. Income taxes

Income (loss) before provision for income taxes consists of the following (in thousands):

	Fiscal Years Ended
	February 3, 2018			January 28, 2017			January 30, 2016

United States	$	(44,820	)		(14,641	)		(28,001	)
International		(74,998	)		(13,056	)		11,303
Loss before income taxes	$	(119,818	)	$	(27,697	)	$	(16,698	)

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

	Fiscal Years Ended
	February 3, 2018			January 28, 2017			January 30, 2016

Current
Federal	$	(1,725	)	$	(66	)	$	(495	)
State		(11	)		111			45
Foreign		1,622			5,065			2,071
Total current		(114	)		5,110			1,621
Deferred
Federal		(328	)		-			(290	)
State		-			-			-
Foreign		(272	)		640			3,054
Total deferred		(600	)		640			2,764
(Benefit from) provision for income taxes	$	(714	)	$	5,750		$	4,385

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

	February 3, 2018			January 28, 2017

Deferred tax assets:
Net operating loss	$	11,049		$	8,526
Investment impairment		330			545
Allowance, reserve and other		1,314			3,173
Tax credits		33,147			14,790
Share-based compensation		2,645			6,602
Other		111			-
Total gross deferred tax assets		48,596			33,636
Valuation allowance		(48,630	)		(31,076	)
Total deferred tax (liabilities) assets		(34	)		2,560
Deferred tax liabilities:
Depreciation		(11	)		(206	)
Unrealized foreign exchange loss		-			(594	)
Acquired intangibles and other		-			(2,080	)
Net deferred tax liabilities	$	(45	)	$	(320	)

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 (“DTAs”) 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 3, 2018,

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. The valuation allowance increased by approximately

$17.6

million in fiscal

2018.

As of

February 3, 2018,

net operating loss carry forwards amounted to approximately

$66.5

million and

$38.7

million for federal and California tax purposes, respectively, which will begin to expire in fiscal

2019

through

2038.

We also had federal and state research credit carryovers of

$24.0

million and

$22.7

million, respectively. Federal research credits will start expiring in fiscal

2019.

The state research credit has

expiration. We have

foreign operating loss carry forwards arising from the acquisition of foreign operations.

Net operating losses and tax credit carry forwards as of

February 3, 2018

are as follows (in thousands):

	Amount		Range of Expiration Years

Net operating losses, federal	$	66,527	Through 2037*
Net operating losses, state	$	38,694	Through 2038
Net operating losses, foreign	$	-	Indefinite
Tax credits, federal	$	23,952	Through 2038
Tax credits, state	$	22,742	Indefinite

* The net operating losses generated in

FY18

will be carried forward indefinitely in accordance with provisions of the Tax Cuts and Jobs Act of

2017.

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 carryforwards

may

be limited as a result of such ownership changes. Such a limitation could result in the expiration of carryforwards before they are utilized.

The effective tax rate of our provision for (benefit from) income taxes, which reflects the application of the intraperiod tax allocation requirements of ASC

740

20,

“Intraperiod Tax Allocation”, was as follows:

	Fiscal Years Ended
	February 3, 2018			January 28, 2017			January 30, 2016

Computed at federal statutory rate of 35%	$	(41,936	)	$	(9,688	)	$	(5,839	)
US Tax Reform - Statutory Rate Change		(1,522	)		-			-
State taxes provision (benefit), net of federal benefit		(7	)		72			29
Uncertain tax positions		1,368			4,022			3,754
Difference between statutory rate and foreign effective tax rate		25,278			6,502			2,801
Share based compensation expense		273			423			(17	)
US Tax Reform - Deferred Taxes Re-measurement		5,135			-			-
Change in valuation allowance		24,977			3,831			5,807
ASU 2016-09 adoption		(18,969	)		-			-
Tax credits		(727	)		881			(1,718	)
Bretelon impairment -Goodwill		3,573			-			-
Intraperiod Tax Allocation		(1,725	)		(356	)		(345	)
Other		524			63			(87	)
(Benefit from) provision for income taxes	$	(714	)	$	5,750		$	4,385

Included in the balance of unrecognized tax benefits as of

February 3, 2018

are

$9.4

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 3, 2018			January 28, 2017		January 30, 2016

Beginning balance	$	26,527		$	21,045	$	14,384
Additions based on tax positions related to the current year		1,726			5,536		5,439
Additions for tax provisions of prior years		59			265		1,530
Reductions for tax provisions of prior years		(3,376	)		-		-
Settlements		-			-		-
Lapse of statute of limitations		(75	)		319		(308	)
Ending Balance	$	24,861		$	27,165	$	21,045

We have adopted the accounting policy that interest and penalties recognized are classified as part of our provision for income taxes. In fiscal

2018,

we increased our accrual of such interest and penalties expense by

$0.7

million. In fiscal

2017,

we increased our accrual of such interest and penalties expense by

$0.5

million. As of

February 3, 2018

and

January 28, 2017,

the balance of such accrued interest and penalties was

$1.5

million and

$0.8

million, respectively. The Company believes that it is reasonably possible that a decrease of up to

$1.5

million in unrecognized tax benefits related to US and foreign exposures

may

be necessary within the coming year. The Company does

not

believe there will be any material changes in its unrecognized tax benefits over the next

twelve

months.

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.

Our tax filings for the fiscal years from

1992

2018

remain open in various taxing jurisdictions.

Our acquired Israeli subsidiary, Sigma Designs Israel S.D.I. (formerly known as CopperGate Communications Ltd.), was granted “Approved Enterprise” status under the Law for the Encouragement of Capital Investments,

1959

(the “Law”) in

2005,

which became effective in fiscal

2008,

and elected

2009

(which became effective in fiscal

2014

), and

2011

as election years of the “Benefited Enterprise” under the Law. In fiscal

2017,

the Company activated its

second

Beneficiary Enterprise commencing in fiscal

2015.

Sigma Designs Israel’s taxable income allocated to each enterprise is tax-exempt for a period of

two

years commencing with the year it

first

earns taxable income and is subject to corporate taxes at the reduced rate for an additional period of

five

eight

years. The period of tax benefits, as detailed above, is limited to the earlier of

years from the “operational year” of the “Benefited Enterprise” or

years from the year the grant of “Approved Enterprise” status. The impact of this tax holiday was to increase net income by approximately

zero

$0.00

per diluted share in fiscal

2018,

$2.9

million or

$0.08

per diluted share in fiscal

2017,

and

$4.1

million or

$0.11

per diluted share in fiscal

2016.

December 22, 2017,

the Tax Cuts and Jobs Act of

2017

(the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are

not

limited to, a federal corporate tax rate decrease from

35%

21%,

effective

January 1, 2018,

the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a

one

-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings.

As a result of the decrease in the federal tax rate from

35%

21%

effective

January 1, 2018,

the Company has computed its provision for income tax for the

February 3, 2018

fiscal year using a blended federal tax rate of

33.7%.

The

21%

federal tax rate will apply to the Company’s fiscal

2019

and each year thereafter. The Company must remeasure its deferred tax assets and liabilities using the federal tax rate that will apply when the related temporary differences are expected to reverse.

The Company has calculated its best estimate of the impact of the Act in our year end provision for income taxes in accordance with our understanding of the Act and guidance available as of the date of this filing and as a result has recorded

$5.1

million as an additional income tax expense, with a corresponding provisional valuation allowance of

$5.1

million in the

fourth

quarter of fiscal

2018,

the period in which the legislation was enacted. This provisional amount is related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional amount related to the

one

-time transition tax on the mandatory deemed repatriation of foreign earnings was immaterial based on cumulative foreign deficits from our foreign subsidiaries.

December 22, 2017,

Staff Accounting Bulletin

No.

118

("SAB

118"

) was issued to address the application of U.S. GAAP in situations when a registrant does

not

have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB

118,

we have determined that the

$5.1

million recorded in connection with the re-measurement of certain deferred tax assets and liabilities, and corresponding valuation allowance of

$5.1

million, was a provisional amount and a reasonable estimate as of

February 3, 2018.

Additional work is necessary for a more detailed analysis of our deferred tax assets and liabilities. Any subsequent adjustment to these amounts

may

be recorded to current tax expense in the quarter of fiscal

2019

when the analysis is complete.

The Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic

740,

No.

Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has

not

yet determined its accounting policy. As of

February 3, 2018,

because the Company is still evaluating the GILTI provisions and its analysis of future taxable income that is subject to GILTI, it is unable to make a reasonable estimate and has

not

reflected any adjustments related to GILTI in its consolidated financial statements.

Based on the Company’s provisional analysis, the

one

-time transition tax is expected to be immaterial.

additional income taxes have been provided for any remaining undistributed foreign earnings

not

subject to the transition tax, or any additional outside basis difference inherent in these entities

As of

February 3, 2018,

undistributed earnings of the Company totaled

$0.9

million. Since U.S. federal income tax has already been provided under the provisions of the Act, the additional tax impact of the distribution of such foreign earnings to the United States parent would be limited to U.S. state income and withholding taxes and is

not

significant.