Replies to post #146590 on InterDigital Inc (IDCC)

[olddog967]

Desert dweller: In regard to allocating the valuation reversal between income and paid-in-capital, it is my understanding that the allocation is dependent on the types of deferred taxes that are being reversed. Note 13 to last year’s financial statement, contains details of the various accounting transactions that make up the total deferred taxes amount. In general it appears that the classifications and amounts as of 31 Dec 2003 and 2004 are relatively the same. The largest classifications being “Deferred revenue, net (federal)” and “Net operating losses”. These two comprise 75-80% of the total amount. Do you have any idea how reversals related to these items could be allocated between income and paid-in-capital , or is it more complicated than that? TIA

http://www.sec.gov/Archives/edgar/data/354913/000119312505067076/d10k.htm#rom55554_36



mschere, I am not certain where I read it or heard it, but I am almost positive that management stated most of the remaining reversal would be a reversal against Paid in Capital and not impact earnings to a large degree. Maybe it was during a conversation with Janet or a conference call or in a 10k filing. I just reviewed several filings and could not find any mention of it so I am not sure why I think this. Hopefully Ronny is correct and a large portion hits the P&L and we have a bump in EPS by $.46 or more, but I don't think this will be the case. I will continue searching but I don't think I will find a reference and I guess we will just have to wait another week or two.

[rmarchma]

Ddweller re tax reversal to income and capital

The only official pronouncement that I am aware of on this allocation was from the 8K dated January 26, 2006 as follows:

"Valuation of Deferred Tax Assets
--------------------------------
After giving consideration to both the Agreement and its recent operating performance, the Company believes it is more likely than not that it will generate future taxable income sufficient to utilize a large portion of its deferred tax assets. As a result, the Company expects to reverse the majority of the remaining valuation allowance against its deferred tax assets in fourth quarter 2005, portions of the valuation allowance reversal will be credited directly to additional paid-in-capital and a portion will be recognized as income in the statement of operations.

At December 31, 2004, the Company held a valuation allowance of approximately $75.2 million against its deferred tax assets of approximately $107.6 million. The Company will provide the exact amount of the valuation allowance reversal in a future filing with the SEC."

The only previous guideline of how IDCC might allocate the reversal between income and capital was based on what they did in the third quarter of 2004, which is the only time that IDCC has made a partial reversal of the valuation allowance. In that particular reversal, 64% of the reversal reduced income tax expense/increased Net Income, and 36% increased paid-in capital. From a November 9, 2004 press release as follows:

..."In addition, the Company recognized a non-cash benefit of $26.9 million in third quarter 2004 associated with the partial reversal of its valuation allowance against deferred tax assets, approximately $17.1 million of which was recognized as income. The remaining $9.8 million was credited directly to additional paid-in-capital."

I don't see why the percentages allocated to income and capital would be much different in the 4th quarter 2005 reversal from that in 3rd quarter 2004 reversal.