Income Taxes

The provision for income taxes consists of the following:



	Fiscal year ended January 31,
	2012			2011			2010
Federal:
Current	$	54.3		$	16.0		$	12.3
Deferred	(34.5		)	(8.2		)	(33.0		)
State:
Current	4.9			(1.5		)	3.0
Deferred	1.3			7.4			7.1
Foreign:
Current	55.9			48.4			34.1
Deferred	(4.3		)	(2.1		)	3.2
	$	77.6		$	60.0		$	26.7

During fiscal year 2012, the Company reduced its current federal and state taxes payable by $31.3 million primarily related to excess tax benefits from non-qualified stock options, offsetting additional paid-in capital. Pursuant to accounting standards related to stock-based compensation, the Company has unrecorded excess stock option tax benefits of $150.1 million as of January 31, 2012. These amounts will be credited to additional paid-in-capital when such amounts reduce cash taxes payable. Foreign pretax income was $383.7 million in fiscal 2012, $321.1 million in fiscal 2011, and $253.9 million in fiscal 2010.

The differences between the U.S. statutory rate and the aggregate income tax provision are as follows:



	Fiscal year ended January 31,
	2012			2011			2010
Income tax provision at U.S. Federal statutory rate	$	127.0		$	95.2		$	29.7
State income tax expense (benefit), net of the U.S. Federal benefit	2.8			1.4			(0.6		)
Foreign income taxed at rates different from the U.S. statutory rate	(61.5		)	(39.7		)	(22.7		)
U.S. valuation allowance	1.7			2.8			14.9
Non-deductible stock-based compensation	12.8			7.9			11.7
Research and development tax credit benefit	(6.0		)	(5.6		)	(4.7		)
Tax benefit from closure of income tax audits and decreases in uncertain tax positions	(0.4		)	(2.8		)	(2.5		)
Officer compensation in excess of $1.0 million	1.9			0.5			0.3
Goodwill impairment	—			—			—
Non-deductible in-process research and development charge	—			—			—
Other	(0.7		)	0.3			0.6
	$	77.6		$	60.0		$	26.7

Significant components of Autodesk’s deferred tax assets and liabilities are as follows:



	January 31,
	2012			2011
Nonqualified stock options	$	71.6		$	69.0
Research and development tax credit carryforwards	49.3			64.0
Foreign tax credit carryforwards	0.1			16.6
Accrued compensation and benefits	35.6			33.7
Other accruals not currently deductible for tax	31.1			20.8
Purchased technology and capitalized software	20.6			25.3
Fixed assets	15.9			15.1
Tax loss carryforwards	12.4			6.3
Other	3.7			2.6
Total deferred tax assets	240.3			253.4
Less: valuation allowance	(47.5		)	(42.9		)
Net deferred tax assets	192.8			210.5
Tax method change on advanced payments	(6.3		)	(9.4		)
Unremitted earnings of foreign subsidiaries	(20.6		)	(53.6		)
Total deferred tax liability	(26.9		)	(63.0		)
Net deferred tax assets	$	165.9		$	147.5

The valuation allowance increased by $4.6 million, $3.9 million and $14.3 million in fiscal 2012, 2011 and 2010, respectively. The fiscal 2012, fiscal 2011, and fiscal 2010 changes in valuation allowance were related to California and Canadian deferred taxes. During the first quarter of fiscal 2010, the State of California enacted legislation significantly altering California tax law. As a result of the newly enacted legislation, Autodesk expects that in fiscal years 2012 and beyond, income subject to tax in California will be less than under prior tax law and accordingly, deferred tax assets are less likely to be realized.

No provision has been made for federal income taxes on unremitted earnings of certain Autodesk's foreign subsidiaries (cumulatively $1,290.1 million at January 31, 2012) because Autodesk plans to reinvest such earnings indefinitely. At January 31, 2012, the net unrecognized deferred tax liability for these earnings was approximately $390.9 million.

Realization of the Company's net deferred tax assets of $165.9 million is dependent upon the Company's ability to generate future taxable income in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credits. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income are reduced.

As of January 31, 2012, Autodesk had $34.2 million of cumulative federal tax loss carryforwards and $306.9 million of cumulative state tax loss carryforwards, which may be available to reduce future income tax liabilities in certain jurisdictions. These federal and state tax loss carryforwards will expire beginning fiscal 2013 through fiscal 2032 and fiscal 2013 through fiscal 2032, respectively.

As of January 31, 2012, Autodesk had $77.8 million of cumulative federal research tax credit carryforwards, $34.3 million of cumulative California state research tax credit carryforwards and $50.1 million of cumulative Canadian federal tax credit carryforwards, which may be available to reduce future income tax liabilities in the respective jurisdictions. The federal credit carryforwards will expire beginning fiscal 2013 through fiscal 2032, the state credit carryforwards may reduce future California income tax liabilities indefinitely, and the Canadian tax credit carryforwards will expire beginning fiscal 2023 through fiscal 2032. Autodesk also has $60.0 million of cumulative foreign tax credit carryforwards, which may be available to reduce future U. S. tax liabilities. The foreign tax credit will expire beginning fiscal 2020 through fiscal 2022.

Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code and similar state provisions. This annual limitation may result in the expiration of net operating losses and credits before utilization.

As a result of certain business and employment actions and capital investments undertaken by Autodesk, income earned in certain Europe and Asia Pacific countries is subject to reduced tax rates through fiscal 2016 and 2019, respectively. with extensions available with incremental business and employment actions. The income tax benefits attributable to the tax status of these business arrangements are estimated to be $10.4 million in fiscal 2012 ($0.046 basic net income per share) and zero in both fiscal 2011 and 2010. The income tax benefits were offset partially by accruals of U.S. income taxes on undistributed earnings, among other factors.

During fiscal 2012, Autodesk recognized income tax expense of $4.4 million related to California taxes, including an increase in the valuation allowance against California deferred taxes. Autodesk also recognized tax benefits of $4.0 million related to changes in estimates as a result of U.S. and foreign tax return filings.

During fiscal 2011, Autodesk recognized income tax expense of approximately $2.1 million primarily related to a change in the expected future tax rates and the increase of a valuation allowance against California deferred taxes of $4.9 million partially offset by the closure of audits and other decreases in uncertain tax positions of $2.8 million.

During fiscal 2010, Autodesk recognized income tax expense of approximately $17.7 million primarily related to a change in the expected future tax rates and the establishment of a valuation allowance against California deferred taxes of $20.2 million partially offset by the closure of audits and other decreases in uncertain tax positions with respect to fiscal 2003 of $2.5 million.

As of January 31, 2012, the Company had $201.1 million of gross unrecognized tax benefits, of which $187.8 million would impact the effective tax rate, if recognized. It is possible that the amount of unrecognized tax benefits will change in the next twelve months; however an estimate of the range of the possible change cannot be made at this time.

A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits is as follows:



	2012			2011			2010
Gross unrecognized tax benefits at the beginning of the fiscal year	$	188.4		$	178.2		$	169.4
Increases for tax positions of prior years	0.4			2.0			3.1
Decreases for tax positions of prior years	(0.4		)	(3.5		)	(1.9		)
Increases for tax positions related to the current year	14.3			13.9			11.1
Decreases for lapse of statute of limitations/audit settlements	(1.6		)	(2.2		)	(3.5		)
Gross unrecognized tax benefits at the end of the fiscal year	$	201.1		$	188.4		$	178.2

It is the Company's continuing practice to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $2.4 million, $1.9 million and $2.2 million, net of tax benefit, accrued for interest and zero accrued for penalties related to unrecognized tax benefits as of January 31, 2012, 2011 and 2010, respectively.

Autodesk and its subsidiaries are subject to income tax in the United States as well as numerous state and foreign jurisdictions. The Company's U.S. and state income tax returns for fiscal year 2003 through fiscal year 2012 remain open to examination. In addition, the Company files tax returns in multiple foreign taxing jurisdictions with open tax years ranging from fiscal year 2003 to 2012.