UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended February 27, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 000-29597
palmOne, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 94-3150688 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 400 N. McCarthy Blvd. 95035 | ||
| (Address of principal executive offices and zip code) | ||
Registrant’s telephone number, including area code: (408) 503-7000
Former name, former address and former fiscal year, if changed since last report: N/A
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
As of March 26, 2004, 46,598,803 shares of the Registrant’s Common Stock were outstanding.
This report contains a total of 67 pages of which this page is number 1.
palmOne, Inc.
| Page | ||||
| PART I. |
FINANCIAL INFORMATION | |||
| Item 1. |
Financial Statements | |||
| Condensed Consolidated Statements of Operations Three and Nine months ended February 28, 2004 and 2003 |
3 | |||
| Condensed Consolidated Balance Sheets February 28, 2004 and May 31, 2003 |
4 | |||
| Condensed Consolidated Statements of Cash Flows Nine months ended February 28, 2004 and 2003 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 55 | ||
| Item 4. |
Controls and Procedures | 56 | ||
| PART II. |
OTHER INFORMATION | |||
| Item 1. |
Legal Proceedings | 56 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 61 | ||
| 67 | ||||
The page numbers in this Table of Contents reflect actual page numbers, not EDGAR page tag numbers.
References to “palmOne,” “Company,” “we,” “us,” and “our” in this Form 10-Q refer to palmOne, Inc. and its subsidiaries unless the context requires otherwise.
palmOne, the palmOne logo, Zire, the Zire logo, Tungsten, the Tungsten logo, Handspring, the Handspring logo, Treo, Palm, the Palm logo, Palm OS, Graffiti, HotSync, the HotSync logo, and stylizations and design marks associated with all the preceding, and trade dress associated with palmOne, Inc.’s products, are among the trademarks or registered trademarks owned by or licensed to palmOne, Inc. or its subsidiaries. All other brand and product names are or may be trademarks of, and are used to identify products or services of, their respective owners. palmOne, Inc. uses the Bluetooth wireless technology trademark under express license from Bluetooth SIG, Inc. All other brand and product names are or may be trademarks of, and are used to identify products or services of, their respective owners.
2
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
palmOne, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended February 28, |
Nine Months Ended February 28, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenues |
$ | 242,485 | $ | 197,864 | $ | 682,308 | $ | 620,491 | ||||||||
| Costs and operating expenses: |
||||||||||||||||
| Cost of revenues (**) |
172,169 | 150,725 | 491,132 | 465,363 | ||||||||||||
| Sales and marketing |
38,582 | 42,199 | 116,869 | 123,528 | ||||||||||||
| Research and development |
19,831 | 15,702 | 51,607 | 51,178 | ||||||||||||
| General and administrative |
9,170 | 9,977 | 27,219 | 27,556 | ||||||||||||
| Amortization of intangible assets and stock-based compensation (*) |
5,414 | 530 | 7,473 | 3,029 | ||||||||||||
| Impairment charges |
— | 102,540 | — | 102,540 | ||||||||||||
| Restructuring charges |
4,522 | 37,952 | 8,110 | 35,348 | ||||||||||||
| Total costs and operating expenses |
249,688 | 359,625 | 702,410 | 808,542 | ||||||||||||
| Operating loss |
(7,203 | ) | (161,761 | ) | (20,102 | ) | (188,051 | ) | ||||||||
| Interest and other income (expense), net |
(486 | ) | (2,574 | ) | 965 | 2,409 | ||||||||||
| Loss before income taxes |
(7,689 | ) | (164,335 | ) | (19,137 | ) | (185,642 | ) | ||||||||
| Income tax provision |
1,633 | 1,413 | 4,415 | 221,858 | ||||||||||||
| Loss from continuing operations |
(9,322 | ) | (165,748 | ) | (23,552 | ) | (407,500 | ) | ||||||||
| Loss from discontinued operations (net of taxes of $0, $647, $252 and $1,552, respectively) |
— | (6,588 | ) | (11,634 | ) | (20,061 | ) | |||||||||
| Net loss |
$ | (9,322 | ) | $ | (172,336 | ) | $ | (35,186 | ) | $ | (427,561 | ) | ||||
| Loss per share - basic and diluted: |
||||||||||||||||
| Continuing operations |
$ | (0.20 | ) | $ | (5.70 | ) | $ | (0.63 | ) | $ | (14.04 | ) | ||||
| Discontinued operations |
— | (0.23 | ) | (0.31 | ) | (0.69 | ) | |||||||||
| Net loss |
$ | (0.20 | ) | $ | (5.93 | ) | $ | (0.94 | ) | $ | (14.73 | ) | ||||
| Shares used in computing per share amounts: |
||||||||||||||||
| Basic and diluted |
46,073 | 29,082 | 37,373 | 29,032 | ||||||||||||
| (*) Amortization of intangible assets and stock-based compensation: |
||||||||||||||||
| Cost of revenues |
$ | 243 | $ | 67 | $ | 331 | $ | 842 | ||||||||
| Sales and marketing |
4,709 | 205 | 6,366 | 598 | ||||||||||||
| Research and development |
68 | 126 | 132 | 1,188 | ||||||||||||
| General and administrative |
394 | 132 | 644 | 401 | ||||||||||||
| Total amortization of intangible assets and stock-based compensation |
$ | 5,414 | $ | 530 | $ | 7,473 | $ | 3,029 | ||||||||
| (**) | Cost of revenues excludes the applicable portion of amortization of intangible assets and stock-based compensation. |
See notes to condensed consolidated financial statements.
3
palmOne, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
| February 28, 2004 |
May 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 190,550 | $ | 204,967 | ||||
| Short-term investments |
49,261 | — | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $8,274 and $4,635, respectively |
101,452 | 96,784 | ||||||
| Inventories |
27,042 | 22,748 | ||||||
| Investment for committed tenant improvements |
7,197 | — | ||||||
| Prepaids and other |
10,404 | 9,039 | ||||||
| Current assets of discontinued operations |
— | 37,485 | ||||||
| Total current assets |
385,906 | 371,023 | ||||||
| Restricted investments |
775 | 948 | ||||||
| Land not in use |
60,000 | 60,000 | ||||||
| Property and equipment, net |
22,809 | 31,204 | ||||||
| Goodwill |
255,327 | 13,815 | ||||||
| Intangible assets, net |
12,917 | — | ||||||
| Deferred income taxes |
34,800 | 34,800 | ||||||
| Other assets |
1,331 | 1,720 | ||||||
| Non-current assets of discontinued operations |
— | 63,116 | ||||||
| Total assets |
$ | 773,865 | $ | 576,626 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 111,033 | $ | 89,371 | ||||
| Accrued restructuring |
33,230 | 34,886 | ||||||
| Provision for committed tenant improvements |
7,197 | — | ||||||
| Other accrued liabilities |
115,623 | 100,519 | ||||||
| Current liabilities of discontinued operations |
— | 12,570 | ||||||
| Total current liabilities |
267,083 | 237,346 | ||||||
| Non-current liabilities: |
||||||||
| Long-term convertible debt |
35,000 | 35,000 | ||||||
| Other non-current liabilities |
1,750 | 165 | ||||||
| Non-current liabilities of discontinued operations |
— | 48,329 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.001 par value, 125,000 shares authorized; outstanding: none |
— | — | ||||||
| Common stock, $.001 par value, 2,000,000 shares authorized; outstanding: 46,191 shares and 29,230 shares, respectively |
46 | 29 | ||||||
| Additional paid-in capital |
1,375,196 | 1,123,819 | ||||||
| Unamortized deferred stock-based compensation |
(2,434 | ) | (508 | ) | ||||
| Accumulated deficit |
(903,975 | ) | (868,789 | ) | ||||
| Accumulated other comprehensive income |
1,199 | 1,235 | ||||||
| Total stockholders’ equity |
470,032 | 255,786 | ||||||
| Total liabilities and stockholders’ equity |
$ | 773,865 | $ | 576,626 | ||||
See notes to condensed consolidated financial statements.
4
palmOne, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended February 28, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Loss from continuing operations |
$ | (23,552 | ) | $ | (407,500 | ) | ||
| Adjustments to reconcile loss from continuing operations to net cash used in operating activities: |
||||||||
| Depreciation |
15,994 | 17,749 | ||||||
| Amortization |
8,203 | 3,990 | ||||||
| Deferred income taxes |
— | 219,625 | ||||||
| Impairment charges |
— | 102,540 | ||||||
| Changes in assets and liabilities, net of effect of business combination: |
||||||||
| Accounts receivable |
5,321 | (27,838 | ) | |||||
| Inventories |
(244 | ) | 31,711 | |||||
| Prepaids and other |
1,444 | 8,920 | ||||||
| Accounts payable |
(1,112 | ) | (8,451 | ) | ||||
| Accrued restructuring |
(7,811 | ) | 16,145 | |||||
| Other accrued liabilities |
(17,660 | ) | 8,946 | |||||
| Net cash used in operating activities |
(19,417 | ) | (34,163 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(4,229 | ) | (6,983 | ) | ||||
| Purchase of equity investments |
||||||||