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Press Release
Palm Reports Q4 and Record FY 2006 Results
Treo Revenue of $1.1B in FY 2006, up 85% From FY 2005SUNNYVALE, Calif., Jun 29, 2006 (BUSINESS WIRE) -- Palm, Inc. (Nasdaq:PALM) today reported that revenue in its fourth
quarter of fiscal year 2006, ended June 2, totaled $403.1 million, up
20 percent from the year-ago quarter. For the full fiscal year 2006,
revenue totaled $1.6 billion, up 24 percent from fiscal year 2005.
Net income for the quarter was $27.2 million, or $0.25 per diluted
share. This compares to net income for the fourth quarter of fiscal
year 2005 of $17.7 million, or $0.17 per diluted share, and net income
for the third quarter of fiscal year 2006 of $29.9 million, or $0.28
per diluted share.
Net income in the fourth fiscal quarter, measured on a non-GAAP(1)
basis, totaled $30.6 million, or $0.29 per diluted share, excluding
the effects of amortization of intangible assets and deferred
stock-based compensation, legal settlements, restructuring charges,
the related income tax provision and the partial reversal of our
valuation allowance against our deferred tax assets. This compares to
non-GAAP net income in the fourth quarter of fiscal year 2005 of $19.2
million, or $0.19 per diluted share, which excluded the effects of
amortization of intangible assets and deferred stock-based
compensation, employee separation costs and restructuring charges.
"Treo smartphone sales surpassed an important milestone -- $1
billion in revenue for the fiscal year," said Ed Colligan, Palm
president and chief executive officer. "Our product engine is firing
on all cylinders as evidenced by our recent introductions of both the
Treo 700w and the Treo 700p, each of which offers a different
operating system, 3G radios and robust application suites, and we
delivered these products to multiple carriers simultaneously. We enter
fiscal year 2007 as a strong leader, capable of delivering on the rich
potential of mobile computing on a global scale."
Fiscal Year 2006 Results
Revenue for the full fiscal year 2006 was $1.6 billion, up 24
percent from the $1.3 billion reported in fiscal year 2005. Net income
for fiscal year 2006 was $336.2 million, or $3.19 per diluted share,
compared with net income of $66.4 million, or $0.65 per diluted share,
for fiscal year 2005. Non-GAAP net income for fiscal year 2006 --
excluding the effects of amortization of intangible assets and
deferred stock-based compensation, legal settlements, restructuring
charges, the related income tax provision and the reversal of our
valuation allowance against our deferred tax assets -- was $88.5
million, or $0.85 per diluted share. That compares with a fiscal year
2005 non-GAAP net income -- excluding the effects of amortization of
intangible assets and deferred stock-based compensation, employee
separation costs and restructuring charges -- of $78.9 million, or
$0.77 per diluted share.
Installed Base
Palm shipped approximately 4.7 million mobile-computing solutions
during fiscal year 2006, including 2.3 million Treo(TM) smartphones
and 2.5 million Palm handheld computers. During the fourth quarter of
fiscal year 2006, Palm shipped approximately 623,000 smartphones and
495,000 handheld computers. To date, Palm has shipped almost 36
million units.
Guidance(2)
With respect to the fiscal year 2007 outlook, Colligan added, "As
we deliver new products and expand internationally, we expect growth
to accelerate throughout the year."
Fiscal Year 2007 Guidance (2)
-- Revenue growth is expected to be between 20 percent and 25
percent;
-- Gross margin on a GAAP basis is expected to be between 33.8
percent and 34.8 percent, and, on a non-GAAP basis, between 34
percent and 35 percent;
-- As a percent of revenue, sales and marketing expenses are
expected to be between 13.1 percent and 13.6 percent on a GAAP
basis and between 12.5 percent and 13.0 percent on a non-GAAP
basis;
-- As a percent of revenue, research and development expenses are
expected to be between 10.0 percent and 10.5 percent on a GAAP
basis, and on a non-GAAP basis, between 9.2 percent and 9.7
percent;
-- As a percent of revenue, general and administrative expenses
are expected to be less than 3 percent on a GAAP and non-GAAP
basis;
-- Operating margin is expected to be in the range of 7.5 percent
to 7.8 percent on a GAAP basis and between 9.0 percent and 9.3
percent on a non-GAAP basis;
-- The tax rate on a GAAP basis is expected to be 42 percent and,
on a non-GAAP basis, 40 percent; and
-- FAS 123R stock-compensation expense, before taxes, is expected
to be between $34 million and $38 million.
Q1 Fiscal Year 2007 Guidance (2)
-- Revenue is expected to be between $380 million and $385
million;
-- Gross margin is expected to be in the range of 34.7 percent
and 35.2 percent on a GAAP basis and between 35.0 percent and
35.5 percent on a non-GAAP basis;
-- Operating expenses on a GAAP basis are expected to be in the
range of $113 million to $114 million and on a non-GAAP basis
between $105 million and $106 million;
-- Earnings per diluted share are expected to be in the range of
$0.13 to $0.14 on a GAAP basis and $0.18 to $0.19 on a
non-GAAP basis; and
-- FAS 123R stock-compensation expense, before taxes, is expected
to be between $9.0 million and $9.5 million.
INVESTOR'S NOTE: The company today will hold a conference call for
the public at 1:30 p.m. Pacific/4:30 p.m. Eastern to discuss matters
covered in this news release. The dial-in number is 800.706.7748 with
a passcode of 81351771 in the United States and 617.614.3473 for
international callers, with the same passcode of 81351771. A telephone
call replay of the conference call will be available through July 8,
2006, beginning today at approximately 5 p.m. Pacific. The domestic
dial-in number for the replay is 888.286.8010 and for international
callers, it is 617.801.6888, with a passcode of 92893581 for both. The
live conference call also will be available over the Internet by
logging onto the investor relations section of Palm's website at
http://investor.palm.com. An audio replay and text transcript of the
conference call also can be accessed at the same URL beginning today
at approximately 5 p.m. Pacific.
NON-GAAP FINANCIAL MEASURES: Palm utilizes a number of different
financial measures, both GAAP and non-GAAP, in analyzing and assessing
the overall business performance, for making operating decisions and
for forecasting and planning future periods. Palm considers the use of
non-GAAP financial measures helpful in assessing its current financial
performance, ongoing operations and prospects for the future. Ongoing
operations are the ongoing revenue and expenses of the business,
excluding certain costs that Palm does not anticipate to recur on a
quarterly basis. While Palm uses non-GAAP financial measures as a tool
to enhance its understanding of certain aspects of its financial
performance, Palm does not consider these measures to be a substitute
for, or superior to, the information provided by GAAP financial
measures. Consistent with this approach, Palm believes that disclosing
non-GAAP financial measures to the readers of its financial statements
provides such readers with useful supplemental data that, while not a
substitute for GAAP financial measures, allows for greater
transparency in the review of its financial and operational
performance. In assessing the overall health of its business during
the fourth quarter of fiscal year 2006, Palm excluded items in the
following general categories, each of which are described below:
Acquisition-related Expenses. Palm excluded amortization of
intangible assets resulting from acquisitions to allow more accurate
comparisons of its financial results to its historical operations,
forward-looking guidance and the financial results of peer companies.
In recent years, Palm has completed the acquisition of Handspring and
the acquisition of the Palm brand, which resulted in operating
expenses which would not otherwise have been incurred. Palm believes
that providing non-GAAP information for amortization of intangible
assets allows the users of its financial statements to review both the
GAAP expenses in the period, as well as the non-GAAP expenses, thus
providing for enhanced understanding of historic and future financial
results and facilitating comparisons to peer companies. Additionally,
had Palm internally developed these intangible assets, the
amortization of intangible assets would have been expensed
historically, and Palm believes the assessment of its operations
excluding these costs is relevant to the assessment of internal
operations and comparisons to industry performance.
Stock-based Compensation. Palm believes that the exclusion of
non-cash stock-based compensation allows for more accurate comparisons
of its operating results to peer companies. Further, Palm believes
that excluding stock-based compensation expense allows for a more
accurate comparison of its financial results to previous periods. In
addition, Palm prepares and maintains its budgets and forecasts for
future periods on a basis consistent with this non-GAAP financial
measure.
Income Tax Provision Expense. Palm believes that excluding the
partial reversal of the valuation allowance on its deferred tax assets
provides its senior management as well as other users of its financial
statements with a valuable perspective on the performance and health
of the business. This partial reversal relates to realization of tax
losses incurred in prior periods and is not indicative of future
operations and expenses. Further, Palm believes that assuming a 40
percent effective tax rate provides a more appropriate prospect for
the future. Prior to the partial reversal of the valuation allowance
on its deferred tax assets, Palm's tax rate consisted primarily of
foreign and state income taxes. A 40 percent effective tax rate
provides a better indication of the income tax expense Palm will
experience in future years.
Other Expenses. Palm excludes certain other expenses that are the
result of unplanned events to measure its operating performance.
Included in these expenses are items such as legal settlements,
restructuring charges and employee separation costs. Palm assesses its
operating performance excluding legal settlements, restructuring
charges and employee separation costs as these amounts relate to costs
which are unplanned and are not expected to recur on a quarterly
basis. Therefore, by providing this information Palm believes its
management and the users of its financial statements are better able
to understand the financial results of what Palm considers to be its
current financial performance, ongoing operations and prospects for
the future.
Each of the non-GAAP financial measures described above, and used
in this press release, should not be considered in isolation from, or
as a substitute for, a measure of financial performance prepared in
accordance with GAAP. Further, investors are cautioned that there are
inherent limitations associated with the use of each of these non-GAAP
financial measures as an analytical tool. In particular, these
non-GAAP financial measures are not based on a comprehensive set of
accounting rules or principles and many of the adjustments to the GAAP
financial measure reflect the exclusion of items that are recurring
and will be reflected in the Company's financial results for the
foreseeable future. In addition, other companies, including other
companies in our industry, may calculate non-financial measures
differently than the Company does, limiting their usefulness as a
comparative tool. Palm compensates for these limitations by providing
specific information in the reconciliation included in this press
release regarding the GAAP amounts excluded from the non-GAAP
financial measures. In addition, as noted above, Palm evaluates the
non-GAAP financial measures together with the most directly comparable
GAAP financial information.
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 Palm's fiscal year 2007 revenue growth, gross margin,
expenses, operating margin, tax rate and stock-compensation expense,
Palm's expected first quarter of fiscal year 2007 revenue, gross
margin, operating expenses, earnings per share and stock-compensation
expense, Palm's ability to grow its business in general and on a
global scale, the pace of growth, the delivery of new products, and
the potential of mobile computing. These statements are subject to
risks and uncertainties that could cause actual results and events to
differ materially, including, without limitation, the following:
fluctuations in the demand for Palm's existing and future products and
services and growth in Palm's industries and markets; Palm's ability
to forecast demand for its products; possible defects in products and
technologies developed; Palm's ability to introduce new products and
services successfully and in a cost-effective and timely manner;
Palm's ability to timely and cost-effectively obtain components and
elements of its technology from suppliers; Palm's ability to obtain
other key technology from third parties free from errors and defects,
integrate it with Palm's products and meet certification requirements,
all on a timely basis; Palm's ability to compete with existing and new
competitors; Palm's dependence on wireless carriers and ability to
meet wireless-carrier certification requirements; Palm's ability to
utilize its net operating losses. 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 Quarterly Report on Form 10-Q for
the fiscal quarter ended March 3, 2006 and its Annual Report on Form
10-K for the fiscal year ended June 3, 2005. 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.
Palm, Inc., a leader in mobile computing, strives to put the power
of computing in people's hands so they can access and share their most
important information. The company's products for consumers, mobile
professionals and businesses include Palm(R) Treo(TM) smartphones,
Palm handheld computers, and Palm LifeDrive(TM) mobile managers, as
well as software, services and accessories.
Palm products are sold through select Internet, retail, reseller
and wireless operator channels throughout the world, and at Palm
Retail Stores and Palm online stores (http://www.palm.com/store).
More information about Palm, Inc. is available at
http://www.palm.com.
(1) GAAP stands for Generally Accepted Accounting Principles.
(2) Guidance for fiscal year 2007 and the first quarter of fiscal
year 2007 has been provided on a GAAP and a non-GAAP basis. The
non-GAAP guidance can be reconciled to the nearest GAAP measure by
including the stock-based compensation charge anticipated to be
recorded in accordance with FAS 123R during each of the periods.
Palm, Treo and LifeDrive are among the trademarks or registered
trademarks owned by or licensed to Palm, 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.
<![CDATA[
Palm, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Fiscal Year Ended
May 31, May 31, May 31, May 31,
2006 2005 2006 2005
--------- --------- ----------- -----------
Revenues $403,136 $335,820 $1,578,509 $1,270,410
Costs and operating
expenses:
Cost of revenues (A) 253,301 234,381 1,057,695 879,435
Sales and marketing 52,364 43,899 205,138 170,893
Research and
development 37,703 27,419 135,959 89,804
General and
administrative 13,093 9,684 43,481 40,211
Amortization of
intangible assets and
deferred stock-based
compensation (B) 621 2,447 6,358 9,833
Legal settlements 23,775 -- 23,775 --
Employee separation
costs -- (600) -- 3,066
Restructuring charges (1,162) (360) 792 (360)
--------- --------- ----------- -----------
Total costs and
operating expenses 379,695 316,870 1,473,198 1,192,882
--------- --------- ----------- -----------
Operating income 23,441 18,950 105,311 77,528
Interest and other income
(expense), net 4,356 1,221 11,336 3,003
--------- --------- ----------- -----------
Income before income taxes 27,797 20,171 116,647 80,531
Income tax provision
(benefit) 632 2,442 (219,523) 14,144
--------- --------- ----------- -----------
Net income $ 27,165 $ 17,729 $ 336,170 $ 66,387
========= ========= =========== ===========
Net income per share:
Basic $ 0.26 $ 0.18 $ 3.33 $ 0.68
========= ========= =========== ===========
Diluted (C) $ 0.25 $ 0.17 $ 3.19 $ 0.65
========= ========= =========== ===========
Shares used in computing
per share amounts:
Basic 102,757 98,363 100,818 96,971
Diluted 108,217 102,541 105,745 102,579
(A) Cost of revenues does not include that portion of amortization of
intangible assets and deferred stock-based compensation related to
cost of revenues.
(B) Amortization of intangible assets and deferred stock-based
compensation:
Cost of revenues $ -- $ 230 $ 388 $923
Sales and marketing 410 1,763 4,496 6,760
Research and
development 4 64 284 256
General and
administrative 207 390 1,190 1,560
Employee separation
costs -- -- -- 334
--------- --------- ----------- -----------
$ 621 $ 2,447 $ 6,358 $ 9,833
========= ========= =========== ===========
(C) Diluted net income per share accounts for the effect of the
convertible debt using the "if converted" method:
Numerator for basic net
income $27,165 $17,729 $336,170 $66,387
Effect of dilutive
securities:
Interest expense on
convertible debt, net
of taxes 262 -- 1,050 --
--------- --------- ----------- -----------
Numerator for diluted
net income per share $27,427 $17,729 $337,220 $66,387
========= ========= =========== ===========
]]>
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.
Certain prior period amounts have been reclassified for current
year presentation.
All share and per share amounts referred to in this press release
have been adjusted to reflect the two-for-one stock split in the form
of a stock dividend, effective March 14, 2006.
<![CDATA[
Palm, Inc.
Reconciliation of GAAP Items to Non-GAAP Items
(In thousands, except per share data)
(Unaudited)
Three Months Ended Fiscal Year Ended
May 31, May 31, May 31, May 31,
2006 2005 2006 2005
--------- --------- ----------- -----------
Net income, as reported $ 27,165 $ 17,729 $ 336,170 $ 66,387
Adjustments:
Amortization of
intangible assets and
deferred stock-based
compensation 621 2,447 6,358 9,833
Legal settlements 23,775 -- 23,775 --
Employee separation
costs -- (600) -- 3,066
Restructuring costs (1,162) (360) 792 (360)
Income tax provision /
benefit (19,780) -- (278,552) --
--------- --------- ----------- -----------
Net income, non-GAAP $ 30,619 $ 19,216 $ 88,543 $ 78,926
========= ========= =========== ===========
Three Months Ended Fiscal Year Ended
May 31, May 31, May 31, May 31,
2006 2005 2006 2005
--------- --------- ----------- -----------
Net income per share:
Basic, as reported $ 0.26 $ 0.18 $ 3.33 $ 0.68
Adjustments 0.04 0.02 (2.45) 0.13
--------- --------- ----------- -----------
Basic, non-GAAP $ 0.30 $ 0.20 $ 0.88 $ 0.81
========= ========= =========== ===========
Diluted, as reported $ 0.25 $ 0.17 $ 3.19 $ 0.65
Adjustments 0.04 0.02 (2.34) 0.12
--------- --------- ----------- -----------
Diluted, non-GAAP (A) $ 0.29 $ 0.19 $ 0.85 $ 0.77
========= ========= =========== ===========
Shares used in computing
per share amounts:
Basic, as reported 102,757 98,363 100,818 96,971
========= ========= =========== ===========
Diluted, as reported 108,217 102,541 105,745 102,579
Adjustments:
Effect of dilutive
securities:
Convertible debt -- -- (1,084) --
--------- --------- ----------- -----------
Diluted, non-GAAP 108,217 102,541 104,661 102,579
========= ========= =========== ===========
]]>
(A) The numerator for diluted non-GAAP net income per share for
the three months ended May 31, 2006 includes $262,000 of interest
expense on convertible debt, net of taxes based on the effect of the
convertible debt using the "if converted" method.
The above non-GAAP amounts have been adjusted to eliminate
amortization of intangible assets and deferred stock-based
compensation, legal settlements, employee separation costs,
restructuring charges and the change in the valuation allowance
against our deferred tax assets, and for the related income tax
provision of 40% which is the expected normalized rate for future
years. Non-GAAP net income per diluted share amounts for the year
ended May 31, 2006 exclude the dilutive effect of the convertible debt
using the "if converted" method because on a non-GAAP basis it is
anti-dilutive.
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.
All share and per share amounts referred to in this press release
have been adjusted to reflect the two-for-one stock split in the form
of a stock dividend, effective March 14, 2006.
<![CDATA[
Palm, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
May 31, May 31,
2006 2005
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 113,461 128,164
Short-term investments 405,433 234,535
Accounts receivable, net of allowance for
doubtful accounts of $4,801 and $6,874,
respectively 204,337 140,162
Inventories 58,010 35,544
Deferred income taxes 153,854 --
Investment for committed tenant
improvements 3,967 6,182
Prepaids and other 10,937 8,225
------------ -----------
Total current assets 949,999 552,812
Restricted investments -- 775
Land held for sale 60,000 --
Land not in use -- 60,000
Property and equipment, net 22,990 19,158
Goodwill 166,538 249,161
Intangible assets, net 25,783 30,373
Deferred income taxes 260,713 36,217
Other assets 1,499 1,536
------------ -----------
Total assets $1,487,522 $ 950,032
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 184,501 $ 135,720
Income taxes payable 50,021 8,441
Accrued restructuring 7,209 15,400
Provision for committed tenant
improvements 3,967 6,182
Current portion of long-term convertible
debt 35,000 --
Other accrued liabilities 216,374 156,009
------------ -----------
Total current liabilities 497,072 321,752
Non-current liabilities:
Long-term convertible debt -- 35,000
Other non-current liabilities 6,545 12,257
Stockholders' equity:
Preferred stock, $.001 par value, 125,000
shares authorized; none outstanding -- --
Common stock, $.001 par value, 2,000,000
shares authorized; outstanding: 103,469
shares and 98,977 shares, respectively 103 99
Additional paid-in capital 1,475,319 1,406,885
Unamortized deferred stock-based
compensation (2,752) (2,422)
Accumulated deficit (488,081) (824,251)
Accumulated other comprehensive income
(loss) (684) 712
------------ -----------
Total stockholders' equity 983,905 581,023
------------ -----------
Total liabilities and stockholders' equity $1,487,522 $ 950,032
============ ===========
]]>
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.
Certain prior balances have been reclassified to conform to
current year presentation.
All share and per share amounts referred to in this press release
have been adjusted to reflect the two-for-one stock split in the form
of a stock dividend, effective March 14, 2006.
<![CDATA[
Palm, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
May 31, May 31,
2006 2005
---------- ----------
Cash flows from operating activities:
Net income $ 27,165 $ 17,729
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation 2,818 3,441
Amortization 621 2,447
Deferred income taxes (6,723) (817)
Realized loss (gain) on sale of equity and
short-term investments 583 203
Tax benefit related to stock options 5,436 --
Changes in assets and liabilities:
Accounts receivable (85,259) 18,378
Inventories (6,945) 10,076
Prepaids and other 219 1,016
Accounts payable 27,976 (14,847)
Income taxes payable 388 (733)
Accrued restructuring (2,474) (3,695)
Other accrued liabilities 8,106 3,294
---------- ----------
Net cash (used in) provided by operating
activities (28,089) 36,492
---------- ----------
Cash flows from investing activities:
Purchase of brand name intangible -- (7,500)
Purchase of property and equipment (3,258) (5,967)
Sale of restricted investments 775 --
Purchase of short-term investments (251,565) (56,421)
Sale of short-term investments 249,784 51,829
---------- ----------
Net cash used in investing activities (4,264) (18,059)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock;
employee stock plans 14,171 4,950
Repayment of debt -- (1,600)
---------- ----------
Net cash provided by financing activities 14,171 3,350
---------- ----------
Change in cash and cash equivalents (18,182) 21,783
Cash and cash equivalents, beginning of period 131,643 106,381
---------- ----------
Cash and cash equivalents, end of period $ 113,461 $ 128,164
========== ==========
Other cash flow information:
Cash paid for income taxes $ 1,473 $ 1,297
========== ==========
Cash paid for interest $ 13 $ 145
========== ==========
]]>
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.
Certain prior balances have been reclassified to conform to
current quarter presentation.
SOURCE: Palm, Inc.
Palm, Inc.
Sandy O'Halloran, 408-617-6739 (investor relations)
sandy.ohalloran@palm.com
Marlene Somsak, 408-617-7451 (media relations)
marlene.somsak@palm.com
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