What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2021-02-05 · 114 added, 104 removed, 225 unchanged (49% of the section changed)

12 unchanged sentences

We commenced operations in 1993 and have been profitable every year since inception.

Our net income for the three months ended December 31, 2020 increased to $27.7 million from $23.7 million for the corresponding period in the prior year.

Our net income for the three months ended March 31, 2021 increased to $18.4 million from $15.8 million for the corresponding period in the prior year.

In order to increase our sales and profits, we believe that we must continue to develop flexible and application optimized server and storage solutions and be among the first to market with new features and products.

17 unchanged sentences

As time passes, we may discover greater indirect exposure to distressed industries through our channel partners and OEM customers.

We have actively managed our supply chain for potential shortage risk by first building inventories of critical components required for our motherboards and other system printed circuit boards in response to the early outbreak of COVID-19 in China.

Since that time, we have continued to add to our inventories of key components such as CPUs, memory, SSDs and to a lesser extent GPUs such that customer orders can be fulfilled as they are received.

We have actively managed our supply chain for potential shortage risk by building inventories of critical components required for our motherboards and other system printed circuit boards in response to the early outbreak of COVID-19 in China.

Since that time, we have continued to add to our inventories of key components such as CPUs, memory, SSDs and GPUs such that customer orders can be fulfilled as they are received.

Logistics has emerged as a new challenge as globally the transportation industry restricted the frequency of departures and increased logistics costs.

6 unchanged sentences

In December 2020, our Taiwan subsidiary entered into a general credit agreement with E.SUN Bank in Taiwan.

Such general credit agreement provides for the issuance of loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of $30 million.

The term of such general credit agreement is until September 18, 2021.

This general credit agreement provides for the issuance of loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of $30 million.

The term of this general credit agreement is through September 18, 2021.

See “- Liquidity and Capital Resources – Other Factors Affecting Liquidity and Capital Resources.”

Our management team is focused on guiding our company through the ongoing challenges presented by COVID-19.

Currently, we are unable to predict the ultimate extent to which the global COVID-19 pandemic may further impact our business operations, financial performance and results of operations within the next 12 months.

Currently, there are positive signs with vaccine availability and reductions in infection rates;

however, with the possibility of new virus strains and vaccine supply constraints, we are unable to predict the ultimate extent to which the global COVID-19 pandemic may further impact our business operations, financial performance and results of operations within the next 12 months.

Financial Highlights

The following is a summary of our financial highlights of the second quarter of fiscal year 2021:

• Net sales decreased by 4.7% in the three months ended December 31, 2020 as compared to the three months ended December 31, 2019.

• Gross margin increased to 16.4% in the three months ended December 31, 2020 from 15.9% in the three months ended December 31, 2019.

• Operating expenses decreased by 10.7% as compared to the three months ended December 31, 2019, and were equal to 11.9% and 12.7% of net sales in the three months ended December 31, 2020 and 2019, respectively.

• Effective tax rate increased from 7.9% in the three months ended December 31, 2019 to 14.9% in the three months ended December 31, 2020.

The following is a summary of our financial highlights of the third quarter of fiscal year 2021:

• Net sales increased by 16.0% in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

• Gross margin decreased to 13.7% in the three months ended March 31, 2021 from 17.3% in the three months ended March 31, 2020.

• Operating expenses decreased by 10.1% as compared to the three months ended March 31, 2020, and were equal to 11.8% and 15.3% of net sales in the three months ended March 31, 2021 and 2020, respectively.

• Effective tax rate benefit decreased from 5.6% in the three months ended March 31, 2020 to 1.2% in the three months ended March 31, 2021.

Critical Accounting Policies and Estimates

10 unchanged sentences

Three Months Ended

December 31, Six Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

27 unchanged sentences

Additionally, in order to remain competitive throughout all industry cycles, we actively change our selling price per unit in response to changes in costs for key components such as memory and SSDs.

The following table presents net sales by product type for the three and six months ended December 31, 2020 and 2019 (dollars in millions):

Three Months Ended December 31, Change Six Months Ended December 31, Change

The following table presents net sales by product type for the three and nine months ended March 31, 2021 and 2020 (dollars in millions):

Three Months Ended March 31, Change Nine Months Ended March 31, Change

2021 2020 $ % 2021 2020 $ %

6 unchanged sentences

Subsystems and accessories are comprised of server-boards, chassis and accessories.

Comparison of Three Months Ended December 31, 2020 and 2019

The period-over-period decrease in net sales of our server and storage systems was due to a 17.1% decrease in the number of units of compute nodes sold offset by 16.0% i ncrease in the average selling price.

The decline in the number of units of compute nodes shipped was primarily due to fewer shipments of multinode systems compared to the same period last year.

The period-over-period decrease in net sales of our subsystems and accessories is primarily due to a decrease in the number of units of subsystems sold .

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period decrease in net sales of our server and storage systems was due to a 18.1% decrease in the number of units of compute nodes sold offset by 17.9% increase in average selling price.

Comparison of Three Months Ended March 31, 2021 and 2020

The period-over-period increase in net sales of our server and storage systems was due to a 5.8% increase in the number of units of compute nodes sold and a 15.4% increase in the average selling price.

The increase in the number of units of compute nodes shipped was primarily due to more shipments of multinode systems compared to the same period last year.

The period-over-period increase in net sales of our subsystems and accessories is primarily due to an increase in the average selling price .

Comparison of Nine Months Ended March 31, 2021 and 2020

The period-over-period increase in net sales of our server and storage systems was due to a 17.4% increase in the average selling price partially offset by a 11.1% decrease in the number of units of compute nodes sold.

The decline in the number of units of compute nodes shipped was primarily due to fewer shipments of multinode systems compared to the same period last year.

The period-over-period decrease in net sales of our subsystems and accessories is primarily due to a decrease in the number of units of subsystems sold .

The following table presents net sales by geographic region for the three and six months ended December 31, 2020 and 2019 (dollars in millions):

Three Months Ended December 31, Change Change Six Months Ended December 31, Change Change

The following table presents net sales by geographic region for the three and nine months ended March 31, 2021 and 2020 (dollars in millions):

Three Months Ended March 31, Change Change Nine Months Ended March 31, Change Change

2021 2020 $ % 2021 2020 $ %

8 unchanged sentences

Total net sales $ 895.9 $ 772.4 $ 2,488.4 $ 2,443.2

Comparison of Three Months Ended December 31, 2020 and 2019

The period-over-period decrease in net sales in the United States for the three months ended December 30, 2020 and 2019 was primarily due to lower sales driven by lower unit volume.

The period-over-period decrease in net sales in Asia was due primarily to decreased sales in Taiwan, Singapore and Korea and partially off-set by increased sales in China and Japan.

The increase of net sales in Europe was primarily due to higher sales in France, Germany, the United Kingdom, and the Netherlands, partially offset by lower sales in Russia.

The period-over-period increase in net sales in other countries was primarily due to increased sales in Brazil, Canada, South Africa and Middle East countries, partially offset by lower sales in Mexico.

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period decrease in net sales in the United States for the six months ended December 31, 2020 and 2019 was primarily due to lower sales driven by lower unit volume.

The period-over-period decrease in net sales in Asia was due primarily to decreased sales in China, Taiwan, Korea, and India and partially off-set by increased sales in Singapore and Japan.

The decrease of net sales in Europe was primarily due to lower sales in the United Kingdom, Germany, Russia, and the rest of Europe, partially offset by increased sales in France and the Netherlands.

Comparison of Three Months Ended March 31, 2021 and 2020

The period-over-period increase in net sales in the United States for the three months ended March 31, 2021 and 2020 was primarily due to higher sales driven by higher server and storage systems unit volume.

The period-over-period increase in net sales in Asia was due primarily to increased sales in China, Japan and India and partially off-set by decreased sales in Singapore and Korea.

The increase of net sales in Europe was primarily due to higher sales in France, Germany, the United Kingdom, and Russia, partially offset by lower sales in the Netherlands.

The period-over-period decrease in net sales in other

countries was primarily due to decreased sales in Mexico and South Africa, partially offset by higher sales in Canada, Israel and other Middle East countries.

Comparison of Nine Months Ended March 31, 2021 and 2020

The period-over-period increase in net sales in the United States for the nine months ended March 31, 2021 and 2020 was primarily due to higher sales driven by higher server and storage systems unit volume.

The period-over-period increase in net sales in Asia was due primarily to increased sales in Japan and Singapore, partially offset by decreased sales in China, Taiwan, and Korea.

The decrease of net sales in Europe was primarily due to lower sales in the Netherlands, Russia and the rest of Europe, partially offset by increased sales in France and the United Kingdom.

The period-over-period increase in net sales in other countries was primarily due to increased sales in Brazil, Canada and Israel and other Middle East countries, partially offset by lower sales in Mexico, South Africa and Australia.

Cost of Sales and Gross Margin

8 unchanged sentences

We also outsource to Compuware, also a related party, a portion of our design activities and a significant part of the manufacturing of components, particularly power supplies.

Cost of sales and gross margin for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended December 31, Change Six Months Ended December 31, Change

Cost of sales and gross margin for the three and nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended March 31, Change Nine Months Ended March 31, Change

2021 2020 $ % 2021 2020 $ %

2 unchanged sentences

Gross margin 13.7 % 17.3 % (3.6) % 15.6 % 16.5 % (0.9) %

Comparison of Three Months Ended December 31, 2020 and 2019

The period-over-period decrease in cost of sales was primarily attributed t o a decrease of $21.5 million in costs of materials and contract manufacturing expenses primarily related to the decrease in net sales volume, a d ecrease of $13.2 million in overhead costs attributable primarily to a recovery of costs paid in prior periods, a decrease of excess and obsolete inventory charge of $3.3 million and a decrease of $1.9 million of warranty and repair costs, partially offset by service costs and freight charges.

The period-over-period increase in the gross margin percentage wa s primarily due to sales prices declining at a slower rate than the decline in the costs of components we purchased.

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period decrease in cost of sales was primarily attributed t o a decrease of $40.7 million in costs of materials and contract manufacturing expenses primarily related to the decrease in net sales volume, a d ecrease of $23.6 million in overhead costs attributable primarily to a recovery of costs paid in prior periods and a decrease of excess and obsolete inventory charge of $12.3 million, partially offset by service costs and freight charges.

The period-over-period increase in the gross margin percentage was primarily due to sales prices declining at a slower rate than the decline in the costs of components we purchased.

Comparison of Three Months Ended March 31, 2021 and 2020

The period-over-period increase in cost of sales was primarily attributed t o an increase of $131.9 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume and a $5.5 million increase in freight charges, partially offset by a decrease of excess and obsolete inventory charges of $1.7 million and a d ecrease of $3.0 million in overhead costs.

The period-over-period decrease in the gross margin percentage wa s primarily due to sales prices increasing at a slower rate than the increase in the costs of components purchased and higher freight costs.

Comparison of Nine Months Ended March 31, 2021 and 2020

The period-over-period increase in cost of sales was primarily attributed t o an increase of $91.2 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, an increase of $6.0 million of freight charges and a $1.3 million increase in product service costs, partially offset by a d ecrease of $24.8 million in overhead costs attributable primarily to a recovery of costs paid in prior periods and a decrease of excess and obsolete inventory charge of $14.0 million.

The period-over-period decrease in the gross margin percentage was primarily due to sales prices increasing at a slower rate than the increase in the costs of components we purchased.

Operating Expenses

11 unchanged sentences

General and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our general and administrative personnel, financial reporting, information technology, corporate governance and compliance, outside legal, audit, tax fees, insurance and bad debt reserves on accounts receivable.

Operating expenses for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Three Months Ended December 31, Change Six Months Ended December 31, Change

Operating expenses for the three and nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended March 31, Change Nine Months Ended March 31, Change

2021 2020 $ % 2021 2020 $ %

7 unchanged sentences

Percentage of total net sales 11.8 % 15.3 % 12.2 % 13.4 %

Comparison of Three Months Ended December 31, 2020 and 2019

Comparison of Three Months Ended March 31, 2021 and 2020

Research and development expenses.

The period-over-period decrease in research and development expenses was primarily due to an increase in research and development credits from certain suppliers and customers towards our development efforts of $4.3 million, a decrease of $1.9 million in costs mainly related to materials, supplies and equipment used in product development, and a decrease of $0.8 million of travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, partially offset by an increase of $4.0 million in personnel expenses as a result of an increase in the number of personnel, mainly from the expansion of the Company's Taiwan subsidiary.

The period-over-period increase in research and development expenses was primarily due to a $13.2 million increase in costs mainly related to materials, supplies and equipment used in product development.

During the three months ended March 31, 2020, we recorded a $9.5 million net settlement fee as a reduction in the research and development expenses related to the reimbursement of previously incurred materials, supplies and equipment costs for one canceled joint product development agreement.

This increase was partially offset by a $2.8 million increase in research and development credits from certain suppliers and customers towards our development efforts and a decrease of $2.3 million in personnel expenses.

Sales and marketing expenses.

The period-over-period sales and marketing expenses decreased primarily due to a $1.4 million decrease in expenses related to participation in trade shows and business travel as a result in a change in our operations in response to the COVID-19 pandemic, partially offset by increase in other sales and marketing expenses.

The period-over-period sales and marketing expenses decreased primarily due to a $1.0 million decrease in personnel expenses as a result of a decrease in the number of personnel, a $0.2 million decrease in expenses related to participation in trade shows and business travel as a result in a change in our operations in response to the COVID-19

pandemic, partially offset by an increase of $0.7 million in advertising expenses and a $0.4 million increase in other sales and marketing expenses.

General and administrative expenses.

The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $11.4 million in professional fees incurred to investigate, assess and remediate the causes that led to the delay in filing our periodic reports with the SEC and the associated restatement of certain of our previously issued financial statements, a decrease of $1.1 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, and a decrease of $0.7 million in sales tax reserve and audit expense, offset by an increase of $6.5 million in compensation expense due to increased full time personnel and bonuses.

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $19.1 million in professional fees incurred to investigate, assess and remediate the causes that led to the delay in filing our periodic reports with the SEC and the associated restatement of certain of our previously issued financial statements, a decrease of $1.7 million in bad debt provision expenses and a $1.1 million decrease in other general and administrative expenses, partially offset by an increase of $3.1 million in personnel expenses due to increased full time personnel.

Comparison of Nine Months Ended March 31, 2021 and 2020

Research and development expenses.

The period-over-period increase in research and development expenses was primarily due to an increase of $9.7 million in personnel expenses as a result of an increase in the number of personnel offset by an increase of $5.7 million in research and development credits from certain suppliers and customers towards our development efforts, a decrease of $1.3 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, and a decrease of $0.7 million in costs mainly related to materials, supplies and equipment used in product development.

The period-over-period increase in research and development expenses was primarily due to an increase of $12.9 million in costs mainly related to materials supplies and equipment used in product development.

Personnel expenses increased $7.4 million as a result of an increase in the number of personnel.

These increases were partially offset by an increase of $8.5 million in research and development credits from certain suppliers and customers towards our development efforts and a decrease of $1.4 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic.

Sales and marketing expenses.

The period-over-period sales and marketing expenses decreased primarily due to a decrease of $2.0 million expenses related to participation in trade shows and business travel as a result in a change in our operations in response to the COVID-19 pandemic, partially offset by an increase of $0.8 million in other sales and marketing expenses.

The period-over-period sales and marketing expenses decreased primarily due to a decrease of $2.3 million in expenses related to participation in trade shows and business travel as a result in a change in our operations in response to the COVID-19 pandemic and a $0.7 million decrease in personal expenses due to decreased full time personnel, partially offset by a $0.7 million increase in facilities costs, an increase of $0.5 million in advertising expenses, and a $0.5 million increase in other sales and marketing expenses.

General and administrative expenses.

The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $18.2 million in professional fees incurred to investigate, assess and remediate the causes that led to the delay in filing our periodic reports with the SEC and the associated restatement of certain of our previously issued financial statements, a decrease of $2.1 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, a decrease of $0.8 million in sales tax reserve and audit expense, and a decrease of $0.5 million in bad debt expenses, offset by an increase of $10.4 million in compensation expense due to increased full time personnel and bonuses.

The period-over-period decrease in general and administrative expenses was primarily due to a decrease of $37.2 million in professional fees incurred to investigate, assess and remediate the causes that led to the delay in filing our periodic reports with the SEC and the associated restatement of certain of our previously issued financial statements, a decrease of $3.1 million in travel expenses as a result in a change in our operations in response to the COVID-19 pandemic, a decrease of $2.2 million in bad debt provision expenses, a decrease of $1.2 million in supplies expenses, a decrease of $0.7 million in sales tax reserve and audit expenses and a $0.6 million decrease in facilities costs, partially offset by an increase of $13.5 million in compensation expense due to increased full time personnel and bonuses.

Interest and Other (Expense) Income, Net

1 unchanged sentence

Interest expense represents interest expense on our term loans and lines of credit.

Interest and other (expense) income, net for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Interest and other (expense) income, net for the three and nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended

December 31, Change Six Months Ended

December 31, Change

March 31, Change Nine Months Ended

March 31, Change

2021 2020 $ % 2021 2020 $ %

2 unchanged sentences

Interest and other (expense) income, net $ 1.4 $ 0.4 $ 1.0 250.0 % $ (3.2) $ 0.5 $ (3.7) (740.0) %

Comparison of Three Months Ended December 31, 2020 and 2019

The change of $2.1 million in other (expense) income, net was attributable to an increase of $1.4 million in foreign exchange loss due to unfavorable foreign currency fluctuations, and a decrease of $0.7 million in interest income on our interest bearing deposits due primarily to lower yields on investments.

Comparison of Six Months Ended December 31, 2020 and 2019

The change of $4.6 million in other (expense) income, net was attributable to an increase of $2.9 million in foreign exchange loss due to unfavorable foreign currency fluctuations, and a decrease of $1.7 million in interest income on our interest bearing deposits due primarily to lower yields on investments.

Comparison of Three Months Ended March 31, 2021 and 2020

The change of $1.1 million in other (expense) income, net was attributable to an increase of $1.7 million in foreign exchange gain due to favorable foreign currency fluctuations, partially offset by a decrease of $0.5 million in interest income on our interest-bearing deposits due primarily to lower yields on investments.

Comparison of Nine Months Ended March 31, 2021 and 2020

The change of $3.5 million in other (expense) income, net was attributable to a decrease of $2.3 million in interest income on our interest-bearing deposits due primarily to lower yields on investments and an increase of $1.2 million in foreign exchange loss due to unfavorable foreign currency fluctuations.

Provision for Income Taxes

1 unchanged sentence

Our effective tax rate differs from the statutory rate primarily due to research and development tax credits, releases from uncertain tax positions, tax benefits from foreign derived intangible income and stock based compensation.

Provision for income taxes and effective tax rates for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Provision for income taxes and effective tax rates for the three and nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended

December 31, Change Six Months Ended

December 31, Change

March 31, Change Nine Months Ended

March 31, Change

2021 2020 $ % 2021 2020 $ %

Income tax provision $ 5.1 $ 2.1 $ 3.0 142.9 % $ 8.8 $ 10.7 $ (1.9) (17.8) %

Income tax (benefit) provision $ (0.2) $ (0.9) $ 0.7 (77.8) % $ 8.5 $ 9.8 $ (1.3) (13.3) %

Percentage of total net sales — % (0.1) % 0.3 % 0.4 %

Effective tax rate 14.9 % 7.9 % 13.9 % 17.6 %

Comparison of Three Months Ended December 31, 2020 and 2019

The income tax provision and effective tax rate for the three months ended December 31, 2020 was higher than that for the three months ended December 31, 2019 due to the release of tax reserves after the settlement of a Taiwan tax audit in 2019.

Comparison of Six Months Ended December 31, 2020 and 2019

The income tax provision and effective tax rate for the six months ended December 31, 2020 was lower than that for the six months ended December 31, 2019, primarily due to decrease in tax reserves after the settlement of a Taiwan tax audit and increase in tax benefit from employees’ stock based compensation.

Effective tax rate (benefit) (1.2) % (5.6) % 10.5 % 12.8 %

Comparison of Three Months Ended March 31, 2021 and 2020

The income tax provision and effective tax rate for the three months ended March 31, 2021 was higher than that for the three months ended March 31, 2020 due to the release of tax reserves after the settlement of a Taiwan tax audit in the prior year.

Comparison of Nine Months Ended March 31, 2021 and 2020

The income tax (benefit) provision and effective tax rate for the nine months ended March 31, 2021 was lower than that for the nine months ended March 31, 2020, primarily due to decrease in tax reserves after the settlement of a Taiwan tax audit and the SEC penalty assessment in 2020.

Share of (Loss) from Equity Investee, Net of Taxes

Share of (loss) from equity investee, net of taxes represents the Company’s share of loss from the Corporate Venture in which the Company has 30% ownership.

Share of (loss) from equity investee, net of taxes for the three and six months ended December 31, 2020 and 2019 are as follows (dollars in millions):

Share of (loss) from equity investee, net of taxes for the three and nine months ended March 31, 2021 and 2020 are as follows (dollars in millions):

Three Months Ended

December 31, Change Six Months Ended

December 31, Change

March 31, Change Nine Months Ended

March 31, Change

2021 2020 $ % 2021 2020 $ %

1 unchanged sentence

Percentage of total net sales — % (0.1) % — % — %

Comparison of Three Months Ended December 31, 2020 and 2019

The period-over-period increase of $0.5 million in share of (loss) from equity investee, net of taxes was primarily due to more net loss recognized by the Corporate Venture.

Comparison of Six Months Ended December 31, 2020 and 2019

The period-over-period increase of $0.1 million in share of (loss) from equity investee, net of taxes was primarily due to more net loss recognized by the Corporate Venture.

Comparison of Three Months Ended March 31, 2021 and 2020

The period-over-period decrease of $0.8 million in share of (loss) from equity investee, net of taxes was primarily due to less net loss recognized by the Corporate Venture.

Comparison of Nine Months Ended March 31, 2021 and 2020

The period-over-period decrease of $0.7 million in share of (loss) from equity investee, net of taxes was primarily due to less net loss recognized by the Corporate Venture.

Liquidity and Capital Resources

We have financed our growth primarily with funds generated from operations, in addition to utilizing borrowing facilities, particularly in relation to the financing of real property acquisitions as well as working capital.

Our cash and cash equivalents were $315.6 million and $210.5 million as of December 31, 2020 and June 30, 2020, respectively.

Our cash in foreign locations was $141.5 million a nd $98.0 million as of December 31, 2020 and June 30, 2020, respectively.

Our cash and cash equivalents were $177.9 million and $210.5 million as of March 31, 2021 and June 30, 2020, respectively.

Our cash in foreign locations was $99.0 million a nd $98.0 million as of March 31, 2021 and June 30, 2020, respectively.

Amounts held outside of the U.S.

8 unchanged sentences

We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows will be sufficient to support our operating businesses, continued remediation of the material weakness in the financial reporting, and maturing debt and interest payments for the twelve months following the issuance of these condensed consolidated financial statements.

We expect to pay special performance bonuses of approximately $8.6 million to our CEO and certain members of the Board of Directors within the next two years when and if specified market and performance conditions are met.

I n addition, we made a settlement payment of $17.5 million to the SEC in connection with the conclusion of the investigations in August 2020.

We expect to pay a special performance bonus of approximately $8.1 million to our CEO within the next year in two equal tranches.

During the quarter ended March 31, 2021, the target average closing prices for both tranches were met but no determination has been made if the specified performance condition for the first tranche is met.

On August 9, 2020, the Board approved a share repurchase program to repurchase shares of common stock for up to an aggregate of $30.0 million at market prices.

1 unchanged sentence

During the three months ended September 30, 2020, 1,142,294 shares of common stock were repurchased for $30.0 million and the program ended.

On October 31, 2020, the Board approved a share repurchase program to repurchase shares of common stock for up to an aggregate of $50.0 million at market prices.

The program is effective until October 31, 2021 or if earlier, until the maximum amount of common stock is repurchased.

During the three months ended December 31, 2020, 1,580,207 shares of common stock were repurchased for $47.0 million.

We repurchased 95,539 shares of our common stock for $3.0 million subsequent to December 31, 2020 and completed this share repurchase program on January 6, 2021.

On January 29, 2021, a duly authorized subcommittee of the Board approved a share repurchase program to repurchase shares of common stock for up to an aggregate of $200.0 million at market price.

On October 31, 2020, the Board approved a share repurchase program to repurchase up to an aggregate of $50.0 million of the Company’s common stock at market prices.

The program was effective until October 31, 2021 or if earlier, until the maximum amount of common stock was repurchased.

As of March 31, 2021, 1,675,746 shares of common stock were repurchased and retired for $50.0 million and the program ended.

On January 29, 2021, a duly authorized subcommittee of the Board approved a share repurchase program to repurchase up to an aggregate of $200.0 million of the Company’s common stock at market prices.

The program is effective until July 31, 2022 or if earlier, until the maximum amount of common stock is repurchased.

During the three months ended March 31 2021, 1,155,000 shares of common stock were repurchased for $40.7 million.

All repurchased shares have been retired as of March 31, 2021.

We repurchased 236,171 shares of our common stock for $9.3 million subsequent to March 31, 2021.

Our key cash flow metrics were as follows (dollars in millions):

Six Months Ended

December 31, Change

Nine Months Ended

March 31, Change

Net cash provided by operating activities $ 59.4 $ 65.7 $ (6.3)

3 unchanged sentences

Operating Activities

Net cash provided by operating activities increased by $96.6 million for the six months ended December 31, 2020 as compared to the six months ended December 31, 2019.

The increase was due primarily to a $4.2 million increase in net income and an increase of cash provided by net working capital o f $99.9 million d riven by decreased accounts receivable as a result of increased collections, utilization of inventories and prepaid expenses and other current assets.

Non-cash charges related to depreciation and amortization expense, stock-based compensation expense and unrealized losses on our foreign currency-denominated credit facilities increased $6.6 million.

These increases were offset by a decrease of $12.5 million in the non-cash charges related to excess and obsolete inventories.

Net cash provided by operating activities decreased by $6.3 million for the nine months ended March 31, 2021 as compared to the nine months ended March 31, 2020.

The decrease was due primarily to a decrease of $13.2 million in the non-cash charges related to excess and obsolete inventories, an increase of cash used for net working capital o f $4.3 million primarily d riven by increased accounts receivable as a result of increased revenue and higher cash payments for inventory purchases to meet expected customer demands, and a $2.2 million decrease in the non-cash charges related to a llowances for doubtful accounts .

These decreases were partially offset by a $6.8 million increase in net income and a $6.3 million increase in non-cash charges related to stock-based compensation expenses.

Investing Activities

Net cash used in investing activities was $25.6 million and $23.3 million for the six months ended December 31, 2020 and 2019, respectively, as we continued to invest in expanding our manufacturing capacity and office space, including the expansion of our Green Computing Park in San Jose and Bade manufacturing facility in Taiwan.

Net cash used in investing activities was $44.6 million and $34.1 million for the nine months ended March 31, 2021 and 2020, respectively, as we continued to invest in expanding our manufacturing capacity and office space, including the expansion of our Green Computing Park in San Jose and Bade manufacturing facility in Taiwan.

Financing Activities

Net cash used by financing activities for the six months ended December 31, 2020 was $53.7 million while net cash used in financing activities for the six months ended December 31, 2019 was $2.1 million.

The change in cash flows from financing activities was primarily due to stock repurchases of $74.8 million offset by the increase in cash received from the exercise of stock options of $7.9 million net of taxes, $14.7 million of debt proceeds from draws on our CTBC credit and term loan facilities and $0.5 million decrease in debt repayment.

Net cash used by financing activities for the nine months ended March 31, 2021 was $48.4 million while net cash provided by financing activities for the nine months ended March 31, 2020 was $25.4 million.

The change in cash flows from financing activities was primarily due to stock repurchases of $118.0 million, a $6.2 million increase in debt repayment, and a $2.7 million decrease in cash received from the exercise of stock options net of taxes, partially offset by a $52.2 million increase in debt proceeds from draws on our CTBC credit and term loan facilities and E.SUN credit facility.

Other Factors Affecting Liquidity and Capital Resources

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Interest shall accrue at LIBOR plus 2.00% on outstanding borrowings less than $125.0 million and LIBOR plus 2.25% on outstanding borrowings in excess of $125.0 million.

As of December 31, 2020, we had no outstanding borrowings and we had a $6.4 million letter of credit outstanding under this facility.

As of March 31, 2021, we had no outstanding borrowings and we had a $6.4 million letter of credit outstanding under this facility.

Our available borrowing capacity was $243.6 million, subject to the borrowing base limitation and compliance with other applicable terms.

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In August 2020, we entered into a credit agreement with CTBC Bank in Taiwan that provides for term loans of up to $50.0 million (the "2020 CTBC Credit Facility") and expires in August 2021.

During the three months ended December 31, 2020, we have not borrowed or repaid under the revolving line of credit.

There were no outstanding borrowings under the 2020 CTBC Credit Facility revolving line of credit as of December 31, 2020.

As of March 31, 2021, the outstanding borrowings under the CTBC Credit Facility revolving line of credit were $18.0 million and the interest rates for these loans were from 1.03% to 1.26% per annum.

The total outstanding borrowings under the CTBC Credit Facility term loan were denominated in NTD and remeasured into U.S.

dollars of $24.9 million at December 31, 2020.

The amount available for future borrowing was $25.1 million as of December 31, 2020.

The interest rate for these outstanding term loans was 0.73% per annum as of December 31, 2020.Term loans are secured by certain of our assets, including certain property, plant, and equipment.

dollars of $24.5 million at March 31, 2021 and the interest rates for these loans were 0.74% per annum.

The amount available for future borrowing was $7.5 million as of March 31, 2021.

The term loans are secured by certain of our assets, including certain property, plant, and equipment.

There are no financial covenants under the 2020 CTBC Credit Facility.

2020 CTBC Term Loan Facility

2020 CTBC Term Loan Facility due June 4, 2030

In May 2020, we entered into a ten-year, non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to obtain up to NTD 1.2 billion ($40.7 million in U.S.

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Fees paid to the lender as debt issuance costs were immaterial.

We borrowed $8.6 million in the three months ended December 31, 2020 with a rate of 0.45% per annum.

As of December 31, 2020, the amount outstanding under the 2020 CTBC Term Loan Facility was $20.6 million and the net book value of the property serving as collateral was $29.2 million.

We borrowed $7.3 million in the three months ended March 31, 2021

with a rate of 0.45% per annum.

As of March 31, 2021, the amount outstanding under the 2020 CTBC Term Loan Facility was $27.9 million and the net book value of the property serving as collateral was $38.1 million.

We have financial covenants requiring our current ratio, debt service coverage ratio, and financial debt ratio, to be maintained at certain levels.

As of December 31, 2020, we have been in compliance with all financial covenants under the 2020 CTBC Term Loan Facility.

As of March 31, 2021, we have been in compliance with all financial covenants under the 2020 CTBC Term Loan Facility.

E.SUN Credit Facility

In December 2020, Super Micro Computer Inc, Taiwan, a Taiwan subsidiary of the Company entered into a General Credit Agreement (the “E.SUN Credit Facility”) with E.SUN Bank in Taiwan.

Such Credit Facility provides for the issuance of

loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of $30.0 million.

Such Credit Facility provides for the issuance of loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of $30.0 million.

Terms for specific drawdowns are set forth in separate Notification and Confirmation of Credit Conditions negotiated with E.

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SUN Credit facility with a tenor of 120 days and with an interest rate calculated based on LIBOR or TAIFX plus a fixed margin.

As of December 31, 2020, no drawings had been made from the Import Loan.

As of March 31, 2021, the amounts outstanding under the E.SUN Credit Facility were $15.0 million and the interest rates for these loans were approximately 1.0% per annum.

At March 31, 2021, the amount available for future borrowing under the E.SUN Credit Facility was $15 million.

Refer to Part I, Item 1, Note 6, “Short-term and Long-term Debt,” in our notes to condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further information on our outstanding debt.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis