46

<PAGE>

<TABLE>
<CAPTION>

EXHIBIT                    DESCRIPTION OF EXHIBITS
  NO.                      -----------------------
-------
<S>        <C>
  3.1      Amended and Restated Certificate of Incorporation of Gateway, Inc.
           (Exhibit No. 3.2 to Amendment No. 1 to Registration Statement
           No. 3-70618)
  3.2      Amended and Restated Bylaws of Gateway, Inc. (Exhibit No. 3.1 to
           Form 10-Q for the period ended March 31, 2000)
  3.3      Rights Agreement, dated as of January 19, 2000, between Gateway, Inc.
           and UMB Bank, N.A., as Rights Agent, including all exhibits thereto.
           (Exhibit 1.0 to Form 8-A dated February 4, 2000)
  10.1     Tax Indemnification Agreement dated as of December 6, 1993 between
           Gateway, Inc., and Theodore W. Waitt and the Norman W. Waitt, Jr.
           S Corp. Trust.  (Exhibit No. 10.1 Form 10-K for 1993)*
  10.2     Indemnification Agreement dated as of December 6, 1993 between
           Gateway, Inc. and Theodore W. Waitt.  (Exhibit No. 10.2 to 10-K for
           1995)*
  10.3     Registration Agreement dated February 22, 1991 between Gateway, Inc.,
           Theodore W. Waitt and Norman W. Waitt, Jr. as the sole trustee and
           sole beneficiary of the Norman W. Waitt, Jr. S Corp.
           Trust, together with Amendment No. 1 to the Registration Agreement
           dated as of October 19, 1993 (Exhibit 10.11 to Form S-1)*
  10.4     Gateway, Inc. 1992 Stock Option Plan.  (Exhibit No. 10.4 to
           Registration Statement No. 33-70618 (the "Form S-1")*
  10.5     Gateway, Inc. 1993 Stock Option Plan for Executives and Key
           Employees.  (Exhibit No. 10.6 to the Form S-1)*
  10.6     Gateway, Inc. 1993 Non-Employee Director Stock Option Plan and Form
           of Option Grant Letter (Exhibit No. 10.8 to the Form S-1)*
  10.7     Gateway, Inc. 1996 Long-Term Incentive Equity Plan, as amended and
           restated (filed herewith)*
  10.8     Gateway, Inc. 2000 Equity Incentive Equity Plan, as amended and
           restated (Exhibit No. 10.18 to Form 10-Q for the period ended
           June 30, 2000*)
  10.9     Gateway, Inc. 1996 Non-Employee Directors Stock Option Plan as
           amended.  (Exhibit No. 10.20 to Form 10-Q for the period ended
           June 30, 1998)*
  10.10    Gateway, Inc. Management Incentive Plan (Exhibit 10.9 to the
           Form 10-K for 1996)*
  10.11    Gateway, Inc. Deferred Compensation Plan, as amended. (Exhibit 10.11
           to the Form 10-K for 1998)*
  10.12    Gateway, Inc. Retirement Savings Plan. (Exhibit No. 10.16 to
           Form 10-K for 1995)*
  10.13    Gateway, Inc. 1995 Employee Stock Purchase Plan, as amended.
           (Exhibit 10.19 to Form 10-Q for period ended June 30, 1999)*
  10.14    Form of Executive Officer Change of Control Compensation Agreement
           (Exhibit 10.19 to Form 10-Q for period ended September 30, 2000)*
  10.15    Employment Agreement between Gateway, Inc. and Jeffrey Weitzen dated
           December 8, 1999 (filed as Exhibit  10.17 to Form 10-K for 1999)*
  10.16    Employment agreement between Gateway, Inc. and Richard T. Bradley
           made as of August 1, 2000 (filed herewith)*
  10.17    Agreement and General Release between Gateway, Inc. and Richard T.
           Bradley (filed herewith)*
  10.18    Letter Agreement between Gateway Inc. and Richard T. Bradley (filed
           herewith)*
  10.19    Promissory Noted dated April 26, 2000 between Gateway, Inc. and
           Clifford S. Holtz (filed herewith)*
  10.20    Employment Agreement between Gateway, Inc. and Clifford S. Holtz made
           as of August 1, 2000 (filed herewith)*
  10.21    Agreement and General Release between Gateway, Inc. and Clifford S.
           Holtz (filed herewith)*
  10.22    Employment Agreement between Gateway, Inc. and David J. Robino dated
           January 22, 1998, (Exhibit 10.17 to Form 10-K for 1997)*
  10.23    Employment Agreement between Gateway, Inc. and John J. Todd made as
           of August 1, 2000 (filed herewith)*
  10.24    Agreement and General Release between Gateway, Inc. and John J. Todd
           (filed herewith)*
  10.25    Amendment to Agreement and General Release between Gateway, Inc. and
           John J. Todd  (filed herewith)*
  21.1     List of subsidiaries, filed herewith.


<PAGE>

  23.1     Consent of PricewaterhouseCoopers LLP, filed herewith.
  24.1     Powers of attorney, filed herewith.

</TABLE>


*Indicates a management contract or compensatory plan.

         Gateway will furnish upon request any exhibit described above upon
payment of Gateway's reasonable expenses for furnishing such exhibit.

(b)    Reports on Form 8-K.

         No reports on Form 8-K were filed by Gateway during the quarter ended
December 31, 2000.

THIS REPORT CONTAINS THE FOLLOWING TRADEMARKS AND SERVICE MARKS OF GATEWAY, MANY
OF WHICH ARE REGISTERED: GATEWAY, YOUR:) WARE, THE "BLACK AND WHITE SPOT"
DESIGN, GATEWAYPROFILE, GATEWAY COUNTRY, GATEWAY.NET, SOLO, AND "YOU'VE GOT A
FRIEND IN THE BUSINESS". THE FOLLOWING TRADEMARKS OF OTHER COMPANIES ALSO APPEAR
IN THIS REPORT: INTEL, AMD, MICROSOFT AND PENTIUM. THESE AND ANY OTHER PRODUCT
OR BRAND NAMES CONTAINED HEREIN ARE TRADEMARKS OR REGISTERED TRADEMARKS OF THEIR
RESPECTIVE OWNERS.


<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 2, 2001.

                            GATEWAY, INC.


                            By: /s/ Joseph Burke
                               ----------------------------------------
                               Joseph Burke
                               Senior Vice President and Chief Financial Officer
                               (authorized officer and chief financial officer)



                            By: /s/ Robert D. Manza
                               ----------------------------------------
                               Robert D. Manza
                               Vice President and Controller
                               (principal accounting officer)


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the dates indicated below:

<TABLE>
<CAPTION>

     DATE                              SIGNATURE                                     TITLE
     ----                              ---------                                     -----
<S>                   <C>                                           <C>
                               /s/ Theodore W. Waitt
March 2, 2001         --------------------------------------------  Chairman of the Board and Chief
                                   Theodore W. Waitt                Executive Officer (Principal Executive
                                                                    Officer)

                                  /s/ Joseph Burke
March 2, 2001         --------------------------------------------  Senior Vice President and Chief
                                      Joseph Burke                  Financial Officer (Principal Financial
                                                                    Officer)
                                 /s/ Robert D. Manza
March 2, 2001         --------------------------------------------  Vice President and Controller
                                    Robert D. Manza                 (Principal Accounting Officer)

                                           *
March 2, 2001         --------------------------------------------  Director
                                    Charles G. Carey

                                           *
March 2, 2001         --------------------------------------------  Director
                                     Elizabeth Dole

                                           *
March 2, 2001         --------------------------------------------  Director
                                    George H. Krauss

                                           *
March 2, 2001         --------------------------------------------  Director
                                    Douglas L. Lacey

                                           *
March 2, 2001         --------------------------------------------  Director
                                    James F. McCann

                                           *
March 2, 2001         --------------------------------------------  Director
                                   Richard D. Snyder

</TABLE>

*By: /s/ William M. Elliott
     ------------------------
     William M. Elliott
     (Attorney-in-fact)