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Gateway Revises 2005 Income Results
Mar 16, 2006
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Business appliance maker Gateway, Inc. revised its previously announced net income for 2005 from the U.S. $49.5 million that was reported on Feb. 2, 2006 to $6.2 million, or $0.2 per diluted share.

Gateway said the revision was based on two significant prior-year events that occurred after the quarter's close but before the filing of the 10-K.

Earlier this month, Gateway announced an agreement with the Hewlett-Packard Company (HP) to cross-license each other's patent portfolios for a period of 7 years and, as part of the agreement, a global settlement and mutual release of all claims in litigation against the other company. As a result of the agreement with HP, Gateway took a $16.7 million charge against 2005 earnings.

Also in March 2006, the company increased, as of Dec. 31, 2005, its sales, income and franchise tax reserves by $27 million for historical tax liability, because Gateway now believes, based on the outcome of a recent court decision against another company in a similar tax litigation case, it is probable that it will be required to make a substantial portion of the tax payments.

"We expect this to be but the first of many revisions of our tax liability accruals, both positive and negative, this year as we resolve certain tax liabilities for prior years," said John Goldsberry, Gateway senior vice president and chief financial officer. "We believe that the net total effect of these tax audit adjustments will ultimately be favorable to the company's bottom line."

Rick Snyder, Gateway's chairman and interim chief executive officer, said, "It's important to note that these specific tax adjustments predominantly date back to the mid- to late-1990s, and therefore should not detract from the operating successes Gateway enjoyed in 2005, including posting its first full-year profit in a half-decade."

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