Replies to post #146946 on InterDigital Inc (IDCC)

[Desert dweller]

I can't believe you are that ignorant. Are you sure you are involved in mergers and acquisitions? People actually pay you for your advice and you can't grasp a simple cash flow example? You need help.

Like I said, assume the ONLY ITEM A COMPANY has is the reversal of an allowance ALL to the income statement of $100. The impact of that would produce net income of $100. The preparation of the cash flow statement starts with net income after taxes but for simplicity's sake (and also the simple minded) I am ignoring the tax impact. BTW, the reversal of an allowance for deferred taxes would have zero income tax impact but I am certain you wouldn't understand this and I am not about to try to explain it to you.

So the cash flow statement begins with net income of $100. No cash was produced by this net income since all that happened was an accounting entry and NO CASH CHANGED HANDS. Therefore, the cash flow statement has a section for adjustments for these types of items and you would SUBTRACT $100 from the top line? Can you figure out what 100 minus 100 equals? If so, then you know what the reversal of ANY allowance will produce as far as cash flow.

Unfortunately with the way you spread misinformation on this board, you will ignore all of the above and twist it to try to produce some example by the stretch of the imagination to support your incorrect theory. I have produced several examples clearly showing you are wrong and you don't know squat about FCF and yet you continue to debate the issue. Like I said in an earlier post, the reversal by itself doesn't change taxes by any amount, taxes are computed based on the income tax return, not the financial statement and the reversal has no impact on taxable income which is what determines how much in taxes are paid. Your a gem.

You said:
"tell me how the reversal of a reserve produces ANY CASH" - I believe the use of this particular reserve REDUCES cash taxes otherwise paid, and thereby SAVES cash, right? WRONG

Per your formula, FCF starts with "net income", by which you mean "net income AFTER taxes", right? So if taxes are reduced, then cash flow is increased, right? WRONG AGAIN, READ THE ABOVE EXAMPLE

Isn't this the case with some of this deferred tax asset reserve reversal? WRONG AGAIN

MO,

[olddog967]

Corp: let me try another approach in trying to explain why IMO reversal of the valuation account has no effect on cash flow.

I am sure you are familiar with the NOL carry back or carry forward in regard to taxes. If you have a loss during a year you can apply it against previous profits and ask for a refund, or apply it against future profit and pay less taxes. I believe the payment of less tax is basically what you are claiming.

Since the NOL may result in the actual payment of less taxes in the future it is considered an asset, and after various gyrations it is reported on the balance sheet as deferred tax assets. However, since at the time it is recorded it is not known whether future profits resulting in a tax liability will be generated, the accounting rule makers have stated that a reserve should be established to reduce the value of the deferred asset. The basic rule being that if it is determined that it is more likely than not that profits will not be generated, the valuation reserve should be established and maintained. Conversely, if it is determined that it is more likely than not (More than 50% chance) that future profits will be generated allowing use of the NOL carry forward to offset future taxes, the reserve can be reduced or eliminated.

As you can see from the above the reduction or elimination of the valuation reserve does not directly affect a tax payment. It is just one of many judgmental decisions made in acounting. It is only when future profits are generated, and taxes are due that the NOL deferred tax asset will be used to offset the tax payment

[lets_go_terps]

Most LTCP is a combination of many metrics and impact of P&L, Cash Flow, and Balance Sheet metrics. If an increase to the P&L occurs base don a reversal of a defferred asset, then it would be offset on the calculations for the LTCP for the effect it has on the Cash Flow and Balance sheet.

Also, most LTCP plans exclude any 1-time events, even the sale of holding an equity stake in another company to a gain on sale of a building.

All IMHO,
terps