01—Abstract
Summary
Summary of the 10-K/A filed November 16, 2015. Cited figures are marked; the original filing is the authoritative source.
Super Micro Computer, Inc. filed this Form 10-K/A for the fiscal year ended June 30, 2015 to revise its Item 9A and the related auditor's report.
Management concluded that a material weakness existed as of June 30, 2015: the company lacked a control to review sales contracts for extended warranty deliverables, so extended warranty revenue recorded in prior periods should have been deferred and recognized over the warranty term. Deloitte & Touche LLP now expresses an adverse opinion on internal control over financial reporting, though its opinion on the financial statements is unchanged. Management stated that the revenue misstatements did not have a material impact on previously issued consolidated financial statements, and it has begun remediation through reviews of extended warranty and other deliverables.
The financial statements show fiscal 2015 net sales of $1,991,155 thousanda, up from $1,467,202 thousand in fiscal 2014, with gross profit of $320,231 thousand and net income of $101,863 thousand, compared with $54,157 thousand the prior year. Diluted earnings per share were $2.03. Cash and cash equivalents were $95,442 thousand at year end, while operating cash flow was negative at $(44,636) thousand, reflecting growth in accounts receivable and inventory.
Inventory rose to $463,493 thousand and total debt to $94,412 thousandb, most of which is current. Related-party dealings are significant.
Deloitte's opinion includes an explanatory paragraph on significant purchases from and sales to a related party, Ablecom Technology Inc., which purchased $227,562 thousandc of products from the company in fiscal 2015 and sold $58,013 thousand to it. Customer concentration is also notable, with one supplier accounting for 28.7% of purchases and one customer for 10.1% of net sales.
02—Key points
Key Highlights
- Revised internal control assessment: management identified a material weakness as of June 30, 2015 related to revenue recognition for extended warranty contracts, and Deloitte now issues an adverse opinion on internal control over financial reporting.
- Net sales rose to $1,991,155 thousand in fiscal 2015 from $1,467,202 thousand in fiscal 2014, and net income increased to $101,863 thousand from $54,157 thousand.
- Gross profit was $320,231 thousand and income from operations was $146,746 thousand in fiscal 2015.
- Operating cash flow was $(44,636) thousand in fiscal 2015, against $6,538 thousand in fiscal 2014, as accounts receivable grew to $322,594 thousand and inventory to $463,493 thousand.
- Total debt was $94,412 thousand at June 30, 2015, with $93,479 thousand classified as current, mainly borrowings under the Bank of America and CTBC Bank lines of credit.
- Ablecom Technology Inc., a related party and major contract manufacturer, received $227,562 thousand in purchases from the company, and outstanding purchase orders with Ablecom totaled $67,261 thousand.
- Non-cancellable purchase commitments were $378,341 thousand as of June 30, 2015, including $185,680 thousand for hard disk drives payable through December 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Super Micro Computer kept $0.05.
- Revenue$1.95B100.0%
- Cost of revenue−$1.65B84.3%
- Gross profit$306.6M15.7%
- Operating costs−$173.9M8.9%
- Operating income$132.6M6.8%
- Interest, other & tax−$40.1M2.1%
- Net income$92.6M4.7%
Where FY2015 revenue went
$1.95B- Cost of revenue: $1.65B, 84% of revenue
- Net income: $92.6M, 4.7% of revenue
- R&D: $101.4M, 5.2% of revenue
- Other operating costs: $72.5M, 3.7% of revenue
- Interest, other & tax: $40.1M, 2.1% of revenue
Kept 4.7% as net incomeNet income $92.6M · 4.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2015filed November 16, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $1.95B$1.47B | +33.2% |
| Cost of Revenue | $1.65B$1.24B | +32.7% |
| Gross Profit | $306.58M$225.54M | +35.9% |
| R&D Expenses | $101.40M$84.26M | +20.3% |
| Operating Expenses | $173.94M$145.29M | +19.7% |
| Operating Income | $132.65M$80.26M | +65.3% |
| Interest Expense | $965K$757K | +27.5% |
| Net Income | $92.56M$54.16M | +70.9% |
| EPS (Basic) | $1.99$1.24 | +60.5% |
| EPS (Diluted) | $1.85$1.16 | +59.5% |
| Shares Outstanding (Basic) | 46.43M43.60M | +6.5% |
| Shares Outstanding (Diluted) | 50.09M46.51M | +7.7% |
05—Questions
Frequently Asked Questions
Why did the company revise its internal control assessment?
In November 2015, management identified an error in the accounting for certain contracts with extended warranty provisions. The company had no control to review sales contracts for additional deliverables, so extended warranty revenue recorded in prior periods should have been deferred and recognized over the warranty term. Management concluded this was a material weakness as of June 30, 2015.
Did the revenue issue materially affect previously reported financial statements?
Management analyzed the impact of the revenue misstatements and concluded they did not have a material impact on its previously issued consolidated financial statements. It also stated that the consolidated financial statements in the original filing fairly present, in all material respects, its financial condition, results of operations and cash flows.
How did the company's financial performance change in fiscal 2015?
Net sales increased to $1,991,155 thousand from $1,467,202 thousand, and net income rose to $101,863 thousand from $54,157 thousand. Diluted earnings per share were $2.03, compared with $1.16 in fiscal 2014. Growth was led by server systems, which rose to $1,213,608 thousand from $740,789 thousand.
What related-party risks does the company face?
Ablecom Technology Inc., a major contract manufacturer whose chief executive is the brother of Charles Liang, the company's President and CEO, is a related party. The company purchased $227,562 thousand of products from Ablecom and sold $58,013 thousand to it in fiscal 2015. Deloitte's report includes an explanatory paragraph on these significant related-party transactions.
What is the company's liquidity position?
Cash and cash equivalents were $95,442 thousand at June 30, 2015, and the company had net cash used in operating activities of $(44,636) thousand. Short-term debt and the current portion of long-term debt were $93,479 thousand, and the unused revolving line of credit with Bank of America was $5,301 thousand.
06—Continue