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Technology Stocks : Qualcomm Incorporated (QCOM)
QCOM 159.42-1.2%Jan 16 9:30 AM EST
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To: H. Bradley Toland, Jr. who wrote (123194)8/14/2002 5:54:45 PM
From: hueyone  Read Replies (1) of 152472
 
Bradley, The larger issue regarding expensing stock options on the income statement is trying to have an income statement that is more reflective of the underlying economics and earning capacity of the business enterprise in question. Reporting income that is inflated by deluding shareholders (deluding and diluting can be used interchangeably in this sentence---grin) is not reflective of the basic earning power of the company's core business operations, and neither would free cash flow be representative of the basic earning capacity of the company's core business operations when it is also inflated by diluting shareholders. This is why Standard and Poors expenses stock options to arrive at their Core Earnings numbers. The Standard and Poor's Core Earnings numbers attempt to measure the earning power of the company's core business operations.

Here is another way to think about it: If you were a wealthy private investor looking to buy publicly held technology companies and take them private, would the reported numbers for earnings and free cash flow that do not include stock options expenses be useful to you in evaluating your investment choices? No, those numbers would be useless, because you would be interested in estimating the level of earnings and free cash flow that the company can generate and sustain absent of deluding/diluting the shareholder (yourself).

As a single shareholder buying a piece of the company, I like to look at a potential investment in a similar vein. I want to have an idea what income the company's operations are producing absent the contribution to employee's pockets by outside shareholders. This isn’t simply a matter of “feeeeeeeling good”.

Best regards, Huey
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