Significant events
Our financial results during fiscal 2012, 2011 and 2010 were affected by certain significant events that should be considered in comparing the periods presented. Acquisition of SGI Japan, Ltd.
On March 9, 2011, we acquired the remaining outstanding shares of SGI Japan. Prior to the Closing Date, we owned approximately 10% of the outstanding shares of SGI Japan and accounted for such investment as a cost method investment. SGI Japan operates primarily as a seller and servicer of high-performance computing, visualization, data center, and media and archive systems in Japan. The total purchase price was approximately $17.9 million in cash, $1.8 million of which was placed in escrow to secure our indemnification rights under the Stock Purchase Agreement. The acquisition provided us with a strategic entry into the large technical computing market of Japan and has enabled us to extend our global reach, accelerate growth opportunities, and strengthen the relationships with our partners and customers in Japan. Furthermore, the acquisition has enabled us to more fully participate in the Japanese HPC market and benefit from SGI Japan's extensive service business.
Copan Systems, Inc.
On February 23, 2010, we completed the acquisition of substantially all the assets of Copan Systems, Inc. ("Copan") and assumed certain liabilities for $2.0 million in cash.
Change in Segment Reporting
In the quarter ended September 30, 2011, we started managing our business primarily on a geographic basis. Our operating and reporting segments consist of the Americas, Europe, and Asia-Pacific operations. The Americas segment includes both North and South America. The Europe segment ("EMEA") includes European countries, as well as the Middle East and Africa. The Asia-Pacific segment ("APJ") includes Australia, Japan, and other Asian countries. Each operating segment provides similar hardware and software products and similar services. We do not aggregate any of the operating segments in determining our reporting segments. Prior to this change, we reported our operating segments as product and service segments.
Restructuring action in Europe
On March 16, 2012, our Board of Directors approved a restructuring action (the "Fiscal 2012 Restructuring Action") to reduce approximately 25% of our European workforce and close certain legal entities and offices in Europe. We adopted the Fiscal 2012 Restructuring Action to streamline operations and reduce operating expenses in Europe.
In connection with the Fiscal 2012 Restructuring Action, we expect to incur pre-tax cash charges between $14.0 million and $17.0 million, which consist of pre-tax cash charges between $13.0 million and $16.0 million for employee termination benefits, and up to $1.0 million for the planned office and legal entity closures, which expenses include contract termination costs and other associated costs. We expect to recognize the majority of the expense associated with the employee termination benefits prior to the third quarter of fiscal 2013. The closure of offices and legal entities are expected to take up to 18 months and the related expenses are expected to be recognized over that period of time. Upon completion of the Fiscal 2012 Restructuring Action, we expect to realize annualized savings of approximately $7.0 million to $7.5 million in the aggregate.

Results of Operations
We have included the operating results associated with the acquisitions of SGI Japan and Copan in our consolidated financial statements only for the periods since the date of the acquisition in March 2011 and February 2010, respectively. This inclusion has significantly affected our revenues, results of operations and financial position.
Comparison of the Fiscal Years Ended June 29, 2012 and June 24, 2011 Financial Highlights
• Our total revenue increased $123.4 million or 20% to $753.0 million in fiscal 2012 from $629.6 million in fiscal 2011. The increase in revenue was primarily due to higher sales from our scale out server and storage products as well as from customer support and professional service offerings. We also generated a significant amount of revenue from SGI Japan, which we acquired in March 2011.

• Our overall gross margin decreased by130 basis points from 27.0% in fiscal 2011 to 25.7% in fiscal 2012. Our gross margin was negatively impacted by a $10.1 million inventory write down to reflect reduced demand for manufacturing parts for earlier generation products and a revaluation of spare inventories to reflect reduced expected usage. The decrease in gross margin was primarily caused by the excess and obsolete charges.

• Total operating expenses increased $26.5 million or 14% to $215.3 million in fiscal 2012 from $188.8 million in fiscal 2011. The increase was primarily due to incremental expenses incurred as a result of our acquisition of SGI Japan primarily for employee compensation and facilities costs. Our fiscal 2011 results only include expenses for SGI Japan from March 2011 or about four months, compared to a full year of expenses in fiscal 2012. Our total headcount was about flat from fiscal 2011 with over 1500 employees worldwide as of June 29, 2012. This included approximately 230 employees which were brought on as part of the SGI Japan acquisition.

• We incurred restructuring expense of $2.5 million for fiscal 2012, as compared to $5.1 million for fiscal 2011 related to the restructuring actions.

Revenue
The following table presents revenue by operating segment for fiscal 2012 and
2011 (presented on a contractual basis):
                             Fiscal Year Ended            Change
                           June 29,     June 24,
                             2012         2011          $         %
                               (in thousands, except percentages)
  Total Revenue
  Americas                 473,746       412,102     61,644      15  %
  APJ                      170,392       102,327     68,065      67  %
  EMEA                     108,849       115,139     (6,290 )    (5 )%
  Total revenue            752,987       629,568    123,419      20  %

  Product Revenue
  Americas                 387,165       311,973     75,192      24  %
  APJ                       94,494        68,641     25,853      38  %
  EMEA                      75,074        84,563     (9,489 )   (11 )%
  Total product revenue    556,733       465,177     91,556      20  %

  Service Revenue
  Americas                  86,581       100,129    (13,548 )   (14 )%
  APJ                       75,898        33,686     42,212     125  %
  EMEA                      33,775        30,576      3,199      10  %
  Total service revenue    196,254       164,391     31,863      19  %

Revenue. We derive revenue from the sale of products and services directly to end-users as well as through resellers and

system integrators. Product revenue is derived from the sale of mid-range to high-end computing servers and data storage systems as well as software. We enter into sales contracts to deliver multiple products and/or services. In accordance with our revenue recognition policy, certain sales contracts are deferred and recognized over the service period. Service revenue is generated from the sale of standard maintenance contracts as well as custom maintenance contracts that are tailored to individual customers' needs. We recognize service revenue ratably over the service periods. Maintenance contracts are typically between one to three years in length and we actively pursue renewals of these contracts. We also generate professional services revenue related to implementation of and training on our products.
Our continuous introduction of new products and improvements of our product's performance and data storage capacity means that we are unable to directly compare our products from period to period, and therefore, we are unable to quantify the changes in pricing of our products from period to period. We believe that our on-going introduction of new products and product features help mitigate competitive pricing pressures by shifting the competitive landscape to differentiated value rather than price.
Consistent with our strategy to extend our global reach and accelerate our growth opportunities, our international revenues grew to 41% of our total revenue during fiscal 2012 compared to 38% during fiscal 2011. The increase in international revenue as a percentage of total revenue is attributable primarily to the acquisition of SGI Japan for fiscal 2012. Americas
Revenue increased $61.6 million or 15% to $473.7 million in fiscal 2012 from $412.1 million in fiscal 2011. The increase in Americas revenue was driven by higher product revenue partially offset by a decline in service revenue. Product revenue increased by $75.2 million driven by the strength in sales of our scale out servers and storage products. Service revenue decreased $13.5 million despite having one additional week in fiscal 2012 compared to fiscal 2011. The decrease is primarily attributable to lower support revenue as our new products replace our installed base of older generation products with higher margin support contracts. The Americas segment represented 63% and 66% of the total revenue in fiscal 2012 and 2011, respectively.
APJ
Revenue increased $68.1 million or 67% to $170.4 million in fiscal 2012 from $102.3 million in fiscal 2011. Our higher revenue in APJ was primarily due to the acquisition of SGI Japan in March 2011, which contributed $130.9 million of revenue in fiscal 2012 compared to $67.4 million in fiscal 2011. Of the $67.4 million of revenue, $15.7 million is the revenue we recognized during the period SGI Japan was a customer and $51.7 million is revenue recognized by the Company after the acquisition of SGI Japan. Our revenue for fiscal 2012 is comprised of $94.5 million from product sales and $75.9 million from services compared to product and service revenue of $68.6 million and $33.7 million, respectively, for fiscal 2011. The APJ segment represented 23% and 16% of the total revenue in fiscal 2012 and 2011, respectively.
EMEA
Revenue decreased $6.3 million or 5% to $108.8 million in fiscal 2012 from $115.1 million in fiscal 2011. The decrease in revenue was primarily attributable to a decrease in product revenue of $9.5 million as a result of lower server and storage sales. This decrease was partially offset by an increase in service revenue of $3.2 million due to one additional week in fiscal 2012 compared to fiscal 2011. The EMEA segment represented 14% and 18% of the total revenue in fiscal 2012 and 2011, respectively.

Cost of revenue, gross profit and gross margin.
The following table presents cost of revenue, gross profit and gross margin for fiscal 2012 and 2011 (presented on a contractual basis as fully described in Note 21 to our Consolidated Financial Statements at Item 8):

                                 Fiscal Year Ended             Change
                              June 29,       June 24,
                                2012           2011           $         %
                                  (in thousands, except percentages)
  Product revenue           $   556,733     $ 465,177     $  91,556    20 %
  Service revenue               196,254       164,391        31,863    19 %
  Total revenue             $   752,987     $ 629,568     $ 123,419    20 %

  Cost of product revenue   $   447,147     $ 367,393     $  79,754    22 %
  Cost of service revenue       112,023        92,363        19,660    21 %
  Total cost of revenue     $   559,170     $ 459,756     $  99,414    22 %

  Product gross profit      $   109,586     $  97,784     $  11,802    12 %
  Service gross profit           84,231        72,028        12,203    17 %
  Total gross profit        $   193,817     $ 169,812     $  24,005    14 %

  Product gross margin             19.7 %        21.0 %
  Service gross margin             42.9 %        43.8 %
  Overall gross margin             25.7 %        27.0 %

Cost of revenue consists of costs associated with direct material, labor, manufacturing overhead, shipment of products, inventory write downs and share-based compensation. Cost of revenue also includes personnel costs for providing maintenance and professional services. Our manufacturing overhead and professional services personnel costs are fixed or semi-variable. Our gross margins are impacted by changes in customer and product mix, pricing actions by our competitors and commodity prices that comprise a significant portion of cost of revenue from period to period. Further when certain sales contracts are deferred in accordance with our revenue recognition policy, the related cost of revenue is deferred and recognized upon recognition of revenue. Our cost of revenue and gross profit are impacted by price changes, product configuration, revenue mix and product material costs. Our service cost of revenue and gross margin are impacted by timing of support service initiations and renewals, and incremental investments in our customer support infrastructure.
Our headcount in the manufacturing and services organization decreased from 680 employees at June 24, 2011 to 649 employees at June 29, 2012.
Overall gross profit increased $24.0 million or 14% to $193.8 million in fiscal 2012 from $169.8 million in fiscal 2011. However, overall gross margin percentage decreased to 25.7% in fiscal 2012 from 27.0% in fiscal 2011 due to a $10.1 million inventory write down to reflect reduced demand for manufacturing parts for earlier generation products and a revaluation of spare inventory to better reflect expected usage.
Product gross profit increased $11.8 million or 12% to $109.6 million in fiscal 2012 from $97.8 million in fiscal 2011. Product gross margin percentage decreased to 19.7% in fiscal 2012 from 21.0% in fiscal 2011. Our increase in product gross profit during fiscal 2012 is driven by the incremental volume of sales primarily due from our acquisition of SGI Japan in March 2011. The total product gross margin decrease is attributable to an increase in inventory write offs of $10.0 million from $3.0 million in fiscal 2011 related to the write down of earlier generation products as discussed above as well as unfavorable product mix shifts to lower margin products and competitive pricing in EMEA. Service gross profit increased $12.2 million or 17% to $84.2 million in fiscal 2012 from $72.0 million in fiscal 2011. Service gross margin slightly decreased to 42.9% in fiscal 2012 from 43.8% in fiscal 2011. The total service gross margin decrease is attributable to an increase in the valuation charge of spare parts of $6.3 million from $2.7 million in fiscal 2011 related to the earlier generation products and to better reflect the expected usage.

Operating expenses
Operating expenses for fiscal 2012 and 2011 were as follows:

                                  Fiscal Year Ended              Change
                                June 29,      June 24,
                                  2012          2011          $           %
                                     (in thousands, except percentages)
  Research and development     $   62,356    $  54,067    $  8,289       15  %
  Sales and marketing              88,414       75,813      12,601       17  %
  General and administrative       62,021       52,578       9,443       18  %
  Restructuring                     2,469        5,072      (2,603 )    (51 )%
  Acquisition-related                   -        1,271      (1,271 )   (100 )%
  Total operating expense      $  215,260    $ 188,801    $ 26,459       14  %

Research and development. Research and development expense consists primarily of personnel and related costs, contractor fees, new component testing and evaluation, test equipment, new product design and testing, other product development activities, share-based compensation, and facilities and information technology costs.
Research and development expense increased $8.3 million or 15% to $62.4 million in fiscal 2012 from $54.1 million in fiscal 2011. The increase in research and development expense is primarily due to incremental expenses incurred as a result of our acquisition of SGI Japan. Our fiscal 2011 results only include expenses for SGI Japan from March 2011 or about four months, compared to a full year of expenses in fiscal 2012. Our headcount in research and development also increased by 45 employees from 293 at June 24, 2011 to 338 employees at June 29, 2012 as we continue to invest in research and development activities. As a result of the acquisition and the increased headcount, compensation and related expenses increased $3.9 million and share-based compensation increased $1.3 compared to fiscal 2011. These costs were partially offset by a decrease in third-party expenses of $1.1 million. We also incurred incremental expenses for materials and supplies primarily driven by the new product introductions of our UV2, ICEX and MIS products that were introduced during fiscal 2012. We believe that focused investments in research and development are critical to our future performance and competitiveness in the marketplace. Our investments in this area will directly relate to enhancement of our current product line, development of new products that achieve market acceptance, and our ability to meet an expanding range of customer requirements. As such, we expect to continue to spend on current and future product development efforts.
Sales and marketing. Sales and marketing expense consists primarily of salaries, bonuses and commissions paid to our sales and marketing employees, amortization of intangible assets, share-based compensation, and facilities and information technology costs. We also incur marketing expenses for activities such as trade shows, direct mail and advertising.
Sales and marketing expense increased $12.6 million or 17% to $88.4 million in fiscal 2012 from $75.8 million in fiscal 2011. This increase was primarily due to incremental expenses incurred as a result of our acquisition of SGI Japan. Our fiscal 2011 results only include expenses from March 2011 or about four months, compared to a full year of expenses in fiscal 2012. Although headcount in sales and marketing decreased slightly as of the end of fiscal 2012 compared to the end of fiscal 2011, compensation and related expenses increased by $9.6 million due to the costs of the incremental headcount of approximately 100 employees from the SGI Japan acquisition for the full year compared to about four months for the prior year. In addition, commissions increased $1.2 million due to the increase in revenues. The increase in sales and marketing expense was also attributable to an increase in travel expenses of $1.1 million and share-based compensation expense of $0.6 million.
We will continue to deploy our sales and support organizations to focus on key vertical markets such as defense and strategic systems, weather and climate, physical sciences, life sciences, energy (including oil and gas), aerospace and automotive, media and entertainment, semiconductor design, manufacturing, financial services, data centers, and business intelligence and data analytics. General and administrative. General and administrative expense consists primarily of personnel costs, legal and professional service costs, depreciation, share-based compensation, and facilities and information technology costs.
The general and administrative expense increased $9.4 million or 18% to $62.0 million in fiscal 2012 from $52.6 million in fiscal 2011. The increase in general and administrative expense is primarily due to incremental expenses incurred as a result of our acquisition of SGI Japan. Our fiscal 2011 results only include expenses from March 2011 or about four months, compared to a full year of expenses in fiscal 2012. As a result of the acquisition and a slight increase in headcount, compensation and related expenses increased by $3.2 million. Share-based compensation increased by $1.6 million compared to fiscal 2011, of which $1.4 million was due to the modification of certain terms of the vested options held by the Company's

former Chief Executive Officer and former Chief Financial Officer. The increase in general and administrative expense was also attributable to an increase in professional fees, including legal related expenses of $0.9 million, and $0.9 million of supplies and small equipment.
Restructuring. On March 16, 2012, the Company's Board of Directors approved a restructuring action to reduce approximately 25% of the Company's European workforce and close certain legal entities and offices in Europe in order to streamline operations and reduce operating expenses. Restructuring expense for fiscal 2012 was $2.5 million. As a result of the restructuring action undertaken, we anticipate future cash outflow of $14 million to $17 million, primarily during fiscal 2013. Prior to this action, on February 18, 2011, management approved the 2011 restructuring action, which resulted in restructuring expenses of $5.1 million for fiscal 2011.
Acquisition-related. On March 9, 2011, pursuant to a Stock Purchase Agreement dated March 8, 2011, we acquired the remaining outstanding shares of SGI Japan. In connection with the acquisition during fiscal 2011, we incurred acquisition-related costs of $1.3 million, which consisted primarily of costs related to due diligence, legal and other professional fees. Total other (expense) income, net
Total other (expense) income, net for fiscal 2012 and 2011 was as follows:

                                       Fiscal Year Ended              Change
                                     June 29,      June 24,
                                       2012          2011          $           %
                                          (in thousands, except percentages)
Interest (expense) income, net      $    (297 )   $     95     $   (392 )   (413 )%
Other (expense) income, net            (1,720 )     (1,097 )       (623 )     57  %
Total other (expense) income, net   $  (2,017 )   $ (1,002 )   $ (1,015 )    101  %

Interest (expense) income, net. Interest (expense) income, net primarily consists of interest earned on our interest-bearing investment accounts which include money market funds, U.S. treasury bills, and auction rate securities ("ARS"), as well as interest expense relating to our credit facility and for certain tax payments. Interest (expense) income, net for fiscal 2012 consisted of interest expense from our credit facility of $0.6 million, offset by interest . . .