XML 34 R22.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Taxes | 9 Months Ended
--- | ---
Jul. 31, 2018
Income Tax Disclosure [Abstract] |
Taxes | Taxes Effective Tax Rate The Company estimates its annual effective tax rate at the end of each fiscal quarter. The effective tax rate takes into account the Company's estimations of annual pre-tax income, the geographic mix of pre-tax income and interpretations of tax laws and possible outcomes of audits. The following table presents the provision (benefit) for income taxes and the effective tax rates:
| Three Months Ended July 31, |  | Nine Months Ended July 31,
| 2018 |  | 2017 |  | 2018 |  | 2017
| (in thousands)
Income before income taxes | $ | 71,893 |  |  | $ | 112,791 |  |  | $ | 311,295 |  |  | $ | 283,172 |
Provision (benefit) for income taxes | $ | (7,516 | ) |  | $ | (3,960 | ) |  | $ | 133,105 |  |  | $ | 26,527 |
Effective tax rate | (10.5 | )% |  | (3.5 | )% |  | 42.8 | % |  | 9.4 | %
Tax Reform The Tax Cuts and Jobs Act (Tax Act), enacted on December 22, 2017, lowered the statutory federal corporate income tax rate from 35% to 21% effective on January 1, 2018. Because the Company's fiscal 2018 commenced on November 1, 2017, the annual statutory federal corporate tax rate applicable to fiscal 2018 is a blended rate of 23.4%. Beginning in the Company's fiscal 2019, the annual statutory federal corporate tax rate will be 21%. The Company’s effective tax rate for the nine months ended July 31, 2018 differs from the statutory federal corporate tax rate of 23.4% primarily due to accounting for the effects of the enactment of the Tax Act, which increased income tax expense by $119 million in the first quarter of fiscal 2018. The increased income tax expense was partially offset by the benefits of lower-taxed international earnings, U.S. federal and California research tax credits and excess tax benefits from stock-based compensation, and partially increased by state taxes and the tax effects of non-deductible stock-based compensation and the integration of acquired technologies. The integration of acquired technologies represents the income tax effect resulting from the transfer of certain intangible assets among company-controlled entities. The Company's effective tax rate decreased in the three months ended July 31, 2018 as compared to the same period in fiscal 2017, primarily due to a decrease in the federal tax rate and an increase in research tax credits. The Company's effective tax rate increased in the nine months ended July 31, 2018, as compared to the same period in fiscal 2017, primarily due to the effects of the Tax Act. The following accounting impacts of the Tax Act are provisional, based on currently available information and technical guidance on the interpretations of the Tax Act. The Company continues to obtain, analyze and interpret additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service (IRS), state taxing jurisdictions, the FASB, and other standard-setting and regulatory bodies, as such guidance becomes available, in order to complete its accounting for the impact of the Tax Act. Additional information that is needed to complete the analysis but is currently unavailable includes, but is not limited to, the amount of earnings of certain subsidiaries as well as the amount of foreign taxes paid on such earnings, the final determination of certain net deferred tax assets subject to remeasurement and when the related temporary differences will be settled or realized, and the tax treatment of such provisions of the Tax Act by various state tax authorities. In addition, the Company does not currently have sufficient information and guidance to determine the impact of certain changes to the taxation of its foreign earnings that will become effective for the Company in its fiscal year 2019. The provisional accounting impacts may change in future reporting periods until the Company's accounting analysis is finalized, which will occur no later than the first quarter of the fiscal year 2019, as permitted by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act. As a result of the reduction in the federal corporate tax rate, the Company remeasured its deferred taxes as of the date of enactment of the Tax Act, resulting in a first quarter provisional tax charge of $46 million based on the tax rate that is expected to apply when such deferred taxes are settled or realized in future periods. As part of the adoption of a new territorial tax system applicable to foreign earnings, the Tax Act requires the Company to pay a one-time tax (transition tax) on previously untaxed earnings and profits of certain of the Company’s foreign subsidiaries at a rate of 15.5% on such earnings represented by foreign cash and certain other net current assets, and 8% on the remaining earnings, in each case reduced by certain foreign tax credits. In the first quarter of fiscal 2018, the Company recorded a provisional transition tax expense of $71 million, as well as $2 million of provisional state taxes on these earnings, and income taxes payable of $78 million. The calculation of the transition tax is dependent in part on the actual amount of foreign earnings and foreign taxes for fiscal 2018, as well as potential changes to the Company's tax structure that could occur in response to the Tax Act. Upon further analyses of certain aspects of the Tax Act and refinement of the Company's calculations during the second quarter of fiscal 2018, the Company adjusted the provisional income taxes payable from $78 million to $18 million primarily to reflect utilization of research credits and net operating loss carryforwards that the Company believes should be available to reduce the transition tax. This adjustment resulted in a reduction of previously recognized deferred tax assets and a decrease in income tax liability, but did not change the provisional transition tax expense recorded in the first quarter of fiscal 2018. During the third quarter of fiscal 2018, proposed guidance on the transition tax was released by the IRS, which the Company is evaluating. The Company currently intends to elect to pay the transition tax over a period of eight years as permitted by the Tax Act. Refinements to the calculation of the provisional transition tax expense and potential changes to the Company's tax structure could further affect the amount of transition tax expense and transition tax payable. The Tax Act also provides an exemption from federal income taxes for distributions by foreign subsidiaries made after December 31, 2017 that were not subject to the transition tax. The Company has provided for U.S. state income taxes and foreign withholding taxes on undistributed earnings of certain of its foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries. The Company has recorded provisional amounts for the tax effects of certain other new provisions of the Tax Act related to compensation and employee benefits in the three and nine months ended July 31, 2018, based on information currently available. The Tax Act also introduced several new tax provisions related to the taxation of foreign earnings, discussed below:
• | A tax on global intangible low-tax income (GILTI), which is determined annually based on the Company’s aggregate foreign subsidiaries’ income in excess of certain qualified business asset investment return, will be effective for the Company in its fiscal year 2019. The Company needs additional information to complete its analysis on whether to adopt an accounting policy to account for the tax effects of GILTI in the period that it is subject to such tax, or to provide deferred taxes for book and tax basis differences that upon reversal, may be subject to such tax. Accordingly, the Company has not recorded any tax with respect to GILTI in the three and nine months ended July 31, 2018. The Company will make an accounting policy election and complete the required accounting no later than the first quarter of fiscal 2019.
• | A base erosion and anti-abuse tax (BEAT), which functions as a minimum tax that partially disallows deductions for certain related party transactions, that is not effective for the Company until its fiscal year 2019.
• | A special tax deduction for foreign-derived intangible income (FDII), which, in general, allows a deduction of certain intangible income earned in the U.S. and derived from foreign sources, that is not effective for the Company until its fiscal year 2019.
The applicability and impact of these new tax provisions is dependent in part on potential changes to the Company's tax structure that could occur in response to the Tax Act, and on forthcoming IRS guidance. 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. In view of the Tax Court opinion, the Company amended its cost-sharing arrangement effective February 1, 2016 to exclude stock-based compensation expense on a prospective basis and has reflected the corresponding benefits in its income tax expense for fiscal year 2016 and 2017 and in its effective annual tax rate for fiscal year 2018. On July 24, 2018, the United States Court of Appeals for the Ninth Circuit reversed the decision of the Tax Court, however, subsequently withdrew the decision on August 7, 2018. A rehearing of the case has been scheduled for October 16, 2018. As the final resolution with respect to cost-sharing of stock-based compensation remains unclear, the Company is currently not planning to revise its cost-sharing arrangement and will continue to monitor developments in the Altera case. The timing of the resolution of income tax examinations is highly uncertain, as are 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 $13 million. As discussed in Note 11. Stock Compensation, 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 for the previously unrecognized excess tax benefits with an offsetting adjustment to retained earnings. Net excess tax benefits reduced the provision for income taxes by $14.6 million and $25.4 million, respectively, for the three and nine months ended July 31, 2018 and by $18.4 million and $29.7 million, respectively, for the three and nine months ended July 31, 2017. Non-U.S. Examinations 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 $18 million. In addition, if the treatment of research expenses 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 as required by law, while continuing its challenge to the assessment in court. The amount paid is included in long-term prepaid taxes on the balance sheet. A court hearing was held in July 2018, and further hearings are pending. 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. In the third quarter of fiscal 2017, the Company settled certain transfer pricing issues with the Korean 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. The Company also reached agreement with the Taiwanese tax authorities on certain tax positions for fiscal year 2014, resulting in an income tax benefit of $10.9 million. The Company is also under examination by the tax authorities in certain other jurisdictions. No material assessments have been proposed in these examinations.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration