Note 19 - Income taxes

12 Months Ended

Feb. 01, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

19.          Income taxes

Loss before income taxes consists of the following (in thousands):

	Fiscal Years Ended
	February 1, 2014			February 2, 2013			January 28, 2012
United States	$	6,694		$	(5,274	)	$	(12,366	)
International		(14,793	)		(75,747	)		(160,645	)
Total	$	(8,099	)	$	(81,021	)	$	(173,011	)

The federal, state and foreign income tax provision is summarized as follows (in thousands):

	Fiscal Years Ended
	February 1, 2014			February 2, 2013			January 28, 2012
Current
Federal	$	1,116		$	(162	)	$	2,003
State		18			15			(27	)
Foreign		(2,324	)		8,496			3,397
Total current		(1,190	)		8,349			5,373
Deferred:
Federal		2,762			15,932			(3,434	)
Foreign		1,378			(3,534	)		(6,905	)
Total deferred		4,140			12,398			(10,339	)
Total provision (benefit)	$	2,950		$	20,747		$	(4,966	)

The tax effects of significant items comprising our deferred tax assets and liabilities are as follows (in thousands):

	February 1, 2014			February 2, 2013
Deferred tax assets:
Net operating loss	$	4,999		$	8,426
Investment impairment		1,704			1,519
Allowance, reserve and other		6,700			8,126
Depreciation		1,222			2,598
Tax credits		6,642			10,936
Stock-based compensation		9,661			10,840
Total gross deferred tax assets		30,928			42,445
Valuation allowance		(26,479	)		(33,305	)
Total net deferred tax assets		4,449			9,140
Deferred tax liabilities:
Acquired intangibles and other		(842	)		(1,395	)
Total net deferred tax assets	$	3,607		$	7,745

We must regularly assess the likelihood that future taxable income levels will be sufficient to ultimately realize the tax benefits of our deferred tax assets.  During the third quarter of fiscal 2013, we concluded it was necessary to establish a valuation allowance for certain deferred tax assets (DTA) related to Federal taxes in the United States. Due to the history of losses in the United States, it was determined that it is more likely than not that certain Federal DTAs would not be recognized. As of February 1, 2014, we continue to maintain a full valuation allowance against our US Federal and California deferred tax assets and a partial valuation allowance against foreign net operating losses.  However, as a result of our continued efforts to reduce expenses, improve efficiency, competitiveness and profitability, our US operations were profitable in fiscal 2014. If we continue to sustain profitability in the future, it is possible that our net deferred tax assets will become realizable and a valuation allowance may no longer be needed. The valuation allowance decreased by $6.8 million in fiscal 2014.

As of February 1, 2014, net operating loss carry forwards amounted to approximately $22.1 million and $34.4 million for federal and California tax purposes, respectively, which will begin to expire in fiscal 2015 through 2034. Of the total net operating loss carryover, the tax effect of $13.6 million federal and $3.4 million state losses will be recorded to additional paid-in capital when utilized in the future. We also had federal and state research credit carryovers of $16.2 million and $16.3 million, respectively.  Federal research credits will start expiring from fiscal 2019. The state research credit has no expiration.  Of the total research credit carryover, the tax effect of $12.5 million federal and $2.3 million state losses will be recorded to additional paid-in capital when utilized in the future. We also have $15.9 million of foreign operating loss carry forwards through the acquisition of a foreign operation. 

Net operating losses and tax credit carry forwards as of February 1, 2014 are as follows (in thousands):

	Amount		Range of Expiration Years
Net operating losses, federal	$	22,080	2023	-	2033
Net operating losses, state		34,379	2015	-	2034
Net operating losses, foreign		15,861		Indefinite
Tax credits, federal		16,235	2019	-	2034
Tax credits, state		16,347		Indefinite

Current federal and California tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation.  Accordingly, our ability to utilize net operating loss and tax credit carry forwards may be limited as a result of such ownership changes.  Such a limitation could result in the expiration of carry forwards before they are utilized.

The effective tax rate of our provision for (benefit from) income taxes differs from the federal statutory rate as follows (in thousands):

	Fiscal Years Ended
	February 1, 2014			February 2, 2013			January 28, 2012
Computed at federal statutory rate of 35%	$	(2,835	)	$	(28,357	)	$	(60,554	)
State taxes provision (benefit), net of federal benefit		12			10			(33	)
Uncertain tax positions		253			219			441
Difference between statutory rate and foreign effective tax rate		5,316			31,469			49,839
Stock-based compensation expense		2,769			2,391			746
Change in federal valuation allowance		(1,933	)		16,704			-
Tax credits		(561	)		(1,516	)		(1,326	)
Goodwill and intangible assets impairment		-			-			5,646
Other		(71	)		(128	)		275
Total	$	2,950		$	20,747		$	(4,966	)

Included in the balance of unrecognized tax benefits as of February 1, 2014 are $6.8 million of tax benefits that, if recognized, would reduce our effective tax rate.  The remaining amount would be offset by the reversal of related deferred tax assets on which a valuation allowance is placed.  A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Fiscal Years Ended
	February 1, 2014			February 2, 2013			January 28, 2012
Beginning balance	$	26,743		$	22,389		$	20,337
Additions based on tax positions related to the current year		2,772			4,616			1,965
Additions for tax positions of prior years		575			283			404
Reductions for tax positions of prior year		(7,139	)		(252	)		(268	)
Settlements		(5,175	)		-			-
Lapse of status of limitation		(337	)		(293	)		(49	)
Ending balance	$	17,439		$	26,743		$	22,389

We have adopted the accounting policy that interest and penalties recognized are classified as part of our income taxes.  In fiscal 2014, we reduced our accrual of such interest and penalties expense by $1.0 million.  In fiscal 2013, we increased our accrual of such interest and penalties expense by $0.3 million.  As of February 1, 2014 and February 2, 2013, the balance of such accrued interest and penalties was $0.3 million and $1.3 million, respectively.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions.  Significant estimates and judgments are required in determining our worldwide provision for income taxes.  Some of these estimates are based on interpretations of existing tax laws or regulations.  The ultimate amount of tax liability may be uncertain as a result.

During fiscal 2014, we reduced our unrecognized tax benefits by $9.3 million, primarily related to settlements with the Israeli and Singaporean authorities. Our Israel subsidiary and the Israeli Tax Authorities settled all outstanding items related to fiscal years 2009 through 2012. As a result of the settlement, the Company recognized a net tax benefit to the provision for income tax of $4.3 million. 

In February 2013, our Denmark subsidiary reached an audit agreement with the Danish Taxing Authorities to reduce our net operating losses in Denmark by DKK 75 million. The disallowed net operating losses were subject to a valuation allowance in the past and the audit adjustment did not result in a financial charge. With regards to our Singapore subsidiary, we have reached an agreement with the Singapore authorities that our incentives would not extend beyond February 29, 2012, but that we will be able to retain the benefits previously realized. As a result of the agreement, the Company recognized a net tax benefit to the provision for income tax of $1.1 million.

Our tax filings for the fiscal years from 1991 to 2013 remain open in various taxing jurisdictions. We do not anticipate that our unrecognized tax benefit will change significantly in the coming fiscal year.

U.S. income taxes and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries were not provided for on a cumulative total of $28.7 million of undistributed earnings of certain foreign subsidiaries as of the end of fiscal 2014. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

We benefit from tax incentives granted by local tax authorities in certain foreign jurisdictions.  The Economic Development Board of Singapore granted development and expansion incentives to our wholly-owned subsidiary in Singapore in 2008 for a period of four years, which ended February 29, 2012.  The impact of this tax holiday was to increase net income by approximately $2.0 million or $0.06 per diluted share in fiscal 2012, $6.7 million, or $0.21 per diluted share, in fiscal 2011, $7.0 million, or $0.25 per diluted share, in fiscal 2010, and $6.5 million, or $0.23 per diluted share, in fiscal 2009.

Our acquired Israeli subsidiary, Sigma Designs Israel S.D.I. (formerly known as CopperGate Communications Ltd.), was granted Approved Enterprise and Beneficiary Enterprise status under the Law for the Encouragement of Capital Investments in 2004 and 2009. Sigma Designs Israel’s income is tax-exempt for a period of two years commencing with the year it first earns taxable income, and subject to corporate taxes at the reduced rate for an additional period of eight years.  The impact of this tax holiday was to increase net income by approximately $3.1 million, or $0.09 per diluted share, in fiscal 2014, $3.4 million, or $0.10 per diluted share, in fiscal 2013, and $2.0 million, or $0.06 per diluted share, in fiscal 2012.