Replies to post #146930 on InterDigital Inc (IDCC)

[olddog967]

Corp-Buyer: As long as you are talking about "cash flow" I am not sure I follow your argument. If you look at the cash flow statement in the 10-Q for the third quarter 2004, you will see that the reversal amount of $17,064 million that was credited to P&L is shown as a reduction to cash flow. This is what DD stated in his example. As far as I understand it the reversal of the valuation rerserve, by itself, has no effect on actual tax payments.

http://www.sec.gov/Archives/edgar/data/354913/000119312504191472/d10q.htm#rom70783_5

[Desert dweller]

You need to go back to school not only for accounting but for reading comprehension. In my example, if you read it again, it assumes a 100% reversal to the income statement because I stated the reversal would result in net income of $100 million.

Free Cash Flow is just that, a measurement of the increase of decrease of CASH. Can you tell me how the reversal of a reserve produces ANY CASH? In the measurement of cash flow you start out with net income, then deduct non cash items. If you reverse $100 million to the income statement it produces net income of $100 million which is the starting point for a cash flow statement. Then you DEDUCT NON CASH ITEMS such as depreciation and valuation allowance adjustments. So in my example, you would then deduct the entire $100 million reversal.

It is you who has his head somewhere and this is a public forum so I wont say where it is. The reversal of an allowance HAS NO CASH EFFECT and therefore has NO IMPACT ON FCF as you stated in your earlier post. It might have an impact on earnings BUT THAT DOES NOT IMPACT FCF. Being that your career is in M&A, I would think it would be wise for you to take a course on a cash flow statement. The reversal by itself also has ZERO impact on how much taxes are paid, taxes are paid based on the income tax return not the financial statement. My accounting lesson is over for the day.

You said:
DD thanks for the example, which pinpoints your incorrect assumptions, as compared to the current reversal with IDCC.

This is not an entirely balance sheet effect reversal. This reversal affects the P&L, contrary to your example. Why do you keep ignoring the P&L effect, which the company has clearly disclosed?

How much P&L effect? Just enough to trigger over 101% achievement and another $3.4M LTCP payment to management, that is how much P&L or FCF effect. Why can't you get this?

You keep assuming a balance sheet only reversal effect. And, you ignore that this reserve account saves cash taxes actually paid, right? Why do you refuse to acknowledge that less taxes paid is a cash benefit?

Please lift your head up and see the big picture here.

MO,
Corp_Buyer