# Sigma Designs’ statement of operations is summarized below (dollars in thousands)Sigma Designs’ statement of operations is summarized below (dollars in thousands)

Interpreting Deferred Taxes

Sigma Designs’ statement of operations is summarized below (dollars in thousands):

1995

1994

1993

Net sales

\$43,700

\$ 34,989

\$27,058

Costs and expenses:

Cost of sales

36,980

27,538

23,045

Restructuring charges

(517)

13,654

0

Sales and marketing

9,022

9,448

7,476

Research and development

4,349

11,988

5,043

3,521

2,718

1,951

Total cost and expenses

53,355

65,346

37,515

Income (loss) from operations

(9,655)

(30,357)

(10,457)

Interest income—net

336

699

1,207

Other net

546

(39)

(67)

Income (loss) before income taxes

(8,773)

(29,697)

(9,317)

Provision (credit) for income taxes

(151)

(2,151)

Net income (loss)

\$(8,773)

\$(29,546)

\$(7,166)

Required

a. Explain the item “Provision (credit) for income taxes.”How can income taxes be positive? That is, how can income taxes be added to income?

b. How does this new interpretation about deferred taxes (see part a) affect your evaluation of Sigma Design’s profitability? Calculate relevant income statement ratios using both “bottom line” net income and any other income figures that you deem relevant. Be sure to calculate the net income ratio on an after-tax basis. Calculate any other appropriate ratios and evaluate Sigma Design’s performance for 1995. Assume interest expense is \$200 (dollars in thousands).

Interpreting Deferred Taxes

Sigma Designs’ statement of operations is summarized below (dollars in thousands):

1995

1994

1993

Net sales

\$43,700

\$ 34,989

\$27,058

Costs and expenses:

Cost of sales

36,980

27,538

23,045

Restructuring charges

(517)

13,654

0

Sales and marketing

9,022

9,448

7,476

Research and development

4,349

11,988

5,043

3,521

2,718

1,951

Total cost and expenses

53,355

65,346

37,515

Income (loss) from operations

(9,655)

(30,357)

(10,457)

Interest income—net

336

699

1,207

Other net

546

(39)

(67)

Income (loss) before income taxes

(8,773)

(29,697)

(9,317)

Provision (credit) for income taxes

(151)

(2,151)

Net income (loss)

\$(8,773)

\$(29,546)

\$(7,166)

Required

a. Explain the item “Provision (credit) for income taxes.”How can income taxes be positive? That is, how can income taxes be added to income?

b. How does this new interpretation about deferred taxes (see part a) affect your evaluation of Sigma Design’s profitability? Calculate relevant income statement ratios using both “bottom line” net income and any other income figures that you deem relevant. Be sure to calculate the net income ratio on an after-tax basis. Calculate any other appropriate ratios and evaluate Sigma Design’s performance for 1995. Assume interest expense is \$200 (dollars in thousands).