UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 8-K/A

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (date of earliest event reported): September 29, 2017

 

EXTREME NETWORKS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

6480 Via Del Oro

San Jose, California 95119

(Address of principal executive offices)

Registrant's telephone number, including area code:

(408) 579-2800

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

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Explanatory Note

 

On July 18, 2017, Extreme Networks, Inc. (“Extreme” or the “Company”), filed a Current Report on Form 8-K (the “Original 8-K”) disclosing, among other things, that the Company had completed the purchase of the fabric-based secure networking solutions and network security solutions business  of Avaya Inc., a Delaware corporation (“Avaya”), pursuant to that certain Asset Purchase Agreement, dated as of March 7, 2017, by and between the Company and Avaya.

 

This amendment to the Original 8-K is being filed for the purpose of satisfying the Company’s undertaking to file the pro forma financial information required by Item 9.01 of Form 8-K, and this amendment should be read in conjunction with the Original 8-K. Except as set forth herein, no modifications have been made to information contained in the Original 8-K, and the Company has not updated any information contained therein to reflect events that have occurred since the date of the Original 8-K.

 

 

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: September 29, 2017

 

 

Exhibit 99.1

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On July 14, 2017, pursuant to an Asset Purchase Agreement dated as of March 7, 2017 (the “Acquisition”), Extreme Networks, Inc. (the “Company” or “Extreme”) acquired the net assets of Avaya Inc.’s (“Avaya”) fabric-based secure networking solutions and network security solutions business unit (“Avaya Networking”).  The Acquisition was accounted for under the acquisition method of accounting for business combinations, with Extreme treated as the acquiring company for accounting purposes.

The unaudited pro forma condensed combined balance sheet at March 31, 2017 gives effect to the Acquisition as if it was consummated on March 31, 2017 and includes all adjustments which give effect to events that are directly attributable to the Acquisition and that are factually supportable. The unaudited pro forma condensed combined statements of operations for each of the year ended June 30, 2016 and the nine months ended March 31, 2017 are presented as if the Acquisition was consummated on July 1, 2015 and include all adjustments which give effect to events that are directly attributable to the Acquisition, expected to have a continuing impact and that are factually supportable.  The pro forma condensed combined financial statements presented herein are based on the historical financial statements of Extreme and Avaya Networking after giving effect to the Acquisition using the acquisition method of accounting and applying the assumptions and adjustments described in the accompanying notes.  The unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2017 combine the Company’s unaudited consolidated statement of operations for the nine months ended March 31, 2017 with Avaya Networking’s nine months of operations consisting of its unaudited special purpose interim combined statement of revenues and direct expenses for the six months ended March 31, 2017 adjusted for an additional three months of operations ended September 30, 2016.

The Extreme unaudited consolidated balance sheet and unaudited statement of operations information as of and for the nine months ended March 31, 2017 was derived from its unaudited condensed consolidated financial statements included in its Form 10-Q for the nine months ended March 31, 2017, (the “Extreme 10-Q”).  The Extreme unaudited statement of operations information for the year ended June 30, 2016 was derived from its audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2016, filed by the Company with the SEC, (the “Extreme 10-K”).  

The Avaya Networking information for the unaudited combined assets to be acquired and liabilities to be assumed and the unaudited statement of revenues and direct expenses for the year ended September 30, 2016 was derived from its audited special purpose combined financial statements as of and for the year ended September 30, 2016 included in Exhibit 99.1 to Extreme’s Form 8-K filed on July 18, 2017.  The unaudited statement of revenues and direct expenses information for the nine months ended March 31, 2017 was derived from its unaudited special purpose interim combined financial statements as of and for the six months ended March 31, 2017 included in Exhibit 99.2 to the Extreme Form 8-K filed July 18, 2017, adjusted for an additional three months of operations ended September 30, 2016.

The Company has not completed a full, detailed valuation analysis necessary to determine the fair values of Avaya Networking’s identifiable assets acquired and liabilities assumed in the Acquisition.  However, a preliminary valuation analysis was performed as of March 31, 2017, the date on which the Acquisition is deemed to have occurred solely for purposes of preparing the unaudited pro forma condensed combined balance sheet, related to its intangible assets, inventories, property and equipment and deferred revenue.  Accordingly, the unaudited pro forma condensed combined financial statements include only preliminary estimates.  Additional valuation procedures are expected to be performed and any increase or decreases in the fair value of the assets acquired or liabilities assumed until the purchase price allocation is finalized.  The amounts of assets acquired and liabilities assumed in the acquisition accounting will be based on their respective fair values as determined at the time of closing of the Acquisition on July 14, 2017, and may differ significantly from these preliminary estimates.

The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the acquisition.  The unaudited pro forma condensed combined financial statements also do not include any future integration costs.  The unaudited pro forma condensed combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Extreme and Avaya Networking been a combined company during the specified periods.  The unaudited pro forma condensed combined financial statements, including the notes thereto, should be read in conjunction with the historical audited consolidated financial statements of Extreme as of and for the year ended June 30, 2016 included in the Extreme 10-K; the historical unaudited consolidated financial statements of Extreme as of and for the nine months ended March 31, 2017 included in the Extreme 10-Q; the historical audited special purpose combined financial statements of Avaya as of and for the  year ended September 30, 2016 included in Exhibit 99.1 to the Extreme Form 8-K filed on July 18, 2017; and the historical unaudited interim special purpose combined financial

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statements of Avaya Networking as of and for the six months ended March 31, 2017 included in Exhibit 99.2 to the Extreme Form 8-K filed on July 18, 2017 adjusted for an additional three months of operations ended September 30, 2016.

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Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2017

(in thousands)

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the nine months ended March 31, 2017

(in thousands, except per share amounts)

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

 

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the twelve months ended June 30, 2016

(in thousands, except per share amounts)

 

 

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

1. Description of Transaction

On July 14, 2017, pursuant to an Asset Purchase Agreement dated as of March 7, 2017 (the “Acquisition”), Extreme Networks, Inc. (the “Company” or “Extreme”) acquired the net assets of Avaya Inc.’s (“Avaya”) fabric-based secure networking solutions and network security solutions business unit (“Avaya Networking”).  The Acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, with Extreme treated as the acquiring company for accounting purposes.

Under the terms of the Acquisition, the consideration to be paid by Extreme to Avaya was calculated by taking a) $100.0 million, b) plus or minus a working capital adjustment relative to an agreed upon target as of the consummation of the Acquisition and c) minus assumed facility lease obligations, d) minus assumed pension obligations and, e) minus an adjustment by which the deferred revenue cost amount exceeds an agreed upon target as of the consummation of the Acquisition for preliminary net consideration of $79.8 million.  

2. Basis of Presentation

The unaudited pro forma combined financial statements were prepared in accordance with U.S. generally accepted accounting principles and pursuant to the rules and regulations of SEC Regulation S-X, and present the pro forma financial position and results of operations of the combined companies after giving effect to the Acquisition.  

The unaudited pro forma condensed combined balance sheet on March 31, 2017 gives effect to the Acquisition as if it was consummated on March 31, 2017.  The unaudited pro forma condensed combined balance sheet as of March 31, 2017 combined the Company’s unaudited consolidated balance sheet as of March 31, 2017 with Avaya Networking’s unaudited special purpose interim combined statements of assets to be acquired and liabilities assumed as of March 31, 2017.

The unaudited pro forma condensed combined statements of operations for each of the year ended June 30, 2016 and the nine months ended March 31, 2017 are presented as if the Acquisition was consummated on July 1, 2015.  The pro forma condensed combined financial statements presented herein are based on the historical financial statements of Extreme and Avaya Networking after giving effect to the Acquisition using the acquisition method of accounting and applying the assumptions and adjustments described in the accompanying notes.  The unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2017 combined the Company’s unaudited consolidated statement of operations for the nine months ended March 31, 2017 with Avaya Networking’s unaudited special purpose interim combined statement of revenues and direct expenses for the six months ended March 31, 2017 adjusted for an additional three months of operations ended September 30, 2016.

Avaya Networking has never operated as a stand-alone business, division or subsidiary and Avaya has never maintained the distinct and separate accounts necessary to prepare full carve out financial statements. Avaya Networking’s historical operations were comingled across all lines of business of Avaya.  Due to the nature of the comingled operations, the assets acquired and liabilities assumed of Avaya Networking was a function of the legal assignment of assets and liabilities agreed upon by all parties at a date in time and do not represent all assets and liabilities used in operating Avaya Networking.  Additionally, Avaya’s historical corporate overhead costs, other than direct customer market selling expenses, were shared services that were not directly related to a specific line of business. Accordingly, the Company determined that it was impractical to prepare full carve out financial statements. The abbreviated financial statements include assets acquired and liabilities assumed presented on the Company’s acquisition method basis of accounting as of the deemed acquisition date and revenues, direct costs and operating expenses directly attributable to Avaya Networking and exclude certain corporate overhead, foreign currency translation gains and losses, interest expense and income taxes.

On July 14, 2017, the effective date of the Acquisition, the Company amended its Credit facility (the “Credit Facility”) and among other things, the amended Credit Facility increased the amount of the available borrowing under the Credit Facility from $140.5 million to $243.7 million.  On July 14, 2017, the Company borrowed an additional $80.0 million under the Credit Facility which was used to fund the purchase of the Avaya Networking business.  The unaudited pro forma condensed combined balance sheet on March 31, 2017 and the unaudited pro forma condensed combined statements of operations for each of the year ended June 30, 2016 and the nine months ended March 31, 2017 are presented as if the Credit Facility had been amended and the additional borrowing of $80.0 million had occurred on the respective consummation dates as noted above.

The historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma combined statements of operations, expected to have a continuing impact on the combined results following the business combination.  The unaudited pro forma combined financial statements have been prepared for

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illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Extreme and Avaya Networking been a combined company during the specified periods.  

3. Preliminary Purchase Price Allocation

Under the acquisition method of accounting, identifiable assets and liabilities of Avaya Networking, including identifiable intangible assets, were recorded based on their estimated fair values as of the effective time of the Acquisition.  Goodwill is calculated as the difference between the estimated acquisition consideration and fair values of identifiable net assets acquired.

The estimated acquisition consideration and the preliminary allocation of the estimated acquisition consideration are, in part, based upon a preliminary management valuation, as described below, and the Company’s estimates and assumptions which are subject to change.

Tangible assets and liabilities: 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.

Inventories: Inventories acquired include raw materials and finished goods. The fair value of finished goods has been determined based on the estimated selling price, net of selling costs and a margin on the selling costs.  The fair value of raw materials has been estimated to equal their replacement cost.

Deferred revenues: Deferred revenue acquired primarily represents amounts for deferred maintenance contracts and deferred product revenues which have not yet fully met revenue recognition criteria.

Property and equipment: Avaya Networking’s property and equipment primarily consists of test equipment, computers, and furniture and fixtures with a relatively short useful economic life.  The fair value of the assets was determined using the current replacement cost method.

Identifiable intangible assets and liabilities: Identifiable intangible assets and liabilities acquired include existing technology, customer relationships, trade names, backlog and in-process research and development. The fair value of intangible assets is based on management’s preliminary valuation as if the acquisition occurred on the acquisition date of March 31, 2017.  Estimated useful lives (where relevant for the purposes of these unaudited pro forma financial statements) are based on the time periods during which the intangibles are expected to result in incremental cash flows.

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Pre-acquisition contingencies: The Company has not currently identified any pre-acquisition contingencies where a liability is probable and the amount of the liability can be reasonably estimated. If information becomes available to management prior to the end of the measurement period (no longer than 12 months after the closing of the Acquisition), which would indicate that a liability is probable and the amount can be reasonably estimated, such items will be reflected in the acquisition accounting.    

The preliminary determination of the fair value of the acquired net assets, assuming the Acquisition had closed on March 31, 2017, is as follows (in thousands):

 

The final determination of the fair value of the identifiable net assets acquired will be based on Avaya’s assets acquired and liabilities assumed as of the effective time of the Acquisition on July 14, 2017.  The purchase price allocation may change materially based on the receipt of more detailed information.  Therefore, the actual allocations will differ from the pro forma adjustments presented.

4. Pro Forma Adjustments

Pro forma adjustments are necessary to reflect the Acquisition’s estimated consideration and to adjust amounts related to the tangible and intangible assets and liabilities of Avaya Networking to reflect the preliminary estimate of their fair values and the impact on the statement of operations as if Extreme and Avaya Networking had been combined during the periods presented.  The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:

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5. Non-recurring Transaction Costs

Extreme and Avaya have incurred and Extreme will continue to incur certain non-recurring transaction expenses.   Non-recurring transaction expenses were incurred after the nine months ended March 31, 2017. The unaudited pro forma condensed combined balance sheet as of March 31, 2017 includes an adjustment of $1.1 million to accrued liabilities for transaction expenses incurred by Extreme subsequent to March 31, 2017 (see Note 4, Pro Forma Adjustments above).   These transaction expenses are not reflected in the unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2017, as they are not expected to have a continuing impact on operations.  Estimated transaction expenses of Avaya related to the Acquisition which were incurred after March 31, 2017, have not been included in accrued liabilities as of March 31, 2017 as those expenses were borne by Avaya and have no continuing impact on operations.

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