XML 27 R11.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Business Combinations | 12 Months Ended
--- | ---
Jun. 30, 2018
Business Combinations [Abstract] |
Business Combinations | 4. Business Combinations The Company completed three acquisitions during the year ended June 30, 2018 and an acquisition during the year ended June 30, 2017. The acquisitions have been accounted for using the acquisition method of accounting. The purchase price has been allocated to tangible and identifiable intangible assets acquired and liabilities assumed. 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 to a third party to assume the obligation. Valuations of the intangible assets were valued using income approaches based on management projections, 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. Results of operations of the acquired entities are included in the Company’s operations beginning with the closing date of each acquisition. Fiscal 2018 Acquisitions Data Center Business The Company completed its acquisition of the data center business (the “Data Center Business”) of Brocade Communication Systems, Inc. (“Brocade”) on October 27, 2017 (the “Data Center Business Closing Date”), pursuant to an Asset Purchase Agreement (the “Data Center Business APA”) dated as of October 3, 2017, by and between the Company and Brocade. Under the terms and conditions of the Data Center Business APA, the Company acquired customers, employees, technology and other assets of the Data Center Business as well as assumed certain contracts and other liabilities of the Data Center Business. The fair value of consideration transferred on the Data Center Business Closing Date includes:
| • | cash payment upon closing of $23.0 million,
| • | deferred payments of $1.0 million per quarter for the next twenty full fiscal quarters of the Company following the acquisition date discounted to their present value,
| • | contingent consideration in the form of quarterly earnout payments equal to 50% of the profits of the Data Center Business for the five-year period commencing at the end of the first full fiscal quarter of the Company following the acquisition of the Data Center Business discounted to their present value,
| • | an amount payable due to the excess working capital acquired over the target working capital agreed upon in the Data Center Business APA, and,
| • | a portion of the fair value of stock awards granted to employees assumed from Brocade for which their services were provided prior to the Data Center Business Closing Date.
The components of aggregate estimated purchase consideration are as follows (in thousands):
Estimated purchase consideration | October 27, 2017 |
Cash paid to sellers at closing | $ | 23,000 |
Deferred payments |  | 18,430 |
Contingent consideration |  | 34,100 |
Working capital adjustment |  | 6,534 |
Replacement of stock-based awards |  | 2,273 |
Aggregate estimated purchase consideration | $ | 84,337 |
The purchase price allocation as of the Data Center Business Closing 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, 2018 (in thousands):
| Preliminary Allocation as of October 28, 2017 |  |  | Adjustments |  |  | Final Allocation as of June 30, 2018 |
Accounts receivables | $ | 33,488 |  |  | $ | — |  |  | $ | 33,488 |
Inventories |  | 19,973 |  |  |  | (39 | ) | (a) |  | 19,934 |
Prepaid expenses and other current assets |  | 988 |  |  |  | — |  |  |  | 988 |
Property and equipment |  | 29,160 |  |  |  | (10,222 | ) | (b) |  | 18,938 |
Other assets |  | 4,734 |  |  |  | — |  |  |  | 4,734 |
Accounts payable and accrued expenses |  | (15,850 | ) |  |  | (644 | ) | (c) |  | (16,494 | )
Deferred revenue |  | (33,519 | ) |  |  | 494 |  | (d) |  | (33,025 | )
Net tangible assets acquired |  | 38,974 |  |  |  | (10,411 | ) |  |  | 28,563 |
Identifiable intangible assets |  | 28,600 |  |  |  | 4,200 |  | (e) |  | 32,800 |
Goodwill |  | 16,763 |  |  |  | 6,211 |  |  |  | 22,974 |
Total intangible assets acquired |  | 45,363 |  |  |  | 10,411 |  |  |  | 55,774 |
Total net assets acquired | $ | 84,337 |  |  | $ | — |  |  | $ | 84,337 |
The changes during the measurement period in the table above include: a) finalization of the fair value of existing inventories as of the acquisition date, b) finalization of valuation of assets acquired with limited future use as of the acquisition date, c) identification of additional unpaid invoices existing as of the acquisition date, d) finalization of future cash flows related to deferred revenue contracts and, e) finalization of adjustments to discount rate and future cash flows. The following table presents details of the identifiable intangible assets acquired as part of the acquisition (dollars in thousands):
Intangible Assets |  | Estimated Useful Life (in years) |  |  | Amount |
Developed technology |  | 2 - 4 |  |  | $ | 26,000 |
Customer relationships |  |  | 4 |  |  |  | 5,400 |
Trade names |  |  | 4 |  |  |  | 1,400 |
Total identifiable intangible assets |  |  |  |  |  | $ | 32,800 |
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” in the accompanying consolidated statements of operations. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of the Data Center Business. The Company anticipates both the goodwill and intangible assets to be fully deductible for income tax purposes. Pursuant to negotiations regarding various contractual arrangements with Broadcom, in August 2018, the Company resolved its contingent consideration obligation related to the Data Center Business acquisition. The outstanding balance was revalued to its final fair value as of June 30, 2018 resulting in a charge of $1.5 million which is included in “General and administrative” expense in the accompanying consolidated statements of operations. The results of operations of the Data Center Business are included with those of the Company beginning October 28, 2017. The Data Center Business revenue for the year ended June 30, 2018 was $136.3 million and has been incorporated into the revenue of the Company. The associated expenses of the Data Center 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. During the year ended June 30, 2018, the Company incurred acquisition and integration related expenses of $40.2 million associated with the acquisition of the Data Center Business, including a $25.0 million consent fee paid to terminate a previous asset purchase agreement entered into by the Company to purchase the Data Center Business from Broadcom Corporation, in anticipation of Broadcom’s proposed acquisition of Brocade. The fee was paid to allow the Company to buy the Data Center Business directly from Brocade. Such acquisition-related costs are included in “Acquisition and integration costs, net of bargain purchase gain” in the accompanying consolidated statements of operations. The costs, which the Company expensed as incurred, consist primarily of professional fees to financial and legal advisors and IT consultants. Campus Fabric Business The Company completed its acquisition of Avaya Inc.’s. (“Avaya”) fabric-based secure networking solutions and network security solutions business (the “Campus Fabric Business”) on July 14, 2017, (the “Campus Fabric Business Closing Date”) pursuant to an Asset Purchase Agreement (the “Campus Fabric Business APA”) dated March 7, 2017. Under the terms and conditions of the Campus Fabric Business APA, the Company acquired the customers, employees, technology and other assets of the Campus Fabric Business, as well as assumed certain contracts and other liabilities of the Campus Fabric Business, for total consideration of $79.4 million, calculated as $100.0 million, less adjustments set forth in the Campus Fabric Business APA related to net working capital, deferred revenue, certain assumed lease obligations and certain assumed pension obligations for transferred employees of the Campus Fabric Business. 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, 2018. The following table below summarizes the final allocation as of June 30, 2018 of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands):
| Preliminary Allocation as of July 14, 2017 |  |  | Adjustments |  |  | Final Allocation as of June 30, 2018 |
Accounts receivables | $ | 18,112 |  |  | $ | 1,415 |  | (a) | $ | 19,527 |
Inventories |  | 16,605 |  |  |  | (2,440 | ) | (g)(h)(k) |  | 14,165 |
Prepaid expenses and other current assets |  | 673 |  |  |  | (433 | ) | (b) |  | 240 |
Property and equipment |  | 3,768 |  |  |  | 1,638 |  | (c) |  | 5,406 |
Other assets |  | 2,568 |  |  |  | 4,441 |  | (d)(h) |  | 7,009 |
Accounts payable and accrued expenses |  | (29,716 | ) |  |  | (1,954 | ) | (e)(i)(j) |  | (31,670 | )
Deferred revenue |  | (10,214 | ) |  |  | 1,220 |  | (d)(i) |  | (8,994 | )
Other long-term liabilities |  | (6,608 | ) |  |  | 759 |  | (j) |  | (5,849 | )
Net tangible assets acquired |  | (4,812 | ) |  |  | 4,646 |  |  |  | (166 | )
Identifiable intangible assets |  | 44,000 |  |  |  | (2,700 | ) | (f) |  | 41,300 |
In-process research and development |  | 2,300 |  |  |  | 100 |  | (f) |  | 2,400 |
Goodwill |  | 38,338 |  |  |  | (2,446 | ) |  |  | 35,892 |
Total intangible assets acquired |  | 84,638 |  |  |  | (5,046 | ) |  |  | 79,592 |
Total net assets acquired | $ | 79,826 |  |  | $ | (400 | ) |  | $ | 79,426 |
Adjustments to the preliminary allocation as of the Closing Date through the final allocation during the measurement period as reflected in the table above include: a) identification of additional accounts receivable that existed as of the acquisition date, b) additional information on existing prepaid expenses as of the acquisition date, c) identification of additional property and equipment, d) adjustment to future cash flows of remaining performance obligations of certain customer contracts as of the acquisition date, e) identification of additional unpaid invoices as of the acquisition date, and f) finalization of adjustments to discount rate and future cash flows, g) additional receipts of inventory from Avaya pertaining to the Campus Fabric Business, h) reclassification of service parts to other assets, i) reclassification from deferred revenue to accounts payable, j) reclassification of long-term liabilities to short-term liabilities assumed, and k) adjustments to purchase consideration based on working capital settlement specifically related to inventory that could not be located. The following table presents details of the identifiable intangible assets acquired as part of the acquisition (dollars in thousands):
Intangible Assets |  | Estimated Useful Life (in years) |  |  | Amount |
Developed technology |  | 2 - 4 |  |  | $ | 31,800 |
Customer relationships |  |  | 4 |  |  |  | 5,100 |
Trade names |  | 4 - 5 |  |  |  | 2,600 |
Backlog |  |  | 1 |  |  |  | 1,800 |
Total identifiable intangible assets |  |  |  |  |  | $ | 41,300 |
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” in the accompanying consolidated statement of operations. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of the Campus Fabric Business. The Company anticipates both the goodwill and intangible assets to be fully deductible for income tax purposes. The Company also acquired an indefinite lived asset of $2.4 million which represents the fair value of in-process research and development activities. During the three months ended March 31, 2018, the related research and development efforts were completed and the Company reclassified the in-process research and development of $2.4 million to developed technology and began recognizing amortization expense over its estimated useful life. The results of operations of the Campus Fabric Business are included in the accompanying consolidated results of operations beginning July 14, 2017. The Campus Fabric Business revenue for the year ended June 30, 2018 was $179.8 million and has been incorporated into the revenue of the Company. The associated expenses of the Campus Fabric 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. In the year ended June 30, 2018, the Company incurred acquisition and integration related expenses of $18.7 million associated with the acquisition of the Campus Fabric Business. Such acquisition-related costs are included in “Acquisition and integration costs, net of bargain purchase gain” in the accompanying consolidated statements 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. Capital Financing Business On December 1, 2017, Company completed its acquisition of a capital financing business (the “CF Business”), pursuant to a Bill of Sale and Assignment and Assumption Agreement (the “Assumption Agreement”) between the Company and Broadcom. Under the terms and conditions of the Assumption Agreement, the Company acquired customers, employees, contracts and lease equipment of the CF Business for purchase consideration consisting of the earn out payments to Broadcom representing 90% of acquired financing receivables to be collected commencing at the closing date, which was determined to have a fair value of $13.0 million. Net assets acquired included financing receivables of $13.7 million, lease equipment of $3.5 million and identifiable intangible assets of $0.8 million. As the fair value of the net assets acquired exceeded the fair value of the purchase consideration, the Company recorded a bargain purchase gain of $5.0 million which is included in “Acquisition and integration costs, net of bargain purchase gain” in the accompanying consolidated statements of operations. Acquisition and integration related expenses associated with the acquisition of the CF Business were immaterial. Fiscal 2017 Acquisition On October 28, 2016, the Company completed its acquisition of the wireless local area network business (“WLAN Business”) from Zebra Technologies Corporation. Under the terms of the WLAN Asset 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 of $49.5 million. The following table below summarizes the final allocation of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands):
| Final Allocation as of October 28, 2016 |
Accounts receivables, net | $ | 14,636 |
Inventories |  | 13,593 |
Other current assets |  | 808 |
Property and equipment |  | 3,159 |
Other 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 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 consolidated statements of operations. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of the WLAN Business. 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 $1.4 million which represents the fair value of in-process research and development activities. The in-process research and development was reclassified to developed technology upon completion of the project as of June 30, 2018 and is being amortized over its estimated useful life. Pro forma financial information The following unaudited pro forma results of operations are presented as though the acquisitions of the Data Center Business, Campus Fabric Business, CF Business 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 year ended June 30, 2018, combines the results for Extreme for the year ended June 30, 2018, which include the results of the Data Center Business, CF Business and Campus Fabric Business subsequent to their acquisition dates and their historical results up to the acquisition date. The unaudited pro forma financial information for the year ended June 30, 2017, combines the historical results for Extreme for those periods, as adjusted for the adoption of Topic 606, with the historical results of the Data Center Business, CF Business and Campus Fabric Business for the year ended June 30, 2017, as well as the historical results of the WLAN Business prior to the WLAN Business acquisition date. Pro forma results of operations from the Data Center Business, CF Business, Campus Fabric Business and WLAN Business acquisitions included in the pro forma results of operations have not been adjusted for the adoption of Topic 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):
| Year Ended |
| June 30, 2018 |  |  | June 30, 2017 |
Net revenues | $ | 1,076,988 |  |  | $ | 1,205,696 |
Net loss | $ | (27,007 | ) |  | $ | (143,835 | )
Net loss per share - basic | $ | (0.24 | ) |  | $ | (1.33 | )
Net loss per share - diluted | $ | (0.24 | ) |  | $ | (1.33 | )
Shares used in per share calculation - basic |  | 114,221 |  |  |  | 108,273 |
Shares used in per share calculation - diluted |  | 114,221 |  |  |  | 108,273 |

X
- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration