Room 4561
February 24, 2006
Mr. Andrew J. Brown
Senior Vice President and Chief Financial Officer
Palm, Inc.
950 West Maude Avenue
Sunnyvale, California 94085
Re: Palm, Inc.
Form 10-K for the Fiscal Year Ended June 3, 2005
Filed July 29, 2005
Form 10-Q for the Quarterly Period Ended December 2,
2005
Filed January 10, 2006
Form 8-K Filed December 20, 2005
File No. 0-29597
Dear Mr. Brown:
We have reviewed the above-referenced filing and have the
following comments. Please note that we have limited our review
to
the matters addressed in the comments below. Where indicated, we
think you should revise your document in response to these
comments.
If you disagree, we will consider your explanation as to why our
comments are inapplicable or a revision is unnecessary. Please be
as
detailed as necessary in your explanation. In some of our
comments,
we may ask you to provide us with supplemental information so we
may
better understand your disclosure. After reviewing this
information,
we may or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the Fiscal Year Ended June 3, 2005
Item 8. Financial Statements
Consolidated Statements of Operations, page 51
1. We note that you appear to have a policy of recording certain
amounts related to litigation within "interest and other income
(expense), net." Please explain to us how you support this policy
and refer to the relevant accounting literature.
Consolidated Statements of Cash Flows, page 54
2. We note that you exclude cash flows related to your
discontinued
operations from the face of your statements. Please explain to us
how this complies with SFAS 95 that requires you to separately
report
each category of these cash flows on the face of your statements
of
cash flows.
Note 2. Significant Accounting Policies
Revenue Recognition, page 58
3. We note that your critical accounting policy disclosure
indicates
that you recognize revenue using the sell-through method for one
of
your web-sales distributors. Please indicate the extent to which
you
recognize revenue using this method, explain to us how sales to
this
distributor differ from your other transactions and describe how
the
revenue recognition policy within your financial statements
reflects
this policy.
Note 19. Business Segment Data, page 80
4. Please explain to us how you considered reporting revenues
related
to smartphones separately from revenues related to your handheld
computer products. In this regard, we note that you appear to
differentiate these product groups within your periodic reports
and
in information provided to investors such as your earnings call
slides. Refer to paragraph 37 of SFAS 131.
Item 9A. Controls and Procedures
Inherent Limitations on Effectiveness of Controls, page 82
5. You state that a control system "can provide only reasonable
assurance" that the objectives of the control system are met.
Please
tell us whether your disclosure controls and procedures are
designed
to provide reasonable assurance of achieving their objectives and
whether your chief executive officer and chief financial officer
concluded that your disclosure controls and procedures are
effective
at that reasonable assurance level. In addition, explain to us
how
you have complied with the guidance in Section II.F.4 of SEC
Release
33-8238.
Form 10-Q for the Quarterly Period Ended November 30, 2005
Item 2. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
Critical Accounting Policies, page 18
6. We note that you reversed your valuation allowance related to
your
domestic deferred tax assets based on current and preceding years`
results of operations and anticipated profit levels in future
periods. Please explain your basis for concluding that these
domestic deferred tax assets were realizable. Describe the nature
of
the positive and negative evidence you considered and explain how
that evidence was weighted. As part of your response, explain the
consideration that was given to cumulative losses in recent years
and
explain the extent to which you were able to objectively verify
evidence related to your forecast of $1 billion of cumulative
future
operating income over the next 15 years. In this regard, we note
the
significant volatility of your results over recent years, the
competitive nature of your industry and the rapid technological
changes that occur. Refer to SFAS 109, paragraphs 20 through 25
and
103.
Form 8-K Filed December 20, 2005
7. We note the non-GAAP information furnished in your earnings
release currently identifies two non-GAAP measures-non-GAAP
operating
income (loss) and non-GAAP net income (loss) with corresponding
per
share data. However, the presentation includes additional non-
GAAP
measures such as non-GAAP total costs and expenses, non-GAAP
income
before income taxes, and non-GAAP income tax provision (benefit).
Note that each line item, sub-total or total, for which an
adjustment
has been made represents a separate non-GAAP measure that must be
separately identified and addressed in the accompanying
disclosure.
See Items 10(e)(1)(i)(C), 10(e)(1)(i)(D) and 10(e)(2) of
Regulation
S-K.
8. We note that each of the non-GAAP measures excludes items that
could be considered recurring in nature and you must meet the
burden
of demonstrating the usefulness of each measure and clearly
disclose
why each non-GAAP measure is useful when these items are excluded
pursuant to Question 8 of the Frequently Asked Questions Regarding
the Use of Non-GAAP Financial Measures. In this regard, we believe
that your disclosures should explain the following:
* Why you believe that the non-GAAP measures enhance investors`
overall understanding of your current financial performance and
your
prospects for the future;
* Why you believe that each excluded item should not be considered
in
evaluating your core operating results. In addition, "core
operating
results" should be defined; and
* Additional detail regarding the inherent limitations. For
example,
discuss the apparent contradiction of excluding any acquisition-
related costs while including the acquisition-related benefits,
such
as increased revenue. In addition, discuss the exclusion of items
that appear to be integral to your performance as an organization
such as employee compensation and frequent charges related to
restructuring your operations.
9. In view of the nature, content and format of the presentation,
we
question whether it complies with Item 100(b) of Regulation G. In
this regard we note that presentation of a full non-GAAP Statement
of
Operations may create the unwarranted impression that the
presentation is based on a comprehensive set of accounting rules
or
principles.
As appropriate, please amend your filing and respond to these
comments within 10 business days or tell us when you will provide
us
with a response. Please submit all correspondence and
supplemental
materials on EDGAR as required by Rule 101 of Regulation S-T. You
may wish to provide us with marked copies of any amendment to
expedite our review. Please furnish a cover letter with any
amendment that keys your responses to our comments and provides
any
requested information. Detailed cover letters greatly facilitate
our
review. Please understand that we may have additional comments
after
reviewing any amendment and your responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Mark Kronforst, Senior Staff accountant at
(202) 551-3451 or me at (202) 551-3489 if you have any questions
regarding these comments.
Very truly yours,
Brad Skinner
Accounting Branch Chief
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Mr. Andrew J. Brown
Palm, Inc.
February 24, 2006
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