MILPITAS, Calif., March 22 /PRNewswire-FirstCall/ -- palmOne, Inc. (Nasdaq: PLMO) today reported revenue of $242.5 million for the third quarter of fiscal year 2004, ended Feb. 27, up 22.6 percent from the $197.9 million reported during the third quarter a year ago.

For the third quarter of fiscal year 2004, net loss, in accordance with generally accepted accounting principles (GAAP), was $9.3 million, or $0.20 per share. This compares to a net loss from the year-ago quarter of $172.3 million, or $5.93 per share. The net loss of $9.3 million for this quarter included restructuring charges of $4.5 million and amortization of intangible assets and stock-based compensation of $5.4 million.

Net income in the third quarter of fiscal year 2004, measured on a non- GAAP basis, totaled $0.6 million, or $0.01 per share. This compares to non- GAAP net loss in the third quarter a year ago of $24.7 million, or $0.85 per share. Non-GAAP net income (loss) excludes the effects of amortization of intangible assets and stock-based compensation, impairment charges, restructuring charges and losses from discontinued operations.

"Over the past quarter, we strengthened our leadership in handhelds and saw excellent demand for our Treo smartphone," said Todd Bradley, palmOne president and chief executive officer. "The strong results this quarter show that our strategy of delivering scale from the handheld product line, coupled with growth from the wireless product line, is working. We are very excited about our prospects."

The company noted the following year-over-year operational highlights in the quarter's results:

-- Revenue up 23 percent;

-- Average selling price of $233 per device, up from $169;

-- Gross margin at 28.9 percent, up from 23.8 percent;

-- Inventory-turn improvement to 22 from 20; and

-- Cash, cash equivalents and short-term investments of $239.8 million, up

from $224.8 million.

During the quarter, palmOne sold approximately 938,000 handheld computing and communications solutions, bringing the total number the company has sold to 25.3 million. In handheld computers, NPD reported that palmOne increased its market share in U.S. all-channel sales (including retail, commercial and online) by 11 percent to 57.7 percent in January, the most recent monthly report, compared with the same period a year ago.

INVESTOR'S NOTE: The company will hold a conference call for the public on Monday, March 22, at 2 p.m. Pacific/5 p.m. Eastern to discuss matters covered in this news 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 April 2, 2004, beginning March 22 at approximately 7 p.m. Pacific. The dial-in number for the replay is 877-519-4471 (PIN# 4590192) in the United States and 973-341-3080 (PIN# 4590192) for international callers. The live conference call also will be available over the Internet by logging onto the investor relations section of palmOne's website at http://ir.palmOne.com . An audio replay and text transcript of the conference call also can be accessed at the same URL beginning on March 22, 2004.

To supplement the company's consolidated financial statements presented in accordance with GAAP, palmOne uses non-GAAP measures of certain components of financial performance, including operating income (loss), net income (loss) and per share data, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future. Specifically, the company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of its core operating results. These non-GAAP results are among the primary indicators management uses as a basis for planning and forecasting of future periods and facilitating management's internal comparisons to the company's historical operating results and comparisons to competitors' operating results. In addition, because palmOne has historically reported certain non-GAAP results to investors, the company believes the inclusion of non-GAAP measures provides consistency in the company's financial reporting. These measures should be considered in addition to results prepared in accordance with generally accepted accounting principles, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP financial measures may also be different from non-GAAP financial measures used by other companies. Consistent with the company's practice, the non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure.

This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding our ability to grow our business, to be profitable, to remain competitive and to continue to lead our industry. 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 palmOne's existing and future products and services and growth in palmOne's industries and markets; possible defects in products and technologies developed; palmOne's ability to timely and cost-effectively obtain components and elements of our technology from suppliers; palmOne's ability to compete with existing and new competitors. 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 palmOne's most recent filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the fiscal quarter ended November 28, 2003. palmOne undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.

About palmOne, Inc.

Information about palmOne, Inc. is available at http://www.palmOne.com .

NOTE: palmOne, Handspring, Zire, Tungsten, Treo and Palm OS are among the trademarks or registered trademarks owned by or licensed to palmOne, Inc. or its subsidiaries. All other brand and product names are or may be trademarks of, and are used to identify products or services of, their respective owners.

palmOne, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended

Feb. 28, Feb. 28, Feb. 28, Feb. 28,

2004 2003 2004 2003

Revenues $242,485 $197,864 $682,308 $620,491

Costs and operating

expenses:

Cost of revenues(**) 172,169 150,725 491,132 465,363

Sales and marketing 38,582 42,199 116,869 123,528

Research and

development 19,831 15,702 51,607 51,178

General and

administrative 9,170 9,977 27,219 27,556

Amortization of

intangible assets

and stock-based

compensation(*) 5,414 530 7,473 3,029

Impairment charges -- 102,540 -- 102,540

Restructuring charges 4,522 37,952 8,110 35,348

Total costs and

operating expenses 249,688 359,625 702,410 808,542

Operating loss (7,203) (161,761) (20,102) (188,051)

Interest and other

income (expense), net (486) (2,574) 965 2,409

Loss before income

taxes (7,689) (164,335) (19,137) (185,642)

Income tax provision 1,633 1,413 4,415 221,858

Loss from continuing

operations (9,322) (165,748) (23,552) (407,500)

Loss from discontinued

operations (net of

taxes of $0, $647,

$252 and $1,552,

respectively) -- (6,588) (11,634) (20,061)

Net loss $(9,322) $(172,336) $(35,186) $(427,561)

Net loss per share:

Basic:

Continuing

operations $(0.20) $(5.70) $(0.63) $(14.04)

Discontinued

operations -- (0.23) (0.31) (0.69)

$(0.20) $(5.93) $(0.94) $(14.73)

Diluted:

Continuing

operations $(0.20) $(5.70) $(0.63) $(14.04)

Discontinued

operations -- (0.23) (0.31) (0.69)

$(0.20) $(5.93) $(0.94) $(14.73)

Shares used in computing

per share amounts:

Basic 46,073 29,082 37,373 29,032

Diluted 46,073 29,082 37,373 29,032

(*) Amortization of

intangible assets and

stock-based compensation:

Cost of revenues $243 $67 $331 $842

Sales and marketing 4,709 205 6,366 598

Research and

development 68 126 132 1,188

General and

administrative 394 132 644 401

$5,414 $530 $7,473 $3,029

Certain prior quarter balances have been reclassified to conform to the

current quarter presentation.

palmOne'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 and stock-based compensation related to cost of

revenues.

palmOne, Inc. Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of

Operations

(In thousands, except per share data)

(Unaudited)

Three Months Ended Three Months Ended

Feb. 28, 2004 Feb. 28, 2003

Adjust- Non- Adjust- Non-

GAAP ments GAAP GAAP ments GAAP

Revenues $242,485 $--$242,485 $197,864 $-- $197,864

Costs and operating

expenses:

Cost of

revenues(**) 172,169 -- 172,169 150,725 -- 150,725

Sales and

marketing 38,582 -- 38,582 42,199 -- 42,199

Research and

development 19,831 -- 19,831 15,702 -- 15,702

General and

administrative 9,170 -- 9,170 9,977 -- 9,977

Amortization

of intangible

assets and

stock-based

compensation(*) 5,414 (5,414) -- 530 (530) --

Impairment

charges -- -- -- 102,540 (102,540) --

Restructuring

charges 4,522 (4,522) -- 37,952 (37,952) --

Total costs

and operating

expenses 249,688 (9,936) 239,752 359,625 (141,022) 218,603

Operating income

(loss) (7,203) 9,936 2,733 (161,761) 141,022 (20,739)

Interest and

other income

(expense), net (486) -- (486) (2,574) -- (2,574)

Income (loss)

before income

taxes (7,689) 9,936 2,247 (164,335) 141,022 (23,313)

Income tax

provision 1,633 -- 1,633 1,413 -- 1,413

Income (loss)

from continuing

operations (9,322) 9,936 614 (165,748) 141,022 (24,726)

Loss from

discontinued

operations

(net of taxes

of $0 and $647,

respectively) -- -- -- (6,588) 6,588 --

Net income

(loss) $(9,322) $9,936 $614 $(172,336) $147,610 $(24,726)

Net income

(loss) per share:

Basic:

Continuing

operations $(0.20) $0.21 $0.01 $(5.70) $4.85 $(0.85)

Discontinued

operations -- -- -- (0.23) 0.23 --

$(0.20) $0.21 $0.01 $(5.93) $5.08 $(0.85)

Diluted:

Continuing

operations $(0.20) $0.21 $0.01 $(5.70) $4.85 $(0.85)

Discontinued

operations -- -- -- (0.23) 0.23 --

$(0.20) $0.21 $0.01 $(5.93) $5.08 $(0.85)

Shares used in

computing per

share amounts:

Basic 46,073 -- 46,073 29,082 -- 29,082

Diluted 46,073 -- 46,073 29,082 -- 29,082

(*) Amortization

of intangible

assets and

stock-based

compensation:

Cost of

revenues $243 $(243) $-- $67 $(67) $--

Sales and

marketing 4,709 (4,709) -- 205 (205) --

Research and

development 68 (68) -- 126 (126) --

General and

administrative 394 (394) -- 132 (132) --

$5,414 $(5,414) $-- $530 $(530) $--

The above non-GAAP amounts have been adjusted to eliminate amortization of

intangible assets and stock-based compensation, impairment charges,

restructuring charges and loss from discontinued operations.

Certain prior quarter balances have been reclassified to conform to the

current quarter presentation.

palmOne'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 and stock-based compensation related to cost of

revenues.

palmOne, Inc. Reconciliation of GAAP to Non-GAAP Condensed Consolidated Statements of

Operations

(In thousands, except per share data)

(Unaudited)

Nine Months Ended Nine Months Ended

Feb. 28, 2004 Feb. 28, 2003

Adjust- Non- Adjust- Non-

GAAP ments GAAP GAAP ments GAAP

Revenues $682,308 $-- $682,308 $620,491 $-- $620,491

Costs and operating

expenses:

Cost of

revenues(**) 491,132 -- 491,132 465,363 -- 465,363

Sales and

marketing 116,869 -- 116,869 123,528 -- 123,528

Research and

development 51,607 -- 51,607 51,178 -- 51,178

General and

administrative 27,219 -- 27,219 27,556 -- 27,556

Amortization of

intangible

assets and

stock-based

compensation(*) 7,473 (7,473) -- 3,029 (3,029) --

Impairment

charges -- -- -- 102,540 (102,540) --

Restructuring

charges 8,110 (8,110) -- 35,348 (35,348) --

Total costs

and operating

expenses 702,410 (15,583) 686,827 808,542 (140,917) 667,625

Operating loss (20,102) 15,583 (4,519) (188,051) 140,917 (47,134)

Interest and

other income

(expense), net 965 -- 965 2,409 -- 2,409

Loss before

income taxes (19,137) 15,583 (3,554) (185,642) 140,917 (44,725)

Income tax

provision 4,415 -- 4,415 221,858 (219,141) 2,717

Loss from

continuing

operations (23,552) 15,583 (7,969) (407,500) 360,058 (47,442)

Loss from

discontinued

operations

(net of taxes

of $252 and

$1,552,

respectively) (11,634) 11,634 -- (20,061) 20,061 --

Net loss $(35,186) $27,217 $(7,969)$(427,561) $380,119 $(47,442)

Net loss per share:

Basic

Continuing

operations $(0.63) $0.42 $(0.21) $(14.04) $12.41 $(1.63)

Discontinued

operations (0.31) 0.31 -- (0.69) 0.69 --

$(0.94) $0.73 $(0.21) $(14.73) $13.10 $(1.63)

Diluted

Continuing

operations $(0.63) $0.42 $(0.21) $(14.04) $12.41 $(1.63)

Discontinued

operations (0.31) 0.31 -- (0.69) 0.69 --

$(0.94) $0.73 $(0.21) $(14.73) $13.10 $(1.63)

Shares used in

computing per

share amounts:

Basic 37,373 -- 37,373 29,032 -- 29,032

Diluted 37,373 -- 37,373 29,032 -- 29,032

(*) Amortization

of intangible

assets and

stock-based

compensation:

Cost of

revenues $331 $(331) $-- $842 $(842) $--

Sales and

marketing 6,366 (6,366) -- 598 (598) --

Research and

development 132 (132) -- 1,188 (1,188) --

General and

administrative 644 (644) -- 401 (401) --

$7,473 $(7,473) $-- $3,029 $(3,029) $--

The above non-GAAP amounts have been adjusted to eliminate amortization of

intangible assets and stock-based compensation, impairment charges,

restructuring charges, the change in the valuation allowance for deferred

tax assets and the related income tax provision and loss from discontinued

operations.

Certain prior quarter balances have been reclassified to conform to the

current quarter presentation.

palmOne'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 and stock-based compensation related to cost of

revenues.

palmOne, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value amounts)

Feb. 28, 2004 May 31, 2003

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents $190,550 $204,967

Short-term investments 49,261

Accounts receivable, net of allowance for

doubtful accounts of $8,274 and $4,635,

respectively 101,452 96,784

Inventories 27,042 22,748

Investment for committed tenant improvements 7,197 --

Prepaids and other 10,404 9,039

Current assets of discontinued operations -- 37,485

Total current assets 385,906 371,023

Restricted investments 775 948

Land not in use 60,000 60,000

Property and equipment, net 22,809 31,204

Goodwill 255,327 13,815

Intangible assets, net 12,917 --

Deferred income taxes 34,800 34,800

Other assets 1,331 1,720

Non-current assets of discontinued operations -- 63,116

Total assets $773,865 $576,626

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $111,033 $89,371

Accrued restructuring 33,230 34,886

Provision for committed tenant improvements 7,197 --

Other accrued liabilities 115,623 100,519

Current liabilities of discontinued operations -- 12,570

Total current liabilities 267,083 237,346

Non-current liabilities:

Long-term convertible debt 35,000 35,000

Other non-current liabilities 1,750 165

Non-current liabilities of discontinued

operations -- 48,329

Stockholders' equity:

Preferred stock, $.001 par value, 125,000

shares authorized; none outstanding -- --

Common stock, $.001 par value, 2,000,000 shares

authorized; outstanding Feb. 28, 2004, 46,191

shares; May 31, 2003, 29,230 shares 46 29

Additional paid-in capital 1,375,196 1,123,819

Unamortized deferred stock-based

compensation (2,434) (508)

Accumulated deficit (903,975) (868,789)

Accumulated other comprehensive income 1,199 1,235

Total stockholders' equity 470,032 255,786

Total liabilities and stockholders' equity $773,865 $576,626

Certain prior quarter balances have been reclassified to conform to the

current quarter presentation.

palmOne'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.

palmOne, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

Feb. 28, 2004 Feb. 28, 2003

Cash flows from operating activities:

Loss from continuing operations $(9,322) $(165,748)

Adjustments to reconcile loss from continuing

operations to net cash provided by (used in)

operating activities:

Depreciation 5,151 6,115

Amortization 5,625 851

Impairment charges -- 102,540

Changes in assets and liabilities:

Accounts receivable 51,535 56,762

Inventories 9,294 15,235

Prepaids and other 6 7,709

Accounts payable (19,977) (37,930)

Accrued restructuring (3,055) 15,854

Other accrued liabilities (18,547) (7,121)

Net cash provided by (used in) operating

activities 20,710 (5,733)

Cash flows from investing activities:

Purchase of property and equipment (770) (1,537)

Purchase of short-term investments (98,762) --

Sale of short-term investments 49,501 17,525

Purchase of restricted investments -- (173)

Sale of restricted investments 1,041 --

Net cash provided by (used in) investing

activities (48,990) 15,815

Cash flows from financing activities:

Proceeds from issuance of common stock;

employee stock plans 635 189

Net cash provided by financing activities 635 189

Change in cash and cash equivalents (27,645) 10,271

Cash and cash equivalents, beginning of period 218,195 209,482

Cash and cash equivalents, end of period $190,550 $219,753

Other cash flow information:

Cash paid for income taxes $(582) $(1,154)

Cash paid for interest $(1,191) $(1,274)

Additional information:

Change in cash and cash equivalents $(27,645) $10,271

Change in short-term investments 49,261 (17,525)

Change in cash and cash equivalents and

short-term investments $21,616 $(7,254)

Certain prior quarter balances have been reclassified to conform to the

current quarter presentation.

palmOne'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.

SOURCE palmOne, Inc.