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Income Taxes | 12 Months Ended
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Jun. 30, 2014
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income before income taxes is as follows (in thousands):
| Year Ended
| June 30, 2014 |  | June 30, 2013 |  | June 30, 2012
Domestic | $ | (70,321 | ) |  | $ | 14,692 |  |  | $ | 20,839 |
Foreign | 17,200 |  |  | (3,341 | ) |  | (3,771 | )
Total | $ | (53,121 | ) |  | $ | 11,351 |  |  | $ | 17,068 |
The provision for income taxes for fiscal 2014, 2013 and fiscal 2012 consisted of the following (in thousands):
| Year Ended
| June 30, 2014 |  | June 30, 2013 |  | June 30, 2012
Current: |  |  |  |  |
Federal | $ | 22 |  |  | $ | 225 |  |  | $ | 114 |
State | 329 |  |  | 140 |  |  | 79 |
Foreign | 2,987 |  |  | 1,163 |  |  | 916 |
Total current | 3,338 |  |  | 1,528 |  |  | 1,109 |
Deferred: |  |  |  |  |
Federal | 1,632 |  |  | 15 |  |  | 30 |
State | 76 |  |  | — |  |  | — |
Foreign | (857 | ) |  | 135 |  |  | 57 |
Total deferred | 851 |  |  | 150 |  |  | 87 |
Provision for income taxes | $ | 4,189 |  |  | $ | 1,678 |  |  | $ | 1,196 |
The difference between the provision for income taxes and the amount computed by applying the federal statutory income tax rate (35 percent) to income before taxes is explained below (in thousands):
| Year Ended
| June 30, 2014 |  | June 30, 2013 |  | June 30, 2012
Tax at federal statutory rate | $ | (18,592 | ) |  | $ | 3,973 |  |  | $ | 5,974 |
State income tax, net of federal benefit | 329 |  |  | 105 |  |  | 51 |
Change in valuation allowance | 20,729 |  |  | (3,687 | ) |  | (8,035 | )
Foreign earnings taxed at other than U.S. rates | (346 | ) |  | 498 |  |  | 3,607 |
Deferred compensation | 348 |  |  | 845 |  |  | 170 |
Goodwill amortization | 1,097 |  |  | — |  |  | — |
Other | 624 |  |  | (56 | ) |  | (571 | )
Provision for income taxes | $ | 4,189 |  |  | $ | 1,678 |  |  | $ | 1,196 |
Significant components of the Company’s deferred tax assets are as follows (in thousands):
| June 30, 2014 |  | June 30, 2013
Deferred tax assets: |  |  |
Net operating loss carry-forwards | $ | 97,630 |  |  | $ | 85,276 |
Tax credit carry-forwards | 30,019 |  |  | 28,882 |
Depreciation | 129 |  |  | — |
Intangible amortization | 6,061 |  |  | — |
Deferred revenue (net) | 10,540 |  |  | 9,710 |
Warrant amortization | 2,723 |  |  | 3,991 |
Inventory write-downs | 3,265 |  |  | 2,759 |
Other allowances and accruals | 6,380 |  |  | 3,658 |
Stock based compensation | 6,257 |  |  | 2,973 |
Other | 10,772 |  |  | 5,741 |
Total deferred tax assets | 173,776 |  |  | 142,990 |
Valuation allowance | (172,475 | ) |  | (142,023 | )
Total net deferred tax assets | 1,301 |  |  | 967 |
Deferred tax liabilities: |  |  |
Depreciation | — |  |  | (388 | )
Goodwill amortization | (1,097 | ) |  | — |
Brazilian foreign exchange gain | (2,670 | ) |  | — |
Deferred tax liability on foreign withholdings | (167 | ) |  | (134 | )
Total deferred tax liabilities | (3,934 | ) |  | (522 | )
Net deferred tax assets (liabilities) | $ | (2,633 | ) |  | $ | 445 |
Recorded as: |  |  |
Net current deferred tax assets | $ | 1,058 |  |  | $ | 386 |
Net non-current deferred tax assets | 230 |  |  | 294 |
Net current deferred tax liabilities | (2,657 | ) |  | (235 | )
Net non-current deferred tax liabilities | (1,264 | ) |  | — |
Net deferred tax assets (liabilities) | $ | (2,633 | ) |  | $ | 445 |
The Company's global valuation allowance increased by $30.5 million in the fiscal year ended June 30, 2014 and increased by $1.4 million in the fiscal year ended June 30, 2013. The Company has provided a full valuation allowance against all of its U.S. federal and state deferred tax assets, as well as valuation allowances against non-U.S. deferred tax assets in Australia, Brazil, Japan and Singapore. The valuation allowance is determined by assessing both negative and positive available evidence to assess whether it is more likely than not that the deferred tax assets will be recoverable; The Company's inconsistent earnings in recent periods coupled with the inability to forecast greater than one quarter in advance as well as the cyclical nature of the Company's business provides sufficient negative evidence to require a full valuation allowance against its U.S. federal and state net deferred tax assets. The valuation allowance is evaluated periodically and can be reversed partially or in full if business results and the economic environment have sufficiently improved to support realization of the Company's deferred tax assets. As of June 30, 2014, the Company had net operating loss carry-forwards for U.S. federal and state tax purposes of $290.2 million and $97.4 million, respectively, of which $38.6 million and $36.0 million, respectively, represent deductions from share-based compensation for which a benefit would be recorded in additional paid-in capital when realized. The Company also had foreign net operating loss carry-forwards in Ireland, Australia, Japan and Singapore of $67.5 million, $12.5 million, $0.1 million, and $1.9 million, respectively, as of June 30, 2014. The Company also had federal and state tax credit carry-forwards of $19.1 million and $16.8 million, respectively, as of June 30, 2014. These credit carryforwards consist of research and development tax credits as well as foreign tax credits with a small portion representing Alternative Minimum Tax Credits. The U.S. federal net operating loss carry-forwards of $290.2 million will begin to expire in the fiscal year ending June 30, 2021 and state net operating losses of $97.4 million will begin to expire in the fiscal year ending June 30, 2015, if not utilized. The foreign net operating losses can generally be carried forward indefinitely. Federal research and development tax credits of $19.1 million will expire beginning in the fiscal year ending June 30, 2018, if not utilized and North Carolina state research and development tax credits of $1.2 million will expire beginning in the fiscal year ending June 30, 2015, if not utilized. California state research and development tax credits of $15.6 million do not expire and can be carried forward indefinitely. As of June 30, 2014, the Company performed an Internal Revenue Code section 382 analysis with respect to its net operating loss and credit carry-forwards to determine whether a potential ownership change had occurred that would place a limitation on the annual utilization of tax attributes. It was determined that no ownership change had occurred during the fiscal year ended June 30, 2014, however, it is possible a subsequent ownership change could limit the utilization of the Company's tax attributes. As of June 30, 2014, the Company intends to indefinitely reinvest the earnings of approximately $78.2 million of certain foreign corporations. If such earnings were distributed, the Company would accrue an additional income tax expense of approximately $1.5 million. The Company conducts business globally and as a result, most of its subsidiaries file income tax returns in various domestic and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. Its major tax jurisdictions are the U.S., Ireland, Brazil, India, California, New Hampshire and North Carolina. The Company is not currently under examination by any federal, state or foreign tax authority with respect to income taxes. The Company recently settled an income tax examination of one of its subsidiaries with the Italian tax authorities. The tax reserves were adjusted appropriately to reflect this settlement. In general, the Company's U.S. federal income tax returns are subject to examination by tax authorities for fiscal years 2001 forward due to net operating losses and the Company's state income tax returns are subject to examination for fiscal years 2000 forward due to net operating losses. During the fiscal year ended June 30, 2014, the Company acquired the stock of Enterasys Networks, Inc. and as such they became a wholly owned subsidiary of Extreme Networks. With respect to this acquisition, the Company made an election under Internal Revenue Code section 338(h)(10) to treat the acquisition as an asset purchase from a tax perspective. Under this election the tax basis of all assets is effectively reset to that of fair market value and therefore the transaction did not result in the recording of an opening net deferred tax position as the Company's tax basis in the acquired assets equaled its book basis. As of June 30, 2014, the Company had $11.6 million of unrecognized tax benefits. If fully recognized in the future, $0.2 million would impact the effective tax rate, and $11.0 million would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance. It is reasonably possible that the amount of unrealized tax benefit could decrease by approximately $0.2 million during the next twelve months due to the expiration of the statute of limitations in certain foreign jurisdictions. A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows (in thousands):
Balance at July 3, 2011 | $ | 26,010 |
Increases related to prior year tax positions | (444 | )
Increases related to current year tax positions | 729 |
Lapse of statute of limitations | (549 | )
Balance at June 30, 2012 | $ | 25,746 |
Decrease related to prior year tax positions | (14,966 | )
Increase related to prior year tax positions | 45 |
Increase related to current year tax positions | 270 |
Lapse of statute of limitations | (197 | )
Balance at June 30, 2013 | $ | 10,898 |
Decrease related to prior year tax positions | — |
Increase related to prior year tax positions | 415 |
Increase related to current year tax positions | 464 |
Lapse of statute of limitations | (177 | )
Balance at June 30, 2014 | $ | 11,600 |
Estimated interest and penalties related to the underpayment of income taxes are classified as a component of tax expense in the Consolidated Statement of Operations and totaled approximately $14,000, $14,000, and $28,000 for the years ended June 30, 2014, June 30, 2013, and June 30, 2012, respectively. Accrued interest and penalties were approximately $22,000 and $40,000 as of June 30, 2014 and June 30, 2013, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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