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Income Taxes | 12 Months Ended
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Oct. 31, 2017
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,
| 2017 |  | 2016 |  | 2015
| (in thousands)
United States | $ | (2,702 | ) |  | $ | 22,134 |  |  | $ | 42,571 |
Foreign | 385,800 |  |  | 307,414 |  |  | 239,039 |
Total income (loss) before provision for income taxes | $ | 383,098 |  |  | $ | 329,548 |  |  | $ | 281,610 |
The components of the provision (benefit) for income taxes were as follows:
| Year Ended October 31,
| 2017 |  | 2016 |  | 2015
| (in thousands)
Current: |  |  |  |  |
Federal | $ | 25,420 |  |  | $ | (6,106 | ) |  | $ | (21,911 | )
State | 5,565 |  |  | 2,670 |  |  | 1,385 |
Foreign | 92,498 |  |  | 80,195 |  |  | 39,319 |
| 123,483 |  |  | 76,759 |  |  | 18,793 |
Deferred: |  |  |  |  |
Federal | 95,003 |  |  | (23,510 | ) |  | 44,462 |
State | 24,440 |  |  | 11,950 |  |  | (2,282 | )
Foreign | 3,609 |  |  | (2,477 | ) |  | (5,297 | )
| 123,052 |  |  | (14,037 | ) |  | 36,883 |
Provision (benefit) for income taxes | $ | 246,535 |  |  | $ | 62,722 |  |  | $ | 55,676 |
The provision (benefit) for income taxes differs from the taxes computed with the statutory federal income tax rate as follows:
| Year Ended October 31,
| 2017 |  | 2016 |  | 2015
| (in thousands)
Statutory federal tax | $ | 134,084 |  |  | $ | 115,343 |  |  | $ | 98,564 |
State tax (benefit), net of federal effect | (20,071 | ) |  | (14,492 | ) |  | (7,186 | )
Tax credits (1) | (24,365 | ) |  | (36,979 | ) |  | (13,301 | )
Tax on foreign earnings less than U.S. statutory tax | (52,413 | ) |  | (68,246 | ) |  | (56,536 | )
Tax settlements | (7,057 | ) |  | (16,479 | ) |  | (6,251 | )
Stock-based compensation | (26,205 | ) |  | 5,709 |  |  | 5,406 |
Changes in valuation allowance | 47,745 |  |  | 25,590 |  |  | 2,206 |
Integration of acquired technologies | 36,443 |  |  | 37,525 |  |  | 33,015 |
Undistributed earnings of foreign subsidiaries | (9,610 | ) |  | 9,940 |  |  | — |
Tax impact of repatriation | 166,152 |  |  | — |  |  | — |
Other | 1,832 |  |  | 4,811 |  |  | (241 | )
Provision (benefit) for income taxes | $ | 246,535 |  |  | $ | 62,722 |  |  | $ | 55,676 |
(1) | Tax credits include benefits from the retroactive reinstatement of the U.S. federal research tax credit. The U.S. federal research tax 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 credit was permanently reinstated in fiscal 2016, resulting in a tax benefit of approximately $37.1 million in the above amount for the period January 1, 2015 through October 31, 2016.
The integration of acquired technologies represents the income tax effect resulting from the transfer of certain intangible assets among company-controlled entities. The income tax effect is generally recognized over five years. These intangible assets generally result from the acquisition of technology by a company-controlled entity as part of a business or asset acquisition. The significant components of deferred tax assets and liabilities were as follows:
| October 31,
| 2017 |  | 2016
| (in thousands)
Net deferred tax assets: |  |  |
Deferred tax assets: |  |  |
Accruals and reserves | $ | 36,906 |  |  | $ | 34,324 |
Deferred revenue | 42,420 |  |  | 42,497 |
Deferred compensation | 67,145 |  |  | 64,321 |
Capitalized costs | 51,679 |  |  | 54,123 |
Capitalized research and development costs | 12,508 |  |  | 18,896 |
Stock-based compensation | 23,679 |  |  | 22,298 |
Tax loss carryovers | 23,623 |  |  | 31,748 |
Foreign tax credit carryovers | 7,662 |  |  | 10,369 |
Research and other tax credit carryovers | 157,817 |  |  | 136,690 |
Other | — |  |  | 5,161 |
Gross deferred tax assets | 423,439 |  |  | 420,427 |
Valuation allowance | (121,770 | ) |  | (73,909 | )
Total deferred tax assets | 301,669 |  |  | 346,518 |
Deferred tax liabilities: |  |  |
Intangible assets | 62,299 |  |  | 54,604 |
Undistributed earnings of foreign subsidiaries | 1,300 |  |  | 10,888 |
Other | 1,758 |  |  | — |
Total deferred tax liabilities | 65,357 |  |  | 65,492 |
Net deferred tax assets | $ | 236,312 |  |  | $ | 281,026 |
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 the Company's deferred tax assets as of October 31, 2017 is mainly attributable to California research credit and international foreign tax credit carryforwards. The valuation allowance increased by a net of $47.9 million in fiscal 2017 primarily due to a change in the realizability of deferred tax assets related to the California research credit carryforwards. Most of the change relates to a significant increase in the Company's share price in fiscal 2017, which results in a higher tax deduction that reduces the future California sourced taxable income and the amount of California research credits the Company expects to utilize. The remainder of the increase relates to an agreement the Company reached with the California tax authorities in fiscal 2017 which resulted primarily in the recognition of unrecognized tax benefits offset by a corresponding increase in the valuation allowance of $13.2 million. 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 | $ | 57,265 |  |  | 2018-2034
Federal research credit carryforward | 78,599 |  |  | 2019-2036
Federal foreign tax credit carryforward | 2,081 |  |  | 2019-2022
International foreign tax credit carryforward | 13,351 |  |  | Indefinite
California research credit carryforward | 169,038 |  |  | Indefinite
Other state research credit carryforward | 7,482 |  |  | 2023-2032
State net operating loss carryforward | 33,201 |  |  | 2024-2035
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 was permanently reinstated in fiscal 2016. The Company adopted ASU 2016-09 in the first quarter of fiscal 2017. The Company recorded all income tax effects of share-based awards in its provision for income taxes in the condensed consolidated statement of operations on a prospective basis. Prior to adoption, the Company did not recognize excess tax benefits from stock-based compensation as a charge to capital in excess of par value to the extent that the related tax deduction did not reduce income taxes payable. Upon adoption of ASU 2016-09, the Company recorded a deferred tax asset of $106.5 million mainly related to the research tax credit carryover, for the previously unrecognized excess tax benefits with an offsetting adjustment to retained earnings. Adoption of the new standard resulted in net excess tax benefits in the provision for income taxes of $38.1 million for fiscal 2017. During the fourth quarter of fiscal 2017, the Company repatriated $825 million from its foreign subsidiary. The repatriation was executed in anticipation of potential U.S. corporate tax reform, and the Company plans to indefinitely reinvest the remainder of its undistributed foreign earnings outside the United States. The Company provides for U.S. income and foreign withholding taxes on foreign earnings, except for foreign earnings that are considered indefinitely reinvested outside the U.S. As of October 31, 2017, there were approximately $598.3 million of earnings upon which U.S. income taxes of approximately $110.0 million have not been provided for. The gross unrecognized tax benefits decreased by approximately $14.9 million during fiscal 2017 resulting in gross unrecognized tax benefits of $91.6 million as of October 31, 2017. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:
| As of October 31, 2017 |  | As of October 31, 2016
| (in thousands)
Beginning balance | $ | 106,542 |  |  | $ | 132,054 |
Increases in unrecognized tax benefits related to prior year tax positions | 3,117 |  |  | 7,205 |
Decreases in unrecognized tax benefits related to prior year tax positions | (49,456 | ) |  | (43,944 | )
Increases in unrecognized tax benefits related to current year tax positions | 31,007 |  |  | 13,880 |
Decreases in unrecognized tax benefits related to settlements with taxing authorities | (784 | ) |  | (333 | )
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations | (2,635 | ) |  | (2,659 | )
Increases in unrecognized tax benefits acquired | 1,934 |  |  | 49 |
Changes in unrecognized tax benefits due to foreign currency translation | 1,912 |  |  | 290 |
Ending balance | $ | 91,637 |  |  | $ | 106,542 |
As of October 31, 2017 and 2016, approximately $88.5 million and $106.5 million, respectively, of the unrecognized tax benefits would affect the Company's 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 $0.2 million, $0.8 million and $0.6 million for fiscal years 2017, 2016 and 2015, respectively. As of October 31, 2017 and 2016, the combined amount of accrued interest and penalties related to tax positions taken on the Company’s tax returns was approximately $3.2 million and $3.1 million, respectively. The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing 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 $32 million. The Company and/or its subsidiaries remain subject to tax examination in the following jurisdictions:
Jurisdiction | Year(s) Subject to Examination
United States | Fiscal 2017
California | Fiscal years after 2014
Hungary and Ireland | Fiscal years after 2010
Japan and Taiwan | Fiscal years after 2011
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 United States Tax Court (Tax Court) issued an opinion (Altera Corp. et al. v. Commissioner) regarding the treatment of stock-based compensation expense in intercompany cost-sharing arrangements. The U.S. Treasury has not withdrawn the requirement to include stock-based compensation from its regulations and the IRS has initiated an appeal of the Tax Court's opinion. As the final resolution with respect to historical cost-sharing of stock-based compensation, and the potential favorable benefits to the Company, is unclear, the Company is recording no impact at this time and will continue to monitor developments related to this opinion and the potential impact of those developments on the Company's prior fiscal years. Effective February 1, 2016, the Company amended its cost- sharing arrangement to exclude stock-based compensation expense on a prospective basis and has reflected the corresponding benefits in its effective annual tax rate. IRS Examinations In fiscal 2017, the Company reached final settlement with the Examination Division of the IRS for fiscal 2016 and recognized approximately $4.6 million in unrecognized tax benefits. In fiscal 2016, the Company reached final settlement with the Examination Division of the IRS for fiscal 2015 and recognized approximately $20.7 million in unrecognized tax benefits. In fiscal 2015, the Company reached final settlement with the IRS on the integration of acquired technologies for fiscal 2015 and research tax credit for fiscal 2014 that resulted in $7.0 million and $3.2 million in tax benefits, respectively. State Examinations In fiscal 2017, the Company reached an agreement with the California Franchise Tax Board for fiscal 2014, 2013, and 2012. As a result of the agreement, the Company recognized tax expense of $0.4 million, reduced its deferred tax assets by $1.1 million, recognized $14.6 million in unrecognized tax benefits, and increased its valuation allowance by $13.2 million. In fiscal 2016, the Company reached final settlement with the California Franchise Tax Board for fiscal 2011, 2010, and 2009. As a result of the settlement, the Company reduced its deferred tax assets by $4.9 million, recognized $10.3 million in unrecognized tax benefits, and increased its valuation allowance by $5.4 million. Non-U.S. Examinations Hungary In July 2017, the Hungarian Tax Authority (HTA) issued a final assessment against the Company's Hungarian subsidiary (Synopsys Hungary) for fiscal years 2011 through 2013. The HTA has disallowed Synopsys Hungary's tax positions taken during these years regarding the timing of the deduction of research expenses and applied withholding taxes on certain payments made to affiliates, resulting in an aggregate tax assessment of approximately $47 million and interest and penalties of over $18 million (at current exchange rates). In addition, if the treatment of research expense were applied to fiscal years after 2014, Synopsys Hungary could lose approximately $18 million in tax benefit in tax periods subsequent to fiscal 2017 due to the enacted reduction of Hungary's corporate income tax rate. While the ultimate outcome is not certain, the Company believes there is no merit to the assessment and that it will ultimately prevail against the positions taken by the HTA. To that end, on August 2, 2017, Synopsys Hungary filed a claim contesting the final assessment with the Hungarian Administrative Court. On November 16, 2017, Synopsys Hungary paid the assessment, while continuing its challenge to the assessment in court. A hearing is scheduled for early 2018. If the Company prevails, the assessment of $47 million and associated interest and penalties would be canceled, but the Hungarian statutory accounting treatment could have an indirect adverse impact on certain tax benefits in the year of the cancellation. Korea In fiscal 2017, the Company settled certain transfer pricing issues with the Korea National Tax Service for fiscal years 2012 to 2016. As a result of the settlement, the Company recognized income tax expense of $7.9 million. Taiwan In fiscal 2017, the Company reached an agreement with the Taiwanese tax authorities on certain tax positions for fiscal year 2014 resulting in an income tax benefit of $10.9 million. In fiscal 2016, the Company reached final settlement with the Taiwanese tax authorities for fiscal 2011, with regard to certain transfer pricing issues. As a result of the settlement, the Company paid $0.3 million of tax and recognized $0.7 million in unrecognized tax benefits. In fiscal 2015, the Company reached final settlement with the Taiwanese 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. The Company also reached final settlement with the Taiwanese 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 for fiscal years 2013 and 2014, respectively. India In fiscal 2016, the Company agreed to settle certain transfer pricing issues with the Indian tax authorities for various fiscal years. As a result of the settlement, the Company recognized income tax expense, net of foreign tax credits, of $4.6 million.

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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 Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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