My pro bono accountant told me..and I would hope the Analysts ask IDCC today for a similar explanation....
Posted by: Desert dweller
In reply to: Desert dweller who wrote msg# 82442 Date:10/26/2004 1:32:31 AM
Post #of 82472
Most important part of today's announcement to long term investors, all JMHO of course.
From today's press release:
In addition, because of its solid operating performance over the past few years and expectations for generating future taxable income, the Company will recognize a non-cash benefit of approximately $27 million in third quarter 2004 associated with the partial reversal of its valuation allowance against deferred tax assets, approximately $17 million of which will be recognized as income. The remaining $10 million will be credited to additional paid-in-capital.
History lesson: IDCC for years (decades actually) accumulated losses on its books. From a tax standpoint, these losses, with certain limitations, are allowed to be deducted in a future period IF IDCC has taxable income. The dollar value of the benefit for financial statements is a percentage of IDCC's carryforward loss and other tax credit carryforwards. By this I mean, if IDCC had an NOL carryforward equal to $100 million, the realizable income tax benefit would be equal to $34 million assuming a tax rate of 34%. With me so far? Good.
According to today's press release, the total dollar benefit of IDCC's carryforward items amounts to almost $90 million dollars. That means that IDCC could generate roughly 3 times that amount in future taxable income and not have to pay any taxes on that money since they have these carryforward items. In effect, IDCC has an asset that will be worth $90 million dollars in reduced tax expense in the future.
Now why don't you see this in IDCC's balance sheet? The reason is actually quite simple; since IDCC has always had losses, the accounting rules specify that after you record the asset of $90 million dollars you must also record a valuation allowance up to the amount of the deferred tax asset if future taxable income is not expected. In IDCC's case, this information is buried in the footnotes to the financial statements. The actual wording in FASB 109 is different but basically that is what it states. In IDCC's case, they have set up a valuation allowance equal to the amount of the asset which basically means the asset on IDCC's balance sheet is worthless, until now that is.
On an ongoing basis, companies with deferred tax assets must review whether or not the asset has a reasonable chance of being used and as in IDCC's case, if a reserve had been established, then a portion or all of this reserve should be reversed when it is more likely than not that they will have taxable income in the future in which to utilize the deferred tax asset.
What could make IDCC change its position on this reserve? IDCC now feels that EXCLUDING INCOME FROM ARBITRATIONS AND LAWSUITS, that it anticipates generating taxable income to use up $27 million of this reserve. In order to use up $27 million of the reserve, at an effective tax rate of 34% as stated in today's release, IDCC expects on a conservative basis to generate $79 million (27 million/34%) taxable income in the future.
mschere....where does it say that the company will provide 2005 guidance during the CC? tia..
AI
