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Income Taxes | 12 Months Ended
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Jun. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | 16. Income Taxes Loss before income taxes is as follows (in thousands):
|  | Year Ended |
|  | June 30, |  |  | June 30, |  |  | June 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Domestic |  | $ | (143,651 | ) |  | $ | 22,330 |  |  | $ | (55,197 | )
Foreign |  |  | 23,159 |  |  |  | (48,204 | ) |  |  | 8,550 |
Loss before income taxes |  | $ | (120,492 | ) |  | $ | (25,874 | ) |  | $ | (46,647 | )
The provision (benefit) for income taxes for the years ended 2020, 2019 and 2018 consisted of the following (in thousands):
|  | Year Ended |
|  | June 30, |  |  | June 30, |  |  | June 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (22 | ) |  | $ | — |  |  | $ | (155 | )
State |  |  | 256 |  |  |  | 655 |  |  |  | 521 |
Foreign |  |  | 4,597 |  |  |  | 5,100 |  |  |  | 4,456 |
Total current |  |  | 4,831 |  |  |  | 5,755 |  |  |  | 4,822 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 333 |  |  |  | (3,691 | ) |  |  | (6,358 | )
State |  |  | 44 |  |  |  | (488 | ) |  |  | 294 |
Foreign |  |  | 1,145 |  |  |  | (1,597 | ) |  |  | 1,387 |
Total deferred |  |  | 1,522 |  |  |  | (5,776 | ) |  |  | (4,677 | )
Provision (benefit) for income taxes |  | $ | 6,353 |  |  | $ | (21 | ) |  | $ | 145 |
The difference between the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate (21 percent) to loss before taxes is explained below (in thousands):
|  | Year Ended |
|  | June 30, |  |  | June 30, |  |  | June 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Tax at federal statutory rate |  | $ | (25,303 | ) |  | $ | (5,433 | ) |  | $ | (13,061 | )
State income tax, net of federal benefit |  |  | 202 |  |  |  | 517 |  |  |  | 521 |
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 |  |  | 2,414 |  |  |  | (4,444 | ) |  |  | 25,302 |
Research and development credits |  |  | (4,947 | ) |  |  | (6,598 | ) |  |  | (7,311 | )
Tax impact of foreign earnings |  |  | 7,687 |  |  |  | 10,562 |  |  |  | (1,065 | )
Stock based compensation |  |  | 4,349 |  |  |  | 2,436 |  |  |  | (5,901 | )
Goodwill amortization |  |  | 331 |  |  |  | 834 |  |  |  | 2,004 |
Nondeductible officer compensation |  |  | 862 |  |  |  | 713 |  |  |  | 1,927 |
Nondeductible meals and entertainment |  |  | 364 |  |  |  | 517 |  |  |  | 510 |
AMT credit monetization |  |  | (22 | ) |  |  | — |  |  |  | (155 | )
Deferred tax liability release - Tax reform |  |  | — |  |  |  | — |  |  |  | (2,482 | )
Gain on transfer of intellectual property ("IP") |  |  | 19,819 |  |  |  | — |  |  |  | — |
Other |  |  | 597 |  |  |  | (293 | ) |  |  | (144 | )
Provision (benefit) for income taxes |  | $ | 6,353 |  |  | $ | (21 | ) |  | $ | 145 |
Significant components of the Company’s deferred tax assets are as follows (in thousands):
|  | June 30, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Net operating loss carry-forwards |  | $ | 74,548 |  |  | $ | 36,514 |  |  | $ | 49,429 |
Tax credit carry-forwards |  |  | 67,364 |  |  |  | 54,745 |  |  |  | 48,093 |
Depreciation |  |  | 2,755 |  |  |  | 2,168 |  |  |  | 1,422 |
Intangible amortization |  |  | 32,642 |  |  |  | 36,882 |  |  |  | 35,107 |
Deferred revenue, net |  |  | 7,610 |  |  |  | 1,887 |  |  |  | 159 |
Inventory write-downs |  |  | 13,014 |  |  |  | 10,277 |  |  |  | 13,682 |
Other allowances and accruals |  |  | 32,318 |  |  |  | 30,210 |  |  |  | 25,700 |
Stock based compensation |  |  | 3,169 |  |  |  | 4,114 |  |  |  | 4,872 |
Deferred intercompany gain |  |  | 3,693 |  |  |  | 3,693 |  |  |  | — |
Irish goodwill amortization |  |  | 7,132 |  |  |  | — |  |  |  | — |
Other |  |  | 888 |  |  |  | 673 |  |  |  | 3,219 |
Total deferred tax assets |  |  | 245,133 |  |  |  | 181,163 |  |  |  | 181,683 |
Valuation allowance |  |  | (232,862 | ) |  |  | (169,343 | ) |  |  | (177,869 | )
Total net deferred tax assets |  |  | 12,271 |  |  |  | 11,820 |  |  |  | 3,814 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Goodwill amortization |  |  | (6,691 | ) |  |  | (4,904 | ) |  |  | (3,363 | )
Prepaid commissions |  |  | (1,958 | ) |  |  | (1,585 | ) |  |  | (1,034 | )
Deferred tax liability on foreign withholdings |  |  | (551 | ) |  |  | (505 | ) |  |  | (357 | )
Total deferred tax liabilities |  |  | (9,200 | ) |  |  | (6,994 | ) |  |  | (4,754 | )
Net deferred tax assets (liabilities) |  | $ | 3,071 |  |  | $ | 4,826 |  |  | $ | (940 | )
Recorded as: |  |  |  |  |  |  |  |  |  |  |  |
Net non-current deferred tax assets |  |  | 5,405 |  |  |  | 6,783 |  |  |  | 5,195 |
Net non-current deferred tax liabilities |  |  | (2,334 | ) |  |  | (1,957 | ) |  |  | (6,135 | )
Net deferred tax assets (liabilities) |  | $ | 3,071 |  |  | $ | 4,826 |  |  | $ | (940 | )
The Company’s global valuation allowance in creased by $63.5 million in the fiscal year ended June 30, 2020 and de creased by $8.5 million in the fiscal year ended June 30, 2019. 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 a nd 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, 2020, the Company had net operating loss carry-forwards for U.S. federal and state tax purposes of $287.5 million and $156.4 million, respectively. As of June 30, 2020, the Company also had foreign net operating loss carry-forwards in Ireland, Australia and Brazil of $21.0 million, $7.6 million and $0.7 million, respectively. As of June 30, 2020, the Company also had federal and state tax credit carry-forwards of $43.8 million and $29.8 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 $287.5 million will begin to expire in the fiscal year ending June 30, 2027 and state net operating losses of $156.4 million will begin to partially expire in the fiscal year ending June 30, 2021. The foreign net operating losses can generally be carried forward indefinitely. Federal research and development tax credits of $32.9 million will expire beginning in fiscal 2021, if not utilized and foreign tax credits of $10.9 million will expire beginning in fiscal 2021. 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 $28.9 million do not expire and can be carried forward indefinitely. In May 2020, the Company performed an Internal Revenue Code (“IRC”) 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, 2019, however, it is possible a subsequent ownership change could limit the utilization of the Company's tax attributes. The Company also performed in June 2020 a separate IRC section 382 analysis with respect to the NOLs and tax credits acquired from Aerohive and have determined that while the Company will be subject to an annual limitation, the Company should not be limited on the full utilization of the losses and credits during the statutory allowable carryforward period of the NOLs and credits. As of June 30, 2020, cumulative undistributed, indefinitely reinvested earnings of non-U.S. subsidiaries totaled $9.1 million. It has been the Company’s historical policy to invest the earnings of certain foreign subsidiaries indefinitely outside the U.S. The Company is reviewing its prior position on the reinvestment of earnings of certain foreign subsidiaries but has recorded a deferred tax liability of $0.6 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 $4.8 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, Texas 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 March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law in the United States. The CARES Act, among other things, includes modifications to net operating loss carryforward provisions and net interest expense deductions, and allows deferment of employer social security tax payments. The Company has evaluated the provisions of the CARES Act and how certain elections may impact our financial position and results of operations, and have determined the enactment of the CARES Act did not have a material impact to our income tax provision for the fiscal year ended June 30, 2020, or to our net deferred tax assets as of June 30, 2020. 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, was effective for tax years beginning on or after January 1, 2018. As a fiscal year taxpayer, the provisions impacted the fiscal years ending June 30, 2019 and forward. The TCJA introduced significant changes to U.S. income tax law including a reduction in the U.S. federal corporate income tax rate from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, implementation of a modified territorial tax regime, and imposition of a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries. The TCJA created new minimum taxes including the Base-Erosion and Anti-abuse Tax (“BEAT”) and the Global Intangible Low Taxed Income (“GILTI”). The BEAT provisions eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The Company was not subject to the BEAT provisions during the fiscal year ended June 30, 2020. 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. The Company has elected to account for GILTI tax as a component of tax expense in the period in which it is incurred. In fiscal year 2020, under the GILTI provisions, the Company did recognize income related to its foreign subsidiaries, though it was fully offset by existing net operating loss carryforwards. In the first quarter of fiscal 2020, 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. In the fourth 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 $7.2 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 WLAN Business, the Campus Fabric Business and the Data Center Business in October 2016, July 2017 and October 2017, respectively, and treats the acquisitions as asset purchases 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. On August 9, 2019, the Company completed its acquisition of Aerohive. This acquisition was treated as a non-taxable stock acquisition and therefore Extreme Networks has carryover tax basis in the assets and liabilities acquired. During the fourth quarter of fiscal 2020 following the acquisition of Aerohive, the Company realigned the Aerohive related non-American intellectual property (“IP”) rights to correspond with the Company’s global operating model. This transaction resulted in recognition of a $75 million U.S. tax gain which was fully consumed by existing NOLs and the intangibles transferred are being amortized over 10 years for Irish statutory purposes. During the twelve months ended June 30, 2020, the Company deducted $7.6 million of tax amortization expense related to capitalized goodwill resulting from the above acquisitions. As of June 30, 2020, the Company had $23.9 million of unrecognized tax benefits. If fully recognized in the future, $0.5 million would impact the effective tax rate, and $23.4 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 increase for fiscal year 2020 relates substantially to the acquisition of Aerohive. A reconciliation of the beginning and ending amount of total unrecognized tax benefits is as follows (in thousands):
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 |
Increase related to prior year tax positions |  |  | 8,906 |
Increase related to current year tax positions |  |  | 44 |
Decrease related to prior year tax positions |  |  | (1,800 | )
Lapse of statute of limitations |  |  | (421 | )
Balance at June 30, 2020 |  | $ | 23,897 |
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 2020, 2019 and 2018.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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