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Item 7. Management’s Discussion and Analysis

2021-08-27 compared with 2020-08-31 · 198 added, 207 removed, 228 unchanged (64% of the section changed)

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Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report, particularly under the heading "Risk Factors."

Nasdaq Relisting of our Common Stock

As a result of the delay in filing our periodic reports with the SEC and failure to hold an annual meeting, we were unable to comply with the Nasdaq listing standards and our common stock was suspended from trading on the Nasdaq Global Select Market effective August 23, 2018 and formally delisted effective March 22, 2019.

Following the suspension of trading, our common stock was quoted on the OTC Market and traded under the symbol “SMCI.” On January 14, 2020, our common stock was relisted on the NASDAQ Global Select Market under the symbol “SMCI".

For further information regarding trading in our common stock, refer to Part II, Item 5, “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in this Annual Report.

We are a global leader and innovator of application-optimized high performance and high-efficiency server and storage systems for a variety of markets, including enterprise data centers, cloud computing, artificial intelligence, 5G and edge computing.

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In this regard, we work closely with microprocessor and other key component vendors to take advantage of new technologies as they are introduced.

Historically, our ability to introduce new products rapidly has allowed us to benefit from technology transitions such as the introduction of new microprocessors and storage technologies, and as a result, we monitor the introduction cycles of Intel Corporation, Advanced Micro Devices, Inc., Nvidia Corporation, Samsung Electronics Company Limited, Micron Technology, Inc.

Historically, our ability to introduce new products rapidly has allowed us to benefit from technology transitions such as the introduction of new microprocessors and storage technologies, and as a result, we monitor the introduction cycles of NVIDIA Corporation, Intel Corporation, Advanced Micro Devices, Inc., Samsung Electronics Company Limited, Micron Technology, Inc.

and others closely and carefully.

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The global spread of the coronavirus (COVID-19) and the various attempts to contain it have created significant volatility, uncertainty and economic disruption for many businesses worldwide.

In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essentia l,” shelter in place, and practice social distancing when engaging in essential activitie s.

In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders that govern the operations of businesses, require masks be worn and define shelter in place and social distancing protocols.

We are an essential critical infrastructure (information technology) business under the relevant federal, state and county regulations.

In late March, we responded to the directives from Santa Clara County and the State of California regarding shelter in place instructions to combat the spread of COVID-19.

Our first priority is the safety of our workforc e and we immediately began to implement numerous health precautions and work practices to operate in a safe manner.

We quickly transitioned most of our indirect labor forces to work from home and continued to operate our local assembly in Taiwan and, after an initial period of disruption, in the United States and Europe.

Accordingly, in late March 2020, we responded to the directives from Santa Clara County and the State of California regarding instructions to combat the spread of COVID-19.

Our first priority is the safety of our workforce and we have implemented numerous health precautions and work practices to be in compliance with the law and to operate in a safe manner.

We quickly transitioned certain of our indirect labor forces to work from home at the earlier phase of the pandemic and continued to operate our local assembly in Taiwan and, after an initial period of disruption, in the United States and Europe.

We operate in the critical industry of IT infrastructure and we assessed our customer base to identify priority customers who operate in critical industries.

We continue to see ongoing demand as we enter the first quarter of fiscal year 2021 and do not have significant direct exposure to industries such as retail and oil and gas, which have been impacted the greatest.

We continue to see ongoing demand and do not have significant direct exposure to industries such as retail, oil and gas and hospitality, which have been impacted the greatest.

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.

We experienced increased costs in freight as well as direct labor costs as we incentivized our employees to continue to work and assist us in serving our customers, many of whom are in critical industries.

We expect this trend to continue for the duration of the uncertainties related to the COVID-19 pandemic.

We expect this trend to continue for the duration of the COVID-19 pandemic.

We monitor the credit profile and payment history of our customers to evaluate risk in specific industries or geographic areas where cash flow may be disrupted.

While we believe that we are adequately capitalized, we actively manage our liquidity needs.

In May 2020, we negotiated an extension of our credit facility with Bank of America to extend the maturity date to June 2021.

In June 2020, we entered into a ten-year, non-revolving term loan facility with China Trust and Bank Corp ("CTBC Bank") to obtain financing for use in the expansion and renovation of the our Bade Manufacturing Facility located in Taiwan.

Our management team is focused on guiding our company through the unfolding and emerging 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.

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

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 was through September 18, 2021.

In June 2021, we negotiated an extension of our credit facility with Bank of America to extend the maturity date to June 2026.

In July 2021, we replaced our prior credit facility and term loan facility with China Trust and Bank Corp ("CTBC Bank"), with a new facility for omnibus credit lines.

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

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.

See also “Business–Employees and Human Capital Resources.”

Financial Highlights

The following is a summary of financial highlights of fiscal years 2021 and 2020:

Net sales declined by 4.6% in fiscal year 2020 as compared to fiscal year 2019 .

Gross margin increased to 15.8% in fiscal year 2020 from 14.2% in fiscal year 2019 , primarily due to lower prices for key components and increased services and software revenues that have higher margins.

Operating expenses increased by 10.6% in fiscal year 2020 as compared to fiscal year 2019 , primarily due to the special performance bonuses to our employees and the accrual for our settlement with the SEC.

Net income increased to $84.3 million in fiscal year 2020 as compared to $71.9 million in fiscal year 2019 , which was primarily due to a reduction in our effective tax rate to 3.4% in fiscal year 2020 as compared to 16.6% in fiscal year 2019 .

• Net sales increased by 6.5% in fiscal year 2021 as compared to fiscal year 2020.

• Gross margin declined to 15.0% in fiscal year 2021 from 15.8% in fiscal year 2020, primarily due to product and customer mix and increased logistic costs.

• Operating expenses declined by 6.8% in fiscal year 2021 as compared to fiscal year 2020, primarily due to the special performance bonuses to our employees and the accrual for our settlement with the SEC incurred in fiscal year 2020.

• Net income increased to $111.9 million in fiscal year 2021 as compared to $84.3 million in fiscal year 2020, which was primarily due to the higher net sales and lower operating expenses in fiscal year 2021 as compared to fiscal year 2020.

• Our cash and cash equivalents were $232.3 million and $210.5 million at the end of fiscal years 2021 and 2020, respectively.

In fiscal year 2020 , we used net cash of $49.8 million , of which $30.3 million was used in operating activities related primarily to additional working capital requirements such as building increased inventories of critical components .

We also invested $44.3 million in purchases of property and equipment, including construction of a new facility in San Jose, California, and generated $23.8 million in financing activities primarily from the proceeds from exercises of stock options.

Subsequent Events

For details, see Part II, Item 8, Note 20, “Subsequent Events” in our notes to the consolidated financial statements in this Annual Report.

Critical Accounting Policies

In fiscal year 2021, we generated net cash of $21.1 million, of which $123.0 million was provided by operating activities related primarily to the increase in net income.

We also invested $58.0 million in purchases of property and equipment, including construction of a new facility in San Jose, California, and used $44.4 million in financing activities primarily due to the repurchase of $130.0 million of our common stock, which was offset by the proceeds from borrowings.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, net sales and expenses.

We evaluate our estimates on an on-going basis, and base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making the judgments we make about the carrying values of assets and liabilities that are

not readily apparent from other sources.

Because these estimates can vary depending on the situation, actual results may differ from the estimates.

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Revenue Recognition

The most critical accounting policy estimate and judgments required in applying ASC 606, Revenue Recognition of Contracts from Customers, and our revenue recognition policy relate to the determination of the transaction price, distinct performance obligations and the evaluation of the standalone selling price (the “SSP”) for each performance obligation.

We generate revenues from the sale of server and storage systems, subsystems, accessories, services, server software management solutions, and support services.

Product sales .

We recognize revenue from sales of products as control is transferred to customers, which generally happens at the point of shipment or upon delivery, unless customer acceptance is uncertain.

Products sold are delivered via shipment from our facilities or drop shipment directly to our customer from our vendor.

We may use distributors to sell products to end customers.

Revenue from distributors is recognized when the distributor obtains control of the product, which generally happens at the point of shipment or upon delivery.

As part of determining the transaction price in contracts with customers, we estimate reserves for future sales returns based on a review of our history of actual returns for each major product line.

Many of our customer contracts include multiple performance obligations.

Judgment is required in determining whether each performance obligation within a customer contract is distinct.

This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such goods or services are separable from the other aspects of the contractual relationship.

As part of determining the transaction price in contracts with customers, we may be required to estimate variable consideration when determining the amount of revenue to recognize.

We estimate reserves for future sales returns based on a review of our history of actual returns.

Based upon historical experience, a refund liability is recorded at the time of sale for estimated product returns and an asset is recognized for the amount expected to be recorded in inventory upon product return, less the expected recovery costs.

We also reduce revenue for the estimated costs of customer and distributor programs and incentive offerings such as price protection and rebates as well as the estimated costs of cooperative marketing arrangements where the fair value of the benefit derived from the costs cannot be reasonably estimated.

Any provision for customer and distributor programs and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.

Services sales.

Our sale of services mainly consists of extended warranty and on-site services.

Revenue related to extended warranty commences upon the expiration of the standard warranty period and is recognized ratably over the contractual period as we stand ready to perform any required warranty service.

Revenue related to on-site services commences upon recognition of the product sale and is recognized ratably over the contractual period as the on-site services are made available to the customer.

These service contracts are typically one to five years in length.

Service revenue has been less than 10% of net sales for all periods presented and is not separately disclosed.

Contracts with multiple promised goods and services.

Certain of our contracts contain multiple promised goods and services.

Performance obligations in a contract are identified based on the promised goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.

If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation.

Revenue allocated to each performance obligation is recognized at the time the related performance obligation is satisfied by transferring control of the promised good or service to a customer.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.

We also estimate the costs of customer and distributor programs and incentive offerings such as price protection, rebates, as well as the estimated costs of cooperative marketing arrangements where the fair value of the benefit derived from the costs cannot be reasonably estimated.

Any provision is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience.

We allocate the transaction price for each customer contract to each performance obligation based on the relative SSP for each performance obligation within each contract.

We recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue as each performance obligation is delivered.

Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgement.

We determine standalone selling prices based on the price at which the performance obligation is sold separately.

If the standalone selling price is not observable through past transactions, we estimate the standalone selling price taking into account available information, such as internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives, for the related performance obligations.

When we receive consideration from a customer prior to transferring goods or services to the customer, we record a contract liability (deferred revenue).

We also recognize deferred revenue when we have an unconditional right to consideration (i.e., a receivable) before transfer of control of goods or services to a customer.

We consider shipping & handling activities as costs to fulfill the sales of products.

Shipping revenue is included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of sales.

Taxes imposed by governmental authorities on our revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales and included in operating expenses.

Product Warranties

We offer product warranties typically ranging from 15 to 39 months against any defective products.

These standard warranties are assurance type warranties and we do not offer any services beyond the assurance that the product will continue working as specified.

Therefore, these warranties are not considered separate performance obligations in the arrangement.

Based on historical experience, we accrue for estimated returns of defective products at the time revenue is recognized.

We monitor warranty obligations and may make revisions to our warranty reserve if actual costs of product repair and replacement are significantly higher or lower than estimated.

Accruals for anticipated future warranty costs are recorded to cost of sales and included in accrued liabilities and other long-term liabilities.

Warranty accruals are based on estimates that are updated on an ongoing basis taking into consideration inputs such as new product introductions, changes in the volume of claims compared with our historical experience, and the changes in the cost of servicing warranty claims.

We account for the effect of such changes in estimates prospectively.

If the standalone selling price is not observable through past transactions, we apply judgment to estimate the SSP.

For substantially all performance obligations, we are able to establish the SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers.

We typically establish an SSP range for our products and services, which is reassessed on a periodic basis or when facts and circumstances change.

SSP for our products and services can evolve over time due to changes in our pricing practices, internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives for the related performance obligations which can also be influenced by intense competition, changes in demand for our products and services, economic and other factors.

These estimates and judgements have not fluctuated significantly for the fiscal year ended June 30, 2021 compared to prior fiscal years.

Inventories are stated at lower of cost, using weighted average cost method, or net realizable value.

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The rebates earned are recognized as a reduction of cost of inventories and reduce the cost of sales in the period when the related inventory is sold.

We account for income taxes under an asset and liability approach.

Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes, net of operating loss carry-forwards and other tax credits measured by applying enacted tax laws related to the financial statement periods.

Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized.

We determine the volume-based rebates to be recognized in the cost of sales on a first-in, first-out basis.

As part of the process of preparing our consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate.

We estimate actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes.

These differences result in deferred tax assets, which are included in our consolidated balance sheets.

In general, deferred tax assets

represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of income become deductible expenses under applicable income tax laws, or when loss or credit carryforwards are utilized.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

We continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist.

Any adjustment to the valuation allowance on deferred tax assets would be recorded in the consolidated statements of income for the period that the adjustment is determined to be required.

We recognize tax liabilities for uncertain income tax positions on the income tax return based on the two-step process.

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The expected volatility is based on the historical volatility of our common stock.

The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

The assumptions used to determine the fair value of the option awards represent management’s best estimates.

These estimates involve inherent uncertainties and the application of management’s judgment.

Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions.

If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

Variable Interest Entities

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If we are not the primary beneficiary in a VIE, we account for the investment or other variable interest in accordance with applicable GAAP.

We have concluded that Ablecom Technology, Inc.

("Ablecom") and its affiliate, Compuware Technology, Inc.

("Compuware"), are VIEs;

We have concluded that Ablecom and its affiliate, Compuware, are VIEs;

however, we are not the primary beneficiary as we do not have the power to direct the activities that are most significant to the entities and therefore, we do not consolidate these entities.

In performing this analysis, we considered our explicit arrangements with Ablecom and Compuware, including all contractual arrangements with these entities.

Also, as a result of the substantial related party relationships between us and these two companies, we considered whether any implicit arrangements exist that would cause us to protect these related parties’ interests from suffering losses.

Also, as a result of the substantial related party relationships between us and

these two companies, we considered whether any implicit arrangements exist that would cause us to protect these related parties’ interests from suffering losses.

We determined that no material implicit arrangements exist with Ablecom, Compuware, or their shareholders.

We and Ablecom jointly established Super Micro Asia Science and Technology Park, Inc.

(the “Management Company”) in Taiwan to manage the common areas shared by us and Ablecom for our separately constructed manufacturing facilities.

In fiscal year 2012, each party contributed $0.2 million for a 50% ownership interest of the Management Company.

We have concluded that the Management Company is a VIE and we are the primary beneficiary as we have the power to direct the activities that are most significant to the Management Company.

For the fiscal years ended 2020 , 2019 and 2018 , the accounts of the Management Company were consolidated with our accounts, and a noncontrolling interest was recorded for Ablecom’s interest in the net assets and operations of the Management Company.

Net income (loss) attributable to Ablecom’s interest was not material for the periods presented and was included in general and administrative expenses in our consolidated statements of operations.

Our ability to assess correctly our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements.

Subsequent evaluations of the primary beneficiary of a VIE may require the use of different assumptions that could lead to identification of a different primary beneficiary, resulting in a different consolidation conclusion than what was determined at inception of the arrangement.

Results of Operations

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Years Ended June 30,

2021 2020 2019

Net sales 100.0 % 100.0 % 100.0 %

Cost of sales 85.0 % 84.2 % 85.8 %

Gross profit 15.0 % 15.8 % 14.2 %

Operating expenses:

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Share of income (loss) from equity investee, net of taxes — % 0.1 % (0.1) %

Net income 3.1 % 2.5 % 2.2 %

Net sales consist of sales of our server and storage solutions, including systems and related services and subsystems and accessories.

The main factors that impact our net sales of our server and storage systems are the number of compute nodes sold and the average selling prices per node.

The main factors that impact our net sales of our subsystems and accessories are units shipped and the average selling price per unit.

The main factors that impact net sales of our server and storage systems are the number of compute nodes sold and the average selling prices per node.

The main factors that impact net sales of our subsystems and accessories are units shipped and the average selling price per unit.

The prices for our server and storage systems range widely depending upon the configuration, including the number of compute nodes in a server system as well as the level of integration of key components such as SSDs and memory.

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The following table presents net sales by product type for fiscal years 2021, 2020 and 2019 (dollars in millions):

Years Ended June 30,

2020 over 2019 Change

2019 over 2018 Change

Years Ended June 30, 2021 over 2020 Change 2020 over 2019 Change

2021 2020 2019 $ % $ %

Server and storage systems $ 2,790.3 $ 2,620.8 $ 2,858.7 $ 169.5 6.5 % $ (237.9) (8.3) %

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Fiscal Year 2021 Compared with Fiscal Year 2020

During fiscal year 2021 we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers.

The year-over-year increase in net sales of server and storage systems was primarily due to an increase of average selling prices per compute node by approximately 17%, offset by a decrease of approximately 9% in the number of units of compute nodes sold.

We typically adjust our selling prices as component costs rise and fall.

The increase in average selling prices was primarily due to significant inventory component price increases resulting from component shortages during fiscal year 2021.

The year-over-year increase in net sales of subsystems and accessories was primarily due to an increase of approximately 5% in the volume of subsystems and accessories sold, mainly due to increased demand and approximately 2% increase in average selling prices due primarily to the increase in costs of the components.

Our services and software revenue, included in server and storage systems revenue, increased by $0.2 million year-over-year.

Fiscal Year 2020 Compared with Fiscal Year 2019

During fiscal year 2020 we continued to experience a steady demand for server and storage systems, particularly from our large enterprise and datacenter customers.

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The decline in average selling prices was primarily due to substantially lower costs for key components, specifically for memory and storage, as compared to the previous fiscal year.

Our services and software revenue, included in server and storage systems revenue, increased by $39.8 million year-over-year.

The year-over-year increase in net sales of subsystems and accessories was primarily due to an increase of approximately 19% in the volume of subsystems and accessories sold, mainly due to increased demand from our indirect sales channel offset by an approximately 6% decrease in average selling prices due primarily to the decrease in costs of the components.

Fiscal Year 2019 Compared with Fiscal Year 2018

The year-over-year increase in server and storage systems sales was primarily due to an increase of average selling price per compute node by approximately 15%, offset by a decrease of approximately 8% in the number of units of compute nodes sold.

The decrease in the number of units of compute notes was primarily attributable to an overall market slowdown in the second half of fiscal year 2019.

The increase in the average selling prices of our server and storage systems was primarily due to higher sales of our complete systems configured with higher density computing and more memory and storage capacity.

During the first half of fiscal year 2019, we increased our average selling prices primarily to remain consistent with the increases in the cost of memory and SSDs on a year-over year basis.

During October 2018, a 10% tariff was applied to certain key components made in China and was partially incorporated into our average selling prices to the extent that component sourcing alternatives were not available.

As costs for memory and SSDs began to decline in the second half of fiscal year 2019, our average selling prices to customers declined accordingly.

Our services revenue, included in server and storage systems revenue, increased by $41.6 million year-over-year.

The year-over-year decrease in net sales of our subsystems and accessories in fiscal year 2019 was primarily due to a decrease of average selling prices of approximately 8%.

The following table presents the percentages of net sales from products sold through our indirect sales channel and to our direct customers and OEMs for fiscal years 2020 , 2019 and 2018 (dollars in millions):

Years Ended June 30,

2020 over 2019 Change

2019 over 2018 Change

Indirect sales channel

Percentage of total net sales

Direct customers and OEMs

Percentage of total net sales

Total net sales

Fiscal Year 2020 Compared with Fiscal Year 2019

The period-over-period increase in net sales through our indirect sales channel was primarily due to increased demand from the channel supporting large end users and partially offset by the lower average selling prices for our server and storage systems, caused by lower component pricing.

Some direct customers also elected to move a part or all of their purchases to be through an indirect sales channel.

The period-over-period decrease in net sales to our direct customers and OEMs was primarily due to a decline in demand from our internet datacenter and cloud customers and our enterprise datacenter customers.

Fiscal Year 2019 Compared with Fiscal Year 2018

The year-over-year decrease in net sales through our indirect sales channel was primarily due to the higher sales to our direct customers and OEMs.

The year-over-year increase in net sales to direct customers and OEMs was primarily due to higher sales of our server and storage systems to internet data center and cloud, enterprise and OEM customers.

Our services and software revenue, included in server and storage systems revenue, increased by $39.8 million year-over-year.

The following table presents percentages of net sales by geographic region for fiscal years 2021, 2020 and 2019 (dollars in millions):

Years Ended June 30,

2020 over 2019 Change

2019 over 2018 Change

Years Ended June 30, 2021 over 2020 Change 2020 over 2019 Change

2021 2020 2019 $ % $ %

United States $ 2,107.9 $ 1,957.3 $ 2,032.9 $ 150.6 7.7 % $ (75.6) (3.7) %

Percentage of total net sales 59.3 % 58.6 % 58.1 %

Asia 699.7 650.7 712.2 49.0 7.5 % (61.5) (8.6) %

Percentage of total net sales 19.7 % 19.5 % 20.3 %

Europe 614.8 598.6 611.0 16.2 2.7 % (12.4) (2.0) %

Percentage of total net sales 17.3 % 17.9 % 17.5 %

Others 135.0 132.7 144.3 2.3 1.7 % (11.6) (8.0) %

Percentage of total net sales 3.7 % 4.0 % 4.1 %

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Fiscal Year 2021 Compared with Fiscal Year 2020

The year-over-year increase in net sales in the United States was primarily due to an increase in net sales of our server and storage systems.

The year-over-year increase in net sales in Asia was primarily due to an increase in net sales of our server and storage systems in China, Singapore, India and Japan, partially offset by a decrease in the net sales in Taiwan.

The year-over-year increase in net sales in Europe was primarily due to an increase in net sales of our server and storage systems in the Germany, UK and France, partially offset by a decrease in net sales in the Netherlands and Russia.

Fiscal Year 2020 Compared with Fiscal Year 2019

The year-over-year decrease in net sales in the United States was primarily due to a decrease in net sales of our server and storage systems to our direct customers and OEMs.

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The year-over-year decrease in net sales in Europe was primarily due to a decrease in net sales of our server and storage systems to our direct customers and OEMs in the Netherlands, partially offset by an increase in net sales of our subsystems and accessories to our indirect sales channel in Germany and an increase in sales to our indirect sales channel in France.

Fiscal Year 2019 Compared with Fiscal Year 2018

The year-over-year increase in net sales in the United States was primarily due to the higher sales of our server and storage systems to our direct customers and OEMs.

The year-over-year decrease in net sales in Asia was due primarily to decreased sales through our indirect sales channel in China, partially offset by increased sales in Taiwan to enterprise datacenter customers.

The increased percentage of net sales in Europe was primarily due to higher sales in the Netherlands to enterprise and cloud computing customers.

Cost of Sales and Gross Margin

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As a result, our cost of sales as a percentage of net sales in any period can increase due to significant component price increases resulting from component shortages.

We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facility in San Jose, California.

During the fiscal years 2020 , we continued to expand manufacturing and service operations in Taiwan primarily to support our Asian and European customers and have continued to work on improving our utilization of our overseas manufacturing capacity.

We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing predominantly performed at our manufacturing facilities in the same region where our products are sold.

During the fiscal year 2021, we continued to expand manufacturing and service operations in Taiwan primarily to support our Asian and European customers and have continued to work on improving our utilization of our overseas manufacturing capacity.

We work with Ablecom, one of our key contract manufacturers and also a related party to optimize modular designs for our chassis and certain of other components.

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Cost of sales and gross margin for fiscal years 2021, 2020 and 2019, are as follows (dollars in millions):

Years Ended June 30,

2020 over 2019 Change

2019 over 2018 Change

Years Ended June 30, 2021 over 2020 Change 2020 over 2019 Change

2021 2020 2019 $ % $ %

Cost of sales $ 3,022.9 $ 2,813.1 $ 3,004.8 $ 209.8 7.5 % $ (191.7) (6.4) %

Gross profit 534.5 526.2 495.5 8.3 1.6 % 30.7 6.2 %

Gross margin 15.0 % 15.8 % 14.2 % (0.8) % 1.6 %

Fiscal Year 2021 Compared with Fiscal Year 2020

The year-over-year increase in cost of sales was primarily attributable to an increase of $244.1 million in costs of

materials and contract manufacturing expenses primarily related to the increase in net sales volume and an increase of $8.9 million of freight.

This was offset by a decrease of $29.5 million in overhead costs attributable primarily to a recovery of costs paid in prior periods, a decrease of $12.4 million in the provision of excess inventory and obsolescence and a decrease of $2.6 million in personnel expenses due to a decrease in special performance bonuses in the fiscal year 2021.

Warranty and repairs costs also decreased by $3.4 million in the fiscal year 2021 as compared to the fiscal year 2020.

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 and due to the decrease in services and software revenue which have higher margins than product sales.

Since the start of the COVID-19 pandemic, we have experienced an increase in both logistics costs as well as direct labor costs as we incentivize our employees to continue to work and assist us in serving our customers.

This increase in costs negatively impacts our gross margins, and we expect these higher costs to continue for the duration of the COVID-19 pandemic.

Fiscal Year 2020 Compared with Fiscal Year 2019

The year-over-year decrease in cost of sales was primarily attributable to a decrease of $214.3 million in inventory costs related primarily to the decrease in the prices of components and a decrease of $14.6 million in the provision of excess inventory and obsolescence due to fewer excess and obsolescence items identified in the fiscal year 2020.

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This increase in costs negatively impacts our gross margins, and we expect these higher costs to continue for the duration of the COVID-19 pandemic.

Fiscal Year 2019 Compared with Fiscal Year 2018

The year-over-year decrease in cost of sales was primarily attributable to an increase of $25.8 million in inventory costs related to the increase in net sales volume, increased expense of $23.3 million in the provision for excess inventory and obsolescence, an increase in overhead costs of $10.7 million attributable to increased tariffs for import of components from China, an increase of $8.6 million in compensation and benefits including stock-based compensation as a result of an increase in annual salaries and benefits and an increase in the number of operations personnel, and an increase of warranty provision of $5.4 million related to the increase in net sales.

The year-over-year increase in the gross margin percentage was primarily due to lower costs of memory and SSDs components in the second half of fiscal year 2019 and the timing of adjusting our average selling prices, as well as the increase in services and software revenue which have higher margins than product sales.

In addition, in fiscal year 2020 as compared with fiscal year 2019 , we had lower net sales in Asia where pricing is typically lower and the market there is more competitive which resulted in a shift in geographic mix that had a positive impact on our gross margin percentage.

Operating Expenses

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These amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses.

The timing, magnitude and estimated usage of these programs

can result in significant variations in reported sales and marketing expenses from period to period.

The timing, magnitude and estimated usage of these programs can result in significant variations in reported sales and marketing expenses from period to period.

Spending on cooperative marketing, reimbursed by our suppliers, typically increases in connection with new product releases by our suppliers.

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Operating expenses for fiscal years 2021, 2020 and 2019 are as follows (dollars in millions):

Years Ended June 30,

2020 over 2019 Change

2019 over 2018 Change

Years Ended June 30, 2021 over 2020 Change 2020 over 2019 Change

2021 2020 2019 $ % $ %

Research and development $ 224.4 $ 221.5 $ 179.9 $ 2.9 1.3 % $ 41.6 23.1 %

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Fiscal Year 2021 Compared with Fiscal Year 2020

The year-over-year increase in research and development expenses was primarily due to an increase of $11.6 million in costs mainly related to materials, supplies and equipment used in product development.

During the fiscal year 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.

Personnel expenses increased $1.7 million as a result of an increase in the number of research and development employees, These increases were partially offset by an increase of $8.8 million in research and development credits from certain suppliers and customers towards our development efforts and a $1.5 million decrease in trade shows and business travel as a result in a change in our operations in response to the COVID-19 pandemic.

The year-over-year increase in sales and marketing expenses was primarily due to an increase of $1.2 million in advertising expenses, a $1.0 million increase in other sales and marketing expenses, offset by a $1.7 million decrease in trade shows and business travel as a result in a change in our operations in response to the COVID-19 pandemic.

The year-over-year decrease in general and administrative expenses was due to a decrease of $41.8 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 $4.1 million in other expenses related to the COVID-19 pandemic, and a $1.1 million decrease in supplies costs.

These decreases were partially offset by a $12.9 million increase in personnel expenses due to increased full time personnel and bonuses.

We anticipate the above expenses impacted by the COVID-19 pandemic to normalize if and when the COVID-19 pandemic is over.

Fiscal Year 2020 Compared with Fiscal Year 2019

The year-over-year increase in research and development expenses was primarily due to an increase of $41.3 million in personnel expenses as a result of an increase in the number of research and development employees and a special performance bonus of $17.3 million, a decrease of $0.7 million in reimbursements received for certain research and development costs that we incurred as part of joint product development;

an increase of $6.7 million in costs mainly related to materials, supplies and equipment used in product development;

and an increase of $1.8 million in facilities expenses.

an increase of $6.7 million in costs mainly related to materials, supplies and equipment used in product development, and an increase of $1.8 million in facilities expenses.

During fiscal year 2020, we also recorded a $9.5 million net settlement fee as a reduction in the research and development expenses related to the reimbursement of previously incurred expenses for one canceled joint product development agreement.

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and an increase of $1.7 million related primarily to facilities expenses.

Fiscal Year 2019 Compared with Fiscal Year 2018

The year-over-year increase in research and development expenses was due to an increase of $16.0 million in personnel expenses, an decrease of $3.3 million in reimbursements received for certain research and development costs that we incur as part of the joint development of our and our suppliers’ and customers’ products, offset by a decrease of $6.1 million in product development costs.

Our personnel expenses increased primarily as a result of an increase in annual salaries and benefits, and an increase in the number of research and development personnel to support our expanded product development initiatives and to support the growth of our business in many market verticals.

The year-over-year increase in sales and marketing expenses was due to an increase of $6.1 million in personnel expenses, as a result of an increase in annual salaries and benefits and an increase in the number of sales and marketing personnel, offset by a $1.5 million decrease in expenses related to advertising and promotion activities.

The year-over-year increase in general and administrative expenses was attributable to an increase of $31.7 million in professional fees that were primarily incurred to investigate, assess and begin remediating 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, an increase of $7.2 million in bad debt provision expenses primarily as a result of our inability to collect receivables from

certain international customers and an increase of $2.7 million primarily attributable to increase in sales tax accrual and insurance costs.

Interest and Other Income (Expense), Net

Other income (expense), net consists primarily of interest earned on our investment and cash balances and foreign exchange gains and losses.

Interest and Other Expense, Net

Other (expense) income, net consists primarily of interest earned on our investment and cash balances and foreign exchange gains and losses.

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

Interest and other income (expense), net for fiscal years 2020 , 2019 and 2018 are as follows (dollars in millions):

Years Ended June 30,

2020 over 2019 Change

2019 over 2018 Change

Other income (expense), net

Interest and other expense, net for fiscal years 2021, 2020 and 2019 are as follows (dollars in millions):

Years Ended June 30, 2021 over 2020 Change 2020 over 2019 Change

2021 2020 2019 $ % $ %

Other (expense) income, net $ (2.8) $ 1.4 $ (1.0) $ (4.2) (300.0) % $ 2.4 (240.0) %

Interest expense (2.5) (2.2) (6.7) (0.3) 13.6 % 4.5 (67.2) %

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Fiscal Year 2021 Compared with Fiscal Year 2020

The year-over-year change in interest expense of $4.5 million is primarily a result of lower interest rates and reduced levels of borrowings in fiscal year 2020 as compared to fiscal year 2019.

The change of $2.4 million in other income (expense), net was attributable to an increase of $1.6 million in interest income on our interest bearing deposits and a decrease of $0.8 million in other expenses.

The change of $4.2 million in other (expense) income, net was attributable to a decrease of $2.4 million in interest income on our interest-bearing deposits due primarily to lower yields on investments and an increase of $1.8 million in foreign exchange loss due to unfavorable foreign currency fluctuations.

Fiscal Year 2020 Compared with Fiscal Year 2019

The year-over-year increase in interest and other expense, net was primarily due to an increase of $1.0 million in interest expense related to amortization of loan origination fees in connection with refinancing of our debt in the last quarter of fiscal year 2018, an increase in other expense of $2.1 million as a result of an impairment recorded for certain investments, offset by an increase of $1.9 million attributable to increase in interest income on our interest bearing deposits and foreign exchange gain due to favorable foreign currency fluctuations.

The year-over-year change in interest expense of $4.5 million is primarily a result of lower interest rates and reduced levels of borrowings in fiscal year 2020 as compared to fiscal year 2019.

The change of $2.4 million in other (expense) income, net was attributable to an increase of $1.6 million in interest income on our interest bearing deposits and a decrease of $0.8 million in other expenses.

Provision for Income Taxes

Our income tax provision is based on our taxable income generated in the jurisdictions in which we operate, primarily the United States, Taiwan, and the Netherlands.

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.

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

A reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in Part II, Item 8, Note 15, “Income Taxes” to the consolidated financial statements in this Annual Report.

Provision for income taxes and effective tax rates for fiscal years 2021, 2020 and 2019 are as follows (dollars in millions):

Years Ended June 30,

2020 over 2019 Change

2019 over 2018 Change

Years Ended June 30, 2021 over 2020 Change 2020 over 2019 Change

2021 2020 2019 $ % $ %

Income tax provision $ 6.9 $ 2.9 $ 14.9 $ 4.0 137.9 % $ (12.0) (80.5) %

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Fiscal Year 2021 Compared with Fiscal Year 2020

The year-over-year increase in the effective tax rate was primarily due to a release of reserve from uncertain tax positions in the prior year.

Fiscal Year 2020 Compared with Fiscal Year 2019

The year-over-year decrease in the effective tax rate was primarily due to an increase in tax benefits from research and development tax credits, stock based compensation, releases of uncertain tax positions, and U.S.

sales to foreign jurisdictions, partially offset by the tax impact from the non-deductible settlement with the SEC.

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

Years Ended June 30, 2021 over 2020 Change 2020 over 2019 Change

2021 2020 2019 $ % $ %

Share of income (loss) from equity investee, net of taxes $ 0.2 $ 2.4 $ (2.7) $ (2.2) (91.7) % $ 5.1 188.9 %

Fiscal Year 2021 Compared with Fiscal Year 2020

The year-over-year decrease in the effective tax rate was primarily due to a reduction of the statutory tax rate from 28.1% to 21% as a result of the tax reform, and a prior year recording of a one-time $12.9 million write down of U.S.

deferred tax assets and liabilities, and a one-time transition tax of $2.8 million, all as a result of the 2017 Tax Reform Act.

The year-over-year decrease of $2.2 million in share of income from equity investee, net of taxes was primarily due to lower net income recognized by the Corporate Venture in the fiscal year 2021 as compared to 2020.

Fiscal Year 2020 Compared with Fiscal Year 2019

The year-over-year increase of $5.1 million from share of (loss) to income from equity investee, net of taxes was primarily due to net income recognized by the Corporate Venture in the fiscal year 2020 as compared to net loss in the fiscal year 2019.

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 $232.3 million and $210.5 million as of June 30, 2021 and 2020, respectively.

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to have a material effect on our overall liquidity, financial condition or results of operations.

We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows will be generally sufficient to support our operating businesses, expansion of our manufacturing facilities, continued remediation of 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, and maturing debt and interest payments for the twelve months following the issuance of these 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.

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

On August 9, 2020, our Board of Directors approved a share repurchase program to repurchase shares of common stock for up to $30.0 million at prevailing prices in the open market.

The share repurchase program is effective until December 31, 2020 or until the maximum amount of common stock is repurchased.

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 and maturing debt and interest payments for the twelve months following the issuance of these consolidated financial statements.

We expect to pay a special performance bonus of approximately $4.0 million to our CEO within the next year.

During the fiscal year 2021, the target average closing price of our common stock condition for the bonus was satisfied but no determination has been made if the specified performance condition has been satisfied.

During the fiscal year ended June 30, 2021, we retired 1,333,125 shares of common stock repurchased in prior years.

Additionally, we repurchased and retired 4,209,211 shares of common stock for an aggregated $130.0 million under multiple share repurchase programs.

All programs were completed during the fiscal year except for the program approved on January 29, 2021 to repurchase up to an aggregate of $200.0 million of our 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.

As of June 30, 2021, we still had $150.0 million available to be used by July 31, 2022.

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

Years Ended June 30,

2020 over 2019

2019 over 2018

Net cash (used in) provided by operating activities

Years Ended June 30, 2021 over 2020 2020 over 2019

2021 2020 2019

Net cash provided by (used in) operating activities $ 123.0 $ (30.3) $ 262.6 $ 153.3 $ (292.9)

Net cash used in investing activities $ (58.0) $ (43.6) $ (24.8) $ (14.4) $ (18.8)

Net cash provided by (used in) financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Net cash (used in) provided by financing activities $ (44.4) $ 23.8 $ (95.8) $ (68.2) $ 119.6

Net increase (decrease) in cash, cash equivalents and restricted cash $ 21.1 $ (49.8) $ 141.8 $ 70.9 $ (191.6)

Operating Activities

Net cash provided by operating activities increased by $153.3 million for fiscal year 2021 as compared to fiscal year 2020.

While net income increased by $27.6 million in fiscal year 2021 as compared to fiscal year 2020, the increase in cash flows from operating activities was due primarily to a decrease of cash used for net working capital requirements of $120.3 million .

Non-cash charges related to stock-based compensation expense increased by $8.4 million, collection of bad debt previously reserved decreased by $2.3 million, income from equity investee decreased by $2.2 million and $5.4 million decrease in the non-cash charges related to the change in our deferred income tax assets.

These increases in the cash flow from operating activities were partially offset by the decrease of $11.6 million in previously reserved excess and obsolete inventory.

Net cash provided by operating activities decreased by $292.9 million for fiscal year 2020 as compared to fiscal year 2019.

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These decreases were offset by an increase of $8.9 million in the non-cash charges related to the change in our deferred income tax assets, unrealized losses on our foreign currency-denominated credit facilities, and depreciation and amortization expense resulting from the amortization of operating lease right-of-use assets.

Net cash provided by operating activities increased by $178.3 million for fiscal year 2019 as compared to fiscal year 2018.

The increase was due primarily to a reduction of net working capital of $160.6 million due to improved working capital management and reduced costs for key components in the second half of fiscal year 2019, higher net income in fiscal year 2019 of $25.8 million, the change in the non-cash charges related to an increase in excess and obsolete inventory of $23.3 million for

aged inventory and $7.2 million for bad debt, partially offset by a reduction of $30.7 million in the non-cash charges related to the change in our deferred income tax assets, primarily as a result of the 2017 Tax Reform Act and a decrease of $8.0 million from the change in deferred revenue compared to prior year, related to the lower growth in services business year-over-year.

Investing Activities

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Financing Activities

Net cash used in financing activities increased by $68.2 million for fiscal year 2021 as compared to fiscal year 2020 primarily due to an increase of $130.0 million in repurchase of our common stock, partially offset by an increase of $61.9 million in proceeds from borrowings net of repayment.

Net cash used in financing activities decreased by $119.6 million for fiscal year 2020 as compared to fiscal year 2019 primarily due to decreased net repayments of debt of $96.4 million, and cash receipts from exercises of stock options of $28.3 million offset by increased cash payments for withholding taxes from the vesting of restricted stock of $5.2 million.

Net cash used in financing activities increased by $45.0 million for fiscal year 2019 as compared to fiscal year 2018 primarily due to increased debt repayments of $43.1 million.

Other Factors Affecting Liquidity and Capital Resources

Activities under Revolving Lines of Credit and Term Loans

Bank of America

2018 Bank of America Credit Facility

In April 2018, as amended in January and June 2019, we entered into a revolving line of credit with Bank of America (the "2018 Bank of America Credit Facility") for up to $250.0 million.

In May 2020, we entered into a third amendment to extend the maturity from June 30, 2020 to June 30, 2021, release the real property as a collateral, modify certain payments and covenants provisions, specify that LIBOR cannot be less than 1% for purposes of determining interest rates, and increase the unused line fee from 0.25% per annum to 0.375% per annum.

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 June 30, 2020, we had no outstanding borrowings and we had a $6.4 million letter of credit outstanding under this facility.

In April 2018, we entered into a revolving line of credit with Bank of America for up to $250.0 million (as amended from time to time, the "2018 Bank of America Credit Facility").

On June 28, 2021, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026, reduce the size of the facility from $250.0 million to $200.0 million, increase the maximum amount that we can request the facility be increased (the accordion feature) from $100.0 million to $150.0 million, and update provisions relating to erroneous payments and LIBOR replacement mechanics.

In addition, the amendment reduced both the unused line fee from 0.375% per annum to 0.2% or 0.3% per annum (depending upon amount drawn under the facility) and the interest rate applicable to the facility from LIBOR plus 2.00% or 3.00% per annum (depending upon amount drawn under the facility) to LIBOR plus 1.375% or 1.625% per annum.

As of June 30, 2021, we had no outstanding borrowings.

Our available borrowing capacity was $200.0 million, subject to the borrowing base limitation and compliance with other applicable terms.

In the event of default or if outstanding borrowings are in excess of $220.0 million, we are required to grant the lenders a continuing security interest in and lien upon all amounts credited to any of our deposit accounts.

Interest accrued on any loans under the 2018 Bank of America Credit Facility is due on the first day of each month, and the loans are due and payable in full on the termination date of the 2018 Bank of America Credit Facility.

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2020 CTBC Credit Facility

In June 2019, we entered into a credit agreement with CTBC Bank in Taiwan that provides for term loans denominated in NTD of up to $50.0 million (the "2019 CTBC Credit Facility") and had an original maturity of June 30, 2020.

We have since extended the maturity of the 2019 CTBC Credit Facility to August 31, 2021.

During the year ended June 30, 2020, we borrowed and repaid $10.0 million under the revolving line of credit.

The total outstanding borrowings under the 2019 CTBC Credit Facility were $23.7 million as of June 30, 2020.

The amount available for future borrowing was $26.3 million as of June 30, 2020.

The interest rate for these outstanding term loans was 0.45% per annum as of June 30, 2020.

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

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"), which had a maturity date of August 2021.

As of June 30, 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 0.98% per annum.

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

dollars of $25.1 million at June 30, 2021 and the interest rates for these loans were 0.75% per annum.

The amount available for future borrowing under the CTBC Credit Facility was $6.9 million as of June 30, 2021.

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

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

2020 CTBC Term Loan Facility

In June 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.

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.

dollar equivalents) in financing for use in the expansion and renovation of our Bade Manufacturing Facility located in Taiwan.

Drawdowns on the 2020 CTBC Term Loan Facility are based on 80% of balances owed on commercial invoices from the contractor and are drawn according to the progress of the renovations.

Draw downs on the 2020 CTBC Term Loan Facility are based on 80% of balances owed on commercial invoices from the contractor and are drawn according to the progress of the renovations.

Borrowings under the 2020 CTBC Term Loan Facility are available through June 2022.

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

We borrowed $5.7 million in June 2020 with a rate of 0.45% per annum.

We borrowed $ 29.0 million in the fiscal year ended June 30, 2021 with a rate of 0.45% per annum.

As of June 30, 2021, the amount outstanding under the 2020 CTBC Term Loan Facility was $34.7 million and the net book value of the property serving as collateral was $45.9 million.

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

We have been in compliance with all financial covenants under the 2020 CTBC Term Loan Facility.

We have financial covenants

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

As of June 30, 2021, we were in compliance with all financial covenants under the 2020 CTBC Term Loan Facility.

2021 CTBC Credit Lines

On July 20, 2021 (the “Effective Date”), we entered into a general agreement for omnibus credit lines with CTBC Bank, which replaced the 2020 CTBC Credit Facility and 2020 CTBC Term Loan Facility (the “Prior CTBC Credit Lines”) in their entirety and permits borrowings, from time to time, of (i) a term loan facility of up to NTD1,550.0 million ( $55.4 million in U.S.

dollar equivalents) and (ii) a line of credit facility of up to US$105.0 million (the “2021 CTBC Credit Lines”).

Interest rates are to be established according to individual credit arrangements established pursuant to the 2021 CTBC Credit Lines, which interest rates shall be subject to adjustment depending on the satisfaction of certain conditions.

Term loans made pursuant to the 2021 CTBC Credit Lines are secured by certain of our assets, including certain property, land, plant, and equipment located in Bade, Taiwan .

We are subject to various financial covenants under the 2021 CTBC Credit Lines, including current ratio, debt service coverage ratio, and financial debt ratio requirements.

Amounts outstanding under the Prior CTBC Credit Lines on the Effective Date were assumed by the 2021 CTBC Credit Lines.

E.SUN Credit Facility

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

The E.SUN 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 by and between us and E.SUN Bank.

The E.SUN Credit Facility expires September 18, 2021.

There are no financial covenants associated with the E.SUN Credit Facility.

A Notification and Confirmation Agreement was entered into on December 2, 2020 for a $30.0 million import loan (the “Import Loan”) under the E.

SUN Credit Facility with a tenor of 120 days bearing interest at a rate based on LIBOR or TAIFX plus a fixed margin.

As of June 30, 2021, the amounts outstanding under the E.SUN Credit Facility were $20.4 million and the interest rates for these loans ranged from approximately .0% to1.29% per annum.

As of June 30, 2021, the amount available for future borrowing under the E.SUN Credit Facility was $9.6 million.

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

Capital Expenditure Requirements

We anticipate our capital expenditures in fiscal year 2022 will be approximately $21.4 million, relating primarily to costs associated in our manufacturing capabilities, including tooling for new products, new information technology investments, and facilities upgrades.

We will continue to evaluate new business opportunities and new markets.

As a result, our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth.

We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment.

We intend to continue to focus our capital expenditures in fiscal year 2022 to support the growth of our operations.

Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced software and services offerings, the investments in our office facilities and our systems infrastructure, the continuing market acceptance of our offerings and our planned investments, particularly in our product development efforts, applications or technologies.

Contractual Obligations

The following table describes our contractual obligations as of June 30, 2020 :

Payments Due by Period

(in thousands)

Operating lease obligations

Debt, including interest (1)

Purchase commitments (2)

__________________________

Amount reflects total anticipated cash payments, including anticipated interest payments based on the interest rates under our 2018 Bank of America Credit Facility, our 2019 CTBC Credit Facility and 2020 CTBC Credit Facility at June 30, 2020.

Amount reflects total gross purchase commitments under our manufacturing arrangements with third-party contract manufacturers or vendors.

See Part II, Item 8, Note 16, “Commitments and Contingencies” to the consolidated financial statements in this Annual Report for a discussion of purchase commitments.

The table above excludes liabilities for deferred revenue of $203.8 million and unrecognized tax benefits and related interest and penalties accrual of $15.5 million .

Deferred revenue represents billed services in advance which include extended warranty, on-site technical support, and software maintenance.

We have not provided a detailed estimate of the payment timing of unrecognized tax benefits due to the uncertainty of when the related tax settlements will become due.

See Part II, Item 8, Note 15, “Income Taxes” to the consolidated financial statements in this Annual Report for a discussion of income taxes.

We expect to fund our remaining contractual obligations from our ongoing operations and existing cash and cash equivalents on hand.

Our estimated future obligations as of June 30, 2021 include both current and long term obligations.

For our long-term debt as noted in Part I, Item 1, Note 10, “Short-term and Long-term Debt”, we have a current obligation of $63.5 million and a long-term obligation of $34.7 million.

Under our operating leases as noted in Note 12, "Leases", we have a current obligation of $6.3 million and a long-term obligation of $14.5 million.

As noted in Note 16, "Commitments and Contingencies", we have current obligations related to noncancelable purchase commitments of $569.8 million.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Part II, Item 8, Note 1, “Organization and Summary of Significant Accounting Policies” to the consolidated financial statements in this Annual Report.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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-K

Item 7. Management’s Discussion and Analysis