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Income Taxes | 12 Months Ended
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Oct. 31, 2015
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The domestic and foreign components of the Company’s total income (loss) before provision for income taxes are as follows:
| Year Ended October 31,
| 2015 |  | 2014 |  | 2013
| (in thousands)
United States | $ | 42,571 |  |  | $ | (7,638 | ) |  | $ | 61,818 |
Foreign | 239,039 |  |  | 279,780 |  |  | 213,848 |
| $ | 281,610 |  |  | $ | 272,142 |  |  | $ | 275,666 |
The components of the (benefit) provision for income taxes were as follows:
| Year Ended October 31,
| 2015 |  | 2014 |  | 2013
| (in thousands)
Current: |  |  |  |  |
Federal | $ | (21,911 | ) |  | $ | (14,951 | ) |  | $ | 11,692 |
State | 1,385 |  |  | 279 |  |  | (5,949 | )
Foreign | 39,319 |  |  | 42,085 |  |  | 29,428 |
| 18,793 |  |  | 27,413 |  |  | 35,171 |
Deferred: |  |  |  |  |
Federal | 44,462 |  |  | (4,612 | ) |  | 4,969 |
State | (2,282 | ) |  | (4,141 | ) |  | 933 |
Foreign | (5,297 | ) |  | (5,642 | ) |  | (13,207 | )
| 36,883 |  |  | (14,395 | ) |  | (7,305 | )
Provision (Benefit) for income taxes | $ | 55,676 |  |  | $ | 13,018 |  |  | $ | 27,866 |
The provision (benefit) for income taxes differs from the taxes computed with the statutory federal income tax rate as follows:
| Year Ended October 31,
| 2015 |  | 2014 |  | 2013
| (in thousands)
Statutory federal tax | $ | 98,564 |  |  | $ | 95,251 |  |  | $ | 96,483 |
State tax (benefit), net of federal effect | (4,764 | ) |  | (4,306 | ) |  | (2,697 | )
Tax credits (1) | (13,301 | ) |  | (5,153 | ) |  | (24,972 | )
Tax on foreign earnings less than U.S. statutory tax | (56,536 | ) |  | (61,376 | ) |  | (40,156 | )
Deferred tax reversal resulting from merger of foreign affiliate | — |  |  | — |  |  | (6,808 | )
Tax settlements | (6,251 | ) |  | (19,645 | ) |  | (1,130 | )
Stock based compensation | 5,406 |  |  | 5,675 |  |  | 4,671 |
Changes in valuation allowance | (216 | ) |  | (235 | ) |  | (776 | )
Federal statute lapses | (2,265 | ) |  | (6,746 | ) |  | — |
Integration of acquired technologies | 33,015 |  |  | 4,715 |  |  | 3,486 |
Other | 2,024 |  |  | 4,838 |  |  | (235 | )
| $ | 55,676 |  |  | $ | 13,018 |  |  | $ | 27,866 |
(1) | As a result of the reinstatement of the U.S. federal research tax credit in fiscal 2013, the Company reflected a tax benefit of approximately $19.0 million in the above amount for the period January 1, 2012 through October 31, 2013. The credit expired on December 31, 2013, resulting in only two months of credit for fiscal 2014. The credit was reinstated in fiscal 2015, resulting in a tax benefit of approximately $12.4 million in the above amount for the period January 1 through December 31, 2014.
The significant components of deferred tax assets and liabilities were as follows:
| October 31,
| 2015 |  | 2014
| (in thousands)
Net deferred tax assets: |  |  |
Deferred tax assets: |  |  |
Accruals and reserves | $ | 40,373 |  |  | $ | 28,608 |
Deferred revenue | 36,460 |  |  | 42,766 |
Deferred compensation | 69,716 |  |  | 56,920 |
Capitalized costs | 60,998 |  |  | 66,616 |
Capitalized research and development costs | 24,748 |  |  | 32,710 |
Stock compensation | 18,001 |  |  | 18,508 |
Tax loss carryovers | 50,987 |  |  | 64,273 |
Foreign tax credit carryovers | 1,064 |  |  | 18,846 |
Research and other tax credit carryovers | 80,327 |  |  | 110,247 |
Other | 5,340 |  |  | 4,689 |
Gross deferred tax assets | 388,014 |  |  | 444,183 |
Valuation allowance | (48,700 | ) |  | (45,996 | )
Total deferred tax assets | 339,314 |  |  | 398,187 |
Deferred tax liabilities: |  |  |
Intangible assets | 66,345 |  |  | 81,218 |
Undistributed earnings of foreign subsidiaries | 933 |  |  | 726 |
Total deferred tax liabilities | 67,278 |  |  | 81,944 |
Net deferred tax assets | $ | 272,036 |  |  | $ | 316,243 |
It is more likely than not that the results of future operations will be able to generate sufficient taxable income to realize the net deferred tax assets. The valuation allowance provided against our deferred tax assets as of October 31, 2015 is mainly attributable to California research credit and international foreign tax credit carryforwards. The valuation allowance increased by a net of $2.7 million in fiscal 2015 due to changes in corresponding deferred tax assets primarily related to California research credit carryforwards. 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 | $ | 108,533 |  |  | 2016-2034
Federal research credit carryforward | 120,243 |  |  | 2019-2035
Federal foreign tax credit carryforward | 4,586 |  |  | 2017-2023
International foreign tax credit carryforward | 10,104 |  |  | Indefinite
California research credit carryforward | 135,858 |  |  | Indefinite
Other state research credit carryforward | 5,395 |  |  | 2016-2030
State net operating loss carryforward | 217,914 |  |  | 2016-2035
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, 2014. The Company has unrecognized deferred tax assets of approximately $83.3 million as of October 31, 2015 attributable to excess tax deductions related to stock options, the benefit of which will be credited to stockholders' 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 country operations in the future, the Company would provide for taxes on such excess amount. As of October 31, 2015, there were approximately $1,047.5 million of earnings upon which U.S. income taxes of approximately $232.0 million have not been provided for. The gross unrecognized tax benefits increased by approximately $8.0 million during fiscal 2015 resulting in gross unrecognized tax benefits of $132.1 million as of October 31, 2015. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:
| As of October 31, 2015 |  | As of October 31, 2014
| (in thousands)
Beginning balance | $ | 124,102 |  |  | $ | 117,760 |
Increases in unrecognized tax benefits related to prior year tax positions | 10,922 |  |  | 2,037 |
Decreases in unrecognized tax benefits related to prior year tax positions | (7,526 | ) |  | (23,271 | )
Increases in unrecognized tax benefits related to current year tax positions | 13,232 |  |  | 35,277 |
Decreases in unrecognized tax benefits related to settlements with taxing authorities | — |  |  | (1,858 | )
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations | (5,996 | ) |  | (8,816 | )
Increases in unrecognized tax benefits acquired | 976 |  |  | 3,575 |
Changes in unrecognized tax benefits due to foreign currency translation | (3,656 | ) |  | (602 | )
| $ | 132,054 |  |  | $ | 124,102 |
As of October 31, 2015 and 2014, approximately $129.4 million and $120.5 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 $0.6 million, $0.5 million and $0.2 million for fiscal years 2015, 2014 and 2013, respectively. As of October 31, 2015 and 2014, the combined amount of accrued interest and penalties related to tax positions taken on the Company’s tax returns was approximately $2.2 million and $1.3 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. 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 $36 million. The Company and/or its subsidiaries remain subject to tax examination in the following jurisdictions:
Jurisdiction | Year(s) Subject to Examination
United States—Synopsys | Fiscal 2015
United States—Magma Design Automation | Fiscal 2012
California—Synopsys | Fiscal years after 2010
California—Magma Design Automation | Fiscal years after 2010
Hungary | Fiscal years after 2008
Ireland, Japan, and Taiwan | Fiscal years after 2009
In addition, the Company has made acquisitions with operations in several of its significant jurisdictions which may have years subject to examination different from the years indicated in the above table. On July 27, 2015, the Tax Court issued an opinion (Altera Corp. et al. v. Commissioner) regarding the treatment of stock-based compensation expense in intercompany cost-sharing arrangements. However, U.S. Treasury has not withdrawn the requirement to include stock-based compensation from its regulations. Also, there is uncertainty related to the IRS response to the Tax Court opinion, the final resolution of this issue, and the potential favorable benefits to the Company. As such, no impact has been recorded in fiscal 2015. The Company will continue to monitor developments related to this opinion and the potential impact of those developments on the Company's current and prior fiscal years. IRS Examinations In the third quarter of fiscal 2015, the Company reached final settlement with the Examination Division of the IRS on the integration of acquired technologies for fiscal 2015 and research tax credit for fiscal 2014. In the fourth quarter of fiscal 2015, the Company reached final settlement with the IRS on the remaining fiscal 2015 issues. In the first quarter of fiscal 2014, the Company reached final settlement with the IRS on the remaining fiscal 2012 issues and recognized approximately $10.0 million in unrecognized tax benefits. In the fourth quarter of fiscal 2014, the Company reached final settlement with the IRS for its audit of fiscal 2013 and recognized approximately $5.5 million in unrecognized tax benefits. In the third and fourth quarters of fiscal 2013, the Company reached settlement with the IRS for its audit of certain fiscal 2012 issues, which resulted in a decrease in unrecognized tax benefits of $6.0 million, decrease in deferred tax assets of $4.9 million and a $1.1 million net tax benefit. Non-U.S. Examinations Taiwan In the first quarter of fiscal 2015, the Company reached final settlement with the Taiwan tax authorities for fiscal 2012 with regard to certain transfer pricing issues. As a result of the settlement, the Company recognized approximately $1.1 million in unrecognized tax benefits. In the fourth quarter of fiscal 2015, the Company reached final settlement with the Taiwan tax authorities for fiscal 2013 with regard to certain transfer pricing issues. As a result of the settlement and the application of the settlement to fiscal 2014, the Company's unrecognized tax benefits decreased by $1.2 million and $1.2 million, respectively. In the second quarter of fiscal 2014, the Company reached settlements with the Taiwan tax authorities for fiscal years 2010 and 2009, with regard to certain transfer pricing issues. As a result of the settlements and the application of the settlement to other open fiscal years, the Company’s unrecognized tax benefits decreased by $5.1 million. The net tax benefit resulting from the settlements and the application to other open fiscal years was $3.9 million.

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