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To: Mike Buckley who wrote (53957)	5/3/2003 3:18:05 PM
From: hueyone	Respond to of 54805

For a valuation metric that you didn't mention, let's turn to free cash flow net of tax benefits related to employee stock options (free cash flow generated by the company's operations) That's a nice idea, but it is my opinion this free cash flow number you continue to tout is not free cash flow generated by just the company's operations, but instead it includes an equity finance component due to issuance of stock options. Removing the tax benefit from exercise of stock options fails to remove the impact of this equity financing on that number, and in my opinion, your number is a poor measure of how the company is doing on behalf of shareholders. Here is yet another fellow that agrees with me: If share repurchases are a distribution of free cash flow for the benefit of shareholders, then option grants are effectively a diversion of free cash flow at a cost to shareholders. Accordingly, they are a deduction from the financial results that can be fairly reported to shareholders. Ideally, financial statements would include a “free cash flow” figure directly, subtracting from operating earnings various obligations such as interest, taxes, capital spending over-and-above depreciation, and the cost of stock and option issuance. hussman.net And there is a reason that there is generally a huge difference between the Core Earnings that Standards and Poors reports and the supposed free cash flow from operations numbers that you report, and it isn't merely because one number is amortizing capital expenditures with a depreciation figure and the other isn't. It is because Core Earnings effectively recognizes that there is an equity finance component going in to earnings and your free cash flow figure that you fail to acknowledge. Regards, Huey

To: Mike Buckley who wrote (53957)	5/3/2003 3:35:44 PM
From: hueyone	Respond to of 54805

I think this problem with reported free cash flow numbers is an important problem to address, because it is clear to me that if the government goes ahead with requirements to expense stock options from net income, the next fudd from companies will be that we should ignore earnings and just pay attention to this free cash flow numbers like yours that are inflated by equity financing. In fact, Amazon, who has changed over to restricted stock rather than stock options as their favored form of employee equity compensation, (and restricted stock is expensed) is trying out this ruse now. Amazon tells us no longer to pay attention to their reported earnings and look at free cash flow. But what we really need to look at is the annual changes in the shareholders equity statement. There you will realize that increases in the paid in capital from issuance of stock also inflate the free cash flow calculation by the same amount of this equity financing. Quality of reported free cash flow numbers matter just like quality of reported earnings matter. Regards, Huey

To: Mike Buckley who wrote (53957)	5/3/2003 3:45:12 PM
From: hueyone	Respond to of 54805

More on Amazon's misleading free cash flow numbers and how this fudd all works (imho): #reply-18608585 Quality of reported Free Cash Flow numbers is going to be next big battle in the ongoing charade of misleading accounting that CFOs literally hope that you will “buy in” to. Amazon wants you to look at Free Cash Flow, because even if earnings are fixed to properly reflect equity compensation expenses (restricted share grants), reported Free Cash Flow numbers will be no different for most companies whether they are expensing payments to employees with equity instruments or not. But there is a rub, imo, and that is that the Free Cash Flow numbers reported by companies who compensate employees with equity instruments, is inflated by a finance activity. Here is how this latest financial charade works: In #reply-18516488, I gave my best efforts opinion regarding how issuing and expensing restricted shares impacts the accounting on the Income Statement, Cash Flow statement, Balance Sheet and Shareholders Equity statement, and so far, no one is stepping forward to refute my perception of accounting treatment for restricted share grants. For purposes of discussion, I further assumed that the full value of the stock was expensed all at once at date of grant rather than valued at date of grant, but then ratably expensed over the service period of the stock grant. Now lets call this company that grants restricted shares “Amazon A”. The accounting conclusion for Amazon A with regard to granting restricted stock was that both Net Income and Retained Earnings are reduced by the (value of the restricted grant less the tax savings), that Cash Flow from Operations, Free Cash Flow, Net increase in Cash and Cash Equivalents and Shareholders Equity are increased by the amount of the tax savings, and that Paid in Capital is increased by the value of the stock grant. Although Paid in Capital increases, this increase in value is not posted in the finance section of the Cash Flow Statement for Amazon A. Now lets take the exact same company, but call it Amazon B, and have Amazon B first sell these same shares to the public, and then pay the employees with the cash proceeds from the sale of the shares rather than directly granting the shares to the employees. This is an exact equivalent economic activity as to what Amazon A did, except for the nuance of Amazon A expensing the restricted shares over the life of the service period versus Amazon B expensing the entire amount of cash payment to employees at one moment in time. (And again, we are ignoring this amortization of expense difference between Amazon A and Amazon B for purposes of this debate, because this difference in the expensing period is immaterial to the conclusion of this piece.) Now, let's see what happens to the financial statements for Amazon B, who sells the shares first and then uses the proceeds to pay the employees rather than directly granting the shares to the employees. Please note that for Amazon B, the expression "Value of the Shares" can be used interchangeably with "Cash Compensation to Employees". They are both the exact same number. Here we go: Net Income and Retained Earnings are reduced by the exact same value as in the example for Amazon A above---(value of the shares less the tax savings). The Net increase in Cash and Cash Equivalents at the bottom of the Cash Flow Statement is exactly the same as Amazon A---increased by the amount of the tax savings. Shareholders Equity is also increased by the amount of the tax savings. And Paid in Capital is increased by the amount of the value the shares were sold for, the same value as in Amazon A. Everything is right on track to be exactly the same for Amazon A and Amazon B, and most importantly, the impact on the Shareholders Equity statement is exactly the same----Retained Earnings are reduced by the (value of the shares less the tax savings) and Paid in Capital is increased by the value of the shares. But whoa, not so fast, a funny thing happened to Cash Flow from Operations and Free Cash Flow on the way to the bottom line of the Cash Flow statement and the Shareholders Equity statement. In Amazon B, cash flow from operations is reduced by the (value of the stock less the tax savings); and in Amazon B, Free Cash Flow is reduced by the (value of the stock less the tax savings). But Amazon B recognizes the finance activity related to selling shares, so Cash Flow from Financing Activities on the Cash Flow statement is increased by the value of the stock that was sold. Hence, the bottom line of the Cash Flow statement for both Amazon A and Amazon B is exactly the same, but Amazon A is able to brag about much more impressive Cash Flow from Operations and Free Cash Flow than Amazon B, while Amazon B reports less Cash Flow from Operations, less Free Cash Flow, but greater Cash Flow from Financing Activities on the Cash Flow statement than does Amazon A. So therein lies the rub. There is absolutely no way in hell that anyone can argue that Amazon A is performing any better or worse than Amazon B, and there is no way in hell that anyone can argue that Amazon A and Amazon B are not exact economic equivalents, but Amazon A’s CFO wants you to focus on the reported Free Cash Flow numbers for Amazon A, which are better than Amazon B's reported FCF numbers. Never mind that the impact from these equivalent equity related transactions is exactly the same on reported earnings for both companies; never mind that the final impact on the bottom line for Net Income, the Cash Flow statement, Balance Sheet, Retained Earnings, Paid in Capital and Shareholders Equity is exactly the same for both companies. The Amazon A CFO simply doesn’t want you to realize this. He wants you to think that his company, Amazon A, with the higher reported Free Cash Flow number is doing better than Amazon B, who is paying employees with cash proceeds from the sale of stock. But Amazon A’s performance is no better than Amazon B's, and Amazon A’s reported Cash Flow from Operations and Free Cash Flow numbers are arguably inflated by a finance activity. Otherwise, how the heck did Amazon A end up with an increase in Paid in Capital, the same increase in Paid in Capital as did Amazon B, whom no one denies is engaged in finance activities, and why is the makeup of Amazon A’s Shareholder Equity section precisely the same as the makeup of Amazon B’s Shareholder Equity section? If you are seriously interested in evaluating the performance of Amazon A, you will take in to account how the finance related activity, granting of shares to employees, is inflating reported Cash Flow from Operations numbers and reported Free Cash Flow numbers, and you will not be conned in to valuing the Amazon “As” of the world more highly than the Amazon “Bs” of the world---companies that pay their employees in cash. Quality of reported Free Cash Flow numbers matter. Blindly accepting reported Free Cash Flow numbers without understanding what goes in to them may get you somewhere in the short run, but if you are interested in evaluating the core, internal performance of the company, you better understand what is and isn’t included in that Free Cash Flow number. JMO and contrasting opinions are encouraged and welcome. Regards, Huey

To: Mike Buckley who wrote (53957)	5/3/2003 6:31:54 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 54805

Mike, Qualcomm cash flow from operations 0.5 M$ this past quarter? Maybe we look a bit closer. 1.0 B$ in revenues in the quarter 0.65 B$ in very real expenses (cost of goods, R&D, G&A), not including any income tax obligation. So 0.35 B$ worth of pre-tax revenue-minus-real-costs is supposed to be generating real cash flow of 0.5 B$? Not likely. Not likely at all. When I compute free cash flow for six months I get 0.462 B$ (income + D&A and noncash charges - capex). Cross checking with the balance sheet we see shareholder equity net of paid in capital increased 0.371 B$ in six months. Which two metrics of 'value increase' are within 20% of each other, and close to the 0.5 B$ you are talking about. But since last quarter wasn't a loss, neither are anywhere near supportive of 0.5 B$ free cash flow this last quarter. Could it be you've mistaken a six month free cash flow for a 3 month free cash flow? Note that would strengthen your argument (QCOM not deserving a higher price than it currently commands) by about a factor of 2x. John

To: Mike Buckley who wrote (53957)	5/3/2003 8:18:37 PM
From: Jim Mullens	Respond to of 54805

Mike, thanks for you input on Qualcomm valuation. Regarding >>” Now the question each of us as investors must ask ourselves: Should we require an even higher rate of return considering the risk? The market (right now) is clearly saying that 9% is sufficient, assuming of course that the market is using my assumption of $2 billion annually in free cash flow. Yet the market right now isn't willing to lower the earnings yield it requires. Otherwise, the stock price and the enterprise value would be higher. Frankly, I'm not sure at the moment that I'd be willing to settle for less than 9%. Are you? If so, why? “<<< I haven’t done a free cash flow analysis but I’m assuming the future quarters will be significantly higher than the past quarter and will continue to accelerate due in part to both the adoption of 3G and the diminishing aspects of write-offs of past investments to seed the development of CDMA. The metric I continue to look at is the CDMA/3G subscriber market expanding from approximately 14% to 100% and the potential to derive chipset and royalty revenues from 100 million handsets per year today to over 800 million potentially some 5 to 7 years from now. The compound annual growth rate involved is over 30% factoring in declines in ASPs. In addition, significant revenue streams from other than handset sales should be forthcoming as I believe Qualcomm /CDMA will be the enabler of virtually all things wireless. Granted it is tough to quantify with all the unknowns and variables involved, but I have great difficulty with the “analysts” analysis that reflects 5 year growth rates in the 10 to 15% range. Thanks again for you thoughts- jim

To: Mike Buckley who wrote (53957)	5/6/2003 9:17:07 AM
From: Jim Mullens	Read Replies (2) \| Respond to of 54805

Mike, AT&T Wireless PR FUDD continues as two more PR FUDD pieces were released today. AWE continues to deceive its customers and the investing public by calling its upgraded GSM/GPRS network “next generation” when in fact GSM/GPRS is 2.5G. It’s bad enough that AWE labels their services as “next generation (on an old generation network), but to describe their GSM/GPRS network as “next generation” is outright deception. At least when CDMA2000 1X networks are described as 3G they have ITU documentation to back up that claim. Examples of AT&T Wireless FUDD- 1. AT&T Wireless (NYSE: AWE - News) today brings its next-generation 2. AT&T Wireless' next generation network provides high- quality voice service and fast access to information. 3. Depending on the device used, customers can receive data speeds on the order of 25-30Kbps for phones and 35-40Kbps for PDAs and laptops equipped with wireless modems. 4. AT&T Wireless' Next Generation GSM/GPRS network. Under their disclosures at the end of the PR is this statement- “Readers are cautioned not to put undue reliance on such forward-looking statements”. Perhaps they should have added this one- “Readers are cautioned not to put undue reliance on such forward-looking, backward looking, current looking, or any statements in this PR biz.yahoo.com Press Release Source: AT&T Wireless AT&T Wireless Expands Next Generation Service to Kentucky and Southern Indiana Tuesday May 6, 8:06 am ET Photo messaging, gaming, and fast, easy access to business applications now available LOUISVILLE, May 6 /PRNewswire/ -- AT&T Wireless (NYSE: AWE - News) today brings its next-generation network to Kentucky and Southern Indiana and, with it, powerful new wireless applications for businesses and consumers. Whether for work or play, AT&T Wireless offers the ability to take and send photos of the new baby, view a new real estate listing, find friends or restaurants, or send updated work orders to a construction crew, and of course, call someone. "Now, Kentucky and Indiana residents and businesses can enjoy innovative wireless services that will help them manage and simplify their lives," according to Rob South, Vice President for AT&T Wireless. "These new services will change the way people use their wireless phones by providing them with everything from games and entertainment, to up-to-the-minute information needed to close a business deal." Customers will be able to activate service directly from AT&T Wireless via attwireless.com or by calling 1-888-MY-mLIFE. Additionally, a dedicated team of business sales representatives are available to assist corporate and government customers with the many voice and data solutions available. AT&T Wireless' next generation network provides high-quality voice service and fast access to information. Whether combining music, photos and text to send multi-media messages to friends, or retrieving and answering e-mail, people can use AT&T Wireless to stay connected simply, quickly and affordably. Additionally, customers can select the mLife local, national and one rate plans for simplified voice and data plans that fit their budget and lifestyle. Business customers can select a variety of high-speed wireless data services, including adding voice plans to their PDA and Blackberry devices. Data plans start for as little as $2.99 a month. Both services use the company's next generation GSM/GPRS network. STRICTLY BUSINESS (deleted for briefity) Depending on the device used, customers can receive data speeds on the order of 25-30Kbps for phones and 35-40Kbps for PDAs and laptops equipped with wireless modems. Additionally, when data compression service is turned on, the perceived speed of common Internet applications running on PDAs and laptops could nearly triple. The end result is that customers using laptops and Pocket PCs will experience speeds comparable to the traditional dial-up speeds most people experience on their home desktop computers. AT&T Wireless provides full end-to-end business solutions support, specialized enterprise customer care, a customized billing and management system, security features and a national sales force with wireless data expertise. For pricing, availability and more information about these and other business solutions from AT&T Wireless, please call 1-866-4AWSB2B or visit www.attwireless.com/mobilepro . GSM/GPRS Service is available nationwide in more than 5,000 cities in the United States including major markets such as Atlanta, Chicago, Cleveland, Dallas, Indianapolis, Knoxville, Los Angeles, Nashville, New Orleans, New York, Philadelphia, Phoenix, Pittsburgh, San Francisco, Seattle and Washington D.C. Customers can also take their AT&T Wireless phone to more than 220 countries and use many features of the phone and its services the same way they do at home. International rates apply. GSM is the most widely used wireless voice technology in the world. Carriers using GSM serve more than 70 percent of wireless voice customers worldwide. Additionally, GPRS is being adopted by wireless carriers worldwide to provide high-speed data services. About AT&T Wireless AT&T Wireless (NYSE: AWE - News) is the second-largest wireless carrier, based on revenues, in the United States. With 21.1 million subscribers as of March 31, 2003, and revenues of nearly $16.0 billion over the past four quarters, AT&T Wireless delivers advanced high-quality mobile wireless communications services, voice and data to businesses and consumers in the U.S. and internationally. For more information, please visit us at attwireless.com . This press release contains "forward-looking statements" which are based on management's beliefs as well as on a number of assumptions concerning future events made by management with information that is currently available to management. Forward-looking statements include, without limitation, management's expectations regarding: our future financial and operating performance and financial condition, including the company's outlook for the fiscal year 2003 and subsequent periods; subscriber growth; industry conditions; the strength of our balance sheet; our liquidity and needs for additional financing; and our ability to generate positive operating free cash flow. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside AT&T Wireless' control, that could cause actual results to differ materially from such statements. Without limitation these factors include: the risks associated with the implementation of our technology migration strategy, our ability to continue to reduce costs and increase the efficiency of our distribution channels, the potential competitive impacts of industry consolidation or alternative technologies, potential impacts on revenue and ARPU from competitive pricing and slowing penetration in the wireless industry, the effects of vigorous competition in the markets in which we operate, the risk of decreased consumer spending due to softening economic conditions, acts of terrorism, and consumer response to new service offerings. For a more detailed description of the factors that could cause such a difference, please see AT&T Wireless' filings with the Securities and Exchange Commission, including the information under the heading "Additional Factors That May Affect Our Business, Future Operating Results and Financial Condition" and "Forward Looking Statements" in its annual report of Form 10-K filed on March 25, 2003. One More>>>> biz.yahoo.com Press Release Source: AT&T Wireless AT&T Wireless Continues Expanding GSM/GPRS Coverage Launches Next Generation Services in Former TeleCorp PCS Markets Tuesday May 6, 8:13 am ET Additional Markets to Serve More Than 25 Million People REDMOND, Wash., May 6 /PRNewswire/ -- Millions of people residing in markets once served by TeleCorp PCS (formerly branded SunCom) can now use a variety of cool wireless devices to access powerful new services on AT&T Wireless' Next Generation GSM/GPRS network.