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 August 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.
Milpitas, California
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 September 24, 2004, 48,306,560 shares of the Registrant’s Common Stock were outstanding.
This report contains a total of 52 pages of which this page is number 1.
Table of Contents
| Page | ||||||
| PART I. |
||||||
| Item 1. |
||||||
|
Condensed Consolidated Statements of Operations Three months ended August 31, 2004 and 2003 |
3 | |||||
|
Condensed Consolidated Balance Sheets August 31, 2004 and May 31, 2004 |
4 | |||||
|
Condensed Consolidated Statements of Cash Flows Three months ended August 31, 2004 and 2003 |
5 | |||||
| Notes to Condensed Consolidated Financial Statements | 6 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 | ||||
| Item 3. |
45 | |||||
| Item 4. |
46 | |||||
| PART II. |
||||||
| Item 1. |
46 | |||||
| Item 6. |
47 | |||||
| 52 | ||||||
| (*) | palmOne’s 52-53 week fiscal year ends on the Friday nearest May 31, with each fiscal quarter ending on the Friday generally nearest August 31, November 30 and February 28. For presentation purposes, the periods are shown as ending on August 31, November 30, February 28 and May 31, as applicable. |
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.
2
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended August 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 273,145 | $ | 168,608 | ||||
| Costs and operating expenses: |
||||||||
| Cost of revenues (*) |
181,803 | 121,224 | ||||||
| Sales and marketing |
37,555 | 34,578 | ||||||
| Research and development |
18,568 | 16,828 | ||||||
| General and administrative |
9,799 | 8,694 | ||||||
| Amortization of intangible assets and deferred stock-based compensation (**) |
2,339 | 121 | ||||||
| Restructuring charges |
— | 2,670 | ||||||
| Total costs and operating expenses |
250,064 | 184,115 | ||||||
| Operating income (loss) |
23,081 | (15,507 | ) | |||||
| Interest and other income (expense), net |
(34 | ) | (157 | ) | ||||
| Income (loss) before income taxes |
23,047 | (15,664 | ) | |||||
| Income tax provision |
3,453 | 1,198 | ||||||
| Income (loss) from continuing operations |
19,594 | (16,862 | ) | |||||
| Loss from discontinued operations (net of taxes of $0 and $248, respectively) |
— | (4,884 | ) | |||||
| Net income (loss) |
$ | 19,594 | $ | (21,746 | ) | |||
| Net income (loss) per share: |
||||||||
| Basic: |
||||||||
| Continuing operations |
$ | 0.41 | $ | (0.57 | ) | |||
| Discontinued operations |
— | (0.17 | ) | |||||
| $ | 0.41 | $ | (0.74 | ) | ||||
| Diluted: |
||||||||
| Continuing operations |
$ | 0.38 | $ | (0.57 | ) | |||
| Discontinued operations |
— | (0.17 | ) | |||||
| $ | 0.38 | $ | (0.74 | ) | ||||
| Shares used in computing per share amounts: |
||||||||
| Basic |
47,629 | 29,349 | ||||||
| Diluted |
51,005 | 29,349 | ||||||
(*) Cost of revenues excludes the applicable portion of amortization of intangible assets and deferred stock-based compensation. |
||||||||
| (**) Amortization of intangible assets and deferred stock-based compensation: |
||||||||
| Cost of revenues |
$ | 312 | $ | 4 | ||||
| Sales and marketing |
1,654 | 58 | ||||||
| Research and development |
64 | 27 | ||||||
| General and administrative |
309 | 32 | ||||||
| $ | 2,339 | $ | 121 | |||||
See notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
| August 31, 2004 |
May 31, 2004 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 210,966 | $ | 203,069 | ||||
| Short-term investments |
79,378 | 49,382 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $7,836 and $8,317, respectively |
133,309 | 120,757 | ||||||
| Inventories |
19,152 | 14,030 | ||||||
| Investment for committed tenant improvements |
7,090 | 7,197 | ||||||
| Prepaids and other |
7,514 | 8,067 | ||||||
| Total current assets |
457,409 | 402,502 | ||||||
| Restricted investments |
775 | 1,175 | ||||||
| Land not in use |
60,000 | 60,000 | ||||||
| Property and equipment, net |
17,495 | 19,425 | ||||||
| Goodwill |
254,953 | 257,363 | ||||||
| Intangible assets, net |
9,042 | 10,979 | ||||||
| Deferred income taxes |
34,800 | 34,800 | ||||||
| Other assets |
1,654 | 1,694 | ||||||
| Total assets |
$ | 836,128 | $ | 787,938 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 128,331 | $ | 112,772 | ||||
| Accrued restructuring |
22,269 | 27,156 | ||||||
| Provision for committed tenant improvements |
7,090 | 7,197 | ||||||
| Other accrued liabilities |
121,244 | 112,679 | ||||||
| Total current liabilities |
278,934 | 259,804 | ||||||
| Non-current liabilities: |
||||||||
| Long-term convertible debt |
35,000 | 35,000 | ||||||
| Other non-current liabilities |
1,450 | 1,600 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.001 par value, 125,000 shares authorized; none outstanding |
— | — | ||||||
| Common stock, $0.001 par value, 2,000,000 shares authorized; outstanding: 48,270 shares and 47,032 shares, respectively |
48 | 47 | ||||||
| Additional paid-in capital |
1,394,659 | 1,383,630 | ||||||
| Unamortized deferred stock-based compensation |
(3,802 | ) | (1,995 | ) | ||||
| Accumulated deficit |
(871,044 | ) | (890,638 | ) | ||||
| Accumulated other comprehensive income |
883 | 490 | ||||||
| Total stockholders’ equity |
520,744 | 491,534 | ||||||
| Total liabilities and stockholders’ equity |
$ | 836,128 | $ | 787,938 | ||||
See notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months Ended August 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Income (loss) from continuing operations |
$ | 19,594 | $ | (16,862 | ) | |||
| Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: |
||||||||
| Depreciation |
4,690 | 5,142 | ||||||
| Amortization |
2,339 | 441 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(12,552 | ) | 21,158 | |||||
| Inventories |
(5,122 | ) | (1,300 | ) | ||||
| Prepaids and other |
994 | (421 | ) | |||||
| Accounts payable |
15,559 | (16,228 | ) | |||||
| Accrued restructuring |
(4,887 | ) | (239 | ) | ||||
| Other accrued liabilities |
10,722 | (2,604 | ) | |||||
| Net cash provided by (used in) operating activities |
31,337 | (10,913 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(2,760 | ) | (1,641 | ) | ||||
| Sale of restricted investments |
400 | — | ||||||
| Purchase of restricted investments |
— | (2,764 | ) | |||||
| Sale of short-term investments |
9,564 | — | ||||||
| Purchase of short-term investments |
(39,466 | ) | — | |||||
| Net cash used in investing activities |
(32,262 | ) | (4,405 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock: |
||||||||
| Private placements |
— | 37,015 | ||||||
| Employee stock plans |
8,822 | 1,037 | ||||||
| Net cash provided by financing activities |
8,822 | 38,052 | ||||||
| Change in cash and cash equivalents |
7,897 | 22,734 | ||||||
| Cash and cash equivalents, beginning of period |
203,069 | 204,967 | ||||||
| Cash and cash equivalents, end of period |
$ | 210,966 | $ | 227,701 | ||||
| Other cash flow information: |
||||||||
| Cash paid for income taxes |
$ | (859 | ) | $ | (414 | ) | ||
| Cash paid for interest |
$ | (907 | ) | $ | (1,272 | ) | ||
See notes to condensed consolidated financial statements.
5
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 1. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared by palmOne, Inc. (formerly Palm, Inc.) (“palmOne,” the “Company,” “us,” “we” or “our”), without audit, pursuant to the rules of the Securities and Exchange Commission, or SEC. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments necessary for a fair presentation of palmOne’s financial position as of August 31, 2004 and results of operations and cash flows for the three months ended August 31, 2004 and 2003. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in palmOne’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004. The results of operations for the three months ended August 31, 2004 are not necessarily indicative of the operating results for the full fiscal year or any future period.
On October 28, 2003, the Company’s stockholders formally approved a plan to spin-off the Company’s OS platform and licensing business through the distribution of all of the shares it owned of its majority-owned subsidiary, PalmSource Inc., or PalmSource, and acquire Handspring, Inc., or Handspring. Immediately following the transaction, Palm, Inc. changed its name to palmOne, Inc. The Company completed the spin-off by issuing approximately 0.3098 of a share of PalmSource common stock for each share of Palm common stock outstanding as of October 28, 2003. The distribution of the shares of PalmSource common stock was intended to be tax-free to palmOne and its stockholders. As a result of the distribution, the Company’s historical condensed consolidated financial statements have been retroactively adjusted to account for PalmSource as discontinued operations for all periods presented in accordance with Statement of Financial Accounting Standards, or SFAS, No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. While these reclassifications result in changes to certain previously reported amounts, the total and per share amounts of loss have not changed from the amounts reported previously. Unless otherwise indicated, the Notes to Condensed Consolidated Financial Statements relate to the Company’s continuing operations (See Note 3 to condensed consolidated financial statements). Immediately following the PalmSource distribution, palmOne acquired Handspring through a merger transaction between Handspring and a wholly-owned subsidiary of palmOne. In the Handspring acquisition, the stockholders of Handspring received 0.09 of a share of palmOne common stock for each share of Handspring common stock held (an aggregate of approximately 13.6 million sh