Note 14. Taxes

Effective Tax Rate

The Company estimates its annual effective tax rate at the end of each fiscal quarter. The Company's estimate takes into account estimations of annual pre-tax income, the geographic mix of pre-tax income and the Company's 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 April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
	(in thousands)						(in thousands)
Income before income taxes	$	57,259		$	53,873		$	109,591		$	111,215
Provision (benefit) for income tax	$	(23,855	)	$	14,324		$	(19,749	)	$	(61,120	)
Effective tax rate		(41.7	)%		26.6	%		(18.0	)%		(55.0	)%

The Company's effective tax rate for the three months ended April 30, 2011 is negative and substantially lower than the statutory federal income tax rate of 35% primarily due to the tax impact of a final settlement with the IRS for fiscal years 2006 through 2009 of $32.8 million as well as lower tax rates applicable to its non-U.S. operations partially offset by state taxes and non-deductible stock compensation. The effective tax rate decreased in the three months ended April 30, 2011, as compared to the same period in fiscal 2010, primarily due to the IRS settlement. The effective tax rate for the six months ended April 30, 2011 differed from the same period in fiscal 2010 primarily due to the tax impact of an IRS settlement of fiscal years 2002 through 2004 of which a $91.6 million benefit was recorded in the first quarter of fiscal 2010. The Company files income tax returns in the U.S. and various state and local jurisdictions. Its subsidiaries file tax returns in various foreign jurisdictions, including Ireland, Hungary, Taiwan and Japan. The Company remains subject to income tax examinations in the U.S for fiscal years after 2009. In Ireland, Hungary, Taiwan and Japan, our subsidiaries remain subject to tax examinations for fiscal years after 2005. See IRS Examinations below for the status of our current federal income tax audits.

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 the three months ended April 30, 2011, there were material changes to the total gross unrecognized tax benefits as a result of the IRS settlement. The Company believes that before the end of fiscal 2011, it is reasonably possible that the statute of limitations on certain state and foreign income and withholding taxes will expire. 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 $88 million.

IRS Examinations

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 impact 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 2009, the Company reached a tentative settlement with the Examination Division of 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. The Company was notified of final approval on January 4, 2010. This final 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, principally related to the acquisition of Avant! Corporation in 2002, 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.

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.