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Gateway Says It Is Target of Another Probe

The Justice Department is investigating the firm's books in an inquiry similar to the SEC's.

May 15, 2003|Terril Yue Jones | Times Staff Writer

Personal computer maker Gateway Inc. revealed Wednesday that the Justice Department has opened an inquiry into its accounting from 2000 and 2001, mirroring an investigation by the Securities and Exchange Commission.

The investigations are unlikely to have a "material adverse impact" on its financial position, cash flow or operating results, the company said.

The disclosure, made in Gateway's quarterly filing with the SEC, sent the Poway, Calif.-based company's stock down 8% on the New York Stock Exchange, but it recovered to close at $3.15, down 4 cents.

Both investigations are examining Gateway's revenue for 2000 and 2001, particularly the way it accounted for income it received for selling AOL Time Warner Inc.'s America Online Internet service, which was pre-installed on its computers.

Last month, Gateway restated its earnings for 2000 and the first quarter of 2001, calculating the AOL revenue on a net basis rather than a gross basis. That reduced its stated income by $470 million.

"It's the same subject matter being looked at by another arm of the government," said Gateway spokesman Robert Sherbin. "We do not believe that any current officer is a target of the investigation."

A spokeswoman for the U.S. attorney's office in San Diego declined to comment on Gateway, citing Justice Department policy to neither confirm nor deny investigations.

"Right now, it looks like it's something that's going to play itself out," said Rob Enderle, an analyst with Forrester Research, a technology consulting firm.

"From an investor's standpoint, the stock may take a hit, but how much lower can it go?" said Enderle, who does not own shares in the company. "The downside is probably pretty limited because of where the stock is right now."

Gateway shares traded above $80 in late 1999.

Founder and Chief Executive Ted Waitt left Gateway at the end of 1999, and the questionable accounting regarding AOL occurred during his absence.

When he returned to Gateway in January 2001, Chief Executive Jeff Weitzen and Chief Financial Officer John Todd left the firm. Neither has been publicly linked to the investigation.

Gateway faces stiff competition from Dell Computer Corp. and Hewlett-Packard Co., and lost $309 million last year. Last quarter the company cut 1,900 jobs and closed 80 retail stores.

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Associated Press was used in compiling this report.

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