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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (200)	10/31/2003 7:32:15 AM
From: hueyone	Respond to of 2955

I reverse one-time gains and losses and cash flow relating to employees' exercising of stock options, which has nothing to do with the company making and selling product. If you are still calculating free cash flow like you have over the last year, imo, it is misleading to say that you are reversing the impact of employees exercising stock options in your free cash flow calculation. Simply removing the tax benefit from stock option exercise is not dealing with cash fow related to stock options. You need to remove the actual after tax expense of stock options, the same way this figure will soon be removed from from reported GAAP net income when FASB is finally allowed to implement their recommendation next spring. Or another way to put it, is to say you should carry the after tax expense deduction for stock options from earnings, when FASB begins requiring stock option expense to be deducted from earnings, right on through your free cash calculation. And then the pre tax, non cash expense of stock options should be added back in to the cash flow statement as a finance activity to make your cash flow statement balance out, not added back in as an operations activity. Imo, your free cash flow numbers "from core operations" as you prefer to call it, have been way overstated if they are supposed to actually be a reflection of what the company is generating from core operations. Diluting shareholders to pay employees is not a core operations activity. If a person is seriously interested in what a company is generating from its core business, I suggest they look up Core Earnings for their company on Standard and Poor's company reports. These S&P company reports are generally available for free online at most brokerages in their research sections, and are also available at many public libraries. Here is Standard and Poor's slide show explaining Core Earnings: www2.standardandpoors.com Sebl's Core Earnings for fiscal 2001 and 2002 were negative 461 million dollars and negative 1.083 billion dollars respectively (as listed on the S&P Company reports). JMO, Huey

To: Mike Buckley who wrote (200)	10/31/2003 1:30:00 PM
From: Jim Mullens	Read Replies (1) \| Respond to of 2955

Mike, re: (QCOM cash + marketable sec) and “Check your numbers. The latest 10Q shows an increase that is nearly $260 million less than that.” Qualcomm's latest earning report (June qtr)- balance sheet and a recent briefing chart reflects $5B. Some more interesting numbers in addition to Free Cash Flow- ............................FCF.............Net Income- Ops......Cash + Mkt Sec Inc FY 00..................$648.9M FY01.....................577.3M FY02.....................826.1M FY03 9 months....1,068M.........$ 925M...............$1.800M FY03 12Mos est $1,451M.......$1,159M...............$2,400M More questions when you have the time and if you don’t mind- 1. Qualcomm is trading at 26 times FCF ($38B mkt cap/ $1.451B FCF annualized). Do you know how this compares with the overall market ? 2. Re: your prior answer’ “The enterprise value is the equivalent of about 30 years of trailing free cash flow. If free cash flow annually increases 50% for the next three years and the enterprise value remains unchanged, only then will the value be the equivalent of about 10 years of free cash flow. “ You appear to be saying that you are valuing QCOM based on 10 years of FCF- the 7 prior years and 3 future years with FCF increasing 50% each year. Is that not placing most of the valuation emphasis on the past, and not on the future? 3. Are you in effect saying that per your methodology that Qualcomm would be presently fairly valued only if it generates $4.9B in FCF in 2006? More interesting comparisons (Cash + Mkt Sec inc at 80% of FCF ) 50% inc/yr-......FCF ....Ops Earnings..... EPS.........Cash + Mkt Sec 2003 est....$1.451B..........$1.159B.........$1.42.......................$5.6B 2004............2.177..............1.739.............................$1.7B.......7.3B 2005............3.265..............2.607................................2.6.........9.9B 2006............4.898B...........3.911B...........$4.78..........3.9.......13.8B At 2006 YE, with an EPS of $4.78 and maintaining its current price of $47/sh and $38B market cap, QCOM would have a PE of less than 10 for a company with FCF and earnings growing at 50% per year and 36% of it's Market cap in Cash and Marketable Securities . Does this seem reasonable? Help, What am I missing? TIA- Jim