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 November 26, 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 December 21, 2004, 48,776,795 shares of the Registrant’s Common Stock were outstanding.
Table of Contents
| Page | ||||
| PART I. |
FINANCIAL INFORMATION | |||
| Item 1. |
Financial Statements | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 42 | ||
| Item 4. |
Controls and Procedures | 42 | ||
| PART II. |
OTHER INFORMATION | |||
| Item 1. |
Legal Proceedings | 43 | ||
| Item 2. |
Changes in Securities and Use of Proceeds | 43 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 43 | ||
| Item 6. |
Exhibits | 45 | ||
| 48 | ||||
| (*) | 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.
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 November 30, |
Six Months Ended November 30, |
|||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||
| Revenues |
$ | 376,180 | $ | 271,215 | $ | 649,325 | $ | 439,823 | ||||||
| Costs and operating expenses: |
||||||||||||||
| Cost of revenues (*) |
266,478 | 197,739 | 448,281 | 318,963 | ||||||||||
| Sales and marketing |
45,048 | 43,709 | 82,603 | 78,287 | ||||||||||
| Research and development |
20,407 | 14,948 | 38,975 | 31,776 | ||||||||||
| General and administrative |
11,312 | 9,355 | 21,111 | 18,049 | ||||||||||
| Amortization of intangible assets and deferred stock-based compensation (**) |
2,527 | 1,938 | 4,866 | 2,059 | ||||||||||
| Restructuring charges |
— | 918 | — | 3,588 | ||||||||||
| Total costs and operating expenses |
345,772 | 268,607 | 595,836 | 452,722 | ||||||||||
| Operating income (loss) |
30,408 | 2,608 | 53,489 | (12,899 | ) | |||||||||
| Interest and other income (expense), net |
611 | 1,608 | 577 | 1,451 | ||||||||||
| Income (loss) before income taxes |
31,019 | 4,216 | 54,066 | (11,448 | ) | |||||||||
| Income tax provision |
6,328 | 1,584 | 9,781 | 2,782 | ||||||||||
| Income (loss) from continuing operations |
24,691 | 2,632 | 44,285 | (14,230 | ) | |||||||||
| Loss from discontinued operations (net of taxes of $0, $4, $0 and $252, respectively) |
— | (6,750 | ) | — | (11,634 | ) | ||||||||
| Net income (loss) |
$ | 24,691 | $ | (4,118 | ) | $ | 44,285 | $ | (25,864 | ) | ||||
| Net income (loss) per share: |
||||||||||||||
| Basic: |
||||||||||||||
| Continuing operations |
$ | 0.51 | $ | 0.07 | $ | 0.92 | $ | (0.43 | ) | |||||
| Discontinued operations |
— | (0.18 | ) | — | (0.35 | ) | ||||||||
| $ | 0.51 | $ | (0.11 | ) | $ | 0.92 | $ | (0.78 | ) | |||||
| Diluted: |
||||||||||||||
| Continuing operations |
$ | 0.48 | $ | 0.07 | $ | 0.86 | $ | (0.43 | ) | |||||
| Discontinued operations |
— | (0.18 | ) | — | (0.35 | ) | ||||||||
| $ | 0.48 | $ | (0.11 | ) | $ | 0.86 | $ | (0.78 | ) | |||||
| Shares used in computing per share amounts: |
||||||||||||||
| Basic |
48,381 | 36,696 | 48,005 | 33,022 | ||||||||||
| Diluted |
51,442 | 38,743 | 51,223 | 33,022 | ||||||||||
(*) 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 |
$ | 351 | $ | 84 | $ | 663 | $ | 88 | ||||||
| Sales and marketing |
1,714 | 1,599 | 3,368 | 1,657 | ||||||||||
| Research and development |
64 | 37 | 128 | 64 | ||||||||||
| General and administrative |
398 | 218 | 707 | 250 | ||||||||||
| $ | 2,527 | $ | 1,938 | $ | 4,866 | $ | 2,059 | |||||||
See notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
| November 30, 2004 |
May 31, 2004 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 236,146 | $ | 203,069 | ||||
| Short-term investments |
76,737 | 49,382 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $8,702 and $8,317, respectively |
219,427 | 120,757 | ||||||
| Inventories |
29,119 | 14,030 | ||||||
| Investment for committed tenant improvements |
6,956 | 7,197 | ||||||
| Prepaids and other |
9,970 | 8,067 | ||||||
| Total current assets |
578,355 | 402,502 | ||||||
| Restricted investments |
775 | 1,175 | ||||||
| Land not in use |
60,000 | 60,000 | ||||||
| Property and equipment, net |
18,620 | 19,425 | ||||||
| Goodwill |
253,372 | 257,363 | ||||||
| Intangible assets, net |
7,104 | 10,979 | ||||||
| Deferred income taxes |
34,800 | 34,800 | ||||||
| Other assets |
1,575 | 1,694 | ||||||
| Total assets |
$ | 954,601 | $ | 787,938 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 184,548 | $ | 112,772 | ||||
| Accrued restructuring |
20,909 | 27,156 | ||||||
| Provision for committed tenant improvements |
6,956 | 7,197 | ||||||
| Other accrued liabilities |
155,360 | 112,679 | ||||||
| Total current liabilities |
367,773 | 259,804 | ||||||
| Non-current liabilities: |
||||||||
| Long-term convertible debt |
35,000 | 35,000 | ||||||
| Other non-current liabilities |
1,300 | 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: 48,723 shares and 47,032 shares, respectively |
49 | 47 | ||||||
| Additional paid-in capital |
1,399,346 | 1,383,630 | ||||||
| Unamortized deferred stock-based compensation |
(3,576 | ) | (1,995 | ) | ||||
| Accumulated deficit |
(846,353 | ) | (890,638 | ) | ||||
| Accumulated other comprehensive income |
1,062 | 490 | ||||||
| Total stockholders’ equity |
550,528 | 491,534 | ||||||
| Total liabilities and stockholders’ equity |
$ | 954,601 | $ | 787,938 | ||||
See notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Six Months Ended November 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Income (loss) from continuing operations |
$ | 44,285 | $ | (14,230 | ) | |||
| Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: |
||||||||
| Depreciation |
8,418 | 10,843 | ||||||
| Amortization |
4,866 | 2,578 | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(98,354 | ) | (46,214 | ) | ||||
| Inventories |
(15,089 | ) | (9,538 | ) | ||||
| Prepaids and other |
(1,101 | ) | 1,438 | |||||
| Accounts payable |
71,776 | 18,865 | ||||||
| Accrued restructuring |
(6,061 | ) | (4,756 | ) | ||||
| Other accrued liabilities |
46,272 | 887 | ||||||
| Net cash provided by (used in) operating activities |
55,012 | (40,127 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(7,613 | ) | (3,459 | ) | ||||
| Spin-off of PalmSource, additional cash distribution |
— | (6,000 | ) | |||||
| Acquisition of Handspring, net cash acquired |
— | 16,114 | ||||||
| Sale of restricted investments |
400 | 1,896 | ||||||
| Purchase of restricted investments |
— | < | ||||||