Accounting & Tax

Accounting Snag Delays Gateway Filing

Its $150 million agreement with Microsoft resolved some legal issues and provided marketing and development funding; classifying that funding on th...
Stephen TaubAugust 11, 2005

Computer maker Gateway Inc. announced that it will delay the filing of its quarterly report due to the complexity of accounting issues stemming from its settlement with Microsoft Corp.

In April, Gateway and Microsoft signed a $150 million agreement in which Microsoft agreed to fund certain Gateway marketing and advertising initiatives, as well as the research, development and testing of new Gateway products that can run current and forthcoming Microsoft products. The agreement also resolved several legal claims that Gateway had made against Microsoft.

In late July, Gateway announced that it planned to delay the release of its second-quarter earnings until August 4, pending the outcome of the company’s request for final guidance from the Securities and Exchange Commission’s Office of the Chief Accountant on the proper accounting for its Microsoft agreement. The requested guidance included income-statement classification of the marketing and development-related program spending benefits, according to the company, which stressed that the resolution of the accounting treatment would result only in additional benefits or income to Gateway.

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“Because of the complex accounting interpretation issues related to our agreement with Microsoft, we voluntarily made a pre-filing submission seeking the SEC’s guidance to ensure we apply proper accounting treatment,” said Rod Sherwood, Gateway senior vice president and chief financial officer, in that July filing. “We believe it would be inappropriate to issue results in advance of receiving that guidance.”

In its announcement, Gateway stated that on August 2 it received the requested guidance from the SEC, and that the company is working with its advisors on apportioning the values in the agreement that represent future marketing and development spending and those that represent the legal settlement. The company expects to file its quarterly report no earlier than August 15.