Reconciliation of non-GAAP financial measures

Reconciliation of Pro Forma and GAAP Net Income and Diluted
Earnings Per Share

(In millions, except per share data) 2007 2006 2005 2004 (1) 
 
Total GAAP net income $ 3,303 $ 2,470 $ 2,143 $ 1,720
Less: QSI net (loss) income (137 ) (32 ) 102 12
Less: Other pro forma adjustments, net of tax(2)  34 (302 ) 71 (92 )
   
Pro forma net income $ 3,406 $ 2,804 $ 1,970 $ 1,800
   
Total GAAP diluted earnings per share $ 1.95 $ 1.44 $ 1.26 $ 1.03
Less: QSI diluted (loss) earnings per share (0.08 ) (0.02 ) 0.06 0.01
Less: Other pro forma adjustments, net of
   tax per share(2)		 0.02 (0.18 ) 0.04 (0.06 )
   
Pro forma diluted earnings per share $ 2.01 $ 1.64 $ 1.16 $ 1.07
   
Shares used in per share calculations:(3)
Diluted shares 1,693 1,711 1,694 1,675

(1)  Prior to the fourth quarter of fiscal 2004, the Company recorded royalty revenues from certain licensees based on estimates of royalties during the period they were earned. Starting in the fourth quarter of fiscal 2004, the Company began recognizing royalty revenues solely based on royalties reported by licensees during the quarter. The change in the timing of recognizing royalty revenue was made prospectively, and consequently, GAAP results for fiscal 2004 reflect only partial economic performance of the Company’s licensing business as royalty revenue that would have been recognized in the fourth quarter of fiscal 2004 was recognized in the first quarter of fiscal 2005.
(2)  Other pro forma adjustments are comprised of:
2007 2006 2005 2004
 
Estimated share-based compensation $ (487 ) $ (495 ) $ — $ —
Acquired in-process research
   and development		 (10 ) (22 ) — —
Adjustment to reflect the new method of
   recording royalty revenue(1)		 — — — (151 )
   
Total pro forma adjustments before taxes $ (497 ) $ (517 ) $ — $ (151 )
   
Tax adjustments related to prior years 364 40 71 —
Income tax benefit related to pro forma
   adjustments before taxes		 167 175 — 59
   
Total pro forma adjustments, net of tax $ 34 $ (302 ) $ 71 $ (92 )
   
Net pro forma adjustments on a diluted
   per share basis		 $ 0.02 $ (0.18 ) $ 0.04 $ (0.06 )
   
(3)  The Company effected a two-for-one stock split in August 2004. All references to number of shares and per share amounts have been restated to reflect this stock split.

Reconciliation of free cash flow to net cash provided by
operating activities

(In millions) 2007 2006 2005 2004 *
 
Net cash provided by operating activities (GAAP) $ 3,811 $ 3,253 $ 2,686 $ 2,469
Less: Capital expenditures (GAAP) (818 ) (685 ) (576 ) (333 )
   
Free cash flow $ 2,993 $ 2,568 $ 2,110 $ 2,136
   
*  Cash flow for fiscal 2004 has been revised to combine cash flow from continuing operations with cash flow from discontinued operations, which resulted from the sale of the Company’s former subsidiaries, the Vésper Operating Companies and the Vésper Towers, and the return of personal mobile service licenses to Anatel, the telecommunications regulatory agency in Brazil.
 
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