PROVISION FOR INCOME TAXES

9 Months Ended

Aug. 31, 2013

Income Tax Disclosure [Abstract]

PROVISION FOR INCOME TAXES

PROVISION FOR INCOME TAXES

The effective tax rate was 27% and 22% for the three months ended August 31, 2013 and 2012, respectively, and 22% and 20% for the nine months ended August 31, 2013 and 2012, respectively.

In the three months ended August 31, 2013, we recognized a discrete benefit of $1.4 million to adjust taxes provided for prior U.S. and foreign tax returns and to accrue withholding taxes in jurisdictions where we do not expect to benefit from a foreign tax credit. This included an out-of-period adjustment of $2.2 million related to a tax benefit that was not recorded during the fiscal year ended November 30, 2012.

We recognize the withholding taxes as discrete items because of the high variability of withholding tax rates by country and the difficulty in forecasting the exact country of future revenue.

In the nine months ended August 31, 2013, we recognized certain discrete items of tax expense and benefit of a net of $1.3 million primarily related to adjust taxes provided for prior year U.S. and foreign tax returns, to accrue withholding taxes, and to record tax benefits from retroactive legislative reinstatement of the federal research and development credit.

In the three months ended August 31, 2012, we recognized a discrete tax provision of $1.6 million to adjust taxes provided for prior year U.S. and foreign tax returns and to accrue withholding taxes in jurisdictions where we do not expect to benefit from a foreign tax credit.

In the nine months ended August 31, 2012, we recognized a discrete tax provision of $3.1 million primarily related to estimated withholding taxes.

The provision for the nine month periods ended August 31, 2013 and 2012 reflects a forecasted annual tax rate of 24% and 17%, respectively, offset by discrete items which are booked in the period they occur. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, domestic manufacturing incentives, and federal and state research and development credits, partially offset by the impact of certain stock compensation charges and state income taxes.

On January 2, 2013, the American Taxpayer Relief Act of 2012 (H.R. 8, as amended) was signed into law. This Act extends the federal research and development credit through December 31, 2013. The federal research and development credit was reinstated retroactively to January 1, 2012. The retroactive tax benefit of the federal research and development credit for the eleven months ended November 30, 2012 was recognized as a discrete tax benefit of $3.3 million in the first quarter of fiscal year 2013, the period in which the reinstatement was enacted into law.

We expect to use the single sales factor apportionment for California state taxation, which is expected to lower our future taxable state income. This reduction in taxable income may affect the extent to which we can benefit from $13.5 million (net of reserve for uncertain tax positions) research and development credit carryforwards and $4.8 million net operating loss carryforwards. If we determine that it is more likely than not that we will not be able to fully utilize these carryforwards, we will recognize a valuation allowance against the related deferred tax assets.

During the three months ended August 31, 2013, the amount of gross unrecognized tax benefits increased by approximately $24.2 million primarily due to current period transfer pricing exposures. The total amount of gross unrecognized tax benefits was $85.4 million as of August 31, 2013, of which $66.7 million would benefit tax expense if realized. We elected to include interest expense and penalties accrued on unrecognized tax benefits as a component of our income tax expense. We do not expect any significant changes to the amount of unrecognized tax benefit within the next twelve months.