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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________________________
Form 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-33383
__________________________________________________________________________
Super Micro Computer, Inc.
(Exact name of registrant as specified in its charter)
Delaware 77-0353939
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
980 Rock Avenue
San Jose, CA 95131
(Address of principal executive offices, including zip code)
(408) 503-8000
(Registrant’s telephone number, including area code)
__________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par value per shareSMCINASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒ No  ☐    
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerx  Accelerated filer
☐
Non-accelerated filer
☐
  Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of October 31, 2021 there were 51,075,818 shares of the registrant’s common stock, $0.001 par value, outstanding, which is the only class of common stock of the registrant issued.



SUPER MICRO COMPUTER, INC.


QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS
 
  Page
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.

    Unless the context requires otherwise, the words “Super Micro,” “Supermicro,” “we,” “Company,” “us” and “our” in this document refer to Super Micro Computer, Inc. and where appropriate, our wholly owned subsidiaries. Supermicro, the Company logo and our other registered or common law trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of Super Micro Computer, Inc. or its affiliates. Other trademarks, service marks, or trade names appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.


Table of Contents
PART I: FINANCIAL INFORMATION

Item 1.        Financial Statements

SUPER MICRO COMPUTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 (unaudited) 
September 30,June 30,
20212021
ASSETS
Current assets:
Cash and cash equivalents$270,047 $232,266 
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 
Inventories1,184,573 1,040,964 
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 
Total current assets2,036,955 1,867,259 
Investment in equity investee5,161 4,578 
Property, plant and equipment, net284,148 274,713 
Deferred income taxes, net63,269 63,288 
Other assets37,160 32,126 
Total assets$2,426,693 $2,241,964 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
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 $20,103 and $18,528 at September 30, 2021 and June 30, 2021, respectively)
175,221 178,850 
Income taxes payable14,273 12,741 
Short-term debt233,674 63,490 
Deferred revenue113,683 101,479 
Total current liabilities1,101,479 968,896 
Deferred revenue, non-current101,749 100,838 
Long-term debt45,134 34,700 
Other long-term liabilities 45,533 41,132 
Total liabilities1,293,895 1,145,566 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock and additional paid-in capital, $0.001 par value
Authorized shares: 100,000,000; Outstanding shares: 51,071,844 and 50,582,078 at September 30, 2021 and June 30, 2021, respectively
Issued shares: 51,071,844 and 50,582,078 at September 30, 2021 and June 30, 2021, respectively
448,976 438,012 
Accumulated other comprehensive income449 453 
Retained earnings683,197 657,760 
Total Super Micro Computer, Inc. stockholders’ equity1,132,622 1,096,225 
Noncontrolling interest176 173 
Total stockholders’ equity1,132,798 1,096,398 
Total liabilities and stockholders’ equity$2,426,693 $2,241,964 
See accompanying notes to condensed consolidated financial statements.
1

Table of Contents
SUPER MICRO COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited) 
 Three Months Ended
September 30,
 20212020
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 $87,687 and $58,859 in the three months ended September 30, 2021 and 2020, respectively)
894,591632,335
Gross profit138,139129,915
Operating expenses:
Research and development 65,14354,798
Sales and marketing21,62420,292
General and administrative22,24424,379
Total operating expenses109,01199,469
Income from operations29,12830,446
Other (expense) income, net 50(841)
Interest expense(804)(674)
Income before income tax provision28,37428,931
Income tax provision(3,325)(3,660)
Share of income from equity investee, net of taxes3881,330
Net income$25,437$26,601
Net income per common share:
Basic$0.50$0.51
Diluted$0.48$0.49
Weighted-average shares used in calculation of net income per common share:
Basic50,79652,329 
Diluted52,91654,426 


See accompanying notes to condensed consolidated financial statements.
2

Table of Contents
SUPER MICRO COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited) 
 Three Months Ended
September 30,
 20212020
Net income$25,437 $26,601 
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)(4)247 
Total other comprehensive income (loss)(4)247 
Total comprehensive income $25,433 $26,848 

See accompanying notes to condensed consolidated financial statements.
3

Table of Contents
SUPER MICRO COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
(unaudited)

Three Months Ended September 30, 2021Common Stock and
Additional Paid-In
Capital		Treasury StockAccumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		Non-controlling InterestTotal
Stockholders’
Equity
SharesAmountSharesAmount
Balance at June 30, 202150,582,078 $438,012 — $— $453 $657,760 $173 $1,096,398 
Exercise of stock options, net of taxes370,066 6,018 — — — — — 6,018 
Release of common stock shares upon vesting of restricted stock units173,771 — — — — — — — 
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 
Foreign currency translation loss— — — — (4)— — (4)
Net income— — — — — $25,437 3 25,440 
Balance at September 30, 202151,071,844 $448,976 — — $449 $683,197 $176 $1,132,798 

Three Months Ended September 30, 2020Common Stock and
Additional Paid-In
Capital		Treasury StockAccumulated
Other
Comprehensive
Income (Loss)		Retained
Earnings		Non-controlling InterestTotal
Stockholders’
Equity
SharesAmountSharesAmount
Balance at June 30, 202053,741,828 $389,972 (1,333,125)$(20,491)$(152)$696,211 $167 1,065,707 
Exercise of stock options, net of taxes350,830 5,020 — — — — — 5,020 
Release of common stock shares upon vesting of restricted stock units217,519 — — — — — — — 
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 
Foreign currency translation gain— — — — 247 — — 247 
Net income— — — — — 26,601 2 26,603 
Balance at September 30, 202054,241,046 $400,157 $(2,475,419)$(50,491)$95 $722,812 $169 $1,072,742 


See accompanying notes to condensed consolidated financial statements.
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SUPER MICRO COMPUTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
September 30,
 20212020
OPERATING ACTIVITIES:
Net income$25,437 $26,601 
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization7,548 7,517 
Stock-based compensation expense7,015 7,170 
Recovery of allowance for doubtful accounts(124)(154)
Provision for excess and obsolete inventories3,478 (902)
Share of income from equity investee(388)(1,330)
Foreign currency exchange gain45 618 
Deferred income taxes, net19 (224)
Other5 (719)
Changes in operating assets and liabilities:
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)
5,859 81,035 
Inventories(147,087)78,544 
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)
6,109 43,724 
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)
Income taxes payable1,532 1,625 
Deferred revenue13,115 (1,946)
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 $0 and $(530) during the three months ended September 30, 2021 and 2020, respectively)
(1,461)1,157 
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 $400 and $2,230 during the three months ended September 30, 2021 and 2020, respectively)
(10,802)(11,851)
Investment in a privately-held company(1,100)— 
Net cash used in investing activities(11,902)(11,851)
FINANCING ACTIVITIES:
Proceeds from borrowings, net of debt issuance costs269,806 6,408 
Repayment of debt(89,476)(271)
Proceeds from exercise of stock options, net of taxes6,018 5,020 
Payment of withholding tax on vesting of restricted stock units(2,069)(2,005)
Stock repurchases— (28,453)
Payments of obligations under finance leases(17)(26)
Net cash provided by (used in) by financing activities
184,262 (19,327)
Effect of exchange rate fluctuations on cash(11)185 
Net increase in cash, cash equivalents and restricted cash37,778 89,562 
Cash, cash equivalents and restricted cash at the beginning of the period233,449 212,390 
Cash, cash equivalents and restricted cash at the end of the period$271,227 $301,952 
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Supplemental disclosure of cash flow information:
Cash paid for interest$508 $512 
Cash paid for taxes, net of refunds2,732 1,204 
Non-cash investing and financing activities:
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 
Right of use ("ROU") assets obtained in exchange for operating lease commitments 6,119 2,059 
Unpaid stock repurchases— 1,547 


See accompanying notes to condensed consolidated financial statements.

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SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.        Summary of Significant Accounting Policies

Significant Accounting Policies and Estimates

No material changes have been made to the significant accounting policies of Super Micro Computer, Inc., a corporation incorporated under the laws of Delaware, and its consolidated entities (together, the “Company”), disclosed in Note 1, "Organization and Summary of Significant Accounting Policies," in its Annual Report on Form 10-K, filed on August 27, 2021, for the year ended June 30, 2021. Management's estimates include, as applicable, the anticipated impacts of the coronavirus ("COVID-19") pandemic.

Basis of Presentation

The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations.

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 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

Certain materials used by the Company in the manufacturing of its products are available from a limited number of suppliers. Shortages could occur in these materials due to an interruption of supply or increased demand in the industry. 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 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 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. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The guidance is effective for the Company from July 1, 2021. The adoption of the guidance did not have a material impact on its condensed consolidated financial statements and disclosures.

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SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued authoritative guidance, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.  The guidance also establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. The amendment is effective for all entities through December 31, 2022. In January 2021, the FASB issued further guidance on this topic, which clarified the scope and application of the original guidance. 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 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.

Note 2.         Revenue

Disaggregation of Revenue

The Company disaggregates revenue by type of product and by geographical market in order to depict the nature, amount, and timing of revenue and cash flows. Service revenues, which are less than 10%, are not a significant component of total revenue, and are aggregated within the respective categories.

The following is a summary of net sales by product type (in thousands):
 Three Months Ended
September 30,
 20212020
Server and storage systems$849,856 $617,788 
Subsystems and accessories182,874 144,462 
Total$1,032,730 $762,250 

Server and storage systems constitute an assembly and integration of subsystems and accessories, and related services. Subsystems and accessories are comprised of server boards, chassis and accessories.

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 months ended September 30, 2021 and 2020, of net sales by geographic region (in thousands):
 Three Months Ended
September 30,
 20212020
United States$560,948 $496,086 
Asia263,086 126,707 
Europe179,694 112,089 
Other29,002 27,368 
$1,032,730 $762,250 

Contract Balances

Generally, the payment terms of the Company’s offerings range from 30 to 60 days. In certain instances, customers may prepay for products and services in advance of delivery. Receivables relate to the Company’s unconditional right to consideration for performance obligations either partially or fully completed.
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SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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. Such contract assets are insignificant to the Company’s condensed consolidated financial statements.

Contract liabilities consist of deferred revenue and relate to amounts invoiced to or advance consideration received from customers, which precede the Company’s satisfaction of the associated performance obligation(s). 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 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 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 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.

Capitalized Contract Acquisition Costs and Fulfillment Cost

Contract acquisition costs are those incremental costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. Contract acquisition costs consist primarily of incentive bonuses. Contract acquisition costs are considered incremental and recoverable costs of obtaining and fulfilling a contract with a customer and are therefore capitalizable. 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 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.

Contract fulfillment costs consist of costs paid in advance for outsourced services provided by third parties to the extent they are not in the scope of other guidance. Fulfillment costs paid in advance for outsourced services provided by third parties are capitalized and amortized over the period the services are expected to be provided. Such fulfillment costs are insignificant to the Company’s condensed consolidated financial statements.

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Note 3.        Net Income Per Common Share

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
September 30,
 20212020
Numerator:
Net income$25,437 $26,601 
Denominator:
Weighted-average shares outstanding50,796 52,329 
Effect of dilutive securities2,120 2,097 
Weighted-average diluted shares52,916 54,426 
Basic net income per common share$0.50 $0.51 
Diluted net income per common share$0.48 $0.49 

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.

Note 4.        Balance Sheet Components

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

Inventories:
September 30, 2021June 30, 2021
Finished goods$781,992 $761,694 
Work in process172,593 80,472 
Purchased parts and raw materials229,988 198,798 
Total inventories$1,184,573 $1,040,964 
    
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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Table of Contents SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Prepaid Expenses and Other Current Assets:
 September 30, 2021June 30, 2021
Other receivables (1)$87,269 $99,921 
Prepaid income tax13,797 12,288 
Prepaid expenses9,210 6,719 
Deferred service costs4,680 4,900 
Restricted cash251 251 
Others9,052 6,116 
Total prepaid expenses and other current assets$124,259 $130,195 
__________________________
(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:
 September 30, 2021June 30, 2021
Cash and cash equivalents$270,047 $232,266 
Restricted cash included in prepaid expenses and other current assets251 251 
Restricted cash included in other assets929 932 
Total cash, cash equivalents and restricted cash$271,227 $233,449 

Property, Plant, and Equipment:
 September 30, 2021June 30, 2021
Buildings$143,512$86,930 
Land84,60276,421 
Machinery and equipment102,52297,671 
Building construction in progress (1)5,91987,438 
Building and leasehold improvements43,42226,640 
Software23,09322,592 
Furniture and fixtures31,78222,843 
434,852420,535 
Accumulated depreciation and amortization(150,704)(145,822)
Property, plant and equipment, net$284,148$274,713 
__________________________
(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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Table of Contents SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Other Assets:
 September 30, 2021June 30, 2021
Operating lease right-of-use asset$24,156 $20,047 
Deferred service costs, non-current5,576 5,421 
Prepaid expense, non-current1,890 1,973 
Investment in auction rate security1,556 1,556 
Deposits1,449 1,669 
Restricted cash, non-current929 932 
Other1,604 528 
Total other assets$37,160 $32,126 

Accrued Liabilities:    
September 30, 2021June 30, 2021
Accrued payroll and related expenses$43,912 $45,770 
Contract manufacturing liabilities39,206 45,319 
Customer deposits30,773 32,419 
Accrued warranty costs9,532 10,185 
Accrued cooperative marketing expenses7,8115,652 
Operating lease liability6,400 6,322 
Accrued professional fees2,343 2,737 
Other35,245 30,446 
Total accrued liabilities$175,221 $178,850 

Performance Awards Liability

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 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. This payment can be reduced at the discretion of the Board to the extent the Company has not made adequate progress in remediating its material weaknesses in its internal control over financial reporting as determined by the Board. 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 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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Table of Contents SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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:
September 30, 2021June 30, 2021
Operating lease liability, non-current$18,366 $14,539 
Accrued unrecognized tax benefits including related interest and penalties18,392 17,841 
Accrued warranty costs, non-current2,701 2,678 
Other6,074 6,074 
Total other long-term liabilities$45,533 $41,132 

Product Warranties:
Three Months Ended
September 30,
 20212020
Balance, beginning of the period$12,863 $12,379 
Provision for warranty6,386 8,347 
Costs utilized(7,199)(7,607)
Change in estimated liability for pre-existing warranties183 608 
Balance, end of the period12,233 13,727 
Current portion9,532 11,057 
Non-current portion$2,701 $2,670 

Note 5.        Fair Value Disclosure

The financial instruments of the Company measured at fair value on a recurring basis are included in cash equivalents, other assets and accrued liabilities. 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 September 30, 2021 and June 30, 2021. 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: (i) the expected yield based on observable market rate of similar securities, (ii) the security coupon rate that is reset monthly, (iii) the estimated holding period and (iv) a liquidity discount. 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 September 30, 2021.

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Table of Contents SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Financial Assets and Liabilities Measured on a Recurring Basis

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):
September 30, 2021Level 1Level 2Level 3Asset at
Fair Value
Assets
Money market funds (1)$151 $— $— $151 
Certificates of deposit (2)— 862 — 862 
Auction rate security— — 1,556 1,556 
Total assets measured at fair value$151 $862 $1,556 $2,569 
June 30, 2021Level 1Level 2Level 3Asset at
Fair Value
Assets
Money market funds (1)$151 $— $— $151 
Certificates of deposit (2)— 863 — 863 
Auction rate security— — 1,556 1,556 
Total assets measured at fair value$151 $863 $1,556 $2,570 
__________________________
(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 considering 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 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 months ended September 30, 2021 and 2020.

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 BasisGross
Unrealized
Holding
Gains		Gross
Unrealized
Holding
Losses		Fair Value
Auction rate security$1,750 $— $(194)$1,556 
 
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Table of Contents SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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 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.



15

Table of Contents SUPER MICRO COMPUTER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 6.        Short-term and Long-term Debt

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,
 20212021
Line of credit:
Bank of America$110,193 $— 
CTBC Bank68,100 18,000 
 E.SUN Bank30,000 20,400 
Total line of credit208,293 38,400 
Term loans:
CTBC Bank term loan, due August 31, 2022$25,195 $25,090 
CTBC Bank term loan, due June 4, 203039,018 34,700 
CTBC Bank term loan, due December 27, 20271,434 — 
E.SUN Bank term loan, due September 15, 20264,868 — 
Total term loans70,515 59,790 
Total debt278,808 98,190 
Short-term debt and current portion of long-term debt233,674 63,490 
Debt, Non-current$45,134 $34,700 

Activities under Revolving Lines of Credit and Term Loans

Bank of America

2018 Bank of America Credit Facility

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 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. Voluntary prepayments are permitted without early repayment fees or penalties. Subject to customary exceptions, the 2018 Bank of America Credit Facility is secured by substantially all of Super Micro Computer’s assets, other than real property assets. Under the terms of the 2018 Bank of America Credit Facility, the Company is not permitted to pay any dividends. 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 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. The
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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.

CTBC Bank

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 NTD1,200.0 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, 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 $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.

E.SUN Bank

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2021 E.SUN Bank Credit Facility

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

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 15th 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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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):

Fiscal Year: Principal Payments
2022$233,594 
20231,696 
20247,110 
20257,110 
20267,110 
2027 and thereafter22,188 
Total short-term and long-term debt$278,808 


Note 7.