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Court Allows Gateway Computer to Exit Chapter 11 Proceedings and Reorganize

September 24, 1987|MARIA L. La GANGA | Times Staff Writer

A Huntington Beach-based computer retailer in debt for more than $10 million emerged Wednesday from Chapter 11 bankruptcy proceedings after persuading its 600 creditors and a federal bankruptcy judge to support a reorganization plan.

In a brief hearing in federal bankruptcy court in Santa Ana, Judge James Barr confirmed Gateway Computer Centers' reorganization plan Wednesday, five months after it was filed.

"We turned the company around and made the company profitable for the first time in two years," said Richard Selvage, Gateway's president and chief executive.

In 1979, Gateway opened its first store in Cerritos, selling microcomputers to the general consumer market. Three years later, the company changed its focus and began selling large computer systems to Fortune 1000 clients.

By 1983, the small firm had established a corporate headquarters in Huntington Beach and opened 15 facilities.

But the expansion took its toll, and by 1984 Gateway's profits had disappeared, Selvage said. He said management difficulties, market changes, bad debt and ill-planned growth all contributed to the company's decline.

"The computer industry during that time had a phenomenal growth rate," Selvage said. "Gateway was part of that, generated a significant amount of sales . . . to large Fortune 1000 companies but really didn't have the guidelines, controls, procedures to manage that type of growth."

Between July, 1985, and July, 1986, the company lost $7.8 million, Selvage said. On July 28, 1986, company officials filed for protection from creditors under Chapter 11 of the federal bankruptcy law.

A new management team headed by Selvage and Ed Meadows, chief financial officer, took control of Gateway in March and by the end of April had slashed employment to 170 from 340, cut the number of stores to nine and filed a reorganization plan with the court.

In June, the company turned a profit for the first time since 1985, Selvage said. Sales for fiscal 1987 are expected to exceed $70 million. Selvage declined to disclose earnings figures for the privately held company.

"We are very lean right now," Selvage said. "Our balance sheet will be cleaned up after reorganization. Our plan is to build a very strong base of what we know how to do. We don't have any plans this year for expansion."

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