MILPITAS, Calif., March 20 /PRNewswire-FirstCall/ -- Palm, Inc. (Nasdaq: PALM), which consists of two operating units -- Palm Solutions Group and PalmSource -- today reported revenues of $209.0 million for the third quarter of fiscal year 2003, ended Feb. 28, 2003, down 28.6 percent from the $292.7 million reported during the comparable quarter a year ago.

Non-GAAP net loss in the third quarter -- which excludes the effects of amortization of intangible assets, separation costs, impairment charges and restructuring charges -- totaled $26.5 million, or $(0.91) per share. This compares to a non-GAAP net loss in the third quarter of fiscal 2002 of $14.0 million, or $(0.49) per share, which excluded the effects of the reduction in special excess inventory costs and amortization of intangible assets. Non-GAAP net income in the second quarter of fiscal year 2003 was $5.7 million, or $0.19 per share, which excluded the effects of amortization of intangible assets, separation costs, and restructuring charges. All earnings-per-share figures have been adjusted for the 1-for-20 reverse stock split effective Oct. 15, 2002.

For the third quarter of fiscal year 2003, net loss, as measured by generally accepted accounting principles (GAAP), was $172.3 million, or $(5.93) per share. This net loss included restructuring charges of $40.2 million and impairment charges of $102.5 million, both described in a March 3, 2003 press release. The restructuring charges related to rationalizing real estate locations and reassessing the ability to sublease vacant facilities; severance payments related to layoffs; and other items related to right-sizing Palm Solutions Group and PalmSource. The impairment charges included a non-cash charge of $100 million to reduce the carrying value of the 39 acres of land owned by the company in San Jose, Calif. to the current fair market value and a $2.5 million impairment of intangible assets. For the third quarter of fiscal year 2002, net income was $2.9 million, or $0.10 per share and for the second quarter of fiscal year 2003 net income was $3.5 million, or $0.12 per share.

"The progressive recovery of the handheld industry is continuing, although still held back by weak economic fundamentals. We are pleased to post the first profitable quarter of our PalmSource subsidiary. Palm is determined to return to sustained profitability, without sacrificing its participation in the growth drivers of the next chapter in the handheld industry," said Eric Benhamou, Palm's chairman and chief executive officer.

He noted the following year-over-year improvements:

-- Non-GAAP gross margins of 31.3 percent vs. 29.2 percent;
-- Non-GAAP operating expenses of $86.5 million vs. $105.2 million;
-- Inventory of $23.3 million vs. $50.6 million;
-- Inventory turns of 19 vs. 13; and
-- Cash-to-cash cycle of three days vs. four days.

Solutions Group Update

During the quarter, the group responsible for the world-leading Palm(TM) branded handhelds, accessories and add-on hardware and software accomplished the following:

-- Began commercial sales of the Palm Tungsten(TM) W handheld to
customers in Singapore, Hong Kong and the United States;
-- Increased market share in Europe to 50 percent in the fourth quarter of
calendar 2002 from 43 percent in the year prior, according to market
research firm Canalys;
-- Based on the first two quarters of shipping data, the Palm Zire(TM)
handheld is the fastest-growing handheld in Palm's history with
shipments totaling more than 850,000 units, and it continues to attract
new customers; and
-- Shipped approximately 1 million Palm branded handhelds, bringing
cumulative shipments to more than 21 million.

PalmSource Update

During the quarter, PalmSource, the Palm, Inc. subsidiary with responsibility for developing and licensing the Palm OS(R) platform, the world's most popular operating system software for handheld computers and smartphones, achieved the following:

-- Signed three new licensees, Legend Group Limited and Group Sense
Limited, who will develop Palm Powered(TM) products for the large Asian
and Chinese market; and HuneTec, which licensed the operating system
for use in the Korean market for wireless communication devices;
-- Announced the opening of the PalmSource subsidiary in Hong Kong and the
opening of the PalmSource representative office in Beijing;
-- Announced Portable Innovation Technology (PiTech) as the first Palm OS
System Development Partner. Through this relationship, PiTech will
provide a one-stop solution to Palm OS licensees who want to reach the
market quickly with their own branded Palm Powered devices;
-- Grew its number of registered developers to 260,000. Those developers
created about 17,200 commercially available applications plus thousands
of proprietary applications, many used in enterprises; and
-- Reported the cumulative number of Palm Powered devices shipped by
quarter's end to be more than 27 million.

According to IDC's study in the United States, Palm Powered handhelds accounted for 71 percent of all personal digital assistants shipped in the second half of 2002. Palm Powered smart phones led the U.S. converged handheld space with a market share of 79 percent in 2002, IDC said.

INVESTOR'S NOTE: The company will hold a conference call for the public on March 20, 2003, at 2 p.m. PST to discuss matters covered in this press release. The dial-in number for the call is 888-335-6680 in the United States and 973-321-1030 for international callers. No pass code is needed. A telephone call replay of the conference call will be available through March 31, 2003, beginning today at approximately 5 p.m. PST. The dial-in number for the replay is 877-519-4471 (PIN# 3797036) in the United States and 973-341-3080 (PIN# 3797036) 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 at http://ir.palm.com . An audio replay and text transcript of the conference call also can be accessed at the same URL beginning on March 20, 2003.

This press release contains certain non-GAAP financial measures, which have been previously labeled pro forma. The company uses these non-GAAP financial measures because it believes they are indicative of the company's ongoing financial performance.

About Palm, Inc.

Information about Palm, Inc. is available at http://www.palm.com/aboutpalm .

NOTE: Palm OS is a registered trademark and Palm Powered is a trademark of PalmSource, Inc., a subsidiary of Palm, Inc. Palm, Tungsten and Zire are trademarks of Palm, Inc. Other brands may be trademarks of their respective owners.

Palm, Inc.

Non-GAAP Condensed Consolidated Statements of Operations Excluding effects of excess inventory and related benefit (included in cost of revenues), amortization of intangible assets, separation costs, restructuring charges, impairment charges and the change in the valuation allowance for

deferred tax assets
(In thousands, except per share data)
(Unaudited)

Three Months Ended Nine Months Ended
Feb. 28, Mar. 1, Feb. 28, Mar. 1,
2003 2002 2003 2002

Revenues $209,016 $292,651 $646,188 $797,548

Costs and operating
expenses:
Cost of revenues 143,674 207,121 439,349 593,942
Sales and marketing 46,827 56,528 136,947 183,626
Research and
development 26,200 33,767 83,217 111,280
General and
administrative 13,506 14,873 37,260 42,508

Non-GAAP costs and
operating expenses 230,207 312,289 696,773 931,356

Non-GAAP operating
loss (21,191) (19,638) (50,585) (133,808)
Interest and other
income (expense), net (3,219) (945) (2,350) 2,513

Non-GAAP loss before
income taxes (24,410) (20,583) (52,935) (131,295)
Non-GAAP income tax
provision (benefit) 2,060 (6,587) 4,269 (42,014)

Non-GAAP net loss $(26,470) $(13,996) $(57,204) $(89,281)

Non-GAAP net loss
per share:
Basic $(0.91) $(0.49)^ $(1.97)^ $(3.13)^
Diluted $(0.91) $(0.49)^ $(1.97)^ $(3.13)^

Shares used in computing
per share amounts:
Basic 29,082 28,838^ 29,032^ 28,541^
Diluted 29,082 28,838^ 29,032^ 28,541^

(^) Amounts have been restated for the effects of the 1-for-20 reverse
stock split effective Oct. 15, 2002.

Certain prior period amounts have been reclassified to conform with
current quarter presentation.

The above non-GAAP amounts for the three and nine months ended
Feb. 28, 2003, have been adjusted to eliminate amortization of
intangible assets, separation costs, impairment charges, restructuring
charges, and the change in the valuation allowance for deferred tax
assets. The above non-GAAP amounts for the three and nine months
ended Mar. 1, 2002, have been adjusted to eliminate cost of
revenues -- benefit for excess inventory and related costs,
amortization of intangible assets, separation costs, and restructuring
charges.

A reconciliation of non-GAAP net loss presented above with Palm's net
income (loss) as determined in conformity with generally accepted
accounting principles is presented on the following page.

Palm, Inc.
Reconciliation of Non-GAAP Net Loss to Reported Results
(In thousands)
(Unaudited)

Three Months Ended Nine Months Ended
Feb. 28, Mar. 1, Feb. 28, Mar. 1,
2003 2002 2003 2002

Non-GAAP net loss $(26,470) $(13,996) $(57,204) $(89,281)

Cost of revenues -
benefit for
special excess
inventory and
related costs -- (28,265) -- (86,415)
Amortization of
intangible assets 1,419 3,347 5,648 9,184
Separation costs 1,725 -- 5,508 376
Impairment charges 102,540 -- 102,540 --
Restructuring charges 40,182 -- 37,520 25,988
Change in the
valuation allowance
for
deferred tax assets -- -- 219,141 --
Related income tax
provision -- 7,974 -- 16,277

Net income (loss) $(172,336) $2,948 $(427,561) $(54,691)

Palm, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

Three Months Ended Nine Months Ended
Feb. 28, Mar. 1, Feb. 28, Mar. 1,
2003 2002 2003 2002

Revenues $209,016 $292,651 $646,188 $797,548

Costs and operating
expenses:
Cost of revenues 143,674 207,121 439,349 593,942
Cost of revenues -
benefit for
special excess
inventory and related
costs -- (28,265) -- (86,415)
Sales and marketing 46,827 56,528 136,947 183,626
Research and
development 26,200 33,767 83,217 111,280
General and
administrative 13,506 14,873 37,260 42,508
Amortization of
intangible assets (*) 1,419 3,347 5,648 9,184
Separation costs 1,725 -- 5,508 376
Impairment charges 102,540 -- 102,540 --
Restructuring charges 40,182 -- 37,520 25,988

Total costs and
operating expenses 376,073 287,371 847,989 880,489

Operating income
(loss) (167,057) 5,280 (201,801) (82,941)
Interest and other
income (expense),
net (3,219) (945) (2,350) 2,513

Income (loss) before
income taxes (170,276) 4,335 (204,151) (80,428)
Income tax
provision
(benefit) 2,060 1,387 223,410 (25,737)

Net income (loss) $(172,336) $2,948 $(427,561) $(54,691)

Net income (loss)
per share:
Basic $(5.93) $0.10^ $(14.73)^ $(1.92)^
Diluted $(5.93) $0.10^ $(14.73)^ $(1.92)^

Shares used in
computing per
share amounts:
Basic 29,082 28,838^ 29,032^ 28,541^
Diluted 29,082 28,869^ 29,032^ 28,541^

(^) Amounts have been restated for the effects of the 1-for-20 reverse
stock split effective Oct. 15, 2002.

Certain prior period amounts have been reclassified to conform with
current quarter presentation.

(*) Amortization of intangible assets:
Cost of revenues $1,315 $1,763 $4,841 $4,543
Sales and marketing -- -- -- 11
Research and development 71 1,551 708 4,586
General and administrative 33 33 99 44

Total amortization of
intangible assets $1,419 $3,347 $5,648 $9,184

Palm, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)

Feb. 28, May 31,
2003 2002
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $259,407 $278,547
Short-term investments 5,063 17,970
Accounts receivable, net of
allowance for doubtful
accounts of $6,008 and $8,485, respectively 91,205 63,551
Inventories 23,293 55,004
Deferred income taxes -- 48,985
Prepaids and other 9,749 14,122
Total current assets 388,717 478,179

Restricted investments 2,619 2,326
Land, property and equipment, net 100,945 211,556
Goodwill 68,785 68,785
Intangible assets, net 1,397 9,585
Deferred income taxes 34,800 205,440
Other assets 7,394 13,225

Total assets $604,657 $989,096

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $81,701 $88,909
Accrued restructuring 50,329 35,512
Other accrued liabilities 120,358 108,577
Total current liabilities 252,388 232,998

Non-current liabilities:
Long-term convertible debt 50,000 50,000
Deferred revenue and other 15,513 15,250

Minority interest in a consolidated
subsidiary 20,000 --

Stockholders' equity:
Preferred stock, $.001 par value, 6,250^
shares authorized; none outstanding -- --

Common stock, $.001 par value,
100,000^ shares authorized;
outstanding February 28, 2003,
29,088 shares; May 31, 2002,
28,960^ shares 29 29
Additional paid-in capital^ 1,122,909 1,122,674
Unamortized deferred stock-based
compensation (1,626) (5,743)
Accumulated deficit (853,768) (426,207)
Accumulated other comprehensive income
(loss) (788) 95

Total stockholders' equity 266,756 690,848

Total liabilities and stockholders' equity $604,657 $989,096

(^) Amounts have been restated for the effects of the 1-for-20 reverse
stock split effective Oct. 15, 2002.

Certain prior period amounts have been reclassified to conform with
current quarter presentation.

Palm, Inc.
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)

Three Months Ended
Feb. 28, Mar. 1,
2003 2002
Cash flows from operating activities:
Net income (loss) $(172,336) $2,948
Adjustments to reconcile net income
(loss) to net cash
used in operating activities:
Depreciation 6,864 6,596
Amortization 2,464 4,654
Deferred income taxes -- 8,267
Impairment charges 102,540 --
Changes in assets and liabilities,
net of effect of acquisitions:
Accounts receivable 56,856 31,843
Inventories 15,235 28,069
Prepaids and other 4,730 1,375
Accounts payable (49,904) (36,517)
Tax benefit from employee stock options -- 4
Accrued restructuring 35,290 (9,715)
Other accrued liabilities (7,583) (42,720)
Net cash used in operating activities (5,844) (5,196)

Cash flows from investing activities:
Purchases of property and equipment (1,905) (1,947)
Acquisition of businesses, net of cash
acquired -- 43
Purchases of restricted investments (172) (275)
Sale/maturities of short-term investments 17,525 --
Net cash provided by investing activities 15,448 (2,179)

Cash flows from financing activities:
Proceeds from issuance of common stock 189 1,026
Issuance of convertible debt -- 50,000
Other, net 346 16
Net cash provided by financing activities 535 51,042

Change in cash and cash equivalents 10,139 43,667
Cash and cash equivalents, beginning of period 249,268 241,978

Cash and cash equivalents, end of period $259,407 $285,645

Other cash flow information:
Cash paid for income taxes $1,154 $1,108
Cash paid for interest $1,309 $45

Non-cash investing and financing activities
are as follows:
Common stock issued for acquisition of
business $-- $18,607

Certain prior period amounts have been reclassified to
conform with current quarter presentation.

Palm, Inc. Segment Results Reconciled to Reported Operating Income (Loss) Before Income

Taxes
(In thousands)
(Unaudited)

Three months ended Feb. 28, 2003

Solutions PalmSource, Total
Group Inc. Eliminations Palm

Revenues $197,864 $26,273 $(15,121) $209,016

Cost of revenues (*) 150,792 1,405 (8,523) 143,674
Research & development,
selling
general &
administrative
expenses 68,341 18,229 (37) 86,533
Amortization of
intangible assets -- 1,419 -- 1,419
Separation costs 765 960 -- 1,725
Impairment charges 102,540 -- -- 102,540
Restructuring charges 37,952 2,230 -- 40,182

Operating income
(loss) (162,526) 2,030 (6,561) (167,057)

Interest and other
income
(expense), net (2,574) (645) -- (3,219)

Segment income (loss)
before income
taxes $(165,100) $1,385 $(6,561) $(170,276)

Three months ended Mar. 1, 2002

Solutions PalmSource, Total
Group Inc. Eliminations Palm

Revenues $284,278 $20,401 $(12,028) $292,651

Cost of revenues (*) 217,552 1,319 (11,750) 207,121
Cost of revenues -
benefit for
special excess
inventory
and related costs (28,265) -- -- (28,265)

Research &
development, selling
general &
administrative
expenses 85,031 20,602 (465) 105,168
Amortization of
intangible assets 1,796 1,551 -- 3,347
Separation costs -- -- -- --
Restructuring charges -- -- -- --

Operating income
(loss) 8,164 (3,071) 187 5,280

Interest and other
income
(expense), net (797) (148) -- (945)

Segment income (loss)
before income taxes $7,367 $(3,219) $187 $4,335

(*) Cost of revenues does not include that portion of amortization of
intangible assets related to cost of revenues.

Certain prior period amounts have been reclassified to conform with
current quarter presentation.

Nine months ended Feb. 28, 2003

Solutions PalmSource, Total
Group Inc. Eliminations Palm

Revenues $620,491 $56,111 $(30,414) $646,188

Cost of revenues (*) 465,571 4,211 (30,433) 439,349
Research & development,
selling
general &
administrative
expenses 203,956 53,879 (411) 257,424
Amortization of
intangible assets 1,127 4,521 -- 5,648
Separation costs 2,655 2,853 -- 5,508
Impairment charges 102,540 -- -- 102,540
Restructuring charges 35,348 2,172 -- 37,520

Operating income
(loss) (190,706) (11,525) 430 (201,801)

Interest and other
income
(expense), net 2,409 (4,759) -- (2,350)

Segment income (loss)
before income
taxes $(188,297) $(16,284) $430 $(204,151)

Nine months ended Mar. 1, 2002

Solutions PalmSource, Total
Group Inc. Eliminations Palm

Revenues $777,994 $51,350 $(31,796) $797,548

Cost of revenues (*) 622,581 3,451 (32,090) 593,942
Cost of revenues -
benefit for
special excess
inventory
and related costs (86,415) -- -- (86,415)

Research &
development, selling
general &
administrative
expenses 273,804 63,419 191 337,414
Amortization of
intangible assets 4,752 4,432 -- 9,184
Separation costs 275 101 -- 376
Restructuring charges 25,562 426 -- 25,988

Operating income
(loss) (62,565) (20,479) 103 (82,941)

Interest and
other income
(expense), net 2,673 (160) -- 2,513

Segment income (loss)
before income
taxes $(59,892) $(20,639) $103 $(80,428)

(*) Cost of revenues does not include that portion of amortization of
intangible assets related to cost of revenues.

Certain prior period amounts have been reclassified to conform
with current quarter presentation.

SOURCE Palm, Inc.