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Income Taxes | 12 Months Ended
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Jun. 30, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | 15. Income Taxes Income before income taxes is as follows (in thousands):
|  | Year Ended |
|  | June 30, |  |  | June 30, |  |  | June 30, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Domestic |  | $ | 22,330 |  |  | $ | (55,197 | ) |  | $ | (7,228 | )
Foreign |  |  | (48,204 | ) |  |  | 8,550 |  |  |  | 9,824 |
Total |  | $ | (25,874 | ) |  | $ | (46,647 | ) |  | $ | 2,596 |
The provision for income taxes for the years ended 2019, 2018 and 2017 consisted of the following (in thousands):
|  | Year Ended |
|  | June 30, |  |  | June 30, |  |  | June 30, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | (155 | ) |  | $ | (155 | )
State |  |  | 655 |  |  |  | 521 |  |  |  | 168 |
Foreign |  |  | 5,100 |  |  |  | 4,456 |  |  |  | 2,332 |
Total current |  |  | 5,755 |  |  |  | 4,822 |  |  |  | 2,345 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (3,691 | ) |  |  | (6,358 | ) |  |  | 3,063 |
State |  |  | (488 | ) |  |  | 294 |  |  |  | 99 |
Foreign |  |  | (1,597 | ) |  |  | 1,387 |  |  |  | (1,167 | )
Total deferred |  |  | (5,776 | ) |  |  | (4,677 | ) |  |  | 1,995 |
Provision for income taxes |  | $ | (21 | ) |  | $ | 145 |  |  | $ | 4,340 |
The difference between the provision for income taxes and the amount computed by applying the federal statutory income tax rate (21 percent for fiscal 2019 pursuant to the recently enacted U.S. tax legislation) to income before taxes is explained below (in thousands):
|  | Year Ended |
|  | June 30, |  |  | June 30, |  |  | June 30, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Tax at federal statutory rate |  | $ | (5,433 | ) |  | $ | (13,061 | ) |  | $ | 909 |
State income tax, net of federal benefit |  |  | 517 |  |  |  | 521 |  |  |  | 168 |
Release of foreign valuation allowance |  |  | (2,794 | ) |  |  | — |  |  |  | — |
Release of US valuation allowance – Tax reform |  |  | (4,680 | ) |  |  | — |  |  |  | — |
Establishment of Irish valuation allowance |  |  | 8,642 |  |  |  | — |  |  |  | — |
US valuation allowance change – deferred tax movement |  |  | (4,444 | ) |  |  | 25,302 |  |  |  | 3,246 |
Research and development credits |  |  | (6,598 | ) |  |  | (7,311 | ) |  |  | (1,355 | )
Foreign earnings taxed at other than U.S. rates |  |  | 10,562 |  |  |  | (1,065 | ) |  |  | (492 | )
Stock based compensation |  |  | 2,436 |  |  |  | (5,901 | ) |  |  | (573 | )
Goodwill amortization |  |  | 834 |  |  |  | 2,004 |  |  |  | 1,795 |
Nondeductible officer compensation |  |  | 713 |  |  |  | 1,927 |  |  |  | 470 |
Nondeductible meals and entertainment |  |  | 517 |  |  |  | 510 |  |  |  | 391 |
AMT credit monetization |  |  | — |  |  |  | (155 | ) |  |  | (155 | )
Deferred tax liability release - Tax reform |  |  | — |  |  |  | (2,482 | ) |  |  | — |
Other |  |  | (293 | ) |  |  | (144 | ) |  |  | (64 | )
Provision for income taxes |  | $ | (21 | ) |  | $ | 145 |  |  | $ | 4,340 |
Significant components of the Company’s deferred tax assets are as follows (in thousands):
|  | June 30, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Net operating loss carry-forwards |  | $ | 36,514 |  |  | $ | 49,429 |  |  | $ | 109,170 |
Tax credit carry-forwards |  |  | 54,745 |  |  |  | 48,093 |  |  |  | 34,444 |
Depreciation |  |  | 2,168 |  |  |  | 1,422 |  |  |  | 1,312 |
Intangible amortization |  |  | 36,882 |  |  |  | 35,107 |  |  |  | 32,919 |
Deferred revenue, net |  |  | 1,887 |  |  |  | 159 |  |  |  | 3,320 |
Inventory write-downs |  |  | 10,277 |  |  |  | 13,682 |  |  |  | 11,111 |
Other allowances and accruals |  |  | 30,210 |  |  |  | 25,700 |  |  |  | 13,002 |
Stock based compensation |  |  | 4,114 |  |  |  | 4,872 |  |  |  | 3,545 |
Deferred intercompany gain |  |  | 3,693 |  |  |  | — |  |  |  | — |
Other |  |  | 673 |  |  |  | 3,219 |  |  |  | 4,270 |
Total deferred tax assets |  |  | 181,163 |  |  |  | 181,683 |  |  |  | 213,093 |
Valuation allowance |  |  | (169,343 | ) |  |  | (177,869 | ) |  |  | (212,111 | )
Total net deferred tax assets |  |  | 11,820 |  |  |  | 3,814 |  |  |  | 982 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Goodwill amortization |  |  | (4,904 | ) |  |  | (3,363 | ) |  |  | (6,254 | )
Prepaid commissions |  |  | (1,585 | ) |  |  | (1,034 | ) |  |  | — |
Deferred tax liability on foreign withholdings |  |  | (505 | ) |  |  | (357 | ) |  |  | (321 | )
Total deferred tax liabilities |  |  | (6,994 | ) |  |  | (4,754 | ) |  |  | (6,575 | )
Net deferred tax assets (liabilities) |  | $ | 4,826 |  |  | $ | (940 | ) |  | $ | (5,593 | )
Recorded as: |  |  |  |  |  |  |  |  |  |  |  |
Net non-current deferred tax assets |  |  | 6,783 |  |  |  | 5,195 |  |  |  | 983 |
Net non-current deferred tax liabilities |  |  | (1,957 | ) |  |  | (6,135 | ) |  |  | (6,576 | )
Net deferred tax assets (liabilities) |  | $ | 4,826 |  |  | $ | (940 | ) |  | $ | (5,593 | )
The Company’s global valuation allowance decreased by $8.5 million in the fiscal year ended June 30, 2019 and de creased by $34.2 million in the fiscal year ended June 30, 2018. 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 certain non-U.S. deferred tax assets in Ireland and Brazil. 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, including a cumulative loss over the last three years, coupled with its difficulty in forecasting future revenue trends 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, 2019, the Company had net operating loss carry-forwards for U.S. federal and state tax purposes of $126.6 million and $56.7 million, respectively. As of June 30, 2019, the Company also had foreign net operating loss carry-forwards in Ireland, Australia and Brazil of $36.9 million, $7.9 million and $0.4 million, respectively. As of June 30, 2019, the Company also had federal and state tax credit carry-forwards of $37.3 million and $22.1 million, respectively. These credit carry-forwards consist of research and development tax credits as well as foreign tax credits. The U.S. federal net operating loss carry-forwards of $126.6 million will begin to expire in the fiscal year ending June 30, 2024 and state net operating losses of $56.7 million began to partially expire in the fiscal year ending June 30, 2020. The foreign net operating losses can generally be carried forward indefinitely. Federal research and development tax credits of $26.6 million will expire beginning in fiscal 2020, if not utilized and foreign tax credits of $10.7 million will expire beginning in fiscal 2020. North Carolina state research and development tax credits of $0.9 million will expire beginning in the fiscal year ending June 30, 2024, if not utilized. California state research and development tax credits of $21.2 million do not expire and can be carried forward indefinitely. In January 2019, 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, 2018, however, it is possible a subsequent ownership change could limit the utilization of the Company's tax attributes. As of June 30, 2019, cumulative undistributed, indefinitely reinvested earnings of non-U.S. subsidiaries totaled $6.8 million. It has been the Company’s historical policy to invest the earnings of certain foreign subsidiaries indefinitely outside the US. The Company is reviewing its prior position on the reinvestment of earnings of certain foreign subsidiaries but has recorded a deferred tax liability of $0.5 million related to withholding taxes that may be incurred upon repatriation of earnings from jurisdictions where no indefinite reinvestment assertion is made. The Company continues to maintain an indefinite reinvestment assertion for earnings in certain of its foreign jurisdictions. The unrecorded deferred tax liability for potential withholding tax associated with repatriation of these earnings as well as the deemed repatriation related to Tax Reform is $3.4 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, India, California, New Hampshire and North Carolina. 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. On December 22, 2017, the President of the United States signed and enacted into law H.R. 1, the Tax Cuts and Jobs Act (“TCJA”), which, except for certain provisions, is effective for tax years beginning on or after January 1, 2018. As a fiscal year taxpayer, the provisions would impact the fiscal years ending June 30, 2019 and forward.The TCJA’s primary change was a reduction in the U.S. Federal statutory corporate tax rate from 35% to 21%, including a pro rata reduction from 35% to 28% for the Company in fiscal 2018. The TCJA moves the U.S. from a global taxation regime to a modified territorial regime. Under the territorial regime, the company’s foreign earnings will generally not be subject to tax in the US. As part of transitioning to this new regime, U.S. companies were required to pay tax on historical earnings generated offshore that have not been repatriated to the U.S. (“Transition Tax”). The Company recognized no incremental tax provision relating to the Transition Tax given the Company’s ability to utilize existing tax attributes to offset the impact of the deemed repatriation. The TCJA made broad and complex changes to the U.S. tax code, and in certain instances, lacks clarity and is subject to interpretation until additional U.S. Treasury guidance is issued. On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin (“SAB”) No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. The measurement period was deemed to have ended earlier when the registrant had obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law were expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed. The measurement period ended in the Company’s second fiscal quarter of 2019 and the Company has finalized all related adjustments. Amounts recorded pursuant to Tax Reform and the provisions of SAB 118 relate to the reduction in the U.S. federal tax rate to 21 percent, which resulted in the Company reporting an income tax benefit of $2.5 million in the fiscal year ended June 30, 2018 to remeasure deferred tax liabilities associated with indefinitely lived intangible assets that will reverse at the new 21% rate. Absent this deferred tax liability, the Company has historically been in a net deferred tax asset position that is offset by a full valuation allowance. The Transition Tax introduced by TCJA has been calculated to be zero for the Company given existing tax attributes that were utilized to offset the calculated liability. As discussed below, during the quarter ended December 31, 2018 the Company completed its evaluation of whether to treat global intangible low-taxed income (“GILTI”) as a component of tax expense in the period in which it is incurred or as a component of deferred income taxes. In conjunction with this determination and the completion of scheduling the reversal of deferred tax assets and liabilities, the Company reduced the valuation allowance level by $4.7 million in the second quarter of fiscal 2019 to reflect the introduction of an indefinite carryforward period for NOLs expected to be generated in tax years beginning after December 31, 2017 once deferred tax assets reverse. With respect to provisions of the TCJA effective for the Company’s fiscal year ended 2019, the Company determined several new provisions potentially impact tax provisions in the current year including limitations on the deductibility of interest expense and certain executive compensation, a minimum tax on certain foreign earnings or GILTI, as well as a base-erosion and anti-abuse tax (“BEAT”). The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Based on the fiscal year ending 2019 financial results, the company determined there is no GILTI inclusion required in U.S. taxable income. The Company has elected to account for GILTI tax as a component of tax expense in the period in which it is incurred. The Base Erosion and Anti-Abuse Tax (“BEAT”) provisions in the Tax Reform Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. There is a reasonable amount of uncertainty surrounding the interpretation of this new provision, however, based on the Company’s assessment and a reasonable interpretation of the new provision, the Company has determined it will not be subject to the incremental U.S. tax on BEAT income during the fiscal year ended 2019 due to a realignment of the Company’s international structure. In the first quarter of fiscal 2019, the Company adopted ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset at the time the transfer occurs. Historically, U.S. GAAP has prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset had been sold outside the consolidated group. Effective as of July 1, 2018, the Company adopted ASU 2016-16 on a modified retrospective basis which requires an adjustment of the cumulative-effect of the adoption to retained earnings. However, the adjustment was immaterial to the financial statements and no such adjustment was necessary. As a result of adoption, the income tax consequences of future intra-entity transfer of assets will be recognized in earnings in each period rather than be deferred until the assets leave the consolidated group. In the first quarter of fiscal 2019, the Company recognized a deferred tax asset relating to a transfer of certain assets from the U.S. parent company to its wholly-owned Irish subsidiary of $3.7 million, which was fully offset by the establishment of a valuation allowance resulting in no impact to the Company’s consolidated statement of operations. 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. The resulting intangible assets and goodwill are being amortized for tax purposes over 15 years. Additionally, the Company completed the acquisitions of the Zebra WLAN Business, the Avaya Campus Fabric Business and the Brocade Data Center Business in October 2016, July 2017 and October 2017, respectively, and treats the acquisitions as an asset purchase from a tax perspective. The Company has estimated the value of the intangible assets from these transactions and is amortizing the amounts over 15 years for tax purposes. During the twelve months ended June 30, 2019, the Company deducted $7.7 million of tax amortization expense related to capitalized goodwill resulting from the above acquisitions. As of June 30, 2019, the Company had $17.2 million of unrecognized tax benefits. If fully recognized in the future, there would be no impact to the effective tax rate, and $17.2 million would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance. The Company does not reasonably expect the amount of unrealized tax benefits to decrease during the next twelve months. The decrease for fiscal year 2019 relates substantially to the expiration of unrealized R&D credits. A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows (in thousands):
Balance at June 30, 2016 |  | $ | 11,653 |
Increase related to prior year tax positions |  |  | 7,180 |
Increase related to current year tax positions |  |  | 233 |
Lapse of statute of limitations |  |  | (153 | )
Balance at June 30, 2017 |  |  | 18,913 |
Decrease related to prior year tax positions |  |  | (1,407 | )
Balance at June 30, 2018 |  |  | 17,506 |
Increase related to prior year tax positions |  |  | 26 |
Lapse of statute of limitations |  |  | (364 | )
Balance at June 30, 2019 |  | $ | 17,168 |
Estimated interest and penalties related to the underpayment of income taxes, if any are classified as a component of tax expense in the consolidated statements of operations and totaled less than $0.1 million for each of the years ended 2019, 2018 and 2017.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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