Exhibit 99.1
CONTACTS:
Brad Driver, investor relations
408.503.2943
brad.driver@corp.palm.com
Marlene Somsak, media relations
408.503.2592
marlene.somsak@corp.palm.com
Palm Reports Q1 FY’04 Results
Revenue Up 3%, Gross Margin Strong at 34.7%
MILPITAS, Calif., Sept. 18, 2003 – Palm, Inc. (Nasdaq: PALM), which consists of two operating units – Palm Solutions Group and PalmSource – today reported revenues of $177.4 million for the first quarter of fiscal year 2004, ended Aug. 29, 2003, up 3.0 percent from the $172.3 million reported during the comparable quarter a year ago.
For the first quarter of fiscal year 2004, net loss, in accordance with generally accepted accounting principles (GAAP), was $21.7 million, or $(0.74) per share. This net loss included restructuring charges of $2.7 million, amortization of intangible assets of $0.3 million and separation costs associated with the pending spin-off of PalmSource of $1.9 million. This compares to a GAAP net loss for the first quarter of fiscal year 2003 of $258.7 million or $(8.93) per share.
Net loss in the first quarter of fiscal year 2004, measured on a non-GAAP basis, totaled $16.9 million, or $(0.58) per share, excluding the effects of amortization of intangible assets, separation costs and restructuring charges. This compares to a non-GAAP net loss in the first quarter of fiscal year 2003 of $36.4 million, or $(1.26) per share, which excluded the effects of amortization of intangible assets, separation costs, restructuring charges and the change in the valuation allowance for deferred tax assets.
“Palm Solutions Group and PalmSource demonstrated continued strong execution,” said Eric Benhamou, Palm, Inc. chairman and interim chief executive officer. “Each business posted year-over-year revenue growth. We improved our gross margin, strengthened our balance sheet with an increase in our cash balance and managed our inventory to 20 turns. As we look to the near and medium term, we notice many indications of a new growth wave in the making for the mobile device industry.”
The company noted the following operational highlights in the first quarter of fiscal year 2004 over the comparable quarter last year:
| • | Revenue rose 3 percent, helped by an increase in average selling prices to $231 from $167, reflecting the company’s recent introduction of fully featured products in the Zire consumer subbrand and the Tungsten mobile professional and business subbrand; |
| • | GAAP gross margin of 34.7 percent vs. 30.7 percent; |
| • | Expenses for sales and marketing, research and development, and general and administrative costs of $77.1 million vs. $86.5 million; |
| • | GAAP operating loss of $20.1 million, down 42.8 percent; non-GAAP operating loss of $15.2 million, down 52.3 percent; |
| • | Inventory turns improved to 20 from 9; and |
| • | Cash-to-cash conversion cycle improved to 4 from 7. |
During the quarter, Palm, Inc. announced the following:
| • | The board of directors of Palm, Inc. unanimously approved a transaction that includes the spin-off of PalmSource and the acquisition of Handspring. Upon shareholder approval, two new publicly traded companies will emerge: a leading handheld-software platform company and an even stronger market leader in mobile devices and solutions; |
| • | Palm filed a Form S-4 with the Securities and Exchange Commission in support of the proposed acquisition and spin-off, which has cleared Hart-Scott-Rodino antitrust review; and |
| • | A new name for Palm, Inc. following the spin-off and acquisition transaction: palmOne, Inc. |
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Palm Solutions Group Update
During the quarter, Palm Solutions Group – responsible for the world-leading Palm branded handhelds, accessories and add-on hardware and software – announced the following:
| • | The Palm Tungsten T2 handheld – a new product for mobile professionals and business – with more memory and software; |
| • | Expanded collaboration with IBM to create an ideal handheld platform for enterprise software and access to data. It includes the delivery of IBM’s Java Virtual Machine across future Tungsten family handhelds, embracing the 3 million-strong Java developer community; and |
| • | A net total of $37.0 million raised from institutional investors for general corporate purposes of the Palm Solutions Group. |
Palm shipped approximately 645,000 Palm handhelds during its first fiscal quarter, bringing the total number of Palm branded handhelds shipped to date to 22.9 million.
PalmSource Update
During the quarter, PalmSource, Inc., the Palm subsidiary responsible for developing and licensing Palm OS platform – the world’s leading operating system software for handheld computers and smartphones – noted the following highlights:
| • | Launch of Palm OS 5 Simplified Chinese Edition, designed for the greater Chinese handheld computer and smartphone market; |
| • | Announcements of several new Palm Powered smartphones. They include: the GSL Xplore G18, designed for Asian markets; the Samsung SPH i500, a sleek clamshell phone; and a new “Signature Phone” series product from Orange, based on the Handspring Treo 600, which will be sold on Orange’s European networks; |
| • | Availability of the Garmin iQue 3600 GPS product, based on Palm OS 5; |
| • | A strategic relationship with PalmGear including PalmGear’s acquisition of PalmSource’s Palm Digital Media unit and an expanded relationship for PalmGear to power PalmSource’s online store; and |
| • | Strategic relationships with IBM to work together on the development of next-generation Web services applications for Palm Powered devices, and with Visto to build a standard enterprise-grade wireless email client for Palm OS platform. |
Approximately 1.2 million Palm Powered™ handhelds were shipped in the quarter, bringing the total number shipped to date from all Palm OS licensees to 30.1 million.
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INVESTOR’S NOTE: The company will hold a conference call for the public on Sept. 18, 2003, at 2 p.m. Pacific/5 p.m. Eastern to discuss matters covered in this press release. The dial-in number for the call is 888.335.6680 in the United States and 973.935.8508 for international callers. No pass code is needed. A telephone call replay of the conference call will be available through Oct. 2, 2003, beginning today at approximately 5 p.m. Pacific. The dial-in number for the replay is 877.519.4471 (PIN# 4159001) in the United States and 973.341.3080 (PIN# 4159001) for international callers. The live conference call also will be available over the Internet by logging onto the investor relations section of Palm’s website athttp://ir.palm.com. An audio replay and text transcript of the conference call also can be accessed at the same URL beginning on Sept. 18, 2003.
NON-GAAP FINANCIAL MEASURES: The non-GAAP financial measures used in this news release exclude the impact of amortization of intangible assets, separation costs, restructuring charges, the change in the valuation allowance for deferred tax assets and the related income tax provision. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The company’s management refers to these non-GAAP financial measures – such as non-GAAP operating loss and net loss – in making operating decisions because they provide meaningful supplemental information regarding the company’s operational performance, including the company’s ability to provide cash flows to invest in research and development and fund acquisitions and capital expenditures. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to the company’s historical operating results and comparisons to competitors’ operating results. We include these non-GAAP financial measures in our earnings announcement because we believe they are useful to investors in allowing for greater transparency to supplemental information used by management in its financial and operational decision-making. In addition, we have historically reported similar non-GAAP financial measures to our investors and believe that the inclusion of comparative numbers provides consistency in our financial reporting at this time. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measure as provided with the financial statements attached to this news release.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding the following: growth in the mobile device industry; the proposed transaction involving the distribution of PalmSource stock to Palm stockholders and the merger involving Handspring and Palm; and the market position of the two new publicly traded companies following such transaction. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially, including, without limitation, the following: Palm’s ability to hire, retain, integrate and motivate sufficient qualified personnel; Palm’s ability to secure and protect its intellectual property; fluctuations in the demand for Palm’s existing and future products and services and growth in Palm’s industries and markets; possible defects in products and technologies developed; Palm’s ability to compete with existing and new competitors; Palm’s ability to successfully operate as two separate companies and possible problems arising from the separation of Palm’s Solutions Group and PalmSource; the approval of the merger and distribution transaction by the Palm and Handspring stockholders; the satisfaction of closing conditions to the merger and distribution transaction, including the receipt of regulatory approvals; the ability of Palm and PalmSource to operate as separate companies after the PalmSource distribution; and the successful integration of Handspring’s employees and technologies with those of Palm. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Palm’s most recent filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the period ended May 30, 2003 and its Registration Statement on Form S-4, filed July 3, 2003, as amended. Palm undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.
About Palm, Inc.
Information about Palm, Inc. is available athttp://www.palm.com/aboutpalm.
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Palm OS is a registered trademark and Palm Powered is a trademark of PalmSource, Inc., a subsidiary of Palm, Inc. Palm, Tungsten, Zire and VersaMail are trademarks of Palm, Inc. Other brands may be trademarks of their respective owners.
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Palm, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | ||||||||
| August 31, 2003 | August 31, 2002 | |||||||
Revenues | $ | 177,435 | $ | 172,268 | ||||
Costs and operating expenses: | ||||||||
Cost of revenues (**) | 115,592 | 117,653 | ||||||
Sales and marketing | 39,192 | 44,774 | ||||||
Research and development | 25,787 | 29,916 | ||||||
General and administrative | 12,109 | 11,852 | ||||||
Amortization of intangible assets (*) | 302 | 2,361 | ||||||
Separation costs | 1,885 | 1,426 | ||||||
Restructuring charges | 2,670 | (581 | ) | |||||
Total costs and operating expenses | 197,537 | 207,401 | ||||||
Operating loss | (20,102 | ) | (35,133 | ) | ||||
Interest and other income (expense), net | (199 | ) | (3,486 | ) | ||||
Loss before income taxes | (20,301 | ) | (38,619 | ) | ||||
Income tax provision | 1,445 | 220,126 | ||||||
Net loss | $ | (21,746 | ) | $ | (258,745 | ) | ||
Net loss per share: | ||||||||
Basic and diluted | $ | (0.74 | ) | $ | (8.93 | ) | ||
Shares used in computing per share amounts: | ||||||||
Basic and diluted | 29,349 | 28,968 | ||||||
(*)Amortization of intangible assets: | ||||||||
Cost of revenues | $ | 204 | $ | 1,763 | ||||
Sales and marketing | — | — | ||||||
Research and development | 65 | 565 | ||||||
General and administrative | 33 | 33 | ||||||
Total amortization of intangible assets | $ | 302 | $ | 2,361 | ||||
Certain prior year balances have been reclassified to conform to the current year presentation.
Palm’s fiscal periods are generally 13 weeks in length and end on a Friday. For presentation purposes, the periods are presented as ending on Aug. 31, Nov. 30, Feb. 28 and May 31.
(**) Cost of revenues does not include that portion of amortization of intangible assets related to cost of revenues.
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Palm, Inc.
Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of Operations
Excluding effects of amortization of intangible assets, separation costs, and restructuring charges
(In thousands, except per share data)
(Unaudited)
| Three Months Ended August 31, 2003 | Three Months Ended August 31, 2002 | |||||||||||||||||||||||
| GAAP | Adjustments | Non-GAAP | GAAP | Adjustments | Non-GAAP | |||||||||||||||||||
Revenues | $ | 177,435 | $ | — | $ | 177,435 | $ | 172,268 | $ | — | $ | 172,268 | ||||||||||||
Costs and operating expenses: | ||||||||||||||||||||||||
Cost of revenues (**) | 115,592 | — | 115,592 | 117,653 | — | 117,653 | ||||||||||||||||||
Sales and marketing | 39,192 | — | 39,192 | 44,774 | — | 44,774 | ||||||||||||||||||
Research and development | 25,787 | — | 25,787 | 29,916 | — | 29,916 | ||||||||||||||||||
General and administrative | 12,109 | — | 12,109 | 11,852 | — | 11,852 | ||||||||||||||||||
Amortization of intangible assets (*) | 302 | (302 | ) | — | 2,361 | (2,361 | ) | — | ||||||||||||||||
Separation costs | 1,885 | (1,885 | ) | — | 1,426 | (1,426 | ) | — | ||||||||||||||||
Restructuring charges | 2,670 | (2,670 | ) | — | (581 | ) | 581 | — | ||||||||||||||||
Total costs and operating expenses | 197,537 | (4,857 | ) | 192,680 | 207,401 | (3,206 | ) | 204,195 | ||||||||||||||||
Operating loss | (20,102 | ) | 4,857 | (15,245 | ) | (35,133 | ) | 3,206 | (31,927 | ) | ||||||||||||||
Interest and other income (expense), net | (199 | ) | — | (199 | ) | (3,486 | ) | — | (3,486 | ) | ||||||||||||||
Loss before income taxes | (20,301 | ) | 4,857 | (15,444 | ) | (38,619 | ) | 3,206 | (35,413 | ) | ||||||||||||||
Income tax provision | 1,445 | — | 1,445 | 220,126 | (219,141 | ) | 985 | |||||||||||||||||
Net loss | $ | (21,746 | ) | $ | 4,857 | $ | (16,889 | ) | $ | (258,745 | ) | $ | 222,347 | $ | (36,398 | ) | ||||||||
Net loss per share: | ||||||||||||||||||||||||
Basic and diluted | $ | (0.74 | ) | $ | 0.16 | $ | (0.58 | ) | $ | (8.93 | ) | $ | 7.67 | $ | (1.26 | ) | ||||||||
Shares used in computing per share amounts: | ||||||||||||||||||||||||
Basic and diluted | 29,349 | — | 29,349 | 28,968 | — | 28,968 | ||||||||||||||||||
(*)Amortization of intangible assets: | ||||||||||||||||||||||||
Cost of revenues | $ | 204 | $ | (204 | ) | $ | — | $ | 1,763 | $ | (1,763 | ) | $ | — | ||||||||||
Sales and marketing | — | — | — | — | — | — | ||||||||||||||||||
Research and development | 65 | (65 | ) | — | 565 | (565 | ) | — | ||||||||||||||||
General and administrative | 33 | (33 | ) | — | 33 | (33 | ) | — | ||||||||||||||||
Total amortization of intangible assets | $ | 302 | $ | (302 | ) | $ | — | $ | 2,361 | $ | (2,361 | ) | $ | — | ||||||||||
The above non-GAAP amounts have been adjusted to eliminate amortization of intangible assets, separation costs, and restructuring charges.
Certain prior year balances have been reclassified to conform to the current year presentation.
Palm’s fiscal periods are generally 13 weeks in length and end on a Friday. For presentation purposes, the periods are presented as ending on Aug. 31, Nov. 30, Feb. 28 and May 31.
(**) Cost of revenues does not include that portion of amortization of intangible assets related to cost of revenues.
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Palm, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
| August 31, 2003 | May 31, 2003 | |||||||
| (Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 266,840 | $ | 242,432 | ||||
Accounts receivable, net of allowance for doubtful accounts of $5,134 and $4,645, respectively | 76,631 | 97,437 | ||||||
Inventories | 24,048 | 22,748 | ||||||
Prepaids and other | 8,521 | 8,406 | ||||||
Total current assets | 376,040 | 371,023 | ||||||
Restricted investments | 5,383 | 2,619 | ||||||
Land not in use | 60,000 | 60,000 | ||||||
Property and equipment, net | 30,797 | 34,622 | ||||||
Goodwill | 68,785 | 68,785 | ||||||
Intangible assets, net | 376 | 976 | ||||||
Deferred income taxes | 34,800 | 34,800 | ||||||
Other assets | 2,505 | 3,801 | ||||||
Total assets | $ | 578,686 | $ | 576,626 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 68,437 | $ | 83,037 | ||||
Accrued restructuring | 34,722 | 35,235 | ||||||
Other accrued liabilities | 119,296 | 119,074 | ||||||
Total current liabilities | 222,455 | 237,346 | ||||||
Non-current liabilities: | ||||||||
Long-term convertible debt | 50,000 | 50,000 | ||||||
Deferred revenue and other | 13,779 | 13,494 | ||||||
Minority interest in a consolidated subsidiary | 20,582 | 20,000 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $.001 par value, 125,000 shares authorized; none outstanding | — | — | ||||||
Common stock, $.001 par value, 2,000,000 shares authorized; outstanding Aug. 31, 2003, 31,711 shares; May 31, 2003, 29,232 shares | 32 | 29 | ||||||
Additional paid-in capital | 1,161,948 | 1,123,819 | ||||||
Unamortized deferred stock-based compensation | (458 | ) | (508 | ) | ||||
Accumulated deficit | (890,535 | ) | (868,789 | ) | ||||
Accumulated other comprehensive income | 883 | 1,235 | ||||||
Total stockholders’ equity | 271,870 | 255,786 | ||||||
Total liabilities and stockholders’ equity | $ | 578,686 | $ | 576,626 | ||||
Certain prior year balances have been reclassified to conform to the current year presentation.
Palm’s fiscal periods are generally 13 weeks in length and end on a Friday. For presentation purposes, the periods are presented as ending on Aug. 31, Nov. 30, Feb. 28 and May 31.
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Palm, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months Ended | ||||||||
| August 31, 2003 | August 31, 2002 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (21,746 | ) | $ | (258,745 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 5,726 | 6,030 | ||||||
Amortization | 1,334 | 3,861 | ||||||
Deferred income taxes | — | 219,625 | ||||||
Impairment of equity investments | — | 3,206 | ||||||
Changes in assets and liabilities, net of effect of disposition: | ||||||||
Accounts receivable | 20,806 | (13,372 | ) | |||||
Inventories | (1,300 | ) | 9,784 | |||||
Prepaids and other | (691 | ) | 1,251 | |||||
Accounts payable | (14,600 | ) | (686 | ) | ||||
Accrued restructuring | (513 | ) | (8,449 | ) | ||||
Other accrued liabilities | (1,613 | ) | 12,083 | |||||
Net cash used in operating activities | (12,597 | ) | (25,412 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (1,983 | ) | (4,803 | ) | ||||
Disposition of a business | 3,700 | — | ||||||
Purchases of restricted investments | (2,764 | ) | (131 | ) | ||||
Purchases of short-term investments | — | (9,841 | ) | |||||
Net cash used in investing activities | (1,047 | ) | (14,775 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock; private placements | 37,015 | — | ||||||
Proceeds from issuance of common stock; employee stock plans | 1,067 | 3 | ||||||
Repurchase of restricted stock grants | (30 | ) | (15 | ) | ||||
Net cash provided by (used in) financing activities | 38,052 | (12 | ) | |||||
Change in cash and cash equivalents | 24,408 | (40,199 | ) | |||||
Cash and cash equivalents, beginning of period | 242,432 | 278,547 | ||||||
Cash and cash equivalents, end of period | $ | 266,840 | $ | 238,348 | ||||
Other cash flow information: | ||||||||
Cash (paid) refunded for income taxes | $ | (414 | ) | $ | 1,654 | |||
Cash paid for interest | $ | (1,272 | ) | $ | (1,350 | ) | ||
Certain prior year balances have been reclassified to conform to the current year presentation.
Palm’s fiscal periods are generally 13 weeks in length and end on a Friday. For presentation purposes, the periods are presented as ending on Aug. 31, Nov. 30, Feb. 28 and May 31.
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Palm, Inc.
Segment Results Reconciled to Reported Operating Loss Before Income Taxes
(In thousands)
(Unaudited)
| Three Months Ended August 31, 2003 | Total Palm | |||||||||||||||
| Solutions Group | PalmSource, Inc. | Eliminations | ||||||||||||||
Revenues | $ | 168,608 | $ | 17,132 | $ | (8,305 | ) | $ | 177,435 | |||||||
Cost of revenues (*) | 121,228 | 1,728 | (7,364 | ) | 115,592 | |||||||||||
Sales and marketing | 34,636 | 4,556 | — | 39,192 | ||||||||||||
Research and development | 16,855 | 8,932 | — | 25,787 | ||||||||||||
General and administrative | 8,726 | 3,383 | — | 12,109 | ||||||||||||
Segment operating contribution (loss) | (12,837 | ) | (1,467 | ) | ||||||||||||
Amortization of intangible assets | — | 302 | — | 302 | ||||||||||||
Separation costs | 861 | 1,024 | — | 1,885 | ||||||||||||
Restructuring charges | 2,670 | — | — | 2,670 | ||||||||||||
Operating income (loss) | (16,368 | ) | (2,793 | ) | (941 | ) | (20,102 | ) | ||||||||
Interest and other income (expense), net | (157 | ) | (42 | ) | — | (199 | ) | |||||||||
Segment income (loss) before income taxes | $ | (16,525 | ) | $ | (2,835 | ) | $ | (941 | ) | $ | (20,301 | ) | ||||
| Three Months Ended August 31, 2002 | Total Palm | |||||||||||||||
| Solutions Group | PalmSource, Inc. | Eliminations | ||||||||||||||
Revenues | $ | 164,725 | $ | 15,050 | $ | (7,507 | ) | $ | 172,268 | |||||||
Cost of revenues (*) | 127,075 | 1,499 | (10,921 | ) | 117,653 | |||||||||||
Sales and marketing | 40,726 | 4,107 | (59 | ) | 44,774 | |||||||||||
Research and development | 19,241 | 11,016 | (341 | ) | 29,916 | |||||||||||
General and administrative | 9,091 | 2,696 | 65 | 11,852 | ||||||||||||
Segment operating contribution (loss) | (31,408 | ) | (4,268 | ) | ||||||||||||
Amortization of intangible assets | 810 | 1,551 | — | 2,361 | ||||||||||||
Separation costs | 943 | 483 | — | 1,426 | ||||||||||||
Restructuring charges | (581 | ) | — | — | (581 | ) | ||||||||||
Operating income (loss) | (32,580 | ) | (6,302 | ) | 3,749 | (35,133 | ) | |||||||||
Interest and other income (expense), net | 208 | (3,694 | ) | — | (3,486 | ) | ||||||||||
Segment income (loss) before income taxes | $ | (32,372 | ) | $ | (9,996 | ) | $ | 3,749 | $ | (38,619 | ) | |||||
(*) Cost of revenues does not include that portion of amortization of intangible assets related to cost of revenues.
Certain prior year balances have been reclassified to conform to the current year presentation.
Palm’s fiscal periods are generally 13 weeks in length and end on a Friday. For presentation purposes, the periods are presented as ending on Aug. 31, Nov. 30, Feb. 28 and May 31.
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