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Business Combinations | 3 Months Ended
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Sep. 30, 2017
Business Combinations [Abstract] |
Business Combinations | 2. Business Combinations 2018 Acquisition On July 14, 2017, (the “Avaya Closing Date”) the Company completed its acquisition of Avaya Inc.’s. (“Avaya”) fabric-based secure networking solutions and network security solutions business (“Avaya Networking”) that had been announced on March 7, 2017. Upon the terms and subject to the conditions of the asset purchase agreement (the “Avaya Purchase Agreement”), the Company acquired the customers, employees, technology and other assets of Avaya Networking, as well as assume certain contracts and other liabilities of Avaya Networking, for total provisional consideration of $79.8 million, calculated as $100.0 million, less adjustments set forth in the Avaya Purchase Agreement related to net working capital, deferred revenue, certain assumed lease obligations and certain assumed pension obligations for transferring employees of Avaya Networking. Pursuant to certain ancillary agreements, Avaya will also provide the Company with access to specified technology related to Avaya Networking, as well as transition services for a period of time following the Avaya Closing Date of the transaction. As a condition of the Avaya Purchase Agreement, the Company had made deposits of $10.2 million in the third quarter of fiscal 2017, which were applied to the purchase price upon the Avaya Closing Date. The transaction has been accounted for using the acquisition method of accounting. The provisional purchase price has been allocated on a preliminary basis to tangible and intangible assets acquired and liabilities assumed. The final purchase price allocation is pending the finalization of valuations, which may result in an adjustment to the preliminary purchase price allocation. Also, additional information which existed as of the acquisition date, but was unknown to the Company at that time, may become known to the Company during the remainder of the measurement period (up to one year from the acquisition date), and may result in a change in the purchase price allocation. While management believes that its preliminary estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table below summarizes the preliminary allocation as of September 30, 2017 of the tangible and identifiable intangible assets acquired and liabilities assumed:
| Preliminary Allocation as of July 14, 2017 |
Accounts receivables, net | $ | 18,112 |
Inventory |  | 16,605 |
Other current assets |  | 673 |
Property and equipment |  | 3,768 |
Other long-term assets |  | 2,568 |
Accounts payable and accrued expenses |  | (29,716 | )
Deferred revenue |  | (10,214 | )
Other liabilities |  | (6,608 | )
Net tangible assets acquired |  | (4,812 | )
Identifiable intangible assets |  | 44,000 |
In-process research and development |  | 2,300 |
Goodwill |  | 38,338 |
Total intangible assets acquired |  | 84,638 |
Total net assets acquired | $ | 79,826 |
The estimated purchase price has been allocated based on the preliminary estimates of the fair value of assets acquired and liabilities assumed as of the acquisition date. The fair value of working capital related items, such as other current assets and accrued liabilities, approximated their book values at the date of acquisition. Inventories were valued at fair value using the net realizable value approach. The fair value of property and equipment was determined using a cost approach. The fair value of the acquired deferred revenue was estimated using the cost build-up approach. The cost build-up approach determines fair value using estimates of the costs required to provide the contracted deliverables plus an assumed profit. The total costs including the assumed profit were adjusted to present value using a discount rate considered appropriate. The resulting fair value approximates the amount that the Company would be required to pay a third party to assume the obligation. Valuations of the intangible assets were valued using income approaches based on projections provided by management, which the Company considers to be Level 3 inputs. The Company also continues to analyze the tax implications of the acquisition of the intangible assets which may ultimately impact the overall level of goodwill associated with the acquisition. The following table presents details of the identifiable intangible assets acquired as part of the acquisition (in thousands):
Intangible Assets |  | Estimated Useful Life (in years) |  |  | Amount |
Developed technology |  |  | 6 |  |  | $ | 34,800 |
Customer relationships |  |  | 4 |  |  |  | 5,300 |
Trademarks |  |  | 5 |  |  |  | 2,400 |
Backlog |  |  | 1 |  |  |  | 1,500 |
Total identifiable intangible assets |  |  |  |  |  | $ | 44,000 |
The amortization for the developed technology is recorded in “Cost of revenues” for product and the amortization for the remaining intangibles is recorded in “Amortization of intangibles” on the condensed consolidated statement of operations. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of the Avaya Networking. The Company anticipates both the goodwill and intangible assets to be fully deductible for tax purposes. The Company also acquired an indefinite lived asset of $2.3 million which represents the fair value of in-process research and development activities. Once the related research and development efforts are completed, the Company will determine whether the asset will continue to be an indefinite lived asset or become a finite lived asset and apply the appropriate accounting accordingly. The results of operations of Avaya Networking are included in the condensed consolidated results of operations beginning July 14, 2017. The associated expenses of the Avaya Networking business have been incorporated with the results of operations of the Company as a product line and, therefore, stand-alone operating results are not available. The Company incurred $5.1 million of acquisition-related expenses of which $2.9 million was incurred in the three months ended September 30, 2017. Such acquisition-related costs are included in “Acquisition and integration costs” on the condensed consolidated statement of operations. The costs, which the Company expensed as incurred, consist primarily of professional fees to financial and legal advisors and IT consultants and companies. 2017 Acquisition On October 28, 2016, the Company completed the acquisition of the wireless local area network business (“WLAN Business”) from Zebra Technologies Corporation. Under the terms of the purchase agreement, the Company acquired customers, employees, technology and other assets as well as assumed certain contracts and other liabilities of the WLAN Business, for a net cash consideration to $49.5 million. The acquisition has been accounted for using the acquisition method of accounting. The purchase price allocation as of the acquisition date is set forth in the table below and reflects fair values. The fair values were determined through established and generally accepted valuation techniques, including work performed by third-party valuation specialists. All valuations were considered finalized as of June 30, 2017. The following table below summarizes the final allocation of the tangible and identifiable intangible assets acquired and liabilities assumed:
| Final Allocation as of October 28, 2016 |
Accounts receivables, net | $ | 14,636 |
Inventory |  | 13,593 |
Other current assets |  | 808 |
Property and equipment |  | 3,159 |
Other long-term assets |  | 7,634 |
Deferred revenue |  | (14,159 | )
Other liabilities |  | (7,201 | )
Total tangible assets acquired and liabilities assumed |  | 18,470 |
Identifiable intangible assets |  | 20,300 |
In-process research and development |  | 1,400 |
Goodwill |  | 9,339 |
Total intangible assets acquired |  | 31,039 |
Total net assets acquired | $ | 49,509 |
The purchase price has been allocated based on the fair value of assets acquired and liabilities assumed as of the acquisition date. The fair value of working capital related items, such as other current assets and accrued liabilities, approximated their book values at the date of acquisition. Inventories were valued at fair value using the net realizable value approach. The fair value of property and equipment was determined using a cost approach. The fair value of the acquired deferred revenue was estimated using the cost build-up approach. The cost build-up approach determines fair value using estimates of the costs required to provide the contracted deliverables plus an assumed profit. The total costs including the assumed profit were adjusted to present value using a discount rate considered appropriate. The resulting fair value approximates the amount that the Company would be required to pay a third party to assume the obligation. Valuations of the intangible assets were valued using income approaches based on projections provided by management, which we consider to be Level 3 inputs. Pro forma financial information The following unaudited pro forma results of operations are presented as though the acquisition of Avaya Networking and WLAN Business had occurred as of the beginning of the earliest period presented after giving effect to purchase accounting adjustments relating to inventories, deferred revenue, depreciation and amortization on acquired property and equipment and intangibles, acquisition costs, interest income and expense and related tax effects. The pro forma results of operations are not necessarily indicative of the combined results that would have occurred had the acquisition been consummated as of the earliest period presented, nor are they necessarily indicative of future operating results. The unaudited pro forma results do not include the impact of synergies, nor any potential impacts on current or future market conditions which could alter the unaudited pro forma results. The unaudited pro forma financial information for the three months ended September 30, 2017, combines the results for Extreme for the three months ended September 30, 2017, which include the results of Avaya Networking subsequent to the acquisition date, and the historical results of Avaya Networking for the month of July 2017 up to the acquisition date of July 14, 2017. Pro forma results of operations from Avaya Networking acquisition for the quarter ended September 30, 2017 prior to the acquisition date have not been adjusted for the adoption of ASC 606 because the Company determined that it was impractical to estimate the impact of the adoption. The unaudited pro forma financial information for the three months ended September 30, 2016, combines the historical results for Extreme for those periods, as adjusted for the adoption of ASC 606, with the historical results of Avaya Networking and WLAN Business for the three months ended September 30, 2016. Pro forma results of operations from Avaya Networking and WLAN Business acquisitions for the quarter ended September 30, 2016 have not been adjusted for the adoption of ASC 606 because the Company determined that it is impractical to estimate the impact of the adoption. The following table summarizes the unaudited pro forma financial information (in thousands, except per share amounts):
|  | Three Months Ended |
|  | September 30, 2017 |  |  | September 30, 2016 |
|  |  |  |  |  | (As adjusted) |
Net revenues |  | $ | 222,382 |  |  | $ | 238,858 |
Net income (loss) |  | $ | 16,776 |  |  | $ | (8,936 | )
Net income (loss) per share - basic |  | $ | 0.15 |  |  | $ | (0.08 | )
Net income (loss) per share - diluted |  | $ | 0.14 |  |  | $ | (0.08 | )
Shares used in per share calculation - basic |  |  | 112,241 |  |  |  | 105,955 |
Shares used in per share calculation - diluted |  |  | 118,431 |  |  |  | 105,955 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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