DAILY NEWS AND INFORMATION FOR THE GLOBAL GRID COMMUNITY / MAY 26, 2003: VOL. 2 NO. 21    ( Table of Contents )

Breaking News - General:

Gateway Discloses U.S. Criminal Probe

Gateway Inc recently announced that the Justice Department was conducting a criminal investigation into the ailing personal computer maker's accounting practices, which are already the subject of a U.S. Securities and Exchange Commission probe.

The Poway, California-company's shares fell as much as 8 percent on the news before recovering.

In its quarterly financial filing with the SEC, Gateway said that the probe is related to the same time period and subject matter as the previously disclosed SEC investigation.

The SEC investigation began in December of 2000 and focuses on Gateway's accounting for packaged deals it offered with AOL Internet services. Gateway first disclosed the probe in November 2002 and last month said that it was lowering its reported income for 1999, 2000 and 2001 in connection with the AOL agreement.

"Gateway is cooperating fully with this inquiry and does not believe that any current officer is a target of either investigation," the company said in its filing.

A Gateway spokesman declined to say when it was notified of the investigation, saying only that it was "recently."

Asked why the company did not issue a news release to alert investors of the investigation, company spokesman Robert Sherbin said: "Because the U.S. Attorney's investigation is in a preliminary stage we feel that our SEC filing provides sufficient disclosure."

Gateway, whose shares dropped 11 cents to $3.08 in afternoon trading on the New York Stock Exchange, said that the investigation was undertaken by the U.S. Attorney's Office for the Southern District of California, which is in San Diego.

Gateway last month said that it was reducing its recognized income for costs incurred for the bundled service with Internet services provider AOL, a division of AOL Time Warner Inc., by $8 million in 1999, $337 million in 2000 and $131 million in the first quarter of 2001.

The AOL unit is already under investigation by both the SEC and the Department of Justice. The investigation has resulted in the company restating $190 million in revenue over a two-year period. The Justice Department has been investigating AOL and its accounting practices for revenue from some advertising and commerce deals.

In April, Gateway reported its ninth loss in 10 quarters. Its first-quarter loss including a charge of $78 million widened 58 percent to $200 million, or 62 cents a share, from $126.2 million, or 39 cents, a year ago. Revenue fell to $844.5 million from $992.2 million.