v2.4.0.6

Income Taxes | 12 Months Ended
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Oct. 31, 2012
Income Taxes | Note 10. Income Taxes The domestic and foreign components of the Company’s total income before provision for income taxes are as follows:
|  | Year Ended October 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (in thousands) |
United States |  | $ | 39,855 |  |  | $ | 40,434 |  |  | $ | 57,795 |
Foreign |  |  | 161,280 |  |  |  | 178,679 |  |  |  | 140,863 |
|  | $ | 201,135 |  |  | $ | 219,113 |  |  | $ | 198,658 |
The components of the (benefit) provision for income taxes were as follows:
|  | Year Ended October 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (in thousands) |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (12,443 | ) |  | $ | (6,436 | ) |  | $ | (17,097 | )
State |  |  | (547 | ) |  |  | (2,197 | ) |  |  | 8 |
Foreign |  |  | 6,826 |  |  |  | 474 |  |  |  | 25,421 |
|  |  | (6,164 | ) |  |  | (8,159 | ) |  |  | 8,332 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 22,506 |  |  |  | (7,160 | ) |  |  | (25,156 | )
State |  |  | 14 |  |  |  | (2,456 | ) |  |  | (9,309 | )
Foreign |  |  | 2,377 |  |  |  | 15,524 |  |  |  | (12,272 | )
|  |  | 24,897 |  |  |  | 5,908 |  |  |  | (46,737 | )
Provision (Benefit) for income taxes |  | $ | 18,733 |  |  | $ | (2,251 | ) |  | $ | (38,405 | )
The provision (benefit) for income taxes differs from the taxes computed with the statutory federal income tax rate as follows:
|  | Year Ended October 31, |
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (in thousands) |
Statutory federal tax |  | $ | 70,397 |  |  | $ | 76,689 |  |  | $ | 69,530 |
State tax (benefit), net of federal effect |  |  | 1,078 |  |  |  | (4,988 | ) |  |  | (2,491 | )
Tax credits |  |  | (4,289 | ) |  |  | (19,042 | ) |  |  | (7,451 | )
Tax exempt income |  |  | (41 | ) |  |  | (354 | ) |  |  | (1,479 | )
Tax on foreign earnings less than U.S. statutory tax |  |  | (21,288 | ) |  |  | (28,968 | ) |  |  | (11,615 | )
Tax settlements |  |  | (36,882 | ) |  |  | (32,782 | ) |  |  | (73,045 | )
Stock based compensation |  |  | 9,016 |  |  |  | 7,817 |  |  |  | 5,336 |
Changes in valuation allowance |  |  | 10 |  |  |  | 49 |  |  |  | (21,612 | )
Other |  |  | 732 |  |  |  | (672 | ) |  |  | 4,422 |
|  | $ | 18,733 |  |  | $ | (2,251 | ) |  | $ | (38,405 | )
The significant components of deferred tax assets and liabilities were as follows:
|  | October 31, |
|  | 2012 |  |  | 2011 |
|  | (in thousands) |
Net deferred tax assets: |  |  |  |  |  |  |  |
Deferred tax assets: |  |  |  |  |  |  |  |
Accruals and reserves |  | $ | 30,317 |  |  | $ | 16,274 |
Deferred revenue |  |  | 46,247 |  |  |  | 47,603 |
Deferred compensation |  |  | 39,186 |  |  |  | 36,975 |
Capitalized costs |  |  | 94,031 |  |  |  | 98,420 |
Capitalized research and development costs |  |  | 48,059 |  |  |  | 45,710 |
Stock compensation |  |  | 21,229 |  |  |  | 32,186 |
Tax loss carryovers |  |  | 73,492 |  |  |  | 36,515 |
Foreign tax credit carryovers |  |  | 10,766 |  |  |  | 23,759 |
Research and other tax credit carryovers |  |  | 88,973 |  |  |  | 74,110 |
Capital loss carryovers |  |  | — |  |  |  | 1,896 |
Other |  |  | 2,449 |  |  |  | 1,349 |
Gross deferred tax assets |  |  | 454,749 |  |  |  | 414,797 |
Valuation allowance |  |  | (26,259 | ) |  |  | (13,395 | )
Total deferred tax assets |  |  | 428,490 |  |  |  | 401,402 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | 116,639 |  |  |  | 49,948 |
Undistributed earnings of foreign subsidiaries |  |  | 831 |  |  |  | 12,631 |
Total deferred tax liabilities |  |  | 117,470 |  |  |  | 62,579 |
Net deferred tax assets |  | $ | 311,020 |  |  | $ | 338,823 |
The valuation allowance increased by $12.9 million which is related principally to acquired deferred tax assets and state research credits. It is more likely than not that the results of future operations will generate sufficient taxable income to realize the remaining deferred tax assets. The Company has the following tax loss and credit carryforwards available to offset future income tax liabilities:
Carryforward |  | Amount |  |  | Expiration Date |
|  | (in thousands) |  |  |  |
Federal net operating loss carryforward |  | $ | 177,517 |  |  |  | 2018-2031 |
Federal research credit carryforward |  |  | 93,932 |  |  |  | 2017-2032 |
Foreign tax credit carryforward |  |  | 15,598 |  |  |  | 2015-2021 |
California research credit carryforward |  |  | 95,126 |  |  |  | Indefinite |
Other state research credit carryforward |  |  | 8,021 |  |  |  | 2013-2032 |
State net operating loss carryforward |  |  | 206,203 |  |  |  | 2013-2031 |
The federal and state net operating loss carryforward is from acquired companies and the annual use of such loss is subject to significant limitations under Internal Revenue Code Section 382. Foreign tax credits may only be used to offset tax attributable to foreign source income. The federal research tax credit expired as of December 31, 2011. The Company has unrecognized deferred tax assets of approximately $48.2 million as of October 31, 2012 attributable to excess tax deductions related to stock options, the benefit of which will be credited to equity when realized. The Company has not provided taxes for undistributed earnings of its foreign subsidiaries except to the extent that the Company does not plan to reinvest such earnings indefinitely outside the United States. If the cumulative foreign earnings exceed the amount the Company intends to reinvest in foreign countries in the future, the Company would provide for taxes on such excess amount. As of October 31, 2012, there were approximately $615.2 million of earnings upon which U.S. income taxes of approximately $135.8 million have not been provided for. The gross unrecognized tax benefits decreased by approximately $68.2 million during fiscal 2012, resulting in gross unrecognized tax benefits of $109.7 million as of October 31, 2012. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:
|  | As of October 31, 2012 |  |  | As of October 31, 2011 |
|  | (in thousands) |
Beginning balance |  | $ | 177,893 |  |  | $ | 213,923 |
Increases in unrecognized tax benefits related to prior year tax positions |  |  | 6,053 |  |  |  | 4,188 |
Decreases in unrecognized tax benefits related to prior year tax positions |  |  | (35,010 | ) |  |  | (44,061 | )
Increases in unrecognized tax benefits related to current year tax positions |  |  | 9,431 |  |  |  | 19,922 |
Decreases in unrecognized tax benefits related to settlements with taxing authorities |  |  | (80,137 | ) |  |  | (1,258 | )
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations |  |  | (3,499 | ) |  |  | (15,200 | )
Increases in unrecognized tax benefits acquired |  |  | 35,171 |  |  |  | 350 |
Changes in unrecognized tax benefits due to foreign currency translation |  |  | (222 | ) |  |  | 29 |
|  | $ | 109,680 |  |  | $ | 177,893 |
As of October 31, 2012 and 2011, approximately $75.3 million and $177.5 million, respectively, of the unrecognized tax benefits would affect our effective tax rate if recognized upon resolution of the uncertain tax positions. Interest and penalties related to estimated obligations for tax positions taken in the Company’s tax returns are recognized as a component of income tax expense (benefit) in the consolidated statements of operations and totaled approximately $(5.8) million, $2.8 million and $3.4 million for fiscal 2012, 2011 and 2010, respectively. As of October 31, 2012 and 2011, the combined amount of accrued interest and penalties related to tax positions taken on the Company’s tax returns was approximately $0.6 million and $7.4 million, respectively. The timing of the resolution of income tax examinations is highly uncertain as well as the amounts and timing of various tax payments that are part of the settlement process. This could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. During fiscal 2012 there were significant changes to the Company’s total gross unrecognized tax benefits as a result of the IRS settlement and Taiwan settlement described below. The Company believes that in the coming 12 months, it is reasonably possible that either certain audits will conclude or the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other uncertain tax positions, the range of the estimated potential decrease in underlying unrecognized tax benefits is between $0 and $16 million. The Company’s subsidiaries remain subject to tax examination in the following jurisdictions:
Jurisdiction |  | Year(s) Subject to Examination
United States—Synopsys |  | Fiscal 2012
United States—Magma Design Automation |  | Fiscal years after 2008
California—Synopsys |  | Fiscal years after 2007
California—Magma Design Automation |  | Fiscal years after 2007
Hungary |  | Fiscal years after 2005
Taiwan and Japan |  | Fiscal years after 2006
Ireland |  | Fiscal years after 2007
In addition, the Company has made acquisitions with operations in several of its significant jurisdictions which may have years subject to examination earlier than the years indicated in the above table. IRS Examinations In the third quarter of fiscal 2012, the Company reached a final settlement with the Examination Division of the IRS for its audits of fiscal years 2010 and 2011. As a result of the settlement, the Company’s unrecognized tax benefits decreased by $24.7 million and the impact to other balance sheet tax accounts was not material. The net tax benefit resulting from the settlement was $15.9 million. The Company is regularly audited by the IRS. In the second quarter of fiscal 2011, the Company reached a final settlement with the Examination Division of the IRS for its audits of fiscal years 2006 through 2009. As a result of the settlement, the Company’s unrecognized tax benefits decreased by $35.9 million and the impact to other balance sheet tax accounts was not material. The net tax benefit resulting from the settlement was $32.8 million. The audit of certain returns filed by Synplicity, Inc. prior to its acquisition by the Company in May 2008 was finalized in the first quarter of fiscal 2011, which resulted in a decrease in unrecognized tax benefits of $4.0 million. In fiscal 2010, the Company reached a settlement with the IRS that resolved certain disputes related to the Company’s acquisition of Avant! Corporation in 2002 that arose in the audit of its fiscal years 2002 through 2004. This settlement resulted in a decrease in the Company’s tax expense for fiscal 2010 of approximately $94.3 million, which is primarily due to the release of previously established tax liabilities of $67.8 million, as well as a release of a valuation allowance of $21.6 million for foreign tax credits which were utilized in connection with the settlement. In fiscal 2010, as a result of the IRS settlement of fiscal years 2002 through 2004, the Company’s net deferred tax assets increased by $55.4 million. The change is due primarily to increases in its deferred tax assets of $72.3 million for certain costs that have been capitalized for tax purposes and will be amortized in future periods, partially offset by a decrease to deferred tax assets of $25.2 million, due to the use of the Company’s foreign tax credit carryover, net of the reversal of a valuation allowance. Non-U.S. Examinations Taiwan On June 21, 2012, the Company reached a settlement with the Taiwan tax authorities for fiscal 2008 with regard to certain transfer pricing issues. As a result of the settlement and the application of the settlement to other open fiscal years, the Company’s unrecognized tax benefits decreased by $16.5 million. The net tax benefit resulting from the settlement and the application to other open fiscal years was $14.7 million. Taiwan is being audited for fiscal years 2009 and 2010. The Company believes that it has adequately provided for potential tax adjustments, including interest and potential penalties. Hungary On March 5, 2012, the Company reached a settlement with the Hungarian tax authorities with regard to its fiscal years 2006 through 2008. The settlement resulted in a $5.1 million cash payment. On May 10, 2012 the Company reached a settlement with the Hungarian tax authorities for fiscal years 2009 and 2010. The settlement resulted in a $6.3 million benefit principally from interest in the second quarter, a $3.2 million reduction to prepaid taxes in the third quarter, and a cash payment of $10.9 million in the fourth quarter of fiscal 2012. The settlements of fiscal years 2006 through 2010 reduced unrecognized tax benefits by $27.0 million and $24.2 million in the second and third quarter of fiscal 2012, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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