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Gateway Acknowledges Accounting Inquiry

May 14, 2003 | Wall Street Journal

Gateway Inc. (GTW) acknowledged Wednesday that the U.S. Attorney's Office in San Diego is probing its accounting.

The computer maker said, in a filing submitted to the Securities and Exchange Commission, that the federal investigators are looking at the same accounting lapses that the SEC began examining in December 2000.

Gateway said it is cooperating with the investigation. A company spokesman didn't return several calls seeking additional comment.

The news of the probe caused Gateway shares to tumble more than 8% before recovering most of their lost ground. By the end of the day, the stock was off 4 cents, or 1.3%, at $3.15 on the New York Stock Exchange.

The company's filing said the U.S. Attorney's "preliminary inquiry" began "recently" and that neither it nor the SEC investigation should have an adverse effect on Gateway's financial position, operating results or cash flow. Gateway did say it responded in writing to a SEC Wells Notice, which warns of possible action.

The two inquiries are looking at how Gateway accounted for 12 months of free America Online Internet service, provided by AOL Time Warner Inc. (AOL), that Gateway offered with each PC. The company had booked each free subscription as revenue.

In April, the troubled computer manufacturer restated sales and cost-of-goods-sold figures for 1999, 2000 and 2001.

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