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To: Stock Farmer who wrote (53970)	5/4/2003 11:20:17 AM
From: hueyone	Respond to of 54805

Hi John, I don't include changes in working capital either, but if Mike is including changes in working capital on a consistent basis, then it cuts both ways on him over time. For example, for the quarter ending December 29, 2002, including changes in working capital would have provided a significant hit to his free cash flow number rather than a significant bump to his free cash flow number---as it did this quarter. However, as you say, changes in working capital doesn't have much to do with permanent generation or non generation of wealth. Another big factor included in last quarter's "Cash Flow from Operations" number is the non-cash, asset impairment value from QSI in the amount of 160 million dollars. I would bet that no QCOM permabulls were focusing on free cash flow when QCOM spent the cash to purchase those assets that are now impaired---a time when the free cash flow number would likely have been poor. This is problem; it is all too easy to search through the financials to come up with some calculation or figure that can put a company in a good light or a bad light for a particular quarter. Generally speaking, (not speaking about QCOM specifically), we can have quarters where free cash flow looks good, but earnings look bad, or visa versa, and merely touting the favorable numbers and ignoring the unfavorable numbers, or visa versa, doesn't give one a very accurate picture as to what is going on with the company. To help me understand how the company is performing, I would propose deducting the after tax fair value of stock option expense from the free cash flow number as well, to completely remove the impact of equity financing---something that merely removing the tax benefit from exercise of stock options does not do. In QCOM's case for last quarter, this fair value after tax expense figure, based on valuing the options at date of grant and amortizing the expense over the vesting periods, was 63.6 million dollars. As I look at various measures of performance of companies, GAAP earnings, Pro forma Earnings, Cash Flow from Operations, Free Cash Flow, Change in Cash and Cash Equivalents, S&P Core Earnings and others, and if for some reason I was forced to work with only one measure of performance, it would be S&P Core Earnings---which is the most useful approximation of a company's core business performance imho. Of course in fact we are not limited to working with only one measure of a company's business performance, and the more measures we look at the better. Then again, as you say, some calculations may be more appropriate than others depending on what questions you are trying to answer. I thought your gas gauge and gas tank analogy was a good one. JMO, Huey