What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-05 compared with 2021-05-07 · 339 added, 442 removed, 534 unchanged (59% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

March 31, June 30,

September 30, June 30,

Current assets:

Cash and cash equivalents $ 270,047 $ 232,266

Accounts receivable, net of allowances of $ 2,784 and $ 4,586 at March 31, 2021 and June 30, 2020, respectively (including accounts receivable from related parties of $ 12,244 and $ 8,712 at March 31, 2021 and June 30, 2020, respectively)

Accounts receivable, net of allowances of $ 2,461 and $ 2,591 at September 30, 2021 and June 30, 2021, respectively (including accounts receivable from related parties of $ 13,993 and $ 8,678 at September 30, 2021 and June 30, 2021, respectively)

458,076 463,834

Inventories 1,184,573 1,040,964

Prepaid expenses and other current assets (including other receivables from related parties of $ 20,298 and $ 19,791 at March 31, 2021 and June 30, 2020, respectively)

Prepaid expenses and other current assets (including receivables from related parties of $ 26,283 and $ 23,837 at September 30, 2021 and June 30, 2021, respectively)

124,259 130,195

7 unchanged sentences

Current liabilities:

Accounts payable (including amounts due to related parties of $ 54,072 and $ 72,368 at March 31, 2021 and June 30, 2020, respectively)

Accounts payable (including amounts due to related parties of $ 77,754 and $ 70,096 at September 30, 2021 and June 30, 2021, respectively)

$ 564,628 $ 612,336

Accrued liabilities (including amounts due to related parties of $ 16,026 and $ 16,206 at March 31, 2021 and June 30, 2020, respectively)

Accrued liabilities (including amounts due to related parties of $ 20,103 and $ 18,528 at September 30, 2021 and June 30, 2021, respectively)

175,221 178,850

4 unchanged sentences

Deferred revenue, non-current 101,749 100,838

Long-term debt, net of debt issuance costs 27,867 5,697

Other long-term liabilities (including related party balance of $ 0 and $ 1,699 at March 31, 2021 and June 30, 2020, respectively)

41,109 41,995

Long-term debt 45,134 34,700

Other long-term liabilities 45,533 41,132

Total liabilities 1,293,895 1,145,566

5 unchanged sentences

Outstanding shares:

50,036,368 and 52,408,703 at March 31, 2021 and June 30, 2020, respectively

51,071,844 and 50,582,078 at September 30, 2021 and June 30, 2021, respectively

Issued shares:

50,036,368 and 53,741,828 at March 31, 2021 and June 30, 2020, respectively

51,071,844 and 50,582,078 at September 30, 2021 and June 30, 2021, respectively

448,976 438,012

Treasury stock (at cost), 0 and 1,333,125 shares at March 31, 2021 and June 30, 2020, respectively

Accumulated other comprehensive gain (loss) 362 ( 152 )

Accumulated other comprehensive income 449 453

Retained earnings 683,197 657,760

9 unchanged sentences

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

Net sales (including related party sales of $ 20,432 and $ 21,528 in the three months ended March 31, 2021 and 2020, respectively, and $ 58,853 and $ 70,974 in the nine months ended March 31, 2021 and 2020, respectively)

September 30,

Net sales (including related party sales of $ 30,922 and $ 19,716 in the three months ended September 30, 2021 and 2020, respectively)

$ 1,032,730 $ 762,250

Cost of sales (including related party purchases of $ 64,787 and $ 60,387 in the three months ended March 31, 2021 and 2020, respectively, and $ 177,821 and $ 200,753 in the nine months ended March 31, 2021 and 2020, respectively)

Cost of sales (including related party purchases of $ 87,687 and $ 58,859 in the three months ended September 30, 2021 and 2020, respectively)

894,591 632,335

9 unchanged sentences

Income before income tax provision 28,374 28,931

Income tax benefit (provision) 227 899 ( 8,541 ) ( 9,782 )

Share of (loss) from equity investee, net of taxes ( 264 ) ( 1,057 ) ( 409 ) ( 1,066 )

Income tax provision ( 3,325 ) ( 3,660 )

Share of income from equity investee, net of taxes 388 1,330

Net income $ 25,437 $ 26,601

10 unchanged sentences

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

September 30,

Net income $ 25,437 $ 26,601

7 unchanged sentences

(in thousands, except share amounts)

Three Months Ended March 31, 2021 Common Stock and

Additional Paid-In

Capital Treasury Stock Accumulated

Comprehensive

(Loss) Gain Retained

Earnings Non-controlling Interest Total

Stockholders’

Shares Amount Shares Amount

Balance at December 31, 2020 50,651,054 $ 410,522 — $ — $ 396 $ 653,129 $ 173 $ 1,064,220

Exercise of stock options, net of taxes 511,801 9,577 — — — — — 9,577

Release of shares of common stock upon vesting of restricted stock units 186,034 — — — — — — —

Shares of common stock withheld for the withholding tax on vesting of restricted stock units ( 61,982 ) ( 2,062 ) — — — — — ( 2,062 )

Stock repurchases and retirement ( 1,250,539 ) ( 42 ) — — — ( 43,628 ) — ( 43,670 )

Stock-based compensation — 7,494 — — — — — 7,494

Foreign currency translation loss — — — — ( 34 ) — ( 34 )

Net income — — — — — 18,428 ( 5 ) 18,423

Balance at March 31, 2021 50,036,368 $ 425,489 — $ — $ 362 $ 627,929 $ 168 $ 1,053,948

Three Months Ended March 31, 2020 Common Stock and

Three Months Ended September 30, 2021 Common Stock and

Additional Paid-In

1 unchanged sentence

Comprehensive

(Loss) Gain Retained

Income (Loss) Retained

Earnings Non-controlling Interest Total

1 unchanged sentence

Shares Amount Shares Amount

Balance at December 31, 2019 51,923,260 $ 360,060 ( 1,333,125 ) $ ( 20,491 ) $ ( 135 ) $ 661,954 $ 165 $ 1,001,553

Balance at June 30, 2021 50,582,078 $ 438,012 — $ — $ 453 $ 657,760 $ 173 $ 1,096,398

Exercise of stock options, net of taxes 370,066 6,018 — — — — — 6,018

Release of shares of common stock upon vesting of restricted stock units 262,742 — — — — — — —

Shares of common stock withheld for the withholding tax on vesting of restricted stock units ( 100,540 ) ( 2,860 ) — — — — — ( 2,860 )

Release of common stock shares upon vesting of restricted stock units 173,771 — — — — — — —

Shares withheld for the withholding tax on vesting of restricted stock units ( 54,071 ) ( 2,069 ) — — — — — ( 2,069 )

Stock-based compensation — 7,015 — — — — — 7,015

1 unchanged sentence

Net income — — — — — $ 25,437 3 25,440

Balance at March 31, 2020 53,248,771 $ 381,125 ( 1,333,125 ) $ ( 20,491 ) $ ( 166 ) $ 677,761 $ 166 $ 1,038,395

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Nine Months Ended March 31, 2021 Common Stock and

Balance at September 30, 2021 51,071,844 $ 448,976 — — $ 449 $ 683,197 $ 176 $ 1,132,798

Three Months Ended September 30, 2020 Common Stock and

Additional Paid-In

1 unchanged sentence

Comprehensive

(Loss) Gain Retained

Income (Loss) Retained

Earnings Non-controlling Interest Total

3 unchanged sentences

Exercise of stock options, net of taxes 350,830 5,020 — — — — — 5,020

Release of shares of common stock upon vesting of restricted stock units 596,570 — — — — — — —

Shares of common stock withheld for the withholding tax on vesting of restricted stock units ( 191,279 ) ( 5,780 ) — — — — — ( 5,780 )

Share repurchase and retirement ( 5,306,165 ) ( 164 ) 1,333,125 20,491 ( 140,985 ) ( 120,658 )

Release of common stock shares upon vesting of restricted stock units 217,519 — — — — — — —

Shares withheld for the withholding tax on vesting of restricted stock units ( 69,131 ) ( 2,005 ) — — — — — ( 2,005 )

Stock repurchases and retirement — — ( 1,142,294 ) ( 30,000 ) — — — ( 30,000 )

Stock-based compensation — 7,170 — — — — — 7,170

1 unchanged sentence

Net income — — — — — 26,601 2 26,603

Balance at March 31, 2021 50,036,368 $ 425,489 — $ — $ 362 $ 627,929 $ 168 $ 1,053,948

Nine Months Ended March 31, 2020 Common Stock and

Additional Paid-In

Capital Treasury Stock Accumulated

Comprehensive

(Loss) Gain Retained

Earnings Non-controlling Interest Total

Stockholders’

Shares Amount Shares Amount

Balance at June 30, 2019 51,289,413 $ 349,683 ( 1,333,125 ) $ ( 20,491 ) $ ( 80 ) $ 611,903 $ 161 $ 941,176

Exercise of stock options, net of taxes 1,447,296 23,053 — — — — — 23,053

Release of shares of common stock upon vesting of restricted stock units 771,721 — — — — — — —

Shares of common stock withheld for the withholding tax on vesting of restricted stock units ( 259,659 ) ( 6,434 ) — — — — — ( 6,434 )

Stock-based compensation — 14,823 — — — — — 14,823

Foreign currency translation loss — — — — ( 86 ) — — ( 86 )

Net income — — — — — 65,858 5 65,863

Balance at March 31, 2020 53,248,771 $ 381,125 ( 1,333,125 ) $ ( 20,491 ) $ ( 166 ) $ 677,761 $ 166 $ 1,038,395

Balance at September 30, 2020 54,241,046 $ 400,157 $ ( 2,475,419 ) $ ( 50,491 ) $ 95 $ 722,812 $ 169 $ 1,072,742

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended

Three Months Ended

September 30,

OPERATING ACTIVITIES:

3 unchanged sentences

Stock-based compensation expense 7,015 7,170

Allowances for (recovery of) doubtful accounts ( 629 ) 1,544

Recovery of allowance for doubtful accounts ( 124 ) ( 154 )

Provision for excess and obsolete inventories 3,478 ( 902 )

Share of loss from equity investee 409 1,066

Foreign currency exchange (gain) loss 1,097 311

Share of income from equity investee ( 388 ) ( 1,330 )

Foreign currency exchange gain 45 618

Deferred income taxes, net 19 ( 224 )

1 unchanged sentence

Changes in operating assets and liabilities:

Accounts receivable (including changes in related party balances of $( 3,532 ) and $ 1,612 during the nine months ended March 31, 2021 and 2020, respectively)

( 3,036 ) 58,935

Accounts receivable, net (including changes in related party balances of $( 5,315 ) and $ 7,510 during the three months ended September 30, 2021 and 2020, respectively)

Inventories ( 147,087 ) 78,544

Prepaid expenses and other assets (including changes in related party balances of $( 507 ) and $( 52 ) during the nine months ended March 31, 2021 and 2020, respectively)

( 25,039 ) ( 34,790 )

Accounts payable (including changes in related party balances of $( 18,296 ) and $( 4,685 ) during the nine months ended March 31, 2021 and 2020, respectively)

Prepaid expenses and other assets (including changes in related party balances of $( 2,446 ) and $ 12,158 during the three months ended September 30, 2021 and 2020, respectively)

Accounts payable (including changes in related party balances of $ 7,658 and $( 24,676 ) during the three months ended September 30, 2021 and 2020, respectively)

( 54,343 ) ( 85,704 )

1 unchanged sentence

Deferred revenue 13,115 ( 1,946 )

Accrued liabilities (including changes in related party balances of $( 180 ) and $ 9,734 during the nine months ended March 31, 2021 and 2020, respectively)

Accrued liabilities (including changes in related party balances of $ 1,575 and $( 3,577 ) during the three months ended September 30, 2021 and 2020, respectively)

( 1,330 ) ( 36,457 )

Other long-term liabilities (including changes in related party balances of $( 1,699 ) and $( 129 ) during the nine months ended March 31, 2021 and 2020, respectively)

Other long-term liabilities (including changes in related party balances of $ 0 and $( 530 ) during the three months ended September 30, 2021 and 2020, respectively)

( 1,461 ) 1,157

Net cash provided by operating activities 59,392 65,716

Net cash provided by (used in) operating activities ( 134,571 ) 120,555

INVESTING ACTIVITIES:

Purchases of property, plant and equipment (including payments to related parties of $ 5,845 and $ 4,384 during the nine months ended March 31, 2021 and 2020, respectively)

Purchases of property, plant and equipment (including payments to related parties of $ 400 and $ 2,230 during the three months ended September 30, 2021 and 2020, respectively)

( 10,802 ) ( 11,851 )

Proceeds from sale of investment in a privately-held company — 750

Investment in a privately-held company ( 1,100 ) —

Net cash used in investing activities ( 11,902 ) ( 11,851 )

FINANCING ACTIVITIES:

Proceeds from debt 62,225 10,000

Proceeds from borrowings, net of debt issuance costs 269,806 6,408

Repayment of debt ( 89,476 ) ( 271 )

Net repayment on asset-backed revolving line of credit — ( 1,116 )

Proceeds from exercise of stock options 20,344 23,053

Proceeds from exercise of stock options, net of taxes 6,018 5,020

Payment of withholding tax on vesting of restricted stock units ( 2,069 ) ( 2,005 )

1 unchanged sentence

Payments of obligations under finance leases ( 17 ) ( 26 )

Net cash (used in) provided by financing activities ( 48,445 ) 25,381

Net cash provided by (used in) by financing activities

184,262 ( 19,327 )

Effect of exchange rate fluctuations on cash ( 11 ) 185

Net (decrease) increase in cash, cash equivalents and restricted cash ( 33,318 ) 57,124

Net increase in cash, cash equivalents and restricted cash 37,778 89,562

Cash, cash equivalents and restricted cash at the beginning of the period 233,449 212,390

4 unchanged sentences

Non-cash investing and financing activities:

Unpaid property, plant and equipment purchases (including due to related parties of $ 1,502 and $ 215 as of March 31, 2021 and 2020, respectively)

Unpaid property, plant and equipment purchases (including due to related parties of $ 1,360 and $ 1,664 as of September 30, 2021 and 2020, respectively)

$ 13,063 $ 6,661

New operating lease assets obtained in exchange for operating lease liabilities

Right of use ("ROU") assets obtained in exchange for operating lease commitments 6,119 2,059

Unpaid stock repurchases — 1,547

11 unchanged sentences

The unaudited condensed consolidated financial statements included herein reflect all adjustments, including normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the periods presented.

The consolidated results of operations for the three and nine months ended March 31, 2021 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2021.

Investment in a Corporate Venture

In October 2016, the Company entered into agreements pursuant to which the Company contributed certain technology rights in connection with an investment in a privately-held company (the "Corporate Venture") located in China to expand the Company's presence in China.

The Corporate Venture is 30 % owned by the Company and 70 % owned by another company in China.

The transaction was closed in the third fiscal quarter of 2017 and the investment is accounted for using the equity method.

As such, the Corporate Venture is also a related party.

The Company recorded a deferred gain related to the contribution of certain technology rights.

As of March 31, 2021 and June 30, 2020, the Company had unamortized deferred gain balance of $ 1.5 million and $ 2.0 million, respectively, in accrued liabilities and $ 0.0 million and $ 1.0 million, respectively, in other long-term liabilities in the Company’s condensed

consolidated balance sheets.

The Company monitors the investment for events or circumstances indicative of potential impairment and makes appropriate reductions in carrying values if it determines that an impairment charge is required.

In June 2020, the third-party parent company that controls the Corporate Venture was placed on a U.S.

government export control list, along with

several of the parent's related entities and a separate listing for one of its subsidiaries.

The Corporate Venture is not itself a restricted party.

The Company is working with the Corporate Venture's management to ensure that the Corporate Venture remains in compliance with the new restrictions.

The Company does not believe that the equity investment carrying value is impacted as of March 31, 2021.

No impairment charge was recorded for the three and nine months ended March 31, 2021 and 2020, respectively.

The Company sold products worth $ 16.8 million and $ 14.0 million to the Corporate Venture in the three months ended March 31, 2021 and 2020, respectively, and $ 36.4 million and $ 51.5 million for the nine months ended March 31, 2021 and 2020, respectively.

The Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture as of March 31, 2021 and June 30, 2020 have been eliminated and have reduced the carrying value of the Company’s investment in the Corporate Venture.

To the extent that the elimination of intra-entity profits reduces the investment balance below zero, such amounts are recorded within accrued liabilities.

The Company had $ 11.4 million and $ 7.8 million due from the Corporate Venture in accounts receivable, net as of March 31, 2021 and June 30, 2020, respectively.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The consolidated results of operations for the three months ended September 30, 2021 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2022.

Concentration of Supplier Risk

1 unchanged sentence

Shortages could occur in these materials due to an interruption of supply or increased demand in the industry.

One supplier accounted for 21.4 % and 26.1 % of total purchases for the three months ended March 31, 2021 and 2020, respectively, and 21.1 % and 27.9 % for the nine months ended March 31, 2021 and 2020, respectively.

Purchases from Ablecom and Compuware, related parties of the Company (see Note 8, "Related Party Transactions") accounted for a combined 8.4 % and 9.4 % of total cost of sales for the three months ended March 31, 2021 and 2020, respectively, and a combined 8.5 % and 9.8 % for the nine months ended March 31, 2021 and 2020, respectively.

One supplier accounted for 20.1 % and 22.0 % of total purchases for the three months ended September 30, 2021 and 2020, respectively.

Purchases from Ablecom, and Compuware, related parties of the Company (see Note 8, "Related Party Transactions") accounted for a combined 9.6 % and 9.2 % of total cost of sales for the three months ended September 30, 2021 and 2020, respectively.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, investment in an auction rate security and accounts receivable.

No single customer accounted for 10% or more of the net sales for the three and nine months ended March 31, 2021 and 2020.

No customer accounted for greater than 10% of the Company's accounts receivable, net as of March 31, 2021, whereas one customer accounted for 10.1 % of accounts receivable, net as of June 30, 2020.

Treasury Stock

The Company accounts for treasury stock under the cost method.

Upon the retirement of treasury shares, the Company deducts the par value of the retired treasury shares from common stock and allocates the excess of cost over par as a deduction to additional paid-in capital based on the pro-rata portion of additional paid-in-capital, and the remaining excess as a deduction to retained earnings.

Retired treasury shares revert to the status of authorized but unissued shares.

No single customer accounted for 10% or more of the net sales for the three months ended September 30, 2021 and 2020.

One customer accounted for 11.7 % and 13.5 % of accounts receivable, net as of September 30, 2021 and June 30, 2021, respectively.

Accounting Pronouncements Recently Adopted

In June 2016, the FASB issued authoritative guidance, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments .

Under this new guidance, a company is required to estimate credit losses on certain types of financial instruments using an expected-loss model, replacing the current incurred-loss model, and record the estimate through an allowance for credit losses, which results in more timely recognition of credit losses.

The Company adopted this guidance on July 1, 2020 using the modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated.

The adoption of the guidance had no material impact on the Company’s condensed consolidated financial statements as of July 1, 2020.

The Company maintains an allowance for credit losses for accounts receivable and the investment in an auction rate security.

The allowance for credit losses is estimated using a loss rate method, considering factors such as customers’ credit risk, historical loss experience, current conditions, and forecasts.

The allowance for credit losses is measured on a collective (pool) basis by aggregating customer balances with similar risk characteristics.

The Company also records a specific allowance based on an analysis of individual past due balances or customer-specific information, such as a decline in creditworthiness or bankruptcy.

The new guidance has no material impact on the Company's condensed consolidated financial statements for the three and nine months ended March 31, 2021.

In August 2018, the FASB issued amended guidance, Fair Value Measurement:

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements based on the concepts in the FASB Concepts Statements, including the consideration of costs and benefits.

The Company adopted this guidance on July 1, 2020.

As of March 31, 2021, the Company’s investment in an auction rate security is the only Level 3 investment measured at fair value on a recurring basis.

Changes to the disclosures in the condensed consolidated financial statements were immaterial.

See Note 5, "Fair Value Disclosure".

In August 2018, the FASB issued authoritative guidance, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract as well as hosting arrangements that include an internal use software license with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The accounting for the service element of

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

a hosting arrangement that is a service contract is not affected by the new guidance.

The Company adopted this guidance on July 1, 2020, prospectively.

The adoption of this guidance did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued amended guidance, Simplifying the Accounting for Income Taxes , to remove certain exceptions to the general principles from ASC 740 - Income Taxes, and to improve consistent application of U.S.

1 unchanged sentence

The guidance is effective for the Company from July 1, 2021.

early adoption is permitted.

The adoption of the guidance is not anticipated to have a material impact on its condensed consolidated financial statements and disclosures.

The adoption of the guidance did not have a material impact on its condensed consolidated financial statements and disclosures.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued authoritative guidance, Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

4 unchanged sentences

LIBOR is used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility and E.SUN Credit Facility.

The 2018 Bank of America Credit Facility, as amended, will terminate on June 30, 2021 and E.SUN Credit Facility will terminate on September 18, 2021.

As both credit facilities will expire before the phase out of LIBOR, the Company does not expect the adoption of the guidance to have an impact on its condensed consolidated financial statements and disclosures.

The 2018 Bank of America Credit Facility was amended on June 28, 2021 which provided for a new maturity date of June 28, 2026 and fallback terms related to LIBOR replacement mechanics.

As the amendment had changes not related to LIBOR replacement, optional expedients under this guidance cannot be elected.

The E.SUN Credit Facility will terminate on July 29, 2022 before the phase out of LIBOR.

Therefore, the Company does not expect the adoption of the guidance to have an impact on its consolidated financial statements and disclosures.

Disaggregation of Revenue

3 unchanged sentences

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

September 30,

Server and storage systems $ 849,856 $ 617,788

4 unchanged sentences

International net sales are based on the country and geographic region to which the products were shipped.

The following is a summary for the three and nine months ended March 31, 2021 and 2020, of net sales by geographic region (in thousands):

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a summary for the three months ended September 30, 2021 and 2020, of net sales by geographic region (in thousands):

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

September 30,

United States $ 560,948 $ 496,086

1 unchanged sentence

Europe 179,694 112,089

Others 27,331 30,920 105,669 102,444

Other 29,002 27,368

$ 1,032,730 $ 762,250

Starting July 1, 2020, the Company no longer separately discloses revenue by products sold to indirect sales channel partners or direct customers and original equipment manufacturers because management does not make business operational decisions based on this set of disaggregation so the disclosure is no longer material to investors.

Contract Balances

2 unchanged sentences

Receivables relate to the Company’s unconditional right to consideration for performance obligations either partially or fully completed.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Contract assets are rights to consideration in exchange for goods or services that the Company has transferred to a customer when such right is conditional on something other than the passage of time.

2 unchanged sentences

The Company’s deferred revenue primarily results from customer payments received upfront for extended warranties and on-site services because these performance obligations are satisfied over time.

Revenue recognized during the three and nine months ended March 31, 2021, which was included in the opening deferred revenue balance as of June 30, 2020 of $ 203.8 million, was $ 24.1 million and $ 79.6 million, respectively.

Deferred revenue decreased $ 13.7 million during the nine months ended March 31, 2021 because the recognition of revenue from contracts entered into in prior periods was greater than the invoiced amounts for service contracts during the period.

Revenue recognized during the three months ended September 30, 2021, which was included in the opening deferred revenue balance as of June 30, 2021 of $ 202.3 million, was $ 30.0 million.

Deferred revenue increased $ 13.1 million during the three months ended September 30, 2021 as compared to the fiscal year ended June 30, 2021 mainly due to the increase in non-cancellable non-refundable advance considerations received from customers which precede the Company's satisfaction of the associated performance obligations.

Transaction Price Allocated to the Remaining Performance Obligations

Remaining performance obligations represent in aggregate the amount of transaction price that has been allocated to performance obligations not delivered, or only partially undelivered, as of the end of the reporting period.

The Company applies the optional exemption to not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less.

The Company applies the exemption to not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less.

These performance obligations generally consist of services, such as on-site services, including integration services and extended warranty services that are contracted for one year or less, and products for which control has not yet been transferred.

The value of the transaction price allocated to remaining performance obligations as of March 31, 2021 was $ 190.0 million.

The value of the transaction price allocated to remaining performance obligations as of September 30, 2021 was $ 215.4 million .

The Company expects to recognize approximately 53 % of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter.

4 unchanged sentences

The Company applies the practical expedient to expense incentive bonus costs as incurred if the amortization period would be one year or less, generally upon delivery of the associated server and storage systems or components.

Where the amortization period of the contract cost would be more than a year, the Company applies

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

judgment in the allocation of the incentive bonus cost asset between hardware and service performance obligations and expenses the cost allocated to the hardware performance obligations upon delivery of associated server and storage systems or components and amortizes the cost allocated to service performance obligations over the period the services are expected to be provided.

Where the amortization period of the contract cost would be more than a year, the Company applies judgment in the allocation of the incentive bonus cost asset between hardware and service performance obligations and expenses the cost allocated to the hardware performance obligations upon delivery of associated server and storage systems or components and amortizes the cost allocated to service performance obligations over the period the services are expected to be provided.

Contract acquisition costs allocated to service performance obligations that are subject to capitalization are insignificant to the Company’s condensed consolidated financial statements.

3 unchanged sentences

Net Income Per Common Share

The following table shows the computation of basic and diluted net income per common share for the three and nine months ended March 31, 2021 and 2020 (in thousands, except per share amounts):

The following table shows the computation of basic and diluted net income per common share for the three months ended September 30, 2021 and 2020 (in thousands, except per share amounts):

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

September 30,

Net income $ 25,437 $ 26,601

4 unchanged sentences

Diluted net income per common share $ 0.48 $ 0.49

For the three and nine months ended March 31, 2021 and 2020, the Company had stock options, restricted stock units ("RSUs") and performance based restricted stock units ("PRSUs") outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive.

The anti-dilutive common share equivalents resulting from outstanding equity awards were 578,892 and 1,882,238 for the three months ended March 31, 2021 and 2020, respectively, and 617,807 and 2,305,538 for the nine months ended March 31, 2021 and 2020, respectively.

For the three months ended September 30, 2021 and 2020, the Company had stock options, restricted stock units ("RSUs") and performance based restricted stock units ("PRSUs") outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive.

The anti-dilutive common share equivalents resulting from outstanding equity awards were 694,211 and 1,177,694 for the three months ended September 30, 2021 and 2020, respectively.

Balance Sheet Components

The following tables provide details of the selected balance sheet items (in thousands):

March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021

Finished goods $ 781,992 $ 761,694

2 unchanged sentences

Total inventories $ 1,184,573 $ 1,040,964

The Company recorded a provision for excess and obsolete inventory to cost of sales totaling $ 2.9 million and $ 4.6 million in the three and nine months ended March 31, 2021 and $ 4.7 million and $ 21.6 million for the three and nine

During the three months ended September 30, 2021 and 2020, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling $ 3.5 million and $ 0.9 million, respectively.

The Company classifies subsystems and

accessories that may be sold separately or incorporated into systems as finished goods.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

months ended March 31, 2020, respectively.

These amounts exclude a provision (recovery) for adjusting the cost of certain inventories to net realizable value of $( 0.8 ) million and $ 0.2 million for the three and nine months ended March 31, 2021, respectively, and $( 0.8 ) million and $( 3.5 ) million for the three and nine months ended March 31, 2020, respectively.

The recovery is recognized when previously reserved inventories are sold.

Prepaid Expenses and Other Current Assets:

March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021

Other receivables (1) $ 87,269 $ 99,921

6 unchanged sentences

__________________________

(1) Includes other receivables from contract manufacturers based on certain buy-sell arrangements of $ 73.3 million and $ 83.8 million as of March 31, 2021 and June 30, 2020, respectively.

(1) Includes other receivables from contract manufacturers based on certain buy-sell arrangements of $ 75.2 million and $ 76.2 million as of September 30, 2021 and June 30, 2021, respectively.

Cash, cash equivalents and restricted cash:

March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021

Cash and cash equivalents $ 270,047 $ 232,266

3 unchanged sentences

Property, Plant, and Equipment:

March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021

Buildings $ 143,512 $ 86,930

1 unchanged sentence

Machinery and equipment 102,522 97,671

Buildings construction in progress (1) 80,217 46,311

Building construction in progress (1) 5,919 87,438

Building and leasehold improvements 43,422 26,640

5 unchanged sentences

__________________________

(1) Primarily relates to the development and construction costs associated with the Company’s Green Computing Park located in San Jose, California, and new building in Taiwan.

(1) Primarily relates to the development and construction costs associated with the Company’s Green Computing Park located in San Jose, California, and a new building in Taiwan.

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1 unchanged sentence

Other Assets:

March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021

Operating lease right-of-use asset $ 24,156 $ 20,047

4 unchanged sentences

Restricted cash, non-current 929 932

Non-marketable equity securities 128 128

Other 1,604 528

Total other assets $ 37,160 $ 32,126

Accrued Liabilities:

March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021

Accrued payroll and related expenses $ 43,912 $ 45,770

2 unchanged sentences

Accrued warranty costs 9,532 10,185

Operating lease liability 6,797 6,310

Accrued cooperative marketing expenses 7,811 5,652

Operating lease liability 6,400 6,322

Accrued professional fees 2,343 2,737

Accrued legal liabilities (Note 11) — 18,114

Others 29,749 29,639

Other 35,245 30,446

Total accrued liabilities $ 175,221 $ 178,850

1 unchanged sentence

In March 2020, the Board of Directors (the “Board”) approved performance bonuses for the Chief Executive Officer, a senior executive and two members of the Board, which payments will be earned when specified market and performance conditions are achieved.

The Chief Executive Officer’s aggregate cash bonuses of up to $ 8.1 million are earned in two tranches.

The Chief Executive Officer’s aggregate cash bonuses of u p to $ 8.1 million are earned in two tranches.

The first 50 % is payable if the average closing price for the Company’s common stock equals or exceeds $ 31.61 for any period of 20 consecutive trading days following the date of the agreement and ending prior to September 30, 2021 and the Chief Executive Officer remains employed with the Company through the date that such common stock price goal is determined to have been achieved.

1 unchanged sentence

The second 50 % is payable if the average closing price for the Company’s common stock equals or exceeds $ 32.99 for any period of 20 consecutive trading days following the date of the agreement and ending prior to June 30, 2022 and the Chief Executive Officer remains employed with the Company through the date that such common stock price goal is achieved.

During the quarter ended March 31, 2021, the target average closing prices for both tranches were met but no determination has been made if there has been adequate progress in remediating the Company’s material weaknesses in its internal control over financial reporting.

No cash payment had been made for either of the two tranches as of March 31, 2021.

Performance bonuses for a senior executive and two members of the Board are earned based on achieving a specified target average closing price for the Company’s common stock over the specified period as determined by the Board at the grant dates and continuous services through the payment dates.

A senior executive earned an aggregate cash payment of $ 0.1 million when the target average closing price was met in the fourth quarter of fiscal year 2020.

The two members of the Board can earn

During the fiscal year ended June 30, 2021, the target average closing prices for both tranches were met and the cash payment under the second tranche was made.

On September 21, 2021, the Audit Committee of the Board determined and advised the Board as to its view that the Company had made adequate progress in remediating the material weaknesses in its internal control over financial reporting.

On September 30, 2021, the Board considered and agreed with this assessment, but also considered the impact of accomplishments of Company employees other than Mr.

Liang in achieving this adequate progress.

The Board exercised its discretion under the terms of the performance bonuses to reduce the payout for the first tranche from 50 % to approximately 25 % of $ 8.1 million, for an aggregate of $ 2.0 million.

The payout of $ 2.0 million was made subsequent to September 30, 2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

aggregate cash payments of $ 0.3 million in two tranches if the target average closing price reaches $ 31.61 for the first tranche and $ 32.99 per share for the second tranche.

During the quarter ended March 31, 2021, the target average closing prices for both tranches were met and the cash payment of $ 0.15 million for the first tranche was made to the two Board members.

The Company accounts for the outstanding performance bonuses as liabilities and estimates fair value of payable amounts using a Monte-Carlo simulation model.

The awards are re-measured at each period end with changes in fair value recorded in the Company’s condensed consolidated statement of operations in operating expenses.

The cumulative recorded expense at each period end is trued-up to the expected payable amount vested through the period end.

The requisite service periods over which expenses are recognized are derived from the Monte-Carlo model for all performance awards, except for the first 50 % of the Chief Executive Officer’s award that includes a performance condition.

The Company estimates if it is probable that the performance condition will be met through the expiration date of this award.

If at the measurement date it is determined to be probable, the Company estimates the requisite period as the longer of the service period derived by the Monte-Carlo model and the implicit service period when the Company expects to make adequate progress in remediating its material weaknesses in its internal control over financial reporting, as reported by the Company's Audit Committee.

If it is determined to not be probable, then the Company will reverse any previously recognized expense for this award in the period when it is no longer probable that the performance condition will be achieved.

With the satisfaction of the target average closing price conditions in the quarter ended March 31, 2021, the Company trued up all the unpaid performance bonuses to the cash payment value.

As of March 31, 2021, the full cash value of the bonuses, except the Chief Executive Officer's first tranche performance bonus, was recorded as an accrued liability on the Company's condensed consolidated balance sheet.

The Company is still remediating its material weaknesses in its internal control over financial reporting, and estimates that it is probable that the performance condition will be met through the expiration date of the award.

Therefore, as of March 31, 2021, the Company trued up the accrued liability for the Chief Executive Officer’s first tranche award to the expected payable amount vested through the period end and the unrecognized cash value will be recorded over the remaining service period.

Based on the cash payment value and estimated fair value of these performance bonuses as of March 31, 2021 and June 30, 2020, the Company recorded a $ 7.1 million and $ 2.1 million liability, respectively, of which $ 7.1 million and $ 1.5 million, respectively, was recorded within accrued liabilities and $ 0.0 million and $ 0.6 million, respectively, was recorded within other long-term liabilities on the Company's condensed consolidated balance sheet.

An unrecognized compensation expense of $ 1.1 million will be recorded over the remaining service periods of 0.43 years.

The expense recognized during the three months ended March 31, 2021 and 2020 was $ 2.5 million and $ 0.2 million, and $ 5.1 million and $ 0.2 million for the nine months ended March 31, 2021 and 2020, respectively.

The Company previously expected that the full amount of the first tranche would be paid to its Chief Executive Officer and, accordingly, recorded a liability of $ 3.6 million related to this tranche on its balance sheet as of June 30, 2021.

In light of the Board’s action in September 2021 to reduce the amount of the first tranche payout to $ 2.0 million, the Company adjusted the amount of this liability on its balance sheet as of September 30, 2021 to $ 2.0 million and recognized a benefit of $ 1.6 million in its consolidated statement of operations during the quarter ended September 30, 2021.

The (benefit) or expense recognized during the three months ended September 30, 2021 and 2020 was $( 1.6 ) million and $ 0.1 million, respectively.

Other Long-term Liabilities:

March 31, 2021 June 30, 2020

September 30, 2021 June 30, 2021

Operating lease liability, non-current $ 18,366 $ 14,539

1 unchanged sentence

Accrued warranty costs, non-current 2,701 2,678

Others 5,071 6,002

Other 6,074 6,074

Total other long-term liabilities $ 45,533 $ 41,132

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Product Warranties:

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

September 30,

Balance, beginning of the period $ 12,863 $ 12,379

8 unchanged sentences

The Company classifies its financial instruments, except for its investment in an auction rate security, within Level 1 or Level 2 in the fair value hierarchy because the Company uses quoted prices in active markets or alternative pricing sources and models using market observable inputs to determine their fair value.

The Company’s investment in an auction rate security is classified within Level 3 of the fair value hierarchy as the determination of its fair value was not based on observable inputs as of March 31, 2021 and June 30, 2020.

The Company is using the discounted cash flow method to estimate the fair value of the auction rate security at each period end and the following assumptions:

1 unchanged sentence

The liquidity discount assumption is based on the management estimate of lack of marketability discount of similar securities and is determined based on the analysis of financial market trends over time, recent redemptions of securities and other market activities.

The Company performed a sensitivity analysis and applying a change of either plus or minus 100 basis points in the liquidity discount does not result in a significantly higher or lower fair value measurement of the auction rate security as of March 31, 2021.

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1 unchanged sentence

Financial Assets and Liabilities Measured on a Recurring Basis

The following table sets forth the Company’s financial instruments as of March 31, 2021 and June 30, 2020, which are measured at fair value on a recurring basis by level within the fair value hierarchy.

The following table sets forth the Company’s financial instruments as of September 30, 2021 and June 30, 2021, which are measured at fair value on a recurring basis by level within the fair value hierarchy.

These are classified based on the lowest level of input that is significant to the fair value measurement (in thousands):

March 31, 2021 Level 1 Level 2 Level 3 Asset at

September 30, 2021 Level 1 Level 2 Level 3 Asset at

Money market funds (1) $ 151 $ — $ — $ 151

2 unchanged sentences

Total assets measured at fair value $ 151 $ 862 $ 1,556 $ 2,569

Performance awards liability (3) $ — $ — $ — $ —

Total liabilities measured at fair value $ — $ — $ — $ —

June 30, 2021 Level 1 Level 2 Level 3 Asset at

3 unchanged sentences

Total assets measured at fair value $ 151 $ 863 $ 1,556 $ 2,570

Performance awards liability (3) $ — $ 2,100 $ — $ 2,100

Total liabilities measured at fair value $ — $ 2,100 $ — $ 2,100

__________________________

(1) $ 0.0 million and $ 0.4 million in money market funds are included in cash and cash equivalents and $ 0.2 million and $ 0.8 million in money market funds are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of March 31, 2021 and June 30, 2020, respectively.

(2) $ 0.2 million and $ 0.2 million in certificates of deposit are included in cash and cash equivalents, $ 0.3 million and $ 0.3 million in certificates of deposit are included in prepaid expenses and other assets, and $ 0.4 million and $ 0.3 million in certificates of deposit are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of March 31, 2021 and June 30, 2020, respectively.

(3) As of March 31, 2021, the Company no longer measures performance awards liability at fair value because the Company trued up the performance awards liability to the cash payment value.

As of June 30, 2020, the current portion of the performance awards liability of $ 1.5 million is included in accrued liabilities and the non-current portion of $ 0.6 million is included in other long-term liabilities in the condensed consolidated balance sheets.

On a quarterly basis, the Company also evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions.

For the three and nine months ended March 31, 2021, the credit losses related to the Company’s investments was not significant.

As of June 30, 2020, the Company estimated the fair value of performance awards using the Monte-Carlo simulation model and classified them within Level 2 of the fair value hierarchy as estimates are based on the observable inputs.

The significant inputs used in estimating the fair value of the awards as of June 30, 2020 are as follows:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2020

Stock Price as of Period End Performance Period Risk-free Rate Volatility Dividend Yield

$ 28.39 1.25 - 2.0 years

0.16 % 53.75 % — %

There was no movement in the balances of the Company's financial assets measured at fair value on a recurring basis, consisting of investment in an auction rate security, using significant unobservable inputs (Level 3) for the three and nine months ended March 31, 2021 and 2020.

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three and nine months ended March 31, 2021 and 2020.

The following is a summary of the Company’s investment in an auction rate security as of March 31, 2021 and June 30, 2020 (in thousands):

March 31, 2021 and June 30, 2020

(1) $ 0.2 million and $ 0.2 million in money market funds are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of September 30, 2021 and June 30, 2021, respectively.

(2) $ 0.2 million and $ 0.2 million in certificates of deposit are included in cash and cash equivalents, $ 0.3 million and $ 0.3 million in certificates of deposit are included in prepaid expenses and other assets, and $ 0.4 million and $ 0.4 million in certificates of deposit are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of September 30, 2021 and June 30, 2021, respectively.

On a quarterly basis, the Company also evaluates the current expected credit loss by co nsidering factors such as historical experience, market data, issuer-specific factors, and current economic conditions.

For the three months ended September 30, 2021, the credit losses related to the Company’s investments was not significant.

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three months ended September 30, 2021 and 2020.

The following is a summary of the Company’s investment in an auction rate security as of September 30, 2021 and June 30, 2021 (in thousands):

Cost Basis Gross

1 unchanged sentence

Auction rate security $ 1,750 $ — $ ( 194 ) $ 1,556

No gain or loss was recognized in other comprehensive income for the auction rate security for the three and nine months ended March 31, 2021 and 2020.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

No gain or loss was recognized in other comprehensive income for the auction rate security for the three months ended September 30, 2021 and 2020.

The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis.

As of March 31, 2021 and June 30, 2020, total debt of $ 85.4 million and $ 29.4 million, respectively, is reported at amortized cost.

This outstanding debt is classified as Level 2 as it is not actively traded.

As of September 30, 2021 and June 30, 2021, total debt of $ 278.8 million and $ 98.2 million, respectively, was reported at amortized cost.

This outstanding debt was classified as Level 2 as it was not actively traded.

The amortized cost of the outstanding debt approximates the fair value.

Other Financial Assets - Investments into Non-Marketable Equity Securities

The Company's non-marketable equity securities are investments in privately held companies without readily determinable fair values in the amount of $ 1.2 million and $ 0.1 million as of September 30, 2021 and June 30, 2021, respectively.

The Company accounts for these investments at cost less impairment, if any, plus or minus changes from observable price changes in orderly transactions for the identical or similar investments by the same issuer.

During the three months ended September 30, 2021 and 2020, the Company did not record any upward or downward adjustments to the carrying values of the non-marketable equity securities related to observable price changes.

The Company also did not record any impairment to the carrying values of the non-marketable equity securities during the three months ended September 30, 2021 and 2020.

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1 unchanged sentence

Short-term and Long-term Debt

Short-term debt obligations as of March 31, 2021 and June 30, 2020 consisted of the following (in thousands):

March 31, June 30,

Short-term and long-term debt obligations as of September 30, 2021 and June 30, 2021 consisted of the following (in thousands):

September 30, June 30,

Line of credit:

Bank of America $ 110,193 $ —

CTBC Bank 68,100 18,000

3 unchanged sentences

CTBC Bank term loan, due June 4, 2030 39,018 34,700

CTBC Bank term loan, due December 27, 2027 1,434 —

E.SUN Bank term loan, due September 15, 2026 4,868 —

Total term loans 70,515 59,790

6 unchanged sentences

In April 2018, the Company 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 May 12, 2020, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 30, 2021 and provide that in the event of default or if outstanding borrowings are in excess of $ 220.0 million, the Company is required to grant the lenders a continuing security interest in and lien upon all amounts credited to any of the Company's deposit accounts.

In addition, the amendment released the real property of Super Micro Computer as a collateral.

The amendment was accounted for as a modification and the impact was immaterial to the condensed consolidated financial statements.

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 the Company can request the facility be increased 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.

The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements.

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.

2 unchanged sentences

Under the terms of the 2018 Bank of America Credit Facility, the Company is not permitted to pay any dividends.

The Company is required to pay 0.375 % per annum on the 2018 Bank of America Credit Facility for any unused borrowings.

The 2018 Bank of America Credit Facility contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries and contains a financial covenant, which requires that the Company maintain a certain fixed charge coverage ratio, for each twelve-month period while in a Trigger Period, as defined in the agreement, is in effect.

As of March 31, 2021 and June 30, 2020, the Company had no outstanding borrowings under the 2018 Bank of America Credit Facility.

The interest rates under the 2018 Bank of America Credit Facility as of March 31, 2021 and June 30, 2020 were 3.00 %.

In October 2018, a $ 3.2 million letter of credit was issued under the 2018 Bank of America Credit Facility and in October 2019, the letter of credit amount was increased to $ 6.4 million.

No amounts have been drawn under the standby letter of credit.

The balance of debt issuance costs outstanding were $ 0.2 million and $ 0.6 million as of March 31, 2021 and June 30, 2020, respectively.

The Company has been in compliance with all the covenants under the 2018 Bank of America Credit Facility, and as of March 31, 2021, the Company's available borrowing capacity was $ 243.6 million, subject to the borrowing base limitation and compliance with other applicable terms.

As of September 30, 2021, the total outstanding borrowings under the 2018 Bank of America Credit Facility were $ 110.2 million.

As of June 30, 2021, the Company had no outstanding borrowings under the 2018 Bank of America Credit Facility.

The interest rates under the 2018 Bank of America Credit Facility as of September 30, 2021 and June 30, 2021 were 1.50 %.

The balance of debt issuance costs outstanding as of September 30, 2021 and June 30, 2021 were $ 0.5 million.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CTBC Credit Facility

In June 2019, the Company entered into a credit agreement with CTBC Bank, which was amended in August 2020, (collectively, the "CTBC Credit Facility").

The amended credit agreement with CTBC Bank that provides for (i) a 12 -month NTD 700.0 million ($ 24.0 million U.S.

Company has been in compliance with all the covenants under the 2018 Bank of America Credit Facility, and as of September 30, 2021, the Company's available borrowing capacity was $ 89.8 million , subject to the borrowing base limitation and compliance with other applicable terms.

2021 CTBC Credit Lines

The Company through its Taiwan subsidiary was party to (i) that certain credit agreement, dated May 6, 2020, with CTBC Bank Co., Ltd.

(“CTBC Bank”), which provided for a ten-year , non-revolving term loan facility (the “2020 CTBC Term Loan Facility”) to obtain up to NTD 1,200.0 million ($ 40.7 million U.S.

dollar equivalent) and (ii) that certain credit agreement, dated August 24, 2020, with CTBC Bank (the “CTBC Credit Facility”), which provided for total borrowings of up to $ 50.0 million (collectively, the “Prior CTBC Credit Lines”).

On July 20, 2021 (the “Effective Date”), the Company through its Taiwan subsidiary entered into a general agreement for omnibus credit lines with CTBC Bank (the “2021 CTBC Credit Lines), which replaced the Prior CTBC Credit Lines in their entirety and permit borrowings, from time to time, pursuant to (i) a term loan facility of up to NTD 1,550.0 million ($ 55.4 million U.S.

dollar equivalents) including the existing 2020 CTBC Term Loan Facility of NTD 1,200.0 million ($ 42.9 million U.S.

dollar equivalents) and a new 75-month , non-revolving term loan facility of NTD 350.0 million ($ 12.5 million U.S.

dollar equivalents) to use to purchase machinery and equipment for the Company’s Bade Manufacturing Facility located in Taiwan (the “2021 CTBC Machine Loan”), and (ii) a line of credit facility of up to $ 105.0 million (the “2021 CTBC Credit Facility”), which increased the borrowing capacity of CTBC Credit Facility.

The 2021 CTBC Credit Facility provides ( i) a 12-month NTD 1,250.0 million ($ 44.7 million U.S.

dollar equivalent) term loan facility secured by the land and building located in Bade, Taiwan with an interest rate equal to the lender's established NTD interest rate plus 0.50 % per annum which is adjusted monthly, which term loan facility also includes a 12-month guarantee of up to NTD 100.0 million ($ 3.6 million U.S.

dollar equivalent) with an annual fee equal to 0.50 % per annum, (ii) a 180 -day NTD 1,500.0 million ($ 51.5 million U.S.

dollar equivalent) term loan facility up to 100 % of eligible accounts receivable in an aggregate amount with an interest rate equal to the lender's established NTD interest rate plus an interest rate ranging from 0.30 % to 0.50 % per annum which is adjusted monthly, and (ⅲ) a 12 -month revolving line of credit of up to 100 % of eligible accounts receivable in an aggregate amount of up to $ 50.0 million with an interest rate equal to the lender's established USD interest rate plus 0.80 % per annum which is adjusted monthly, or equal to the lender’s established NTD interest rate plus an interest rate ranging from 0.30 % to 0.50 % per annum which is adjusted monthly if the borrowing is in NTD.

In February 2021, CTBC Bank amended the USD interest rate to be the lender's established USD interest rate plus 0.70 % to 0.75 % per annum which is adjusted monthly.

The total borrowings allowed under the CTBC Credit Facility was capped at $ 50.0 million.

There are no financial covenants associated with the CTBC Credit Facility.

dollar equivalent) with an annual fee equal to 0.50 % per annum, and (ii) a 12-month revolving line of credit of up to 100 % of eligible accounts receivable in an aggregate amount of up to $ 105.0 million with an interest rate equal to the lender's established USD interest rate plus 0.70 % to 0.75 % per annum which is adjusted monthly.

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 the Taiwan subsidiary’s assets, including certain property, land, plant, and equipment.

There are 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.

As of September 30, 2021 and June 30, 2021, the amounts outstanding under the 2020 CTBC Term Loan Facility were $ 39.0 million and $ 34.7 million, respectively.

The interest rates for these loans were 0.45 % per annum as of September 30, 2021 and June 30, 2021.

Under the 2021 CTBC Machine Loan, the amounts outstanding were $ 1.4 million at September 30, 2021.

The interest rates for these loans were 0.65 % per annum as of September 30, 2021.

As of June 30, 2021, there were no outstanding borrowings under the 2021 CTBC Machine Loan.

The total outstanding borrowings under the 2021 CTBC Credit Facility term loan were denominated in NTD and remeasured into U.S.

dollars of $ 24.5 million and $ 23.7 million at March 31, 2021 and June 30, 2020, respectively.

The interest rate for these loans were 0.74 % per annum as of March 31, 2021 and 0.63 % per annum as of June 30, 2020.

As of March 31, 2021 and June 30, 2020, the outstanding borrowings under the CTBC Credit Facility revolving line of credit were $ 18.0 million and $ 0.0 million, respectively.

The interest rates were from 1.03 % to 1.26 % per annum as of March 31, 2021.

As of March 31, 2021, the amount available for future borrowing under the CTBC Credit Facility was $ 7.5 million.

As of March 31, 2021, the net book value of land and building located in Bade, Taiwan, collateralizing the CTBC Credit Facility term loan was $ 25.0 million.

2020 CTBC Term Loan Facility due June 4, 2030

In May 2020, the Company entered into a ten-year , non-revolving term loan facility (“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 the Company’s 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 shall be drawn according to the progress of the renovations.

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

The Company is required to pay against total outstanding principal and interest in equal monthly installments starting June 2023 and continuing through the maturity date of June 2030.

Interest under the 2020 CTBC Term Loan Facility is the two-year term floating rate of postal saving interest rate plus 0.105 % and is established on the date of the drawdown application .

If no interest rate is agreed upon, interest shall accrue at the annual base rate for CTBC plus 4.00 %.

The 2020 CTBC Term Loan Facility is secured by the Bade Manufacturing Facility and its expansion.

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

The Company has financial covenants requiring the Company's current ratio, debt service coverage ratio, and financial debt ratio, as defined in the agreement, to be maintained at certain levels under the 2020 CTBC Term Loan Facility.

As of March 31, 2021 and June 30, 2020, the amounts outstanding under the 2020 CTBC Term Loan Facility were $ 27.9 million and $ 5.7 million, respectively.

The interest rates for these loans were 0.45 % per annum as of March 31, 2021 and June 30, 2020.

The net book value of the property serving as collateral as of March 31, 2021 was $ 38.1 million.

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

dollars of $ 25.2 million and $ 25.1 million at September 30, 2021 and June 30, 2021, respectively.

The interest rate for these loans were 0.74 % and 0.75 % per annum as of September 30, 2021 and June 30, 2021, respectively.

As of September 30, 2021, and June 30, 2021, the outstanding borrowings of 2021 CTBC Credit Facility revolving line of credit were $ 68.1 million and $ 18.0 million, respectively.

The interest rates for these loans ranged from approximately 0.94 % to 0.95 % per annum as of September 30, 2021.

The interest rate was 0.98 % per annum as of June 30, 2021.

As of September 30, 2021, the amount available for future borrowing under the 2021 CTBC Credit Facility was $ 11.7 million.

As of September 30, 2021, the net book value of land and building located in Bade, Taiwan, collateralizing the 2021 CTBC Credit Lines was $ 77.7 million.

As of September 30, 2021, all financial covenants under the 2021 CTBC Credit Lines were satisfied.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2021 E.SUN Bank 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

The Company through its Taiwan subsidiary was party to that certain General Credit Agreement, dated December 2, 2020, with E.SUN Bank (“E.SUN Bank”), which provided 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 US$ 30 million (the “Prior E.SUN Bank Credit Facility”).

The term of the Prior E.SUN Bank Credit Facility was until September 18, 2021.

On September 13, 2021 (the “E.SUN Bank Effective Date”), the Company through its Taiwan subsidiary entered into a new General Credit Agreement with E.SUN Bank, which replaced the Prior E.SUN Bank Credit Facility (the “2021 E.SUN Bank Credit Facility”).

The 2021 E.SUN Bank Credit Facility permits borrowings of up to (i) NTD 1,600.0 million ($ 57.6 million U.S.

dollar equivalent) and (ii) $ 30.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments.

Other terms of the 2021 E.SUN Bank Credit Facility are substantially identical to the Prior E.SUN Bank Credit Facility.

Generally, interest for base rate loans made under the 2021 E.SUN Bank Credit Facility are based upon an average interbank overnight call loan rate in the finance industry (such as LIBOR or TAIFX) plus a fixed margin, and is subject to occasional adjustment.

The 2021 E.SUN Bank Credit Facility has customary default provisions permitting E.SUN Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event the Subsidiary has an overdue liability at another financial organization.

There are various financial covenants under the 2021 E.SUN Bank Credit Facility, including current ratio, net debt ratio, and interest coverage requirements.

Terms for specific drawdown instruments issued under the 2021 E.SUN Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in Notifications and Confirmation of Credit Conditions (a “Notification and Confirmation”) negotiated with E.SUN Bank.

A Notification and Confirmation was entered into on the E.SUN Bank Effective Date for (i) a five-year , non-revolving term loan facility to obtain up to NTD 1,600.0 million ($ 57.6 million U.S.

dollar equivalent) in financing for use in research and development activities (the “Term Loan”), and (ii) a $ 30.0 million import loan (the “Import Loan”) with a tenor of 120 days.

As of September 30, 2021, the total outstanding borrowings under the Term Loan were denominated in NTD and remeasured into U.S.

dollars of $ 4.9 million and the interest rates for these loans were 0.995 % per annum.

As of September 30, 2021 and June 30, 2021 , the amounts outstanding under the Import Loan were $ 30.0 and $ 20.4 million, respectively.

The interest rates for these loans ranged approximately from 0.96 % to 1.23 % and 1.00 % to 1.29 % per annum as of September 30, 2021 and June 30, 2021, respectively.

At September 30, 2021, the amount available for future borrowing under the Import Loan was $ 0.0 million and all financial covenants under the 2021 E.SUN Bank Credit Facility were satisfied .

Mega Bank Credit Facilities

On September 13, 2021 (the “Mega Bank Effective Date”), the Company through its Taiwan subsidiary entered into a NTD 1,200.0 million ($ 43.2 million U.S.

dollar equivalent) credit facility (the “Mega Bank Credit Facility”) with Mega International Commercial Bank (“Mega Bank”).

The Mega Bank Credit Facility will be used to support manufacturing activities (such as purchase of materials and components), and to provide medium-term working capital (the “Permitted Uses”).

Drawdowns under the Mega Bank Credit Facility may be made through December 31, 2024, with the first drawdown date not later than November 5, 2021.

Drawdowns may be in amounts of up to 80 % of Permitted Uses certified to the Bank in drawdown certificates.

The interest rate depends upon the amount borrowed under Mega Bank Credit Facility, and as of the Mega Bank Effective Date, ranged from 0.645 % to 0.845 % per annum.

The interest rate is subject to adjustment in certain circumstances, such as events of default.

Interest is payable monthly.

Principal payments for amounts borrowed commence on the 15 th day of the month following two years after the first drawdown, and are repaid in monthly installments over a period of three years thereafter.

The Mega Bank Credit Facility is unsecured and has customary default provisions permitting Mega Bank to reduce or cancel the extension of credit, or declare all principal and interest amounts immediately due and payable.

As of September 30, 2021, there were no outstanding borrowings under the Mega Bank Credit Facility.

Chang Hwa Bank

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

The term of the E.SUN Credit Facility expires on September 18, 2021.

Generally, the interest for base rate loans made under the E.SUN Credit Facility is based upon an average interbank overnight call loan rate in the finance industry (such as LIBOR or TAIFX) plus a fixed margin, and is subject to occasional adjustment.

Interest for adjustable loan rate loans made under the E.SUN Credit Facility is based upon an average one-year fixed rate time saving deposit rate of a selected reference bank which shall be a well-known domestic bank in Taiwan, and is subject to occasional adjustment.

The E.SUN Credit Facility has customary default provisions permitting E.SUN Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event such Taiwan subsidiary of the Company has an overdue liability at another financial organization.

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

Terms for specific drawdown instruments issued under the E.SUN Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in Notifications and Confirmation of Credit Conditions negotiated with E.SUN Bank.

A Notification and Confirmation of Credit Conditions agreement under the E.SUN Credit Facility was entered into on December 2, 2020 for a $ 30.0 million import loan (the “Import Loan”) with a tenor of 120 days and with an interest rate calculated based on the higher of LIBOR plus 0.75 % then divided by 0.946 or TAIFX plus 0.55 % then divided by 0.946 .

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 $ 15.0 million.

Chang Hwa Bank Credit Facility

On October 5, 2021 (the “Chang Hwa Bank Effective Date”), the Company through its Taiwan subsidiary entered into a credit facility (the “Chang Hwa Bank Credit Facility”) with Chang Hwa Commercial Bank, Ltd.

(“Chang Hwa Bank”).

The Chang Hwa Bank Credit Facility permits borrowings of up to NTD 1,000.0 million ($ 36.0 million U.S.

dollar equivalent), including up to $ 20.0 million as loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments.

The Chang Hwa Bank Credit Facility has customary default provisions permitting the Chang Hwa Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in cross-default provisions with respect to the other Taiwan subsidiary debt obligations.

Under the Chang Hwa Bank Credit Facility, Chang Hwa Bank has the right to demand collateral for debts owed.

Terms for specific drawdown instruments issued under the Chang Hwa Bank Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in separate loan contracts (each, a “Loan Contract”) negotiated with Chang Hwa Bank.

On the Chang Hwa Bank Effective Date, three Loan Contracts were entered into.

None of the three Loan Contracts are secured and there are no financial covenants.

Principal payments on short-term and long-term obligations are due as follows (in thousands):

Principal Payments

2022 $ 233,594

2027 and thereafter 22,188

Total short-term and long-term debt $ 278,808

The Company leases offices, warehouses and other premises, vehicles and certain equipment leased under non-cancelable operating leases.

Operating lease expense recognized and supplemental cash flow information related to operating leases for the three and nine months ended March 31, 2021 and 2020 were as follows (in thousands):

Operating lease expense recognized and supplemental cash flow information related to operating leases for the three months ended September 30, 2021 and 2020 were as follows (in thousands):

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

Operating lease expense (including expense for lease agreements with related parties of $ 347 and $ 1,040 for the three and nine months ended March 31, 2021, respectively, and $ 359 and $ 1,086 for the three and nine months ended March 31, 2020, respectively)

September 30,

Operating lease expense (including expense for lease agreements with related parties of $ 246 and $ 347 for the three months ended September 30, 2021 and 2020, respectively)

$ 2,182 $ 2,000

Cash payments for operating leases (including payments to related parties of $ 347 and $ 1,040 for the three and nine months ended March 31, 2021, respectively, and $ 369 and $ 1,106 for the three and nine months ended March 31, 2020, respectively)

Cash payments for operating leases (including payments to related parties of $ 279 and $ 347 for the three months ended September 30, 2021 and 2020, respectively)

$ 2,205 $ 1,966

During the three and nine months ended March 31, 2021 and 2020, the Company's costs related to short-term lease arrangements for real estate and non-real estate assets were immaterial.

Variable payments expensed in the three and nine months ended March 31, 2021 were $ 0.4 million and $ 1.2 million, respectively.

Variable payments expensed in the three months and nine months ended March 31, 2020 were $ 0.2 million and $ 0.9 million, respectively.

As of March 31, 2021, the weighted average remaining lease term for operating leases was 4.0 years and the weighted average discount rate was 3.5 %.

Future minimum lease payments under noncancelable operating lease arrangements as of March 31, 2021 were as follows (in thousands):

New operating lease assets obtained in exchange for operating lease liabilities $ 6,119 $ 2,059

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the three months ended September 30, 2021 and 2020, the Company's costs related to short-term lease arrangements for real estate and non-real estate assets were immaterial.

Non-lease variable payments expensed in the three months ended September 30, 2021 and 2020 were immaterial.

As of September 30, 2021, the weighted average remaining lease term for operating leases was 4.3 years and the weighted average discount rate was 3.2 %.

Maturities of operating lease liabilities under noncancelable operating lease arrangements as of September 30, 2021 were as follows (in thousands):

Minimum lease payments

2021 (remainder) $ 2,010

2027 and beyond 1,584

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Present value of operating lease liabilities $ 24,766

As of March 31, 2021, commitments under short-term lease arrangements, and operating and financing leases that have not yet commenced were immaterial.

As of September 30, 2021, commitments under short-term lease arrangements, and operating and financing leases that have not yet commenced were immaterial.

The Company has entered into lease agreements with related parties.

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Ablecom’s Chief Executive Officer, Steve Liang, is the brother of Charles Liang, the Company’s President, Chief Executive Officer and Chairman of the Board.

Steve Liang and his family members owned approximately 28.8 % of Ablecom’s stock and Charles Liang and his spouse, Sara Liu, who is also an officer and director of the Company, collectively owned approximately 10.5 % of Ablecom’s capital stock as of March 31, 2021.

Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Ablecom.

Bill Liang is also the Chief Executive Officer of Compuware, a member of Compuware’s Board and a holder of a significant equity interest in Compuware.

Steve Liang is also a member of Compuware’s Board and is an equity holder of Compuware.

Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Directors of Ablecom.

Bill Liang is also the Chief Executive Officer of Compuware, a member of Compuware’s Board of Directors and a holder of a significant equity interest in Compuware.

Steve Liang is also a member of Compuware’s Board of Directors and is an equity holder of Compuware.

Charles Liang and Sara Liu do not own any capital stock of Compuware and the Company does not own any of Ablecom or Compuware’s capital stock.

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The Company has entered into a series of agreements with Ablecom, including multiple product development, production and service agreements, product manufacturing agreements, manufacturing services agreements and lease agreements for warehouse space.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under these agreements, the Company outsources to Ablecom a portion of its design activities and a significant part of its server chassis manufacturing as well as an immaterial portion of other components.

Ablecom manufactured approximately 92.5 % and 95.1 % of the chassis included in the products sold by the Company during the three months ended March 31, 2021 and 2020, respectively, and 92.5 % and 95.3 % of the chassis included in the products sold by the Company during the nine months ended March 31, 2021 and 2020, respectively.

Ablecom manufactured approximately 92.5 % and 93.6 % of the chassis included in the products sold by the Company during the three months ended September 30, 2021 and 2020, respectively.

With respect to design activities, Ablecom generally agrees to design certain agreed-upon products according to the Company’s specifications, and further agrees to build the tools needed to manufacture the products.

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Ablecom uses these materials and components to manufacture the completed chassis and then sell them back to the Company.

For the components purchased from the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company, Ablecom sells the components back to the Company at a price equal to the price at which the Company sold the components to Ablecom.

For the components purchased from the Company, Ablecom sells the components back to the Company at a price equal to the price at which the Company sold the components to Ablecom.

The Company and Ablecom frequently review and negotiate the prices of the chassis the Company purchases from Ablecom.

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The Company’s exposure to financial loss as a result of its involvement with Ablecom is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products.

Outstanding purchase orders from the Company to Ablecom were $ 35.5 million and $ 23.2 million at March 31, 2021 and June 30, 2020, respectively, representing the maximum exposure to financial loss.

Outstanding purchase orders from the Company to Ablecom were $ 36.7 million and $ 40.2 million at September 30, 2021 and June 30, 2021, respectively, effectively representing the exposure to financial loss.

The Company does not directly or indirectly guarantee any obligations of Ablecom, or any losses that the equity holders of Ablecom may suffer.

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The Company and Compuware frequently review and negotiate the prices of the power supplies the Company purchases from Compuware.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Compuware also manufactures motherboards, backplanes and other components used on printed circuit boards for the Company.

The Company sells to Compuware most of the components needed to manufacture the above products.

Compuware uses the components to manufacture the products and then sells the products back to the Company at a purchase price equal to the price at which the Company sold the components to Compuware, plus a “manufacturing value added” fee and other miscellaneous material charges and costs.

The Company and Compuware frequently review and negotiate the amount of the “manufacturing value added” fee that will be included in the price of the products the Company purchases from Compuware.

1 unchanged sentence

The Company’s exposure to financial loss as a result of its involvement with Compuware is limited to potential losses on its purchase orders in the event of an unforeseen decline in the market price and/or demand of the Company’s products such that the Company incurs a loss on the sale or cannot sell the products.

Outstanding purchase orders from the Company to Compuware were $ 44.0 million and $ 45.7 million at March 31, 2021 and June 30, 2020, respectively, representing the maximum exposure to financial loss.

Outstanding purchase orders from the Company to Compuware were $ 87.8 million and $ 71.0 million at September 30, 2021 and June 30, 2021, respectively, effectively representing the exposure to financial loss.

The Company does not directly or indirectly guarantee any obligations of Compuware, or any losses that the equity holders of Compuware may suffer.

The Company’s results from transactions with Ablecom and Compuware for each of the three and nine months ended March 31, 2021 and 2020, are as follows (in thousands):

Dealings with Investment in a Corporate Venture

The Corporate Venture is 30 % owned by the Company and 70 % owned by another company in China.

The transaction was closed in the third fiscal quarter of 2017 and the investment is accounted for using the equity method.

As such, the Corporate Venture is also a related party.

The Company recorded a deferred gain related to the contribution of certain technology rights.

As of September 30, 2021 and June 30, 2021, the Company had unamortized deferred gain balance of $ 0.5 million and $ 1.0 million, respectively, in accrued liabilities and none in other long-term liabilities in the Company’s condensed consolidated balance sheets.

In June 2020, the third-party parent company that controls the Corporate Venture was placed on a U.S.

government export control list, along with several of the third party parent's related entities and a separate listing for one of its subsidiaries.

The Corporate Venture is not itself a restricted party.

The Company has concluded that the Corporate Venture is in compliance with the new restrictions.

The Company does not believe that the equity investment carrying value is impacted as of September 30, 2021.

No impairment charge was recorded for the three months ended September 30, 2021 and 2020, respectively.

The Company sold products to the Corporate Venture and the Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture have been eliminated and have reduced the carrying value of the Company’s investment in the Corporate Venture.

To the extent that the elimination of intra-entity profits reduces the investment balance below zero, such amounts are recorded within accrued liabilities.

Dealings with Monolithic Power Systems, Inc.

The Company procures certain semiconductor products from Monolithic Power Systems, Inc.

(“MPS”), a fabless manufacturer of high-performance analog and mixed-signal semiconductors, for use in its products.

A member on the Board of Directors, also serves as an officer of MPS.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Three Months Ended

March 31, Nine Months Ended

The Company had the following balances related to transactions with its related parties as of September 30, 2021 and June 30, 2021 (in thousands):

Ablecom Compuware Corporate Venture MPS Total

September 30, 2021 June 30, 2021 September 30, 2021 June 30, 2021 September 30, 2021 June 30, 2021 September 30, 2021 June 30, 2021 September 30, 2021 June 30, 2021

Accounts receivable $ 2 $ 2 $ 1,332 $ 198 $ 12,659 $ 8,478 $ — $ — $ 13,993 $ 8,678

Other receivable (1) $ 4,428 $ 5,575 $ 21,690 $ 18,173 $ — $ — $ 165 $ 89 $ 26,283 $ 23,837

Accounts payable $ 40,730 $ 38,152 $ 37,024 $ 31,944 $ — $ — $ — $ — $ 77,754 $ 70,096

Accrued liabilities (2) $ 1,813 $ 3,042 $ 17,790 $ 14,486 $ 500 $ 1,000 $ — $ — $ 20,103 $ 18,528

(1) Other receivables include receivables from vendors included in prepaid and other current assets.

(2) Includes current portion of operating lease liabilities included in other current liabilities.

The Company's results from transactions with its related parties for each of the three months ended September 30, 2021 and 2020, are as follows (in thousands):

Ablecom Compuware Corporate Venture MPS Total

Three months ended September 30, Three months ended September 30, Three months ended September 30, Three months ended September 30, Three months ended September 30,

2021 2020 2021 2020 2021 2020 2021 2020 2021 2020

Purchases (1) $ 34,924 $ 37,607 $ 85,827 $ 115,295

Net sales $ 7 $ 5 $ 15,702 $ 13,299 $ 15,213 $ 6,412 — — $ 30,922 $ 19,716

Purchases (1) 32,340 24,908 100,911 91,662

__________________________

(1) Includes principally purchases of inventory and other miscellaneous items.

The Company's net sales to Ablecom were not material for the three and nine months ended March 31, 2021 and 2020.

The Company had the following balances related to transactions with Ablecom and Compuware as of March 31, 2021 and June 30, 2020 (in thousands):

March 31, 2021 June 30, 2020

Accounts receivable and other receivables (1) $ 6,620 $ 6,379

Accounts payable and accrued liabilities (2) 32,243 40,056

Other long-term liabilities (3) — 513

Accounts receivable and other receivables (1) $ 14,486 $ 14,323

Accounts payable and accrued liabilities (2) 36,355 46,518

Other long-term liabilities (3) — 186

Purchases - inventory $ 50,788 $ 23,871 $ 35,229 $ 34,197 — — $ 1,670 $ 791 $ 87,687 $ 58,859

Purchases - other miscellaneous items $ 2,116 $ 2,718 $ 339 $ 333 — — — — $ 2,455 $ 3,051

The Company’s cash flow impact from transactions with its related parties for each of the three months ended September 30, 2021 and 2020, are as follows (in thousands):

Ablecom Compuware Corporate Venture MPS Total

Three months ended September 30, Three months ended September 30, Three months ended September 30, Three months ended September 30, Three months ended September 30,

2021 2020 2021 2020 2021 2020 2021 2020 2021 2020

(1) Other receivables include receivables from vendors.

(2) Includes current portion of operating lease liabilities.

(3) Represents non-current portion of operating lease liabilities.

See Note 1, "Summary of Significant Accounting Policies" for a discussion of the transactions and balances in the Company’s Corporate Venture.

Changes in accounts receivable — $ ( 27 ) $ ( 1,134 ) $ 353 $ ( 4,181 ) $ 7,184 — — $ ( 5,315 ) $ 7,510

Changes in other receivable $ 1,147 $ 4,243 $ ( 3,517 ) $ 7,840 — — $ ( 76 ) $ 75 $ ( 2,446 ) $ 12,158

Changes in accounts payable $ 2,578 $ ( 14,952 ) $ 5,080 $ ( 9,724 ) — — — — $ 7,658 $ ( 24,676 )

Changes in accrued liabilities $ ( 1,229 ) $ ( 203 ) $ 3,304 $ ( 3,374 ) $ ( 500 ) — — — $ 1,575 $ ( 3,577 )

Changes in other long-term liabilities — $ 47 — $ ( 77 ) — $ ( 500 ) — — — $ ( 530 )

Purchases of property, plant and equipment $ 338 $ 2,140 $ 62 $ 90 — — — — $ 400 $ 2,230

Unpaid property, plant and equipment $ 1,360 $ 1,664 — — — — — — $ 1,360 $ 1,664

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-based Compensation and Stockholders' Equity

4 unchanged sentences

7,246,000 shares of common stock remain reserved for outstanding awards issued under the 2016 Plan at the time of adoption of the 2020 Plan.

As of March 31, 2021, the Company had 3,100,300 authorized shares available for future issuance under the 2020 Plan.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Common Stock Repurchase and Retirement

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

The program was effective until December 31, 2020 or if earlier, until the maximum amount of common stock is repurchased.

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.

Repurchased shares were recorded as treasury shares in the Company's condensed consolidated balance sheet as of September 30, 2020.

On December 11, 2020, the Company retired 2,475,419 shares of common stock, which were recorded as treasury stock in the Company's condensed consolidated balance sheet as of September 30, 2020.

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 an aggregate $ 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.

During the three months ended March 31, 2021, the Company repurchased and retired 1,250,539 shares of common stock for an aggregated $ 43.7 million.

During the nine months ended March 31, 2021, the Company repurchased and retired 5,306,165 shares of common stock for an aggregated $ 120.7 million.

As of September 30, 2021, the Company had 2,385,365 authorized shares available for future issuance under the 2020 Plan.

Common Stock Repurchase

On January 29, 2021, a duly authorized subcommittee of the Board of Directors 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 the earlier of July 31, 2022 or the date when the maximum amount of common stock is repurchased.

The Company had $ 150.0 million of remaining availability under the share repurchase program as of September 30, 2021.

There were no shares repurchased under the share repurchase program during the three months ended September 30, 2021.

Determining Fair Value

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Risk-Free Interest Rate—The risk-free interest rate used in the Black-Scholes valuation method is based on the United States Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

The fair value of stock option grants for the three and nine months ended March 31, 2021 and 2020 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

The fair value of stock option grants for the three months ended September 30, 2021 and 2020 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

September 30,

Risk-free interest rate 0.81 % 0.27 %

0.27 % - 0.58 %

0.53 % - 1.72 %

Expected term 5.98 years 6.27 years 5.98 years 6.27 years

Expected term 6.09 years 5.98 years

Dividend yield — % — %

Volatility 49.71 % 50.43 %

50.32 % - 50.43 %

49.61 % - 50.46 %

Weighted-average fair value $ 17.94 $ 14.16

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three and nine months ended March 31, 2021 and 2020 (in thousands):

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended

March 31, Nine Months Ended

2021 2020 2021 2020

September 30,

Cost of sales $ 447 $ 503

5 unchanged sentences

Stock-based compensation expense, net $ 5,127 $ 5,215

As of March 31, 2021, $ 7.2 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 4.13 years, $ 39.3 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.47 years and $ 0.3 million of unrecognized compensation cost related to unvested PRSUs is expected to be recognized over a period of 0.36 years.

As of September 30, 2021, $ 9.4 million of unrecognized compensation expense related to stock options is expected to be recognized over a weighted-average period of 3.85 years, $ 51.2 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.77 years and less than $ 0.1 million of unrecognized compensation cost related to unvested PRSUs is expected to be recognized over a period of 0.11 years.

Additionally, as described below, $ 9.6 million of unrecognized compensation cost related to the 2021 CEO Performance Stock Option is expected to be recognized over a period of 5.0 years.

Stock Option Activity

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Upon vesting and exercise, including the payment of the exercise price of $ 45.00 per share, prior to March 2, 2024, the Company’s CEO must hold shares that he acquires until March 2, 2024, other than those shares sold pursuant to a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

The achievement status of the operational and stock price milestones as of March 31, 2021 was as follows:

The achievement status of the operational and stock price milestones as of September 30, 2021 was as follows:

Annualized Revenue Milestone Achievement Status Stock Price Milestone Achievement Status

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$ 8.0 — $ 120 Not met

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

milestone that has not previously been achieved or deemed probable of achievement, and, if so, the future time when the Company expects to achieve that operational milestone, or its “expected operational milestone achievement time.” When the Company first determines that an operational milestone has become probable of being achieved, the Company will allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected vesting time.” The “expected vesting time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market price milestone achievement time (if the related market price milestone has not yet been achieved).

On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed expense amount for such tranche and (ii) the future time when the market price milestone for such tranche was expected to be achieved, or its “expected market price milestone achievement time.” Separately, based on a subjective assessment of the Company’s future financial performance, each quarter, the Company will determine whether achievement is probable for each operational milestone that has not previously been achieved or deemed probable of achievement, and, if so, the future time when the Company expects to achieve that operational milestone, or its “expected operational milestone achievement time.” When the Company first determines that an operational milestone has become probable of being achieved, the Company will allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected vesting time.” The “expected vesting time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market price milestone achievement time (if the related market price milestone has not yet been achieved).

The Company will immediately recognize a catch-up expense for all accumulated expenses from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved.

Each quarter thereafter, the Company will recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected vesting time, except that upon vesting of a tranche, all remaining expenses for that tranche will be immediately recognized.

During the three and nine months ended March 31, 2021, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $ 0.3 million and $ 0.3 million, respectively.

No compensation expense related to the 2021 CEO Performance Stock Option was recognized during the three and nine months ended March 31, 2020.

As of March 31, 2021 and June 30, 2020, the Company had $ 11.3 million and $ 0 , respectively, in unrecognized compensation cost related to the 2021 CEO Performance Stock Option.

The unrecognized compensation cost as of March 31, 2021 is expected to be recognized over a period of five years .

The following table summarizes stock option activity during the nine months ended March 31, 2021 under all plans:

During the three months ended September 30, 2021, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $ 0.9 million.

No compensation expense related to the 2021 CEO Performance Stock Option was recognized during the three months ended September 30, 2020.

As of September 30, 2021 and June 30, 2021, the Company had $ 9.6 million and $ 10.5 million, respectively, in unrecognized compensation cost related to the 2021 CEO Performance Stock Option.

The unrecognized compensation cost as of September 30, 2021 is expected to be recognized over a period of five years .

The following table summarizes stock option activity during the three months ended September 30, 2021 under all plans:

Outstanding Weighted

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Forfeited/Cancelled ( 41,459 ) $ 30.47

Balance as of March 31, 2021 5,515,974 $ 25.16 5.22

Options vested and exercisable at March 31, 2021 3,811,698 $ 20.10 3.36

Balance as of September 30, 2021 4,859,013 $ 27.13 5.52

Options vested and exercisable at September 30, 2021 3,099,511 $ 20.82 3.47

RSU and PRSU Activity

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RSUs are typically service based share awards that entitle the holder to receive freely tradable shares of the Company's common stock upon vesting.

In August 2017, the Compensation Committee granted two PRSU awards to the Company's Chief Executive Officer, both of which have both performance and service conditions.

50 % of the PRSUs vested at June 30, 2018 when performance conditions were achieved, while the remainder vest in equal amounts over the following ten quarters if the Company's Chief Executive Officer continued to be employed during those ten quarters.

As of March 31, 2021, the remaining 50 % of the PRSUs had vested in accordance with the terms of the grant.

In March 2020, the Compensation Committee granted a PRSU award to one of the Company's senior executives.

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No additional units were earned for fiscal year 2020 as revenue decreased from fiscal year 2019.

The following table summarizes RSU and PRSU activity during the nine months ended March 31, 2021 under all plans:

An additional 2,939 units were earned for fiscal year 2021 that would vest on November 10, 2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes RSU and PRSU activity during the three months ended September 30, 2021 under all plans:

Time-Based RSUs

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Forfeited ( 87,894 ) $ 27.54 — $ —

Balance as of March 31, 2021 1,994,735 $ 23.91 30,000 $ 34.27

__________________________

(1) Reflects the number of PRSUs that have been earned based on the achievement of performance metrics.

Balance as of September 30, 2021 1,952,696 $ 29.15 15,000 $ 34.27

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company recorded a benefit for income taxes of $ 0.2 million for the three months ended March 31, 2021, and a provision for income taxes of $ 8.5 million for the nine months ended March 31, 2021.

The Company recorded a benefit for income taxes of $ 0.9 million for the three months ended March 31, 2020 and a provision of $ 9.8 million for the nine months ended March 31, 2020.

The effective tax rate was ( 1.2 )% and 10.5 % for the three and nine months ended March 31, 2021, respectively, and ( 5.6 )% and 12.8 % for the three and nine months ended March 31, 2020, respectively.

The effective tax rate for the three months ended March 31, 2021 is higher than that for the three months ended March 31, 2020, primarily due to release of uncertain tax positions after settlement of a Taiwan tax audit in the prior year.

The effective tax rate for the nine months ended March 31, 2021 is lower than that for the nine months ended March 31, 2020, primarily due to Company's tax benefit arising from additional employees' exercises of stock options in the current year.

As a result of the 2017 Tax Reform Act, in December 2019, the Company realigned its international business operations and group structure.

As a part of this restructuring, the Company moved certain intellectual property back to the United States.

This tax restructuring does not have a material impact on the estimated annual effective tax rate.

The Company recorded a provision for income taxes of $ 3.3 million and $ 3.7 million for the three months ended September 30, 2021 and 2020, respectively.

The effective tax rate was 11.7 % and 12.7 % for the three months ended September 30, 2021 and 2020, respectively.

The effective tax rate for the three months ended September 30, 2021 is lower than that for the three months ended September 30, 2020, primarily due to a decrease in certain non-deductible expenses and a decrease in foreign tax liability.

As of September 30, 2021, the Company had gross unrecognized tax benefits of $ 45.1 million, of which, $ 28.3 million, if recognized, would affect the Company's effective tax rate.

During the three months ended September 30, 2021, there was a $ 4.3 million increase in gross unrecognized tax benefits.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for taxes on the condensed consolidated statements of operations.

As of September 30, 2021, the Company had accrued $ 2.7 million of interest and penalties relating to unrecognized tax benefits.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted.

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The CARES Act does not have a material impact on the Company.

As of March 31, 2021, the Company had gross unrecognized tax benefits of $ 41.1 million, of which, $ 27.0 million, if recognized, would affect the Company's effective tax rate.

During the nine months ended March 31, 2021, there was a $ 1.7 million increase in gross unrecognized tax benefits, primarily due to an uncertain tax position in a foreign jurisdiction.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for taxes on the condensed consolidated statements of operations.

As of March 31, 2021, the Company had accrued $ 2.6 million of interest and penalties relating to unrecognized tax benefits.

Under the 2017 Tax Reform Act, starting on July 1, 2018, the Company is no longer subject to federal income tax on earnings remitted from our foreign subsidiaries.

As a result of the 2017 Tax Reform Act, the Company has determined that its foreign undistributed earnings are indefinitely reinvested except for undistributed earnings related to the Company's operations in the Netherlands.

The Company has determined that its foreign undistributed earnings are indefinitely reinvested except for undistributed earnings related to the Company's operations in the Netherlands.

The Company may repatriate certain foreign earnings from the Netherlands that have been previously taxed in the U.S.

The tax impact of such repatriation is estimated to be immaterial.

In October 2019, the Taiwan tax authority completed its audit in Taiwan for fiscal year 2018 and proposed an adjustment resulting in additional tax liability of $ 1.6 million.

The Company accepted the proposed adjustment in October 2019 and paid the $ 1.6 million tax liability in February 2020.

In February 2020, the Taiwan tax authority completed its audit in Taiwan for fiscal year 2019 and proposed an adjustment resulting in an additional tax liability of $ 1.0 million.

The Company accepted the proposed adjustment and paid the $ 1.0 million tax liability in February 2020.

The impact of these adjustments on the income statement was offset by the release of previously unrecognized tax benefits related to the fiscal years audited in the periods in which the proposed adjustments were accepted.

The Company believes that it has adequately provided reserves for all uncertain tax positions;

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The complaint purports to allege claims for breaches of fiduciary duties, waste of corporate assets, and unjust enrichment arising out of allegations that the Company’s officers and directors caused the Company to issue false and misleading statements about recognition of revenue and the effectiveness of its internal controls, failed to adopt and implement effective internal controls, and failed to timely file various reports with the Securities and Exchange Commission.

The plaintiffs seek unspecified compensatory damages and other equitable relief.

The parties are in the process of briefing demurrers, which are set for hearing on August 24, 2021.

The case is otherwise stayed for the time being.

Defendants filed demurrers, which were set for hearing on August 4, 2021, but which were continued to September 15, 2021.

Following this continuance, on July 21, 2021, Plaintiffs' counsel filed an amended complaint in lieu of responding to the demurrer.

The amended complaint added no new claims;

primarily, the amendment added allegations describing the March 29, 2021 motion to dismiss decision in the Hessefort class action.

Defendants demurred to the amended complaint on August 24, 2021, and the Court has calendared the hearing for January 26, 2022.

The case is otherwise currently stayed.

The Company intends to defend the lawsuit vigorously.

On November 13, 2020, Build Group Inc.

(“Build Group”) filed a complaint against the Company in the Superior Court for Santa Clara County, seeking damages of approximately $ 2.0 million.

Build Group served the complaint on the Company on December 1, 2020.

Build Group alleged that the Company breached the construction contract between the Company and Build Group by failing to approve or reject certain requests for change orders to the scope of work covered by the construction project in a timely manner, or at all.

A substantial portion of the amounts covered by the change orders at issue related to delays in the construction project.

Build Group asserted that these delays were beyond its control and that therefore it was entitled to additional payments as a result of the delays in completion of the project.

The Company believed that it had meritorious defenses to Build Group’s claims, but nonetheless negotiated a settlement with Build Group.

The settlement agreement resolving this dispute was executed effective January 19, 2021.

As a result, the Company did not have to respond to the complaint.

Per the settlement agreement, Build Group agreed to dismiss the entire action with prejudice once the Company complied with its obligations under the settlement agreement.

The Company complied with its obligations and paid $ 2.0 million in the quarter ended March 31, 2021.

Build Group submitted the dismissal, which the court has granted that concludes the matter.

SEC Matter— The Company cooperated with the SEC in its investigation of marketing expenses that contained certain irregularities discovered by Company management, which irregularities were disclosed on August 31, 2015, and the Company cooperated with the SEC in its further investigation of the matters underlying the Company’s inability to timely file its Form 10-K for the fiscal year ended June 30, 2017 and concerning the publication of a false and widely discredited news

On May 5, 2021, certain current and former directors and officers of the Company were named as defendants in a putative derivative lawsuit filed in the U.S.

District Court for the Northern District of California, captioned Stein v.

Liang, et al ., Case No.

3:21-cv-03357-KAW (the “Stein Derivative Action”).

The Company was also named as a nominal defendant.

The complaint purports to allege claims for breaches of fiduciary duties, waste of corporate assets, unjust enrichment, and contribution for violations of federal securities laws arising out of allegations that the Company’s officers and directors caused the Company to issue false and misleading statements about recognition of revenue and the effectiveness of its internal controls, failed to adopt and implement effective internal controls, and failed to timely file various reports with the Securities and Exchange Commission.

The plaintiff seeks unspecified compensatory damages and other equitable relief.

Defendants filed motions to dismiss the complaint on August 6, 2021.

Rather than oppose defendants’ motions, plaintiff informed defendants that plaintiff was prepared to dismiss his action with prejudice.

On September 29, 2021, the parties submitted a stipulation for dismissal with prejudice as to the named plaintiff to the Court for its approval.

On October 27, 2021, the Court issued an order for the parties to submit within 30 days a plan of notice of dismissal for the Court’s approval.

The Court noted that, if no shareholder seeks to intervene during the notice period, plaintiff may file an administrative motion requesting that the Court dismiss the lawsuit with prejudice

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

article in October 2018 concerning the Company’s products.

On August 25, 2020, to fully resolve all matters under investigation, the Company consented to entry of an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as announced by the SEC.

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From time to time, the Company has been involved in various legal proceedings arising from the normal course of business activities.

The resolution of any such matters have not had a material impact on the Company’s consolidated financial condition, results of operations or liquidity as of March 31, 2021 and any prior periods.

The resolution of any such matters have not had a material impact on the Company’s consolidated financial condition, results of operations or liquidity as of September 30, 2021 and any prior periods.

The Company has entered into indemnification agreements with its current and former directors and executive officers.

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Purchase Commitments — The Company has agreements to purchase inventory and non-inventory items primarily through the next 12 months.

As of March 31, 2021, these remaining noncancelable commitments were $ 306.4 million, including $ 79.5 million for related parties.

Standby Letter of Credit — In October 2018, a $ 3.2 million letter of credit was issued under the 2018 Bank of America Credit Facility and in October 2019, the letter of credit amount was increased to $ 6.4 million.

The standby letter of credit is cancellable upon written notice from the issuer.

No amounts have been drawn under the standby letter of credit.

As of September 30, 2021, these remaining noncancelable commitments were $ 508.2 million, including $ 124.4 million for related parties.

Lease Commitments - See Note 7, "Leases," for a discussion of the Company's operating lease and financing lease commitments.

Segment Reporting

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The Company’s chief operating decision maker is the Chief Executive Officer.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a summary of property, plant and equipment, net (in thousands):

March 31, June 30,

September 30, June 30,

Long-lived assets:

3 unchanged sentences

$ 284,148 $ 274,713

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company’s revenue is presented on a disaggregated basis in Note 2, “Revenue,” by type of product and by geographical market.

Subsequent Event

On May 5, 2021, certain current and former directors and officers were named as defendants in a putative derivative lawsuit filed in the U.S.

District Court for the Northern District of California, captioned Stein v.

Liang, et al.

3:21-cv-03357-KAW.

The Company was also named as a nominal defendant.

The complaint purports to allege claims for breaches of fiduciary duties, waste of corporate assets, unjust enrichment, and contribution for violations of federal securities laws arising out of allegations that the Company's officers and directors caused the Company to issue false and misleading statements about recognition of revenue and the effectiveness of its internal controls, failed to adopt and implement effective internal controls, and failed to timely file various reports with the Securities and Exchange Commission.

The plaintiff seeks unspecified compensatory damages and other equitable relief.

The Company has not yet been formally served with the complaint, but the Company intends to defend the lawsuit vigorously.

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 1. Financial Statements