PROVISION FOR INCOME TAXES

9 Months Ended

Aug. 31, 2012

PROVISION FOR INCOME TAXES

14. PROVISION FOR INCOME TAXES

The effective tax rate was approximately 22% and 33% for the three months ended August 31, 2012 and 2011, respectively, and approximately 20% and 25% for the nine months ended August 31, 2012 and 2011, respectively.

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. We accrue 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, 2012, we recognized a discrete tax provision of $3.1 million primarily related to estimated withholding taxes in jurisdictions where we do not expect to benefit from a foreign tax credit.

In the three months ended August 31, 2011, we recognized a $0.6 million tax expense to adjust taxes provided for the prior year and a $0.6 million tax expense related to a reduction of U.K. deferred tax assets due to a corporate tax rate change.

In the nine months ended August 31, 2011, we recognized a $3.2 million discrete tax benefit primarily related to lapses of statutes of limitations and reinstatement of federal research and development credit.

The provision for the nine month periods ended August 31, 2012 and 2011 reflects a forecasted annual tax rate of 17% and 27%, respectively, offset by discrete items which are recognized in the period they occur. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, the release of the valuation allowance on certain domestic tax assets, 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.

For California state taxation we elected the single sales factor apportionment; we expect that the election will reduce our future taxable income and thus may affect the extent to which we can benefit from $10.0 million in deferred tax assets from research and development credit carry forwards. If we determine that it is more likely than not that we will not be able to fully utilize these credits, we will be required to recognize a valuation allowance against theses deferred tax assets.

During the three months ended August 31, 2012, the amount of gross unrecognized tax benefits increased by approximately $3.5 million primarily due to current period exposures. The total amount of gross unrecognized tax benefits was $51.7 million as of August 31, 2012, of which $32.1 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.

We are subject to periodic corporate income tax audits in both the United States and foreign jurisdictions. As of August 31, 2012 we have several tax audits at various stages of completion. We believe that we have provided adequate reserves to cover any potential audit adjustments. The statute of limitations for our fiscal years 1994 through 2011 remains open for U.S. purposes. Most foreign jurisdictions have statutes of limitations that range from three to six years.