PALM - read the 10Q before investing in takeover rumors

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lerikson's picture
lerikson
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Joined: Jan 9 2010
Posts: 12
PALM - read the 10Q before investing in takeover rumors

As a former accountant (CPA) in a former life – I am amazed by the financial shenanigans of deriviatives and off-balance sheet assets.  The repo 105 transactions are incredible.  Did any Senator ask the Citi guys (Prince and Rubin) about these last week?

 

I have also seen evidence through a copy of a letter that one of Warren Buffet’s companies was a counterparty in one of these transactions (not with a financial company), proving why he is smarter than the rest as he makes money on the transaction.

 

Here’s something that I have found in reading Palm’s 10Q that to me says the common stockholders were bought out when they had their special dividend a couple years ago and that now the common stock is a shell.

 

From the 10Q:

 

Gain on Series C Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Three Months Ended February 28,

 

 

Increase/
(Decrease)

  

Nine Months Ended February 28,

 

 

Increase/
(Decrease)

 

  

2010

 

 

2009

 

 

  

2010

 

 

2009

 

 

 

  

(dollars in thousands)

Gain on series C derivatives

  

$

96,616

  

 

$

20,573

  

 

$

76,043

  

$

125,539

  

 

$

20,573

 

 

$

104,966

Percentage of revenues

  

 

27.6

 

 

22.7

 

 

 

  

 

12.8

 

 

3.2

 

 

 

During the three and nine months ended February 28, 2010, our series C derivatives consisted of the Detachable Warrants and the Conversion Feature. These derivative liabilities were recorded on June 1, 2009 in connection with the adoption of a new accounting standard that changed the requirements for instruments considered linked to an entity’s own common stock. During the three and nine months ended February 28, 2009, our series C derivative consisted of the Transfer Right, which we exercised in full during the fourth quarter of fiscal year 2009.

Because the Detachable Warrants and the Conversion Feature contain “down-round provisions,” they are considered derivative liabilities and are adjusted to estimated fair value at the end of each reporting period. As of the first day of the third quarter of fiscal year 2010, the Detachable Warrants and the Conversion Feature had estimated fair values of $31.8 million and $146.9 million, respectively, and, as of February 28, 2010, estimated fair values of $14.8 million and $67.3 million, respectively. For the three months ended February 28, 2010, the change in estimated fair values of our series C derivatives of $96.6 million consisted of the change in estimated fair values of the Detachable Warrants and the Conversion Feature of $17.0 million and $79.6 million, respectively, and was recognized as a non-cash gain on series C derivatives.

As of the first day of fiscal year 2010, the Detachable Warrants and the Conversion Feature had estimated fair values of $36.2 million and $171.4 million, respectively. For the nine months ended February 28, 2010, the change in estimated fair values of our series C derivatives of $125.5 million consisted of the change in estimated fair values of the Detachable Warrants and the Conversion Feature of $21.4 million and $104.1 million, respectively, and was recognized as a non-cash gain on series C derivatives.

As of February 28, 2009, we had not yet exercised our rights under the Transfer Right. Using the closing price for our common stock of $7.24 on that date resulted in an estimated fair value of the derivative asset related to the Transfer Right of $74.0 million using the following assumptions: contractual term of 0.1 years, an average risk-free interest rate of 0.2%, a dividend yield of 0%, and volatility

 

of 120%. As of January 9, 2009, the date of issuance of the Series C Units, the estimated fair value of the derivative asset related to the Transfer Right was $53.4 million. As a result of this increase in the estimated fair value of the derivative asset related to the Transfer Right, we recognized a gain of $20.6 million in our condensed consolidated statements of operations for the three and nine months ended February 28, 2009.

Because the estimated fair value of these derivatives is affected by our stock price, fluctuations in our stock price—which has historically been volatile—may significantly affect our financial results. Any future increases in Palm’s stock price from period to period will be reflected as a non-cash loss on series C derivatives, and any future decreases in Palm’s stock price will be reflected as a non-cash gain on series C derivatives. “

 

So – gains in the stock price are losses to the common shareholders and losses in the stock price are gains to the common stockholders.  The common stockholders were really bought out when the $9 dividend was paid and the stock should not have traded after that.  Not a good place to be – especially with the takeover rumors now supposedly circulating (I really think it is another manipulation to get some party out of the stock).

 

 

 

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