8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

June 24, 2003

Date of Report (date of earliest event reported)

PALM, INC.

(Exact name of Registrant as specified in its charter)

Delaware	000-29597	94-3150688
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification Number)

400 N. McCarthy Blvd.

Milpitas, CA 95035

(Address of principal executive offices)

(408) 503-7000

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(c) Exhibits.

Exhibit No.	Description
99.1	Press Release of Palm, Inc. dated June 24, 2003

ITEM 9. REGULATION FD DISCLOSURE (Information furnished pursuant to Item 12—Results of Operations and Financial Condition)

On June 24, 2003, Palm, Inc. (“Palm”) is issuing a press release and holding a conference call regarding its financial results for the fourth quarter of fiscal 2003 ended May 31, 2003. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K. Palm is making reference to non-GAAP financial information in both the press release and the conference call.

The information in this Form 8-K and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

PALM, INC.
By:	/s/    JUDY BRUNER
	Judy Bruner
	Senior Vice President and Chief Financial Officer

Date: June 24, 2003

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release of Palm, Inc., issued on June 24, 2003.

EX-99.1

Exhibit 99.1

CONTACTS:

Jimmy Johnson, investor relations

408.503.2771

jimmy.johnson@corp.palm.com

Marlene Somsak, media relations

408.503.2592

marlene.somsak@corp.palm.com

Palm Reports Q4 FY’03 Results

Strength of New Products Drives Y/Y Unit Sell-through Growth;

Operational Performance Continues to Improve

MILPITAS, Calif., June 24, 2003—Palm, Inc. (Nasdaq: PALM), which consists of two operating units—Palm Solutions Group and PalmSource—today reported revenues of $225.8 million for the fourth quarter of fiscal year 2003, ended May 31, 2003, down 3.2 percent from the $233.3 million reported during the comparable quarter a year ago and up 8 percent sequentially.

For the fourth quarter of fiscal year 2003, net loss, as measured by GAAP (generally accepted accounting principles), was $15.0 million, or $(0.51) per share. This net loss included restructuring charges of $2.0 million, which included costs of vacating real estate locations and severance payments, amortization of intangible assets of $0.4 million and separation costs associated with the pending spin-off of PalmSource of $3.8 million. This compares to a GAAP net loss for the fourth quarter of fiscal year 2002 of $27.5 million or $(0.95) per share and a GAAP net loss for the third quarter of fiscal year 2003 of $172.3 million or $(5.93) per share.

Net loss in the fourth quarter, measured on a non-GAAP basis totaled $8.9 million, or $(0.30) per share, excluding the effects of amortization of intangible assets, separation costs and restructuring charges. This compares to a non-GAAP net loss in the fourth quarter of fiscal 2002 of $17.8 million, or $(0.62) per share, which excluded the effects of the reduction in special excess inventory costs, amortization of intangible assets, separation costs and restructuring charges. Non-GAAP net loss in the third quarter of fiscal year 2003 was $26.5 million, or $(0.91) per share, excluding the effects of amortization of intangible assets, separation costs, impairment charges and restructuring charges.

“We end the year with favorable momentum on virtually every key metric of our corporate dashboard,” said Eric Benhamou, Palm, Inc. chairman and interim chief executive officer. “We are gratified to see our efforts to reinvigorate product innovation and to re-energize the market rewarded and our unit demand return to positive growth territory. While the economic context

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continues to be a challenge, we believe our opportunities for growing shareholder value have improved.”

Benhamou noted the following operational highlights in the fourth quarter of fiscal 2003 over the comparable quarter last year:

• Worldwide sell-through of Palm^(TM) branded handhelds rose 5 percent, an improvement from six consecutive quarters of decline;

• GAAP gross margins of 32.5 percent vs. 40.9 percent; Non-GAAP gross margins of 32.7 percent vs. 35.0 percent;

• GAAP operating expenses of $87.4 million vs. $123.0 million; Non-GAAP operating expenses of $81.3 million vs. $98.0 million;

• Inventory of $22.7 million vs. $55.0 million;

• Inventory turns of 26 vs. 12; and

• Cash-to-cash cycle of three days vs. four days.

During the quarter, Palm also announced that the boards of directors of Palm, Inc. and Handspring, Inc. (Nasdaq: HAND) unanimously approved a definitive agreement for Palm to acquire Handspring to form a new, stronger market leader in mobile computing and communications. The Palm board also gave final approval for the spin-off of PalmSource, Inc.

Fiscal Year 2003 Results and Unit Shipments

Revenue for the full year was $871.9 million, down 15.4 percent from the $1.0 billion reported in fiscal year 2002. GAAP net loss for fiscal year 2003 was $442.6 million, or $(15.23) per share, compared with a net loss of $82.2 million, or $(2.87) per share, for fiscal year 2002. Non-GAAP net loss for fiscal year 2003—excluding the effects of amortization of intangible assets, separation costs, impairment charges, restructuring charges and the change in the valuation allowance for deferred tax assets—was $66.1 million, or $(2.27) per share. That compares with a fiscal year 2002 non-GAAP net loss—excluding the effects of the reduction in special excess inventory costs, amortization of intangible assets, separation costs, restructuring charges and the related income tax provision—of $107.1 million, or $(3.74) per share.

Palm shipped approximately 931,000 Palm handhelds during its fourth fiscal quarter, and nearly 4.2 million Palm handhelds during fiscal year 2003. That brings the total number of Palm branded handhelds shipped to-date to more than 22.3 million. Approximately 1.5 million Palm Powered^(TM) handhelds, including those sold by Palm OS licensees, were shipped in the quarter, and 29.1 million have been shipped to date.

Fiscal Year Palm Solutions Group Update

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

• Introduced two subbrands to target two distinct customer segments—Zire^(TM) for individuals and Tungsten^(TM) for mobile professionals and businesses. Five handhelds were introduced: the Palm Zire and Zire 71 handhelds, and the Palm Tungsten T, Tungsten W and Tungsten C handhelds, all three of which included integrated wireless technology;

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• Released Palm VersaMail^(TM) 2.5 wireless email software, which supports multiple industry-standard email protocols and features automated email retrieval and notification;

• Developed a sevenfold breakthrough in memory for Palm Powered handheld computers, extending the random-access memory capacity of Palm Powered handhelds from 16MB to 128MB;

• Bolstered its strategic alliance with IBM with a new WebSphere offering, and licensed IBM’s WebSphere^(TM) Micro Environment Java^(TM) 2 Micro Edition certified runtime environment for use in future Palm Tungsten handhelds; and

• Introduced the first Palm Powered ARM-enabled handheld in the United States—the Palm Tungsten T using a Texas Instruments OMAP processor; and grew its ARM-enabled handhelds from zero to 45 percent of overall company shipments at the fiscal year end.

“Our new spring handhelds reinvigorated demand this quarter, and built on the successful product launch we had last fall,” said Todd Bradley, Palm Solutions Group president and chief executive officer. “Continuing tight operational controls also contributed to our performance. With the proposed merger of Handspring into our company, we’ll be better able to meet the full range of our customers’ needs and quickly enter the smartphone space, a market with high-growth potential.”

Fiscal Year PalmSource Update

During the fiscal year, 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:

• Shipped Palm OS 5, which takes advantage of the ARM processor architecture;

• Increased the public number of Palm OS licensees from nine to 15. New licensees are Aceeca, Fossil, Garmin, Legend Group Limited, Group Sense Limited, Hunetec, and Tapwave;

• Attracted a total of 272,000 registered developers of Palm OS vs. 218,000 a year ago;

• Inspired the number of Palm OS applications commercially available to reach 18,300 from 12,500 a year ago (source: www.Palmgear.com);

• Established the Palm OS Business Solutions program for developers to bring qualified enterprise-strength solutions to business customers;

• Announced the opening of a PalmSource representative office in China, the availability of a version of Palm OS supporting the simplified Chinese language, and two Chinese licensees—Legend and GSL; and

• Received a $20 million minority equity investment by Sony Corporation that represents an ownership of about 6 percent share of PalmSource. This investment, combined with expanded business and technical collaboration agreements enhances both companies’ strategic commitment to grow the Palm Economy.

“We are pleased with the progress PalmSource made in fiscal year 2003. We successfully transitioned from OS 4 to the ARM-based OS 5 platform, increased the number of Palm OS licensees from nine to 15, and help foster the innovative and leading-edge mobile devices our world-class partners brought to market,” said David Nagel, president and chief executive officer of PalmSource, Inc. “The success of our licensees’ handhelds and smartphones combined with

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the breadth of Palm OS applications from our third-party developers helped PalmSource continue its platform leadership.”

According to IDC’s study in the United States, Palm Powered handhelds accounted for 77 percent of all pen-based personal digital assistants shipped in 2002. Palm Powered smartphones led the U.S. converged handheld space with a market share of 75 percent in 2002, IDC said.

INVESTOR’S NOTE: The company will hold a conference call for the public on June 24, 2003, at 2 p.m. Pacific/5 p.m. Eastern to discuss matters covered in this press release. The dial-in number for the call is 888-335-6680 in the United States and 973-935-8508 for international callers. No pass code is needed. A telephone call replay of the conference call will be available through July 8, 2003, beginning today at approximately 5 p.m. Pacific. The dial-in number for the replay is 877-519-4471 (PIN# 4008252) in the United States and 973-341-3080 (PIN# 4008252) 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 June 24, 2003.

NON-GAAP FINANCIAL MEASURES: The non-GAAP financial measures used in this press release exclude the impact of cost of revenues—benefit for special excess inventory and related costs, amortization of intangible assets, separation costs, impairment charges, restructuring charges, the change in the valuation allowance for deferred tax assets and the related income tax provision. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The Company’s management refers to these non-GAAP financial measures, such as non-GAAP gross margins, operating loss and net loss, in making operating decisions because they provide meaningful supplemental information regarding the Company’s operational performance, including the Company’s ability to provide cash flows to invest in research and development and fund acquisitions and capital expenditures. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to the Company’s historical operating results and comparisons to competitors’ operating results. We include these non-GAAP financial measures in our earnings announcement because we believe they are useful to investors in allowing for greater transparency to the supplemental information used by management in its financial and operational decision-making. In addition, we have historically reported similar non-GAAP financial measures to our investors and believe that the inclusion of comparative numbers provides consistency in our financial reporting at this time. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measure as provided with the financial statements attached to this press release.

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 the following: operating results; products and services;

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growth and growth opportunities for the market; growth and growth opportunities for shareholder value; Palm’s outlook; customers and customer segmentation; profitability; the proposed transaction involving the distribution of PalmSource stock to Palm stockholders and the merger involving Handspring and Palm; the handheld industry; and the growth of the smartphone industry. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially, including, without limitation, the following: Palm’s ability to anticipate demand for its products; Palm’s third party manufacturers meeting their performance obligations; Palm’s suppliers providing Palm with quality components and elements on a cost effective basis; Palm’s ability to maintain successful relationships with distributors, retailers and resellers and expand its distribution channel; Palm’s ability to hire, retain, integrate and motivate sufficient qualified personnel; Palm’s ability to secure and protect its intellectual property; risk associated with international operations; Palm’s ability to control and successfully manage its expenses, inventory and cash position; fluctuations in the demand for Palm’s existing and future products and services and growth in Palm’s industries and markets; possible development or marketing delays relating to Palm’s product offerings; possible defects in products and technologies developed; Palm’s ability to build, maintain and benefit from strategic alliances; Palm’s ability to compete with existing and new competitors; possible future price cutting or other actions by competitors; Palm’s ability to successfully operate as two separate companies and possible problems arising from the separation of Palm’s Solutions Group and PalmSource; the approval of the merger and distribution transaction by the Palm and Handspring stockholders; the satisfaction of closing conditions to the merger and distribution transaction, including the receipt of regulatory approvals; the ability of Palm and PalmSource to operate as separate companies after the PalmSource distribution; and the successful integration of Handspring’s employees and technologies with those of Palm. 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 period ended February 28, 2003, as amended. 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.

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

# # #

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

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Palm, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Year Ended
	May 31, 2003			May 31, 2002			May 31, 2003			May 31, 2002
Revenues	$	225,758		$	233,283		$	871,946		$	1,030,831
Costs and operating expenses:
Cost of revenues (*)		151,980			151,583			591,329			745,525
Cost of revenues—benefit for special excess inventory and related costs		—			(15,429	)		—			(101,844	)
Sales and marketing		40,956			53,822			177,903			237,448
Research and development		27,394			30,195			110,611			141,475
General and administrative		12,919			13,936			50,179			56,444
Amortization of intangible assets (*)		421			3,347			6,069			12,531
Separation costs		3,774			1,166			9,282			1,542
Impairment charges		—			—			102,540			—
Restructuring charges		1,968			20,565			39,488			46,553
Total costs and operating expenses		239,412			259,185			1,087,401			1,139,674
Operating loss		(13,654	)		(25,902	)		(215,455	)		(108,843	)
Interest and other income (expense), net		221			(1,575	)		(2,129	)		938
Loss before income taxes		(13,433	)		(27,477	)		(217,584	)		(107,905	)
Income tax provision (benefit)		1,588			—			224,998			(25,737	)
Net loss	$	(15,021	)	$	(27,477	)	$	(442,582	)	$	(82,168	)
Net loss per share:
Basic and diluted	$	(0.51	)	$	(0.95	)	$	(15.23	)	$	(2.87	)
Shares used in computing per share amounts:
Basic and diluted		29,180			28,937			29,069			28,640
(*) Amortization of intangible assets:
Cost of revenues	$	323		$	1,763		$	5,164		$	6,306
Sales and marketing		—			—			—			11
Research and development		65			1,551			773			6,137
General and administrative		33			33			132			77
Total amortization of intangible assets	$	421		$	3,347		$	6,069		$	12,531

Certain prior year balances have been reclassified to conform to the current year presentation.

Palm’s fiscal year ends on the Friday nearest to May 31. For presentation purposes, the periods have been presented as ending on May 31.

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

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Palm, Inc.

Reconciliation of GAAP to 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 and restructuring charges

(In thousands, except per share data)

(Unaudited)

	Three months ended May 31, 2003									Three months ended May 31, 2002
	GAAP			Adjustments			Non-GAAP			GAAP			Adjustments			Non-GAAP
Revenues	$	225,758		$	—		$	225,758		$	233,283		$	—		$	233,283
Costs and operating expenses:
Cost of revenues (*)		151,980			—			151,980			151,583			—			151,583
Cost of revenues—benefit for special excess inventory and related costs		—			—			—			(15,429	)		(15,429	)		—
Sales and marketing		40,956			—			40,956			53,822			—			53,822
Research and development		27,394			—			27,394			30,195			—			30,195
General and administrative		12,919			—			12,919			13,936			—			13,936
Amortization of intangible assets (*)		421			421			—			3,347			3,347			—
Separation costs		3,774			3,774			—			1,166			1,166			—
Restructuring charges		1,968			1,968			—			20,565			20,565			—
Total costs and operating expenses		239,412			6,163			233,249			259,185			9,649			249,536
Operating loss		(13,654	)		(6,163	)		(7,491	)		(25,902	)		(9,649	)		(16,253	)
Interest and other income (expense), net		221			—			221			(1,575	)		—			(1,575	)
Loss before income taxes		(13,433	)		(6,163	)		(7,270	)		(27,477	)		(9,649	)		(17,828	)
Income tax provision		1,588			—			1,588			—			—			—
Net loss	$	(15,021	)	$	(6,163	)	$	(8,858	)	$	(27,477	)	$	(9,649	)	$	(17,828	)
Net loss per share:
Basic and diluted	$	(0.51	)	$	(0.21	)	$	(0.30	)	$	(0.95	)	$	(0.33	)	$	(0.62	)
Shares used in computing per share amounts:
Basic and diluted		29,180			—			29,180			28,937			—			28,937
(*)Amortization of intangible assets:
Cost of revenues	$	323		$	323		$	—		$	1,763		$	1,763		$	—
Sales and marketing		—			—			—			—			—			—
Research and development		65			65			—			1,551			1,551			—
General and administrative		33			33			—			33			33			—
Total amortization of intangible assets	$	421		$	421		$	—		$	3,347		$	3,347		$	—

The above non-GAAP amounts have been adjusted to eliminate cost of revenues—benefit for special excess inventory and related costs, amortization of intangible assets, separation costs and restructuring charges.

Certain prior year balances have been reclassified to conform to the current year presentation.

Palm’s fiscal year ends on the Friday nearest to May 31. For presentation purposes, the periods have been presented as ending on May 31.

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Palm, Inc.

Reconciliation of GAAP to 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, the related income tax provision and the change in the valuation allowance for deferred tax assets

(In thousands, except per share data)

(Unaudited)

	Year ended May 31, 2003									Year ended May 31, 2002
	GAAP			Adjustments			Non-GAAP			GAAP			Adjustments			Non-GAAP
Revenues	$	871,946		$	—		$	871,946		$	1,030,831		$	—		$	1,030,831
Costs and operating expenses:
Cost of revenues(*)		591,329			—			591,329			745,525			—			745,525
Cost of revenues—benefit for special excess inventory and related costs		—			—			—			(101,844	)		(101,844	)		—
Sales and marketing		177,903			—			177,903			237,448			—			237,448
Research and development		110,611			—			110,611			141,475			—			141,475
General and administrative		50,179			—			50,179			56,444			—			56,444
Amortization of intangible assets(*)		6,069			6,069			—			12,531			12,531			—
Separation costs		9,282			9,282			—			1,542			1,542			—
Impairment charges		102,540			102,540			—			—			—			—
Restructuring charges		39,488			39,488			—			46,553			46,553			—
Total costs and operating expenses		1,087,401			157,379			930,022			1,139,674			(41,218	)		1,180,892
Operating income (loss)		(215,455	)		(157,379	)		(58,076	)		(108,843	)		41,218			(150,061	)
Interest and other income (expense), net		(2,129	)		—			(2,129	)		938			—			938
Income (loss) before income taxes		(217,584	)		(157,379	)		(60,205	)		(107,905	)		41,218			(149,123	)
Income tax provision (benefit)		224,998			219,141			5,857			(25,737	)		16,277			(42,014	)
Net income (loss)	$	(442,582	)	$	(376,520	)	$	(66,062	)	$	(82,168	)	$	24,941		$	(107,109	)
Net income (loss) per share:
Basic and diluted	$	(15.23	)	$	(12.96	)	$	(2.27	)	$	(2.87	)	$	0.87		$	(3.74	)
Shares used in computing per share amounts:
Basic and diluted		29,069			—			29,069			28,640			—			28,640
(*) Amortization of intangible assets:
Cost of revenues	$	5,164		$	5,164		$	—		$	6,306		$	6,306		$	—
Sales and marketing		—			—			—			11			11			—
Research and development		773			773			—			6,137			6,137			—
General and administrative		132			132			—			77			77			—
Total amortization of intangible assets	$	6,069		$	6,069		$	—		$	12,531		$	12,531		$	—

The above non-GAAP amounts have been adjusted to eliminate cost of revenues—benefit for special excess inventory and related costs, amortization of intangible assets, separation costs, impairment charges, restructuring charges, the related income tax provision and the change in the valuation allowance for deferred tax assets.

Certain prior year balances have been reclassified to conform to the current year presentation.

Palm’s fiscal year ends on the Friday nearest to May 31. For presentation purposes, the periods have been presented as ending on May 31.

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Palm, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value amounts)

	May 31, 2003			May 31, 2002
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	242,432		$	278,547
Short-term investments		—			17,970
Accounts receivable, net of allowance for doubtful accounts of $4,645 and $8,485, respectively		97,437			63,551
Inventories		22,748			55,004
Deferred income taxes		—			48,985
Prepaids and other		8,406			14,122
Total current assets		371,023			478,179
Restricted investments		2,619			2,326
Land, property and equipment, net		94,622			211,556
Goodwill		68,785			68,785
Intangible assets, net		976			9,585
Deferred income taxes		34,800			205,440
Other assets		3,801			13,225
Total assets	$	576,626		$	989,096
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	83,037		$	88,909
Accrued restructuring		35,235			35,512
Other accrued liabilities		119,074			108,577
Total current liabilities		237,346			232,998
Non-current liabilities:
Long-term convertible debt		50,000			50,000
Deferred revenue and other		13,494			15,250
Minority interest in a consolidated subsidiary		20,000			—
Stockholders’ equity:
Preferred stock, $.001 par value, 125,000 shares authorized; none outstanding		—			—
Common stock, $.001 par value, 2,000,000 shares authorized; outstanding May 31, 2003, 29,232 shares; May 31, 2002, 28,960^ shares		29			29
Additional paid-in capital^		1,123,819			1,122,674
Unamortized deferred stock-based compensation		(508	)		(5,743	)
Accumulated deficit		(868,789	)		(426,207	)
Accumulated other comprehensive income		1,235			95
Total stockholders’ equity		255,786			690,848
Total liabilities and stockholders’ equity	$	576,626		$	989,096

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

Certain prior year balances have been reclassified to conform to the current year presentation.

Palm’s fiscal year ends on the Friday nearest to May 31. For presentation purposes, the periods have been presented as ending on May 31.

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Palm, Inc.

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	May 31, 2003			May 31, 2002
Cash flows from operating activities:
Net loss	$	(15,021	)	$	(27,477	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		7,144			6,440
Amortization		1,598			4,884
Deferred income taxes		—			18,577
Impairment of equity investments		3,747			—
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable		(6,232	)		34,772
Inventories		545			(4,440	)
Prepaids and other		(1,166	)		5,061
Accounts payable		1,336			(21,228	)
Tax benefit from employee stock options		—			(95	)
Accrued restructuring		(10,689	)		8,302
Other accrued liabilities		(3,303	)		(14,038	)
Net cash provided by (used in) operating activities		(22,041	)		10,758
Cash flows from investing activities:
Purchases of property and equipment		(1,767	)		(381	)
Purchases of restricted investments		—			(1,551	)
Purchases of short-term investments		(5,223	)		(17,970	)
Sale/maturities of short-term investments		10,286			—
Net cash provided by (used in) investing activities		3,296			(19,902	)
Cash flows from financing activities:
Proceeds from issuance of common stock		1,171			1,784
Other, net		599			262
Net cash provided by financing activities		1,770			2,046
Change in cash and cash equivalents		(16,975	)		(7,098	)
Cash and cash equivalents, beginning of period		259,407			285,645
Cash and cash equivalents, end of period	$	242,432		$	278,547
Other cash flow information:
Cash paid for income taxes	$	(1,088	)	$	440
Cash paid for interest		(37	)	$	(58	)

Certain prior year balances have been reclassified to conform to the current year presentation.

Palm’s fiscal year ends on the Friday nearest to May 31. For presentation purposes, the periods have been presented as ending on May 31.

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Palm, Inc.

Segment Results Reconciled to Reported Operating Income (Loss) Before Income Taxes

(In thousands)

(Unaudited)

	Three months ended May 31, 2003
	Solutions Group			PalmSource, Inc.			Eliminations			Total Palm
Revenues	$	217,146		$	17,303		$	(8,691	)	$	225,758
Cost of revenues (*)		159,674			1,508			(9,202	)		151,980
Research & development, selling general & administrative expenses		65,401			15,868			—			81,269
Segment operating contribution (loss)		(7,929	)		(73	)
Amortization of intangible assets (*)		—			421			—			421
Separation costs		1,603			2,171			—			3,774
Restructuring charges		1,952			16			—			1,968
Operating income (loss)		(11,484	)		(2,681	)		511			(13,654	)
Interest and other income (expense), net		596			(375	)		—			221
Segment income (loss) before income taxes	$	(10,888	)	$	(3,056	)	$	511		$	(13,433	)

	Three months ended May 31, 2002
	Solutions Group			PalmSource, Inc.			Eliminations			Total Palm
Revenues	$	226,394		$	18,533		$	(11,644	)	$	233,283
Cost of revenues (*)		160,128			1,480			(10,025	)		151,583
Research & development, selling general & administrative expenses		79,331			18,702			(80	)		97,953
Segment operating contribution (loss)		(13,065	)		(1,649	)
Cost of revenues—benefit for special excess inventory and related costs (**)		(15,429	)		—			—			(15,429	)
Amortization of intangible assets (*)		1,796			1,551			—			3,347
Separation costs		748			418			—			1,166
Restructuring charges		18,795			1,770			—			20,565
Operating income (loss)		(18,975	)		(5,388	)		(1,539	)		(25,902	)
Interest and other income (expense), net		(1,058	)		(517	)		—			(1,575	)
Segment income (loss) before income taxes	$	(20,033	)	$	(5,905	)	$	(1,539	)	$	(27,477	)

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

(**) This benefit is excluded from the determination of segment cost of revenues when measuring segment performance.

Certain prior year balances have been reclassified to conform to the current year presentation.

Palm’s fiscal year ends on the Friday nearest to May 31. For presentation purposes, the periods have been presented as ending on May 31.

-11-

	Year ended May 31, 2003
	Solutions Group			PalmSource, Inc.			Eliminations			Total Palm
Revenues	$	837,637		$	73,414		$	(39,105	)	$	871,946
Cost of revenues (*)		625,245			5,719			(39,635	)		591,329
Research & development, selling general & administrative expenses		269,357			69,747			(411	)		338,693
Segment operating contribution (loss)		(56,965	)		(2,052	)
Amortization of intangible assets(*)		1,127			4,942			—			6,069
Separation costs		4,258			5,024			—			9,282
Impairment charges		102,540			—			—			102,540
Restructuring charges		37,300			2,188			—			39,488
Operating income (loss)		(202,190	)		(14,206	)		941			(215,455	)
Interest and other income (expense), net		3,005			(5,134	)		—			(2,129	)
Segment income (loss) before income taxes	$	(199,185	)	$	(19,340	)	$	941		$	(217,584	)

	Year ended May 31, 2002
	Solutions Group			PalmSource, Inc.			Eliminations			Total Palm
Revenues	$	1,004,388		$	69,883		$	(43,440	)	$	1,030,831
Cost of revenues (*)		782,709			4,931			(42,115	)		745,525
Research & development, selling general & administrative expenses		353,135			82,121			111			435,367
Segment operating contribution (loss)		(131,456	)		(17,169	)
Cost of revenues—benefit for special excess inventoryand related costs (**)		(101,844	)		—			—			(101,844	)
Amortization of intangible assets (*)		6,548			5,983			—			12,531
Separation costs		1,023			519			—			1,542
Restructuring charges		44,357			2,196			—			46,553
Operating income (loss)		(81,540	)		(25,867	)		(1,436	)		(108,843	)
Interest and other income (expense), net		1,615			(677	)		—			938
Segment income (loss) before income taxes	$	(79,925	)	$	(26,544	)	$	(1,436	)	$	(107,905	)

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

(**) This benefit is excluded from the determination of segment cost of revenues when measuring segment performance.

Certain prior year balances have been reclassified to conform to the current year presentation.

Palm’s fiscal year ends on the Friday nearest to May 31. For presentation purposes, the periods have been presented as ending on May 31.

-12-

Palm, Inc.

Reconciliation of GAAP to Non-GAAP measures

(in thousands, except % and per share amounts)

Reconciliation of GAAP net loss to Non-GAAP net loss

	Three months ended February 28, 2003
	GAAP			Adjustments			Non-GAAP
Revenues	$	209,016		$	—		$	209,016
Costs and operating expenses:
Cost of revenues (*)		143,674			—			143,674
Sales and marketing		46,827			—			46,827
Research and development		26,200			—			26,200
General and administrative		13,506			—			13,506
Amortization of intangible assets (*)		1,419			1,419			—
Separation costs		1,725			1,725			—
Impairment charges		102,540			102,540			—
Restructuring charges		40,182			40,182			—
Total costs and operating expenses		376,073			145,866			230,207
Operating income (loss)		(167,057	)		(145,866	)		(21,191	)
Interest and other income (expense), net		(3,219	)		—			(3,219	)
Income (loss) before income taxes		(170,276	)		(145,866	)		(24,410	)
Income tax provision (benefit)		2,060			—			2,060
Net income (loss)	$	(172,336	)	$	(145,866	)	$	(26,470	)
Net income (loss) per share:
Basic and diluted	$	(5.93	)	$	(5.02	)	$	(0.91	)
Shares used in computing per share amounts:
Basic and diluted		29,082			—			29,082
(*)    Amortization of intangible assets:
Cost of revenues	$	1,315		$	1,315		$	—
Sales and marketing		—			—			—
Research and development		71			71			—
General and administrative		33			33			—
Total amortization of intangible assets	$	1,419		$	1,419		$	—

Reconciliation of GAAP Gross margins to Non-GAAP Gross margins

	Three months ended May 31, 2003									Three months ended May 31, 2002
	GAAP			Adjustments			Non-GAAP			GAAP			Adjustments			Non-GAAP
Revenues	$	225,758		$	—		$	225,758		$	233,283		$	—		$	233,283
Cost of revenues		151,980			—			151,980			151,583			—			151,583
Cost of revenues—benefit for special excess inventory and related costs		—			—			—			(15,429	)		(15,429	)		—
Applicable portion of amortization of intangible assets related to cost of revenues		323			323			—			1,763			1,763			—
Gross profit		73,455			323			73,778			95,366			(13,666	)		81,700
Gross margins		32.5	%		0.2	%		32.7	%		40.9	%		(5.9	)%		35.0	%
Reconciliation of GAAP operating expenses to Non-GAAP operating expenses
	Three months ended May 31, 2003									Three months ended May 31, 2002
	GAAP			Adjustments			Non-GAAP			GAAP			Adjustments			Non-GAAP
Sales and marketing		40,956			—			40,956			53,822			—			53,822
Research and development		27,394			—			27,394			30,195			—			30,195
General and administrative		12,919			—			12,919			13,936			—			13,936
Amortization of intangible assets (*)		421			421			—			3,347			3,347			—
Separation costs		3,774			3,774			—			1,166			1,166			—
Impairment charges		—			—			—			—			—			—
Restructuring charges		1,968			1,968			—			20,565			20,565			—
Total costs and operating expenses		87,432			6,163			81,269			123,031			25,078			97,953

# # #

-13-