Note 15. 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 for income taxes and the effective tax rates:


	Three Months Ended April 30,						Six Months Ended April 30,
	2013			2012			2013			2012
	(in thousands)						(in thousands)
Income before income taxes	$	86,707		$	23,489		$	158,437		$	97,318
Provision (benefit) for income tax	$	18,016		$	2,518		$	19,824		$	19,653
Effective tax rate		20.8	%		10.7	%		12.5	%		20.2	%

The Company’s effective tax rate for the three and six months ended April 30, 2013 is lower than the statutory federal income tax rate of 35% primarily due to the lower tax rates applicable to its non-U.S. operations, the reinstatement of the U.S. federal research tax credit, and the reversal of deferred taxes resulting from the merger of a foreign affiliate, partially offset by state taxes and non-deductible stock compensation. The effective tax rate increased in the three months ended April 30, 2013, as compared to the same period in fiscal 2012, primarily due to the benefit of audit settlements and statute lapses in certain foreign jurisdictions recorded in the second quarter of fiscal 2012. The effective tax rate decreased in the six months ended April 30, 2013, as compared to the same period in fiscal 2012, primarily due to the reinstatement of the research tax credit and the reversal of deferred taxes resulting from the merger of a foreign affiliate in the first quarter of 2013.

On January 2, 2013, the President signed into law the American Taxpayer Relief Act which reinstated the research tax credit retroactive to January 1, 2012 and extended the credit through December 31, 2013. As a result of the new legislation, the Company recognized a benefit in the first quarter of fiscal 2013 related to 10 months of fiscal 2012 as well as a benefit to the annual effective tax rate for the full year research tax credit for fiscal 2013.

The Company’s total gross unrecognized tax benefits at April 30, 2013 are $105.5 million exclusive of interest and penalties. If the total gross unrecognized tax benefits at April 30, 2013 were recognized in the future, approximately $92.0 million would decrease the effective tax rate.

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 $21 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 2012
United States – Magma Design Automation		Fiscal years after 2009
California – Synopsys		Fiscal years after 2007
California – Magma Design Automation		Fiscal years after 2008
Hungary		Fiscal years after 2006
Taiwan, Ireland and Japan		Fiscal years after 2007

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.