InterDigital Inc (IDCC)

[Desert dweller]

Re deferred taxes and the impact of the reversal of the allowance. I found where I believe I heard Fagan talk about the reversal in a conference call. Back in Oct, 2004 IDCC held a cc before issuing its final figures for the quarter due to the change in accounting treatment for revenue where Fagan was leading the call. Here are his remarks regarding deferred taxes. I believe it was this call that I remember the company stating that the majority of the remaining allowance will not impact Income tax expense and will only increase paid in capital.

"Let me turn to our decision to recognize $27 million benefit in third quarter associated with the partial reversal of the valuation allowance against deferred tax assets. Over the last several quarters we have examined the appropriateness of recording a reversal of some or all of the valuation allowance. As we have expanded our licensee base and seen the positive performance of our licensees in first half 2004, we've concluded that we are likely to deliver taxable income on a sustainable basis to the foreseeable future. We had accumulated the deferred tax assets overtime, but up until now we have maintained a full valuation allowance against them because under U.S. GAAP (Generally Accepted Accounting Principles) we have not been able to demonstrate this more likely than not that we would generate taxable income on a consistent basis. We have now reached that point when we have concluded that is appropriate to restore a portion of that asset on our balance sheet.

A question you might be asking is how do we arrive at $27 million? Why not do a full reversal? We have examined this question extensively during the past year. We estimated taxable income under various conservative scenarios and after much deliberation as well as consultation with our independent auditors decided that a partial reversal of $27 million was appropriate at this time. We will continue to evaluate the potential use of our deferred tax assets and depending on various factors could reverse all or a portion of the valuation allowance in the future.

Before I open up the call for questions, let me just discuss the anticipated non-cash tax expense of approximately $4.5-5 million that will partially offset the 70 million income effect of the valuation allowance I just talked about. This anticipated book tax expense relates to the character or the Company's remaining net operating loss carried forwards, the majority of which resulted from deductions related to stock option exercises. While these tax benefits relieve our cash tax obligation, book accounting rules require that they afford no relief to our book tax expense. The reality is that book tax expense is a non-cash item that is offset in equity to the corresponding direct entry to additional paid-in capital.

In conclusion, I have described our thinking with respect to the accounting related actions we will be taking when we report third quarter results. We are taking another step forward. The changes are responsible actions that reflect confidence, a healthy business and result in better visibility for our investors. We thank you for your time and continued interest in InterDigital. We will now open the line up for questions."

10/26/04 cc transcript:
http://www.investorshub.com/boards/read_msg.asp?message_id=4396408&txt2find=transcript+