SMCI filing — read by section

Item 8. Financial Statements and Supplementary Data

Item 8. Financial Statements and Supplementary Data 
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Page 
 
 Report of Independent Registered Public Accounting Firm 
 48 
 
 Consolidated Balance Sheets 
 51 
 
 Consolidated Statements of Operations 
 52 
 
 Consolidated Statements of Comprehensive Income 
 53 
 
 Consolidated Statements of Stockholders’ Equity 
 54 
 
 Consolidated Statements of Cash Flows 
 55 
 
 Notes to Consolidated Financial Statements 
 56 
 
 47 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 
 To the Stockholders and the Board of Directors of Super Micro Computer, Inc. 
 Opinion on the Financial Statements 
 We have audited the accompanying consolidated balance sheets of Super Micro Computer, Inc. and subsidiaries (the "Company") as of June 30,2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended June 30, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America. 
 We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated August 28, 2020, expressed an adverse opinion on the Company’s internal control over financial reporting because of a material weakness. 
 Basis for Opinion 
 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 
 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 
 Critical Audit Matters 
 The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 
 Variable Interest Entities and Related Party Transactions - Refer to Notes 1 and 13 to the financial statements 
 Critical Audit Matter Description 
 The Company has a variety of business relationships defined by various agreements with Ablecom Technology, Inc. (“Ablecom”) and its affiliate, Compuware Technology, Inc. ("Compuware"). Ablecom is one of the Company’s major contract manufacturers; Compuware is both a distributor of the Company’s products and a contract manufacturer for the Company. Purchases from Ablecom and Compuware were $160.1 million and $131.8 million, respectively, for the fiscal year ended June 30, 2020. Net sales to Compuware as a distributor were $23.9 million for the fiscal year ended June 30, 2020. 
 The Company concluded that Ablecom and Compuware are variable interest entities (VIEs) and that it is not the primary beneficiary as it does not have the power to direct the activities that are most significant to Ablecom and Compuware. Therefore, the Company does not consolidate Ablecom and Compuware. The Company considered its explicit arrangements with Ablecom and Compuware, including its supplier arrangements, and as a result of the substantial related party relationships between the Company, Ablecom and Compuware, the Company also considered whether any implicit arrangements exist that 
 
 48 
 
 would cause the Company to protect those related parties’ interests from suffering losses. The Company determined that no material implicit arrangements exist with Ablecom, Compuware, or their shareholders. 
 We identified management’s conclusion that it is not the primary beneficiary as a critical audit matter because of the judgments necessary for management to determine whether any explicit and implicit arrangements exist that would cause the Company to protect those related parties’ interest from absorbing losses. This required extensive audit effort due to the complexity and variety of related party relationships with Ablecom and Compuware and required a high degree of auditor judgment when performing audit procedures to audit the Company’s conclusion that it is not the primary beneficiary. 
 How the Critical Audit Matter Was Addressed in the Audit 
 Our audit procedures related to management’s conclusion that it is not the primary beneficiary included the following, among others: 
 
 • 
 We evaluated and tested whether the arrangements are accurately considered and that such arrangements have been included in the consideration by comparing those related parties we had identified during our audit procedures for proper inclusion in the Company’s evaluation and performed inspection of source documents on a sample basis. 
 
 • 
 We tested management’s assertion that the Company does not direct the operations of, or is required to absorb and record losses incurred by Ablecom and Compuware by analyzing the gross margin for contract manufacturing transactions with Ablecom and Compuware in comparison to unrelated third parties to determine if there is an indication of off-market terms, assessing leasing arrangements by performing independent market data searches to assess if such leases are within the normal range of prices for Ablecom and Compuware and recalculating days sales outstanding as well as days purchases outstanding and compared to other contract manufacturers to assess comparability of payment terms. 
 
 • 
 We obtained confirmations directly from Ablecom and Compuware regarding the nature of their business relationships with the Company, the extent of power, if any, held by the Company over the most significant activities of Ablecom and Compuware’s businesses, and the existence of any implicit arrangements that may have a bearing on the Company’s ability to have power over Ablecom and Compuware. 
 
 Inventories - Excess and Obsolescence Reserve - Refer to Notes 1 and 5 to the financial statements 
 Critical Audit Matter Description 
 The Company’s inventories are stated at lower of cost, using weighted average cost method, or net realizable value. The Company evaluates inventory for lower of cost or net realizable value and excess and obsolescence and, as necessary, writes down the valuation of units based upon inventory aging, forecasted usage and sales, anticipated selling price, product obsolescence and other factors. The provision for excess and obsolete inventory for the fiscal year ended June 30, 2020, was $22.6 million. 
 We identified the excess and obsolescence reserve as a critical audit matter because of judgments made by management in recording the manual adjustments that management may make to estimate the excess and obsolescence reserve. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the methodology and the reasonableness of the excess and obsolescence reserve. 
 How the Critical Audit Matter Was Addressed in the Audit 
 Our audit procedures related to the Company’s excess and obsolescence reserve included the following procedures, among others: 
 
 • 
 We gained an understanding and evaluated the Company’s methodology for determining inventory that is excess or obsolete and the key assumptions and judgments made as part of the process, including manual adjustments. 
 
 • 
 We evaluated management’s estimate by performing corroborative inquiry with the Company’s program managers, sales personnel, and/or buyers, and inspected correspondence and other communications between the Company’s operations team and customers. 
 
 • 
 As a result of the Company’s material weakness identified in IT general controls, we increased the extent of testing on reports derived from the Company’s systems and applications. 
 
 49 
 
 /s/ Deloitte & Touche LLP 
 San Jose, California 
 August 28, 2020 
 We have served as the Company's auditor since fiscal 2003. 
 
 50 
 
 SUPER MICRO COMPUTER, INC. 
 CONSOLIDATED BALANCE SHEETS 
 (in thousands, except share and per share amounts) 
 
 June 30, 
 
 June 30, 
 
 2020 
 
 2019 
 
 ASSETS 
 
 Current assets: 
 
 Cash and cash equivalents 
 $ 
 210,533 
 
 $ 
 248,164 
 
 Accounts receivable, net of allowances of $4,586 and $8,906 at June 30, 2020 and 2019, respectively (including amounts receivable from related parties of $8,712 and $13,439 at June 30, 2020 and 2019, respectively) 
 403,745 
 
 393,624 
 
 Inventories 
 851,498 
 
 670,188 
 
 Prepaid expenses and other current assets (including receivables from related parties of $19,791 and $21,302 at June 30, 2020 and 2019, respectively) 
 126,985 
 
 109,795 
 
 Total current assets 
 1,592,761 
 
 1,421,771 
 
 Investment in equity investee 
 2,703 
 
 1,701 
 
 Property, plant and equipment, net 
 233,785 
 
 207,337 
 
 Deferred income taxes, net 
 54,898 
 
 41,126 
 
 Other assets 
 34,499 
 
 10,659 
 
 Total assets 
 $ 
 1,918,646 
 
 $ 
 1,682,594 
 
 LIABILITIES AND STOCKHOLDERS’ EQUITY 
 
 Current liabilities: 
 
 Accounts payable (including amounts due to related parties of $72,368 and $59,809 at June 30, 2020 and 2019, respectively) 
 $ 
 417,673 
 
 $ 
 360,470 
 
 Accrued liabilities (including amounts due to related parties of $16,206 and $10,536 at June 30, 2020 and 2019, respectively) 
 155,401 
 
 114,678 
 
 Income taxes payable 
 4,700 
 
 13,021 
 
 Short-term debt 
 23,704 
 
 23,647 
 
 Deferred revenue 
 106,157 
 
 94,153 
 
 Total current liabilities 
 707,635 
 
 605,969 
 
 Deferred revenue, non-current 
 97,612 
 
 109,266 
 
 Long-term debt 
 5,697 
 
 — 
 
 Other long-term liabilities (including related party balance of $1,699 and $3,000 at June 30, 2020 and 2019, respectively) 
 41,995 
 
 26,183 
 
 Total liabilities 
 852,939 
 
 741,418 
 
 Commitments and contingencies (Note 16) 
 
 Stockholders’ equity: 
 
 Common stock and additional paid-in capital, $0.001 par value 
 
 Authorized shares: 100,000,000; Outstanding shares: 52,408,703 and 49,956,288 at June 30, 2020 and June 30, 2019, respectively 
 
 Issued shares: 53,741,828 and 51,289,413 at June 30, 2020 and 2019, respectively 
 389,972 
 
 349,683 
 
 Treasury stock (at cost), 1,333,125 shares at June 30, 2020 and 2019 
 ( 20,491 
 ) 
 
 ( 20,491 
 ) 
 
 Accumulated other comprehensive loss 
 ( 152 
 ) 
 
 ( 80 
 ) 
 
 Retained earnings 
 696,211 
 
 611,903 
 
 Total Super Micro Computer, Inc. stockholders’ equity 
 1,065,540 
 
 941,015 
 
 Noncontrolling interest 
 167 
 
 161 
 
 Total stockholders’ equity 
 1,065,707 
 
 941,176 
 
 Total liabilities and stockholders’ equity 
 $ 
 1,918,646 
 
 $ 
 1,682,594 
 
 See accompanying notes to consolidated financial statements. 
 
 51 
 
 SUPER MICRO COMPUTER, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS 
 (in thousands, except per share amounts) 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Net sales (including related party sales of $85,759, $69,906, and $68,637 in fiscal years 2020, 2019 and 2018, respectively) 
 $ 
 3,339,281 
 
 $ 
 3,500,360 
 
 $ 
 3,360,492 
 
 Cost of sales (including related party purchases of $283,056, $276,843 and $262,747 in fiscal years 2020, 2019 and 2018, respectively) 
 2,813,071 
 
 3,004,838 
 
 2,930,498 
 
 Gross profit 
 526,210 
 
 495,522 
 
 429,994 
 
 Operating expenses: 
 
 Research and development 
 221,478 
 
 179,907 
 
 165,104 
 
 Sales and marketing 
 85,137 
 
 77,154 
 
 71,579 
 
 General and administrative 
 133,941 
 
 141,228 
 
 98,597 
 
 Total operating expenses 
 440,556 
 
 398,289 
 
 335,280 
 
 Income from operations 
 85,654 
 
 97,233 
 
 94,714 
 
 Other income (expense), net 
 1,410 
 
 ( 1,020 
 ) 
 
 ( 773 
 ) 
 
 Interest expense 
 ( 2,236 
 ) 
 
 ( 6,690 
 ) 
 
 ( 5,726 
 ) 
 
 Income before income tax provision 
 84,828 
 
 89,523 
 
 88,215 
 
 Income tax provision 
 ( 2,922 
 ) 
 
 ( 14,884 
 ) 
 
 ( 38,443 
 ) 
 
 Share of income (loss) from equity investee, net of taxes 
 2,402 
 
 ( 2,721 
 ) 
 
 ( 3,607 
 ) 
 
 Net income 
 $ 
 84,308 
 
 $ 
 71,918 
 
 $ 
 46,165 
 
 Net income per common share: 
 
 Basic 
 $ 
 1.65 
 
 $ 
 1.44 
 
 $ 
 0.94 
 
 Diluted 
 $ 
 1.60 
 
 $ 
 1.39 
 
 $ 
 0.89 
 
 Weighted-average shares used in calculation of net income per common share: 
 
 Basic 
 50,987 
 
 49,917 
 
 49,345 
 
 Diluted 
 52,838 
 
 51,716 
 
 52,151 
 
 See accompanying notes to consolidated financial statements. 
 
 52 
 
 SUPER MICRO COMPUTER, INC. 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
 (in thousands) 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Net income 
 $ 
 84,308 
 
 $ 
 71,918 
 
 $ 
 46,165 
 
 Other comprehensive (loss) income, net of tax: 
 
 Foreign currency translation (loss) gain 
 ( 72 
 ) 
 
 ( 245 
 ) 
 
 280 
 
 Net changes in unrealized loss on investments 
 — 
 
 — 
 
 ( 38 
 ) 
 
 Total other comprehensive (loss) income 
 ( 72 
 ) 
 
 ( 245 
 ) 
 
 242 
 
 Total comprehensive income 
 $ 
 84,236 
 
 $ 
 71,673 
 
 $ 
 46,407 
 
 See accompanying notes to consolidated financial statements. 
 
 53 
 
 SUPER MICRO COMPUTER, INC. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 
 (in thousands, except share amounts) 
 
 Common Stock and 
 Additional Paid-In 
 Capital 
 
 Treasury Stock 
 
 Accumulated 
 Other 
 Comprehensive 
 (Loss) Income 
 
 Retained 
 Earnings 
 
 Non-controlling Interest 
 
 Total 
 Stockholders’ 
 Equity 
 
 Shares 
 
 Amount 
 
 Shares 
 
 Amount 
 
 Balance at June 30, 2017 
 50,273,527 
 
 $ 
 308,271 
 
 ( 1,333,125 
 ) 
 
 $ 
 ( 20,491 
 ) 
 
 $ 
 ( 77 
 ) 
 
 $ 
 485,973 
 
 $ 
 170 
 
 $ 
 773,846 
 
 Cumulative effect of adjustment from adoption of new accounting standard, net of taxes 
 — 
 
 52 
 
 — 
 
 — 
 
 — 
 
 133 
 
 — 
 
 185 
 
 Exercise of stock options, net of taxes 
 267,970 
 
 3,043 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 3,043 
 
 Release of common stock shares upon vesting of restricted stock units 
 572,789 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Shares withheld for the withholding tax on vesting of restricted stock units 
 ( 199,715 
 ) 
 
 ( 4,472 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 4,472 
 ) 
 
 Stock-based compensation 
 — 
 
 24,656 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 24,656 
 
 Net changes in unrealized loss on investments, net of taxes 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 38 
 ) 
 
 — 
 
 — 
 
 ( 38 
 ) 
 
 Foreign currency translation gain 
 — 
 
 — 
 
 — 
 
 — 
 
 280 
 
 — 
 
 — 
 
 280 
 
 Net income (loss) 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 46,165 
 
 ( 13 
 ) 
 
 46,152 
 
 Balance at June 30, 2018 
 50,914,571 
 
 $ 
 331,550 
 
 ( 1,333,125 
 ) 
 
 $ 
 ( 20,491 
 ) 
 
 $ 
 165 
 
 $ 
 532,271 
 
 $ 
 157 
 
 $ 
 843,652 
 
 Cumulative effect of adjustment from adoption of new accounting standard, net of taxes 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 7,714 
 
 — 
 
 7,714 
 
 Release of common stock shares upon vesting of restricted stock units 
 549,886 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Shares withheld for the withholding tax on vesting of restricted stock units 
 ( 175,044 
 ) 
 
 ( 3,051 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 3,051 
 ) 
 
 Stock-based compensation 
 — 
 
 21,184 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 21,184 
 
 Foreign currency translation loss 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 245 
 ) 
 
 — 
 
 — 
 
 ( 245 
 ) 
 
 Net income 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 71,918 
 
 4 
 
 71,922 
 
 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 
 1,804,789 
 
 28,343 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 28,343 
 
 Release of common stock shares upon vesting of restricted stock units 
 979,274 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 Shares withheld for the withholding tax on vesting of restricted stock units 
 ( 331,648 
 ) 
 
 ( 8,243 
 ) 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 8,243 
 ) 
 
 Stock-based compensation 
 — 
 
 20,189 
 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 20,189 
 
 Foreign currency translation loss 
 — 
 
 — 
 
 — 
 
 — 
 
 ( 72 
 ) 
 
 — 
 
 — 
 
 ( 72 
 ) 
 
 Net income 
 — 
 
 — 
 
 — 
 
 — 
 
 — 
 
 84,308 
 
 6 
 
 84,314 
 
 Balance at June 30, 2020 
 53,741,828 
 
 $ 
 389,972 
 
 ( 1,333,125 
 ) 
 
 $ 
 ( 20,491 
 ) 
 
 $ 
 ( 152 
 ) 
 
 $ 
 696,211 
 
 $ 
 167 
 
 $ 
 1,065,707 
 
 See accompanying notes to consolidated financial statements. 
 
 54 

 SUPER MICRO COMPUTER, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS 
 (in thousands) 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 OPERATING ACTIVITIES: 
 
 Net income 
 $ 
 84,308 
 
 $ 
 71,918 
 
 $ 
 46,165 
 
 Reconciliation of net income to net cash (used in) provided by operating activities: 
 
 Depreciation and amortization 
 28,472 
 
 24,202 
 
 21,846 
 
 Stock-based compensation expense 
 20,189 
 
 21,184 
 
 24,656 
 
 Allowance (recoveries) for doubtful accounts 
 ( 3,081 
 ) 
 
 7,058 
 
 ( 96 
 ) 
 
 Provision for excess and obsolete inventories 
 18,373 
 
 32,946 
 
 9,649 
 
 Other 
 1,364 
 
 733 
 
 909 
 
 Impairment of investments 
 — 
 
 2,661 
 
 — 
 
 Share of (income) loss from equity investee 
 ( 2,402 
 ) 
 
 2,721 
 
 3,607 
 
 Foreign currency exchange (gain) loss 
 1,008 
 
 ( 313 
 ) 
 
 171 
 
 Deferred income taxes, net 
 ( 13,772 
 ) 
 
 ( 17,100 
 ) 
 
 13,570 
 
 Changes in operating assets and liabilities: 
 
 Accounts receivable, net (including changes in related party balances of $4,727, $(10,357) and $3,795 in fiscal years 2020, 2019, and 2018, respectively) 
 ( 7,023 
 ) 
 
 85,027 
 
 ( 127,082 
 ) 
 
 Inventories 
 ( 199,683 
 ) 
 
 119,314 
 
 ( 126,232 
 ) 
 
 Prepaid expenses and other assets (including changes in related party balances of $1,511, $2,714 and $(10,689) in fiscal years 2020, 2019, and 2018, respectively) 
 ( 29,869 
 ) 
 
 8,410 
 
 ( 15,714 
 ) 
 
 Accounts payable (including changes in related party balances of $12,559, $(18,001) and $21,882 in fiscal years 2020, 2019, and 2018, respectively) 
 59,889 
 
 ( 173,410 
 ) 
 
 132,533 
 
 Income taxes payable 
 ( 8,321 
 ) 
 
 5,831 
 
 5,827 
 
 Accrued liabilities (including changes in related party balances of $5,670, $(7,858), and $9,944 in fiscal years 2020, 2019, and 2018, respectively) 
 27,865 
 
 11,456 
 
 23,238 
 
 Deferred revenue 
 350 
 
 59,800 
 
 67,775 
 
 Other long-term liabilities (including changes in related party balances of $(1,301), $(500) and $(1,400) in fiscal years 2020, 2019, and 2018, respectively) 
 ( 8,001 
 ) 
 
 116 
 
 3,525 
 
 Net cash (used in) provided by operating activities 
 ( 30,334 
 ) 
 
 262,554 
 
 84,347 
 
 INVESTING ACTIVITIES: 
 
 Purchases of property, plant and equipment (including payments to related parties of $4,386, $4,472 and $6,005 in fiscal years 2020, 2019, and 2018, respectively) 
 ( 44,338 
 ) 
 
 ( 24,849 
 ) 
 
 ( 24,824 
 ) 
 
 Proceeds from redemption of auction rate security 
 — 
 
 — 
 
 1,000 
 
 Proceeds from sale of investment in a privately-held company 
 750 
 
 — 
 
 ( 2,100 
 ) 
 
 Net cash used in investing activities 
 ( 43,588 
 ) 
 
 ( 24,849 
 ) 
 
 ( 25,924 
 ) 
 
 FINANCING ACTIVITIES: 
 
 Proceeds from borrowings, net of debt issuance costs 
 164,791 
 
 41,760 
 
 107,337 
 
 Repayment of debt 
 ( 159,191 
 ) 
 
 ( 67,700 
 ) 
 
 ( 220,299 
 ) 
 
 Net (repayment) borrowings on asset-backed revolving line of credit, net of costs 
 ( 1,116 
 ) 
 
 ( 65,945 
 ) 
 
 64,226 
 
 Payment of other fees for debt financing 
 ( 650 
 ) 
 
 ( 625 
 ) 
 
 ( 414 
 ) 
 
 Proceeds from exercise of stock options 
 28,343 
 
 — 
 
 3,043 
 
 Payments of obligations under capital leases 
 ( 138 
 ) 
 
 ( 267 
 ) 
 
 ( 253 
 ) 
 
 Payment of withholding tax on vesting of restricted stock units 
 ( 8,243 
 ) 
 
 ( 3,051 
 ) 
 
 ( 4,472 
 ) 
 
 Net cash provided by (used in) financing activities 
 23,796 
 
 ( 95,828 
 ) 
 
 ( 50,832 
 ) 
 
 Effect of exchange rate fluctuations on cash 
 376 
 
 ( 119 
 ) 
 
 ( 6 
 ) 
 
 Net (decrease) increase in cash, cash equivalents, and restricted cash 
 ( 49,750 
 ) 
 
 141,758 
 
 7,585 
 
 Cash, cash equivalents and restricted cash at beginning of year 
 262,140 
 
 120,382 
 
 112,797 
 
 Cash, cash equivalents and restricted cash at end of year 
 $ 
 212,390 
 
 $ 
 262,140 
 
 $ 
 120,382 
 
 Supplemental disclosure of cash flow information: 
 
 Cash paid for interest 
 $ 
 2,172 
 
 $ 
 3,861 
 
 $ 
 4,541 
 
 Cash paid for taxes, net of refunds 
 $ 
 43,317 
 
 $ 
 23,604 
 
 $ 
 14,734 
 
 Non-cash investing and financing activities: 
 
 Unpaid property, plant and equipment purchases (including due to related parties of $2,223, $1,609 and $654 as of June 30, 2020, 2019, and 2018, respectively) 
 $ 
 12,051 
 
 $ 
 9,232 
 
 $ 
 2,285 
 
 Contribution of certain technology rights to equity investee 
 $ 
 — 
 
 $ 
 3,000 
 
 $ 
 — 
 
 See accompanying notes to consolidated financial statements. 
 
 55 
 
 SUPER MICRO COMPUTER, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
 Note 1. Organization and Summary of Significant Accounting Policies 
 
 Organization 
 
 Super Micro Computer, Inc. (“Super Micro Computer”) was incorporated in 1993. Super Micro Computer is a global leader in server technology and green computing innovation. Super Micro Computer develops and provides high performance server and storage solutions based upon an innovative, modular and open-standard architecture. Super Micro Computer has operations primarily in the United States, the Netherlands, Taiwan, China and Japan. 
 
 Basis of Presentation 
 
 The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements of Super Micro Computer include the accounts of Super Micro Computer and entities consolidated under the variable interest model or the voting interest model. Noncontrolling interests are not presented separately in the consolidated statements of operations, and consolidated statements of comprehensive income as the amounts are immaterial. All intercompany accounts and transactions of Super Micro Computer and its consolidated entities (collectively, the "Company") have been eliminated in consolidation. For equity investments over which the Company is able to exercise significant influence over the investee but does not control the investee, and is not the primary beneficiary of the investee’s activities are accounted for using the equity method. Investments in equity securities which do not have readily determinable fair values and for which the Company is not able to exercise significant influence over the investee are accounted for under the measurement alternative which is the cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar securities of the same investee. 
 
 Use of Estimates 
 
 U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to revenue recognition, allowances for doubtful accounts and sales returns, inventory valuation, useful lives of property, plant and equipment, product warranty accruals, stock-based compensation, impairment of investments and long-lived assets, and income taxes. The Company’s estimates are evaluated on an ongoing basis and changes in the estimates are recognized prospectively. Actual results could differ from those estimates. The Company considered estimates of the economic implications of the COVID-19 pandemic on its critical and significant accounting estimates, including an assessment of the collectability of each customer contract as part of the revenue recognition process, assessment of the valuation of accounts receivable, assessment of provision for excess and obsolete inventory and an impairment of long-lived assets. 
 
 Fair Value of Financial Instruments 
 
 The Company accounts for certain assets and liabilities at fair value, which is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly arms-length transaction between market participants. When measuring fair value, the Company takes into account the characteristics of the asset or liability that a market participant would consider when pricing the asset or liability at the measurement date. The Company considers one or more techniques for measuring fair value: market approach, income approach, and cost approach. The valuation techniques include inputs that are based on three different levels of observability to the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are: 
 
 • 
 Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; 
 
 • 
 Level 2 - Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and 
 
 • 
 Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. 
 
 56 
 
 Table of Contents 
 
 SUPER MICRO COMPUTER, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 Accounts receivable and accounts payable are carried at cost, which approximates fair value due to the short maturity of these instruments. Cash equivalents, certificates of deposit and the investment in an auction rate security are carried at fair value. Short-term and long-term debt is carried at amortized cost, which approximates its fair value based on borrowing rates currently available to the Company for loans with similar terms. 
 
 Cash and Cash Equivalents 
 
 The Company considers all highly liquid instruments with an original maturity of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of money market funds and certificates of deposit with original maturities of less than three months. 
 
 Restricted Cash and Cash Equivalents 
 
 Restricted cash is comprised of amounts held in bank accounts which are controlled by the lenders pursuant to the terms of certain debt agreements, certificates of deposit primarily related to leases and customs requirements, and money market accounts held in escrow pursuant to the Company’s workers’ compensation program. These restricted cash balances have been excluded from the Company's cash and cash equivalents balance. 
 
 Investments in Auction Rate Securities 
 
 The Company classifies its investments in auction rate securities ("auction rate securities") as non-current available-for-sale investments. The auction rate securities consist of municipal securities, which are debt securities. The Company uses discounted cash flow to estimate the fair value of any auction rate securities. These auction rate securities are recorded within other assets in the consolidated balance sheets at fair value. Unrealized gains and losses on auction rate securities are included as a component of accumulated other comprehensive (loss) income, net of tax. 
 
 Inventories 
 
 Inventories are stated at lower of cost, using weighted average cost method, or net realizable value. Net realizable value is the estimated selling price of the Company's products in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories consist of purchased parts and raw materials (principally electronic components), work in process (principally products being assembled) and finished goods. The Company evaluates inventory on a quarterly basis for excess and obsolescence and lower of cost or net realizable value and, as necessary, writes down the valuation of inventories based upon the Company's inventory aging, forecasted usage and sales, anticipated selling price, product obsolescence and other factors. Once inventory is written down, its new value is maintained until it is sold or scrapped. 
 
 The Company receives various rebate incentives from certain suppliers based on its contractual arrangements, including volume-based rebates. The rebates earned are recognized as a reduction of cost of inventories and reduce the cost of sales in the period when the related inventory is sold. 
 
 Property, Plant and Equipment 
 
 Property, plant and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets as follows: 
 
 Software 
 3 to 5 years 
 
 Machinery and equipment 
 3 to 7 years 
 
 Furniture and fixtures 
 5 years 
 
 Buildings 
 39 years 
 
 Building improvements 
 Up to 20 years 
 
 Land improvements 
 15 years 
 
 Leasehold improvements 
 Shorter of lease term or estimated useful life 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 Long-Lived Assets 
 
 The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount, an impairment loss would be measured based on the fair value of the asset compared to the carrying amount. No impairment charge for long-lived assets has been recorded in any of the periods presented. 
 
 Revenue Recognition 
 
 The Company generates revenues from the sale of server and storage systems, subsystems, accessories, services, server software management solutions, and support services. 
 
 Product sales . The Company recognizes revenue from sales of products as control is transferred to customers, which generally happens at the point of shipment or upon delivery, unless customer acceptance is uncertain. Products sold by the Company are delivered via shipment from the Company’s facilities or drop shipment directly to its customers from a Company vendor. The Company may use distributors to sell products to end customers. Revenue from distributors is recognized when the distributor obtains control of the product, which generally happens at the point of shipment or upon delivery. 
 
 The Company applies judgment in determining the transaction price as the Company may be required to estimate variable consideration when determining the amount of revenue to recognize. As part of determining the transaction price in contracts with customers, the Company estimates reserves for future sales returns based on a review of its history of actual returns for each major product line. Based upon historical experience, a refund liability is recorded at the time of sale for estimated product returns and an asset is recognized for the amount expected to be recorded in inventory upon product return, less the expected recovery costs. The Company also reduces revenue for the estimated costs of customer and distributor programs and incentive offerings such as price protection and rebates as well as the estimated costs of cooperative marketing arrangements where the fair value of the benefit derived from the costs cannot be reasonably estimated. Any provision for customer and distributor programs and other discounts is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience. 
 
 Services sales. The Company’s sale of services mainly consists of extended warranty and on-site services. Revenue related to extended warranty commences upon the expiration of the standard warranty period and is recognized ratably over the contractual period as the Company stands ready to perform any required warranty service. Revenue related to on-site services commences upon recognition of the product sale and is recognized ratably over the contractual period as the on-site services are made available to the customer. These service contracts are typically one to five years in length. Service revenue has been less than 10% of net sales for all periods presented and is not separately disclosed. 
 
 Contracts with multiple promised goods and services. Certain of the Company’s contracts contain multiple promised goods and services. The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such goods or services are separable from the other aspects of the contractual relationship. Performance obligations in a contract are identified based on the promised goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation. Revenue allocated to each performance obligation is recognized at the time the related performance obligation is satisfied by transferring control of the promised good or service to a customer. 
 
 If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable 
 
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 through past transactions, the Company applies judgment to estimate the standalone selling price taking into account available information, such as internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives, for the related performance obligations. 
 
 When the Company receives consideration from a customer prior to transferring goods or services to the customer, the Company records a contract liability (deferred revenue). The Company also recognizes deferred revenue when it has an unconditional right to consideration (i.e., a receivable) before transfer of control of goods or services to a customer. 
 
 The Company considers shipping & handling activities as costs to fulfill the sales of products. Shipping revenue is included in net sales when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of sales. Taxes imposed by governmental authorities on the Company's revenue producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales and included in operating expenses. 
 
 Allowances for Doubtful Accounts 
 
 Customers are subjected to a credit review process that evaluates each customer’s financial position and ability and intent to pay. On a quarterly basis, the Company makes estimates of its uncollectible accounts receivable by analyzing the aging of accounts receivable, history of bad debts, customer concentrations, customer-credit-worthiness, and current economic trends to evaluate the adequacy of the allowance for doubtful accounts. The Company's (recovery of) provision for bad debt was $( 3.1 ) million , $ 7.1 million , and $( 0.1 ) million in fiscal years 2020 , 2019 and 2018 , respectively. 
 
 Cost of Sales 
 
 Cost of sales primarily consists of the costs of materials, contract manufacturing, in-bound shipping, personnel and related expenses including stock-based compensation, equipment and facility expenses, warranty costs and provision for lower of cost or net realizable value and excess and obsolete inventory. 
 
 Product Warranties 
 
 The Company offers product warranties typically ranging from 15 to 39 months against any defective products. These standard warranties are assurance type warranties and the Company does not offer any services beyond the assurance that the product will continue working as specified. Therefore, these warranties are not considered separate performance obligations in the arrangement. Based on historical experience, the Company accrues for estimated returns of defective products at the time revenue is recognized. The Company monitors warranty obligations and may make revisions to its warranty reserve if actual costs of product repair and replacement are significantly higher or lower than estimated. Accruals for anticipated future warranty costs are recorded to cost of sales and included in accrued liabilities and other long-term liabilities. Warranty accruals are based on estimates that are updated on an ongoing basis taking into consideration inputs such as new product introductions, changes in the volume of claims compared with the Company's historical experience, and the changes in the cost of servicing warranty claims. The Company accounts for the effect of such changes in estimates prospectively. The following table presents for the fiscal years ended June 30, 2020 , 2019 and 2018 , the reconciliation of the changes in accrued warranty costs which is included as a component of accrued liabilities and other long-term liabilities (in thousands): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Balance, beginning of the year 
 $ 
 11,034 
 
 $ 
 9,884 
 
 $ 
 7,721 
 
 Provision for warranty 
 35,962 
 
 22,991 
 
 20,868 
 
 Costs utilized 
 ( 34,502 
 ) 
 
 ( 26,281 
 ) 
 
 ( 19,904 
 ) 
 
 Change in estimated liability for pre-existing warranties 
 ( 115 
 ) 
 
 4,440 
 
 1,199 
 
 Balance, end of the year 
 $ 
 12,379 
 
 $ 
 11,034 
 
 $ 
 9,884 
 
 Current portion 
 9,984 
 
 8,661 
 
 7,589 
 
 Non-current portion 
 $ 
 2,395 
 
 $ 
 2,373 
 
 $ 
 2,295 
 
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 Research and Development 
 
 Research and development expenses consist of personnel expenses including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for the Company's research and development personnel, as well as materials and supplies, consulting services, third-party testing services and equipment and facility expenses related to the Company's research and development activities. All research and development costs are expensed as incurred. The Company occasionally receives funding from certain suppliers and customers towards its development efforts. Such amounts are recorded as a reduction of research and development expenses and were $ 2.1 million , $ 2.8 million , and $ 6.1 million for the fiscal years ended June 30, 2020 , 2019 and 2018 , respectively. During the fiscal year ended June 30, 2020, the Company also recorded a $ 9.5 million net settlement fee as a reduction in the research and development expenses related to the reimbursement of previously incurred expenses for one canceled joint product development agreement. 
 
 Software development costs, including costs to develop software sold, leased, or otherwise marketed, that are incurred subsequent to the establishment of technological feasibility are capitalized if significant. Costs incurred during the application development stage for internal-use software are capitalized if significant. Capitalized software development costs are amortized using the straight-line amortization method over the estimated useful life of the applicable software. Such software development costs required to be capitalized have not been material to date. 
 
 Advertising Costs 
 
 Advertising costs, net of reimbursements received under the cooperative marketing arrangements with the Company's vendors, are expensed as incurred. Total advertising and promotional expenses were $ 3.0 million , $ 2.4 million , and $ 3.5 million for the fiscal years ended June 30, 2020 , 2019 and 2018 , respectively. 
 
 Stock-Based Compensation 
 
 The Company measures and recognizes compensation expense for all share-based awards made to employees and non-employees, including stock options, restricted stock units ("RSUs") and performance-based restricted stock units (“PRSUs”). The Company recognizes the grant date fair value of all share-based awards over the requisite service period and accounts for forfeitures as they occur. Stock option and RSU awards are recognized to expense on a straight-line basis over the requisite service period. PRSU awards are recognized to expense using an accelerated method only when it is probable that a performance condition is met during the vesting period. If it is not probable, no expense is recognized and the previously recognized expense is reversed. The Company bases initial accrual of compensation expense on the estimated number of PRSUs that are expected to vest over the requisite service period. That estimate is revised if subsequent information indicates that the actual number of PRSUs is likely to differ from previous estimates. The cumulative effect on current and prior periods of a change in the estimated number of PRSUs expected to vest is recognized in stock-based compensation expense in the period of the change. Previously recognized compensation expense is not reversed if vested stock options, RSUs or PRSUs for which the requisite service has been rendered and the performance condition has been met expire unexercised or are not settled. 
 
 The fair value of RSUs and PRSUs is based on the closing market price of the Company's common stock on the date of grant. The Company estimates the fair value of stock options granted using a Black-Scholes option pricing model. This model requires the Company to make estimates and assumptions with respect to the expected term of the option and the expected volatility of the price of the Company's common stock. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on the Company's historical experience. The expected volatility is based on the historical volatility of the Company’s common stock. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. 
 
 Leases 
 
 Recognition of leases for periods after the Company’s adoption of the new leasing standard as of July 1, 2019 
 
 The Company has arrangements for the right to use certain of its office, warehouse spaces and other premises, and equipment. As of July 1, 2019, the Company determines at inception if an arrangement is or contains a lease. When the terms of a lease effectively transfer control of the underlying asset to the Company, it is classified as a finance lease. All other leases are classified as operating leases. 
 
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 Operating Leases 
 
 For operating leases with lease terms of more than 12 months, operating lease right-of-use ("ROU") assets are recorded in long-term other assets, and lease liabilities are recorded in accrued liabilities and other long-term liabilities on the consolidated balance sheet. The Company's lease term includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. The Company elected to apply the short-term lease recognition exemption and does not recognize ROU asset and lease liabilities for leases with an initial term of 12 months or less and recognizes as expense the payments under such leases on a straight-line basis over the lease term. The Company's leases with an initial term of 12 months or less are immaterial. 
 
 Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments over the lease term. Operating lease ROU assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments discounted using the Company’s incremental borrowing rate as the interest rate implicit in the lease arrangements is not readily determinable. The incremental borrowing rate is estimated to be the interest rate on a fully collateralized basis with similar terms and payments and in the economic environment where the leased asset is located. Operating lease ROU assets also include initial direct costs incurred, prepaid lease payments, minus any lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term. The Company accounts for fixed payments for lease and non-lease components as a single lease component which increases the amount of ROU assets and liabilities. Non-lease components that are variable costs, such as common area maintenance, are expensed as incurred and not included in the ROU assets and lease liabilities. 
 
 Finance Leases 
 
 Assets under finance leases are recorded in property, plant and equipment, net and lease liabilities are included in accrued liabilities and other long-term liabilities on the consolidated balance sheet. Finance lease interest expense is recognized based on an effective interest method and depreciation of assets is recorded on a straight-line basis over the shorter of the lease term and useful life of the asset. The Company's finance leases are immaterial. 
 
 Recognition of leases for periods prior to the Company’s adoption of the new leasing standard as of July 1, 2019 
 
 Prior to July 1, 2019, leases were evaluated and recorded as capital leases if one of the following was true at inception: (a) the present value of minimum lease payments met or exceeded 90% of the fair value of the asset, (b) the lease term was greater than or equal to 75% of the economic life of the asset, (c) the lease arrangement contained a bargain purchase option, or (d) title to the property transferred to the Company at the end of the lease. The Company recorded an asset and liability for capital leases at present value of the minimum lease payments based on the incremental borrowing rate. Assets were depreciated over the useful life in accordance with the Company’s depreciation policy while rental payments and interest on the liability was accounted for using the effective interest method. 
 
 Leases that were not classified as capital leases were accounted for as operating leases. Operating lease agreements that had tenant improvement allowances were evaluated for lease incentives. For leases that contained escalating rent payments, the Company recognized rent expense on a straight-line basis over the lease term, with any lease incentives amortized as a reduction of rent expense over the lease term. 
 
 Income Taxes 
 
 The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax reporting purposes, net of operating loss carry-forwards and other tax credits measured by applying enacted tax laws related to the financial statement periods. Valuation allowances are provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. 
 
 The Company recognizes tax liabilities for uncertain income tax positions on the income tax return based on the two-step process. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of 
 
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 being realized upon ultimate settlement with the tax authority. Estimating these amounts requires the Company to determine the probability of various possible outcomes. The Company evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors, including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit and new exposures. If the Company later determines that its exposure is lower or that the liability is not sufficient to cover its revised expectations, the Company adjusts the liability and effects a related charge in its tax provision during the period in which the Company makes such a determination. 
 
 Variable Interest Entities 
 
 The Company determines at the inception of each arrangement whether an entity in which the Company holds an investment or in which the Company has other variable interests is considered a variable interest entity ("VIE"). The Company consolidates VIEs when it is the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, the Company assesses whether any changes in the interest or relationship with the entity affect the determination of whether the entity is still a VIE and, if so, whether the Company is the primary beneficiary. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment or other variable interest in accordance with applicable GAAP. 
 
 The Company has concluded that Ablecom Technology, Inc. (“Ablecom”) and its affiliate, Compuware Technology, Inc. ("Compuware"), are VIEs; however, the Company is not the primary beneficiary as it does not have the power to direct the activities that are most significant to the entities and therefore, the Company does not consolidate these entities. In performing its analysis, the Company considered its explicit arrangements with Ablecom and Compuware, all contractual arrangements with these entities. Also, as a result of the substantial related party relationships between the Company and these entities, the Company considered whether any implicit arrangements exist that would cause the Company to protect these related parties’ interests from suffering losses. The Company determined it has no material implicit arrangements with Ablecom, Compuware or their shareholders. 
 
 The Company and Ablecom jointly established Super Micro Asia Science and Technology Park, Inc. (the "Management Company") in Taiwan to manage the common areas shared by the Company and Ablecom for its separately constructed manufacturing facilities. In fiscal year 2012, each party contributed $ 0.2 million for a 50 % ownership interest of the Management Company. The Company has concluded that the Management Company is a VIE, and the Company is the primary beneficiary as it has the power to direct the activities that are most significant to the Management Company. For the fiscal years ended 2020 , 2019 and 2018 , the accounts of the Management Company were consolidated with the accounts of Super Micro Computer, and a noncontrolling interest was recorded for Ablecom's interest in the net assets and operations of the Management Company. Net income (loss) attributable to Ablecom's interest was not material for the periods presented and was included in general and administrative expenses in the Company's consolidated statements of operations. 
 
 Foreign Currency Transactions 
 
 The functional currency of the Company’s international subsidiaries is the U.S. dollar, with the exception of Super Micro Asia and Technology Park, Inc., a consolidated variable interest entity. Monetary assets and liabilities of the Company's international subsidiaries that are denominated in foreign currency are remeasured into U.S. dollars at period-end exchange rates. Non-monetary assets and liabilities that are denominated in the foreign currency are remeasured into U.S. dollars at the historical rates. Revenue and expenses that are denominated in the foreign currency are remeasured into U.S. dollars at the average exchange rates during the period. Remeasurement of foreign currency accounts and resulting foreign exchange transaction gains and losses, which have not been material, are reflected in the consolidated statements of operations in other expense, net. 
 
 The functional currency of Super Micro Asia and Technology Park, Inc. is New Taiwanese Dollar (“NTD”). Assets and liabilities are translated to U.S. dollars at the period-end exchange rate. Revenues and expenses are translated using the average exchange rate for the period. The effects of foreign currency translation are included in stockholders’ equity as a component of accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets and periodic movements are summarized as a line item in the consolidated statements of comprehensive income. 
 
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 The Company has an investment in a privately-held company that is accounted for under the equity method (the "Corporate Venture"). The functional currency of the Corporate Venture is the Chinese Yuan. Adjustments for the Company's share of the effects of foreign currency translation from local currency to U.S. dollars are recorded as increases or decreases to the carrying value of the investment and included in stockholders’ equity as a component of accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets and periodic movements are summarized as a line item in the consolidated statements of comprehensive income. 
 
 Net Income Per Common Share 
 
 Basic net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options and unvested RSUs and PRSUs. Contingently issuable shares are included in computing basic net income per common share as of the date that all necessary conditions, including service vesting conditions have been satisfied. Contingently issuable shares are considered for computing diluted net income per common share as of the beginning of the period in which all necessary conditions have been satisfied and the only remaining vesting condition is a service vesting condition. 
 
 Under the treasury stock method, an increase in the fair market value of the Company's common stock results in a greater dilutive effect from outstanding stock options and RSUs and PRSUs. Additionally, the exercise of stock options and the vesting of RSUs results in a further dilutive effect on net income per share. 
 
 The computation of basic and diluted net income per common share is as follows (in thousands, except per share amounts): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Numerator: 
 
 Net income 
 $ 
 84,308 
 
 $ 
 71,918 
 
 $ 
 46,165 
 
 Denominator: 
 
 Weighted-average shares outstanding 
 50,987 
 
 49,917 
 
 49,345 
 
 Effect of dilutive securities 
 1,851 
 
 1,799 
 
 2,806 
 
 Weighted-average diluted shares 
 52,838 
 
 51,716 
 
 52,151 
 
 Basic net income per common share 
 $ 
 1.65 
 
 $ 
 1.44 
 
 $ 
 0.94 
 
 Diluted net income per common share 
 $ 
 1.60 
 
 $ 
 1.39 
 
 $ 
 0.89 
 
 For the fiscal years ended June 30, 2020 , 2019 and 2018 , the Company had stock options, RSUs and 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 2,208,000 , 3,758,000 , and 2,221,000 for the fiscal years ended June 30, 2020 , 2019 and 2018 , respectively. 
 
 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 26.8 % , 21.8 % , and 26.0 % of total purchases for the fiscal years ended June 30, 2020 , 2019 and 2018 , respectively. Ablecom and Compuware, related parties of the Company as noted in Note 13, "Related Party Transactions," 
 
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 accounted for 10.1 % , 9.2 % , and 9.0 % of total cost of sales for the fiscal years ended June 30, 2020 , 2019 and 2018 , 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 in fiscal years 2020 , 2019 and 2018 . One customer accounted for 10.1 % and 17.0 % of accounts receivable, net as of June 30, 2020 and 2019 , respectively. 
 
 Accounting Pronouncements Recently Adopted 
 
 In February 2016, the FASB issued an amendment to the accounting guidance, Leases . The new lease accounting guidance supersedes the existing guidance. Under the new lease accounting guidance, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. The Company adopted the new lease accounting guidance on July 1, 2019 using the modified retrospective approach, and as a result did not restate prior comparative periods. The Company elected to apply the “package of practical expedients” under the transition guidance of the new standard, which permits it not to reassess under the new lease accounting guidance its prior conclusions about lease identification, lease classification and initial direct costs, for leases that are in effect as of the date of adoption of the new lease accounting guidance. In connection with the adoption of the new lease accounting guidance, the Company recorded a transition adjustment to recognize ROU assets and lease liabilities on the Company’s consolidated balance sheet of $ 14.8 million and $ 15.2 million , respectively, on July 1, 2019, primarily related to real estate leases. See Note 12, "Leases," for further details. 
 
 In February 2018, the FASB issued Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act ("2017 Tax Reform Act"), from accumulated other comprehensive income to retained earnings. The guidance also requires certain new disclosures regardless of the election. The Company adopted this guidance on July 1, 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures. 
 
 In June 2018, the FASB issued amended guidance to expand the scope of ASC 718 - Compensation-Stock Compensation , to include share-based payment transactions for acquiring goods and services from non-employees. The amendments specify that the guidance applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The Company adopted this guidance on July 1, 2019. The adoption of the guidance did not have an impact on the Company's consolidated financial statements and related disclosures. 
 
 Accounting Pronouncements Not Yet Adopted 
 
 In June 2016, the FASB issued authoritative guidance, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments , that amends the impairment model for certain financial assets by requiring the use of an expected loss methodology, which will result in more timely recognition of credit losses. The amendment is effective for the Company from July 1, 2020. Early adoption is permitted. The adoption of the guidance is expected to result in the presentation of allowances for credit losses separately from the amortized cost of financial instruments that are not classified as available-for-sale debt securities. The adoption is also expected to change the presentation of the Company’s available-for-sale debt securities to include the amortized cost and the allowance for credit losses parenthetically. The adoption will have an immaterial effect on the allowance for credit losses for trade receivables and beginning retained earnings and will have an immaterial effect on the Company’s financial statement disclosures. 
 
 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 new standard is effective for the Company from July 1, 2020. The adoption of the new guidance will require the Company to present, on a prospective basis, narrative information regarding the uncertainty of the fair value measurements from the use of unobservable 
 
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 inputs used in recurring fair value measurements categorized in Level 3 of the fair value hierarchy, to disclose the amount of gains and losses recognized in other comprehensive income for the period for financial instruments categorized within Level 3 of the fair value hierarchy, and quantitative information for the significant unobservable inputs used to develop the Level 3 fair value measurements. The adoption of the new guidance will also allow the Company to discontinue the presentation of information regarding transfers between Level 1 and Level 2 of the fair value hierarchy. As at June 30, 2020 the only financial instrument of the Company for which the recurring fair value measurements are categorized in Level 3 of the fair value hierarchy is its investment in an auction rate security. 
 
 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 with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments. According to the amendments, an entity shall determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. It requires an entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The new standard is effective for the Company from July 1, 2020. The Company will adopt the new guidance on a prospective basis for any new hosting arrangement entered into after July 1, 2020 and does not expect the adoption of the guidance to have a material impact on its consolidated financial statement disclosures, results of operations and financial position. 
 
 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; early adoption is permitted. The adoption of the guidance is not anticipated to have a material impact on its consolidated financial statements. 
 
 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 15, 2022. LIBOR is used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility. As the 2018 Bank of America Credit Facility, as amended, will terminate on June 30, 2021 before the phase out of LIBOR, the Company does not expect the adoption of the guidance to have an impact on its consolidated financial statement disclosures, results of operations and financial position. 
 
 Note 2. 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 June 30, 2020 and 2019 . See Note 1, "Organization and Summary of Significant Accounting Policies," for a discussion of the Company’s policies regarding the fair value hierarchy. The Company used discounted cash flows to estimate the fair value of the auction rate security as of June 30, 2020 and 2019 . The material factors used in preparing the discounted cash flows are (i) the discount rate utilized to present value the cash flows, (ii) the time period until redemption and (iii) the estimated rate of return. 
 
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 Financial Assets and Liabilities Measured on a Recurring Basis 
 
 The following table sets forth the Company’s financial instruments as of June 30, 2020 and 2019 , 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): 
 
 June 30, 2020 
 Level 1 
 
 Level 2 
 
 Level 3 
 
 Asset at 
 Fair Value 
 
 Assets 
 
 Money market funds (1) 
 $ 
 1,163 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 1,163 
 
 Certificates of deposit (2) 
 — 
 
 836 
 
 — 
 
 836 
 
 Auction rate security 
 — 
 
 — 
 
 1,571 
 
 1,571 
 
 Total assets measured at fair value 
 $ 
 1,163 
 
 $ 
 836 
 
 $ 
 1,571 
 
 $ 
 3,570 
 
 Liabilities 
 
 Performance awards liability (3) 
 $ 
 — 
 
 $ 
 2,100 
 
 $ 
 — 
 
 $ 
 2,100 
 
 Total liabilities measured at fair value 
 $ 
 — 
 
 $ 
 2,100 
 
 $ 
 — 
 
 $ 
 2,100 
 
 June 30, 2019 
 Level 1 
 
 Level 2 
 
 Level 3 
 
 Asset at 
 Fair Value 
 
 Money market funds (1) 
 $ 
 1,162 
 
 $ 
 — 
 
 $ 
 — 
 
 $ 
 1,162 
 
 Certificates of deposit (2) 
 — 
 
 1,285 
 
 — 
 
 1,285 
 
 Auction rate security 
 — 
 
 — 
 
 1,571 
 
 1,571 
 
 Total assets measured at fair value 
 $ 
 1,162 
 
 $ 
 1,285 
 
 $ 
 1,571 
 
 $ 
 4,018 
 
 (1) $ 0.4 million and $ 0.4 million in money market funds are included in cash and cash equivalents and $ 0.8 million and $ 0.8 million in money market funds are included in restricted cash, non-current in other assets in the consolidated balance sheets as of June 30, 2020 and 2019 , 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 in certificates of deposit are included in prepaid expenses and other assets, and $ 0.3 million and $ 1.1 million in certificates of deposit are included in restricted cash, non-current in other assets in the consolidated balance sheets as of June 30, 2020 and 2019 , respectively. 
 
 (3) As of June 30, 2020, the current portion of the performance awards liability of $ 1.5 million is included in accrued liabilities and the noncurrent portion of $ 0.6 million is included in other long-term liabilities in the consolidated balance sheets. There was no such liability outstanding as of June 30, 2019. 
 
 The performance awards liability consists of one-time employee performance bonuses for the Company's Chief Executive Officer and two members of the Board that are payable when specified market and performance conditions are achieved. The Company estimated the fair value of these 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: 
 
 Stock Price as of Period End 
 
 Performance Period 
 
 Risk-free Rate 
 
 Volatility 
 
 Dividend Yield 
 
 $ 28.39 
 
 1.25 - 2.00 years 
 
 0.16 % 
 
 53.75 % 
 
 — 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 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 fiscal years 2020 and 2019. 
 
 There were no transfers between Level 1, Level 2 or Level 3 financial instruments in fiscal years 2020 and 2019. 
 
 The following is a summary of the Company’s investment in an auction rate security as of June 30, 2020 and 2019 (in thousands): 
 
 June 30, 2020 and 2019 
 
 Cost Basis 
 
 Gross 
 Unrealized 
 Holding 
 Gains 
 
 Gross 
 Unrealized 
 Holding 
 Losses 
 
 Fair Value 
 
 Auction rate security 
 $ 
 1,750 
 
 $ 
 — 
 
 $ 
 ( 179 
 ) 
 
 $ 
 1,571 
 
 The Company measures the fair value of outstanding debt for disclosure purposes on a recurring basis. As of June 30, 2020 and 2019 , total debt of $ 29.4 million and $ 23.6 million , respectively, are reported at amortized cost. This outstanding debt is classified as Level 2 as it is 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 $ 0.1 million and $ 0.9 million as of June 30, 2020 and 2019, respectively. The Company accounts for these investments at cost minus 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 years ended June 30, 2020 and 2019, 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 fiscal year 2020. During fiscal year 2019 , the Company recorded impairment charges of $ 2.7 million for its non-marketable equity securities which had an initial cost basis of $ 2.7 million as it was determined the carrying value of the investments were not recoverable. During fiscal year 2018 , the Company did not record any other-than-temporary impairments on financial assets required to be measured at fair value on a non-recurring basis. 
 
 Note 3. Revenue 
 
 Disaggregation of Revenue 
 
 The Company disaggregates revenue by type of product, by geographical market, and by products sold to indirect sales channel partners or direct customers and original equipment manufacturers ("OEMs") that depict the nature, amount, and timing of revenue and cash flows. Service revenues 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): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Server and storage systems 
 $ 
 2,620,754 
 
 $ 
 2,858,644 
 
 $ 
 2,663,580 
 
 Subsystems and accessories 
 718,527 
 
 641,716 
 
 696,912 
 
 Total 
 $ 
 3,339,281 
 
 $ 
 3,500,360 
 
 $ 
 3,360,492 
 
 Server and storage systems constitute an assembly and integration of subsystems and accessories, and related services. 
 Subsystems and accessories are comprised of serverboards, chassis and accessories. 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 International net sales are based on the country and region to which the products were shipped. The following is a summary for the fiscal years ended June 30, 2020 , 2019 and 2018 , of net sales by geographic region (in thousands): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 United States 
 $ 
 1,957,329 
 
 $ 
 2,032,948 
 
 $ 
 1,902,106 
 
 Asia 
 650,652 
 
 712,211 
 
 762,701 
 
 Europe 
 598,558 
 
 611,014 
 
 547,507 
 
 Other 
 132,742 
 
 144,187 
 
 148,178 
 
 Total 
 $ 
 3,339,281 
 
 $ 
 3,500,360 
 
 $ 
 3,360,492 
 
 The following table presents the net sales from products sold through the Company's indirect sales channel and to its direct customers and OEMs for fiscal years 2020 , 2019 and 2018 (in thousands): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Indirect sales channel 
 $ 
 1,771,614 
 
 $ 
 1,376,633 
 
 $ 
 1,395,841 
 
 Direct customers and OEMs 
 1,567,667 
 
 2,123,727 
 
 1,964,651 
 
 Total net sales 
 $ 
 3,339,281 
 
 $ 
 3,500,360 
 
 $ 
 3,360,492 
 
 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 right to consideration for performance obligations completed (or partially completed) for which the Company has an unconditional right to consideration. 
 
 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 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 fiscal year 2020, which was included in the opening deferred revenue balance as of June 30, 2019, was $ 91.9 million . 
 
 Deferred revenue decreased during the fiscal year ended June 30, 2020 because the recognition of revenue from contracts entered into in prior periods exceeded the value of the transaction price allocated for service contracts obligations during the current period. 
 
 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. These performance obligations generally consist of services, such as on-site integration 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 June 30, 2020 was approximately $ 203.8 million . The Company expects to recognize approximately 52 % of remaining performance obligations as revenue in the next 12 months , and the remainder thereafter. 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 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. Such contract acquisition costs allocated to service performance obligations that are subject to capitalization are insignificant to the Company’s 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 consolidated financial statements. 
 
 Note 4. Accounts Receivable Allowances 
 
 The Company has established an allowance for doubtful accounts. The allowance for doubtful accounts is based upon the age of outstanding receivables, credit risk of specific customers, historical trends related to past losses and other relevant factors. Accounts receivable allowances as of June 30, 2020 , 2019 and 2018 consisted of the following (in thousands): 
 
 Beginning 
 Balance 
 
 Charged to 
 Cost and 
 Expenses (Recovered), net 
 
 Write-offs 
 
 Ending 
 Balance 
 
 Allowance for doubtful accounts: 
 
 Year ended June 30, 2020 
 $ 
 8,906 
 
 $ 
 ( 3,081 
 ) 
 
 $ 
 ( 1,239 
 ) 
 
 $ 
 4,586 
 
 Year ended June 30, 2019 
 1,945 
 
 7,058 
 
 ( 97 
 ) 
 
 8,906 
 
 Year ended June 30, 2018 
 2,370 
 
 ( 96 
 ) 
 
 ( 329 
 ) 
 
 1,945 
 
 Note 5. Inventories 
 
 Inventories as of June 30, 2020 and 2019 consisted of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Finished goods 
 $ 
 656,817 
 
 $ 
 492,387 
 
 Work in process 
 38,146 
 
 43,598 
 
 Purchased parts and raw materials 
 156,535 
 
 134,203 
 
 Total inventories 
 $ 
 851,498 
 
 $ 
 670,188 
 
 During fiscal years 2020 , 2019 and 2018 , the Company recorded a provision for excess and obsolete inventory to cost of sales totaling $ 22.6 million , $ 28.5 million and $ 9.4 million , respectively, excluding a (recovery) provision for adjusting the cost of certain inventories to net realizable value of $( 4.2 ) million and $ 4.4 million in fiscal years 2020 and 2019, respectively. The adjustment for lower of cost or net realizable value and lower of cost or market was not material in fiscal year 2018 . The Company classifies subsystems and accessories that may be sold separately or incorporated into systems as finished goods. 
 
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 Note 6. Property, Plant, and Equipment 
 
 Property, plant and equipment as of June 30, 2020 and 2019 consisted of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Buildings 
 $ 
 86,930 
 
 $ 
 86,136 
 
 Land 
 75,251 
 
 74,926 
 
 Machinery and equipment 
 85,381 
 
 79,946 
 
 Buildings construction in progress (1) 
 46,311 
 
 14,189 
 
 Building and leasehold improvements 
 24,517 
 
 22,307 
 
 Software 
 20,597 
 
 18,415 
 
 Furniture and fixtures 
 21,544 
 
 20,193 
 
 360,531 
 
 316,112 
 
 Accumulated depreciation and amortization 
 ( 126,746 
 ) 
 
 ( 108,775 
 ) 
 
 Property, plant and equipment, net 
 $ 
 233,785 
 
 $ 
 207,337 
 
 __________________________ 
 (1) Primarily relates to the development and construction costs associated with the Company’s Green Computing Park located in San Jose, California, and, to a lesser extent, in Taiwan. 
 
 Note 7. Prepaid Expenses and Other Assets 
 
 Prepaid expenses and other current assets as of June 30, 2020 and 2019 consisted of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Receivables from vendors (1) 
 $ 
 94,859 
 
 $ 
 83,050 
 
 Prepaid income tax 
 14,323 
 
 607 
 
 Prepaid expenses 
 7,075 
 
 7,269 
 
 Deferred service costs 
 4,161 
 
 3,374 
 
 Restricted cash 
 250 
 
 11,673 
 
 Others 
 6,317 
 
 3,822 
 
 Total prepaid expenses and other current assets 
 $ 
 126,985 
 
 $ 
 109,795 
 
 __________________________ 
 (1) Includes receivables from contract manufacturers based on certain buy-sell arrangements of $ 83.8 million and $ 82.0 million as of June 30, 2020 and 2019 , respectively. 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 Other assets as of June 30, 2020 and 2019 consisted of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Operating lease right-of-use asset 
 $ 
 23,784 
 
 $ 
 — 
 
 Deferred service costs, non-current 
 4,632 
 
 3,572 
 
 Restricted cash, non-current 
 1,607 
 
 2,303 
 
 Investment in auction rate security 
 1,571 
 
 1,571 
 
 Deposits 
 1,201 
 
 686 
 
 Non-marketable equity securities 
 128 
 
 878 
 
 Prepaid expense, non-current 
 1,576 
 
 1,649 
 
 Total other assets 
 $ 
 34,499 
 
 $ 
 10,659 
 
 Cash, cash equivalents and restricted cash as of June 30, 2020 and 2019 consisted of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Cash and cash equivalents 
 $ 
 210,533 
 
 $ 
 248,164 
 
 Restricted cash included in prepaid expenses and other current assets 
 250 
 
 11,673 
 
 Restricted cash included in other assets 
 1,607 
 
 2,303 
 
 Total cash, cash equivalents and restricted cash 
 $ 
 212,390 
 
 $ 
 262,140 
 
 Note 8. 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 the Corporate Venture 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 has been 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 of $ 7.0 million in the third fiscal quarter of 2017. The amortization of the deferred gain is being recognized as a credit to research and development expenses in the Company's consolidated statement of operations over a period of five years which represents the estimated period over which the remaining obligations will be fulfilled. As a result of the adoption of new accounting guidance as of the beginning of fiscal year 2019, the Company recorded an increase of $ 3.0 million to the investment in equity investee for the contribution of those technology rights, and corresponding increases in deferred gain and retained earnings of $ 2.1 million and $ 0.9 million , respectively. As of June 30, 2020 and 2019 , the Company had unamortized deferred gain balance of $ 2.0 million and $ 2.0 million , respectively, in accrued liabilities and $ 1.0 million and $ 3.0 million , respectively, in other long-term liabilities in the Company’s 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 related entities. The Company is working with the Corporate Venture management to ensure that any future related parties transactions with the Corporate Venture are in accordance with the new restrictions and does not believe that the equity investment carrying value is impacted as of June 30, 2020. The Company did no t recognize any impairment in the years ended June 30, 2020, 2019 and 2018 . 
 
 As of June 30, 2020 and June 30, 2019 , the Company's equity investment in the Corporate Venture was $ 2.7 million and $ 1.7 million , respectively, and was recorded under investment in equity investee on the Company's consolidated balance sheet. 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 The Company's share of income (losses), net of taxes, of the Corporate Venture net of taxes were $ 2.4 million , $( 2.7 ) million , and $( 3.6 ) million for the fiscal years ended June 30, 2020 , June 30, 2019 , and June 30, 2018 , respectively. 
 
 Additionally, the Company sold products worth $ 61.9 million , $ 52.2 million , $ 21.7 million to the Corporate Venture in the fiscal years 2020 , 2019 , 2018 , respectively, and the Company's share of intra-entity profits on the products that remained unsold by the Corporate Venture in the amounts of $ 3.0 million and $ 1.7 million as of June 30, 2020 and June 30, 2019 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 $ 7.8 million and $ 13.1 million due from the Corporate Venture in accounts receivable, net as of June 30, 2020 and 2019 , respectively, in its consolidated balance sheets. 
 
 Note 9. Accrued Liabilities 
 
 Accrued liabilities as of June 30, 2019 and 2018 consisted of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Accrued payroll and related expenses 
 $ 
 33,577 
 
 $ 
 25,552 
 
 Contract manufacturers liability 
 36,249 
 
 25,308 
 
 Accrued legal liabilities 
 18,114 
 
 — 
 
 Accrued professional fees 
 5,661 
 
 11,756 
 
 Customer deposits 
 9,942 
 
 11,133 
 
 Accrued warranty costs 
 9,984 
 
 8,661 
 
 Operating lease liability 
 6,310 
 
 — 
 
 Accrued cooperative marketing expenses 
 5,925 
 
 5,830 
 
 Others 
 29,639 
 
 26,438 
 
 Total accrued liabilities 
 $ 
 155,401 
 
 $ 
 114,678 
 
 Performance Awards Liability 
 
 In March 2020, the Company’s Board of Directors (the “Board”) approved $ 25.3 million of special performance bonuses to employees, which included $ 8.0 million paid in cash during the fourth quarter of fiscal year 2020 and $ 17.3 million paid in cash upon the occurrence of the average closing price for the Company's common stock equaling or exceeding $ 21.39 for any period of 10 consecutive trading days following March 26, 2020. The entire amount of the special performance bonuses to employees was paid in the fourth quarter of fiscal year 2020. 
 
 The Board also 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 and the date that the payment is made. 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 and the date that the payment is made. 
 
 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 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 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 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. These awards expire in two equal amounts at September 30, 2021 and June 30, 2022 for the two Board members' awards. 
 
 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 consolidated statement of operations in cost of sales and 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. 
 
 As of June 30, 2020, the Company's outstanding balance related to performance bonuses was $ 2.1 million of which $ 1.5 million is recorded within accrued liabilities and $ 0.6 million is recorded within other long-term liabilities on the Company's consolidated balance sheet. An unrecognized compensation expense of $ 3.3 million will be recorded over the remaining service periods from 0.19 years to 1.18 years . The unrecognized expense and remaining service periods will be remeasured each reporting period. 
 
 Note 10. Short-term and Long-term Debt 
 
 Short-term and long-term debt obligations as of June 30, 2020 and 2019 consisted of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Line of credit: 
 
 Bank of America 
 $ 
 — 
 
 $ 
 1,116 
 
 Term loans: 
 
 CTBC Bank, due August 31, 2020 
 23,704 
 
 22,531 
 
 CTBC Bank, due June 4, 2030 
 5,697 
 
 — 
 
 Total term loans 
 29,401 
 
 22,531 
 
 Total debt 
 29,401 
 
 23,647 
 
 Short-term debt and current portion of long-term debt 
 23,704 
 
 23,647 
 
 Debt, Non-current 
 $ 
 5,697 
 
 $ 
 — 
 
 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 (the "2018 Bank of America Credit Facility"), which replaced the then existing credit facility with Bank of America (the "2016 Bank of America Credit Facility"). The 2018 Bank of America Credit Facility provides for a revolving credit line and other financial accommodations of up to $ 250.0 million extended by certain lenders, including a $ 5.0 million letter of credit sublimit, which was extended to $ 15.0 million in October 2019. The 2018 Bank of America Credit Facility was originally set to expire after 364 days and on 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 January 31, 2019, the Company paid a fee and entered into an amendment of the 2018 Bank of America Credit Facility that resulted in the extension of the maturity date from April 19, 2019 to June 30, 2019. On June 27, 2019, the Company entered into a second amendment of the 2018 Bank of America Credit Facility that extended the maturity date from June 30, 2019 to June 30, 2020. On May 12, 2020, the Company paid a fee of $ 0.7 million and entered into a third amendment of the 2018 Bank of America Credit Facility that extended the maturity of the credit facility to June 30, 2021 and changed certain terms of the original agreement. The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements. Under the original terms, interest accrued at the LIBOR rate plus 2.75 % per annum, while under the third amendment, interest shall accrue at LIBOR rate plus 2.00 % on outstanding borrowings less than $ 125.0 million and LIBOR rate plus 2.25 % on outstanding borrowings in excess of $ 125.0 million . Under the terms of the third amendment of the 2018 Bank of America Credit Facility, 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 third amendment released the real property of Super Micro Computer as a collateral. 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 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 June 30, 2020 , the Company had no outstanding borrowings under the 2018 Bank of America Credit Facility. As of June 30, 2019 , the total outstanding borrowings under the 2018 Bank of America Credit facility were $ 1.1 million . The interest rates under the 2018 Bank of America Credit Facility as of June 30, 2020 and 2019 were 3.0 % per annum and 4.5 % per annum, respectively. 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 balance of debt issuance costs outstanding were $ 0.6 million and $ 0.3 million as of June 30, 2020 and 2019 , respectively. The Company has been in compliance with all the covenants under the 2018 Bank of America Credit Facility, and as of June 30, 2020 , the Company's available borrowing capacity was $ 243.6 million , subject to the borrowing base limitation and compliance with other applicable terms. 
 
 CTBC Bank 
 
 2019 CTBC Credit Facility 
 
 In January 2018, the Company entered into a credit agreement with China Trust and Bank Corp ("CTBC Bank") that provided for (i) a 12 -month NTD $ 700.0 million ( $ 23.6 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 0.25 % per annum, which was adjusted monthly, which term loan facility also included a 12 -month guarantee of up to NTD $ 100.0 million ( $ 3.4 million U.S. dollar equivalent) with an annual fee equal to 0.50 % per annum, and (ii) a 12 -month NTD $ 1,500.0 million ( $ 50.5 million U.S. dollar equivalent) term loan facility with an interest rate equal to the lender's established NTD interest rate plus 0.25 % per annum, which was adjusted monthly (collectively, the “2018 CTBC Credit Facility”). The total borrowings allowed under the 2018 CTBC Credit Facility was initially capped at $ 50.0 million and in August 2018 was reduced to $ 40.0 million . In June 2019 prior to its maturity, the 2018 CTBC Credit Facility was replaced by the 2019 CTBC Credit Facility (defined below). 
 
 In June 2019, the Company entered into a credit agreement with CTBC Bank that provides for (i) a 12 -month NTD $ 700.0 million ( $ 22.5 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 0.25 % per annum which is adjusted monthly, which term loan facility also includes a 12 -month guarantee of up to NTD $ 100.0 million ( $ 3.2 million U.S. dollar equivalent) with an annual fee equal to 0.50 % per annum, (ii) a 180 -day NTD $ 1,500.0 million ( $ 48.2 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 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 
 
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 an interest rate equal to the lender's established USD interest rate plus an interest rate ranging from 0.30 % to 0.50 % per annum which is adjusted monthly (collectively, the “2019 CTBC Credit Facility”). The total borrowings allowed under the 2019 CTBC Credit Facility was capped at $ 50.0 million . There are no financial covenants associated with the 2019 CTBC Credit Facility. On June 30, 2020, the maturity date of the 2019 CTBC credit facility was extended to August 31, 2020. On August 24, 2020, the maturity of the 2019 CTBC credit facility was further extended to August 31, 2021. 
 
 The total outstanding borrowings under the 2019 CTBC Credit Facility term loan were denominated in NTD and remeasured into U.S. dollars of $ 23.7 million and $ 22.5 million at June 30, 2020 and 2019 , respectively. As of June 30, 2020 and 2019 , the Company did no t have any outstanding borrowings under the 2019 CTBC Credit Facility revolving line of credit. The interest rate for these loans were 0.45 % per annum as of June 30, 2020 and 0.93 % per annum as of June 30, 2019 . At June 30, 2020 , the amount available for future borrowing under the 2019 CTBC Credit Facility was $ 26.3 million . As of June 30, 2020 , the net book value of land and building located in Bade, Taiwan, collateralizing the 2019 CTBC Credit Facility term loan was $ 25.4 million . 
 
 2020 CTBC Term Loan Facility 
 
 In June 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. 
 
 The Company borrowed $ 5.7 million in June 2020 with an interest rate of 0.45 % per annum. As of June 30, 2020 , the amount outstanding under the 2020 CTBC Term Loan Facility was $ 5.7 million and the net book value of the property serving as collateral was $ 10.1 million . As of June 30, 2020 , the Company was in compliance with all financial covenants under the 2020 CTBC Term Loan Facility. 
 
 Principal payments on short-term and long-term debt obligations are due as follows (in thousands): 
 
 Fiscal Year: 
 Principal Payments 
 
 2021 
 $ 
 23,704 
 
 2022 
 — 
 
 2023 
 68 
 
 2024 
 814 
 
 2025 
 814 
 
 2026 and thereafter 
 4,001 
 
 Total short-term and long-term debt 
 $ 
 29,401 
 
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 Note 11. Other Long-term Liabilities 
 
 Other long-term liabilities as of June 30, 2020 and 2019 consisted of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Operating lease liability, non-current 
 $ 
 18,102 
 
 $ 
 — 
 
 Accrued unrecognized tax benefits including related interest and penalties 
 15,496 
 
 20,102 
 
 Accrued warranty costs, non-current 
 2,395 
 
 2,373 
 
 Others 
 6,002 
 
 3,708 
 
 Total other long-term liabilities 
 $ 
 41,995 
 
 $ 
 26,183 
 
 Note 12. Leases 
 Upon adoption of the new lease accounting guidance, the Company recognized operating lease liabilities of approximately $ 15.2 million based on the present value of the remaining minimum rental payments using an incremental borrowing rate of approximately 4 % . The Company also recognized corresponding operating lease ROU assets of approximately $ 14.8 million . The difference relates to adjustments made to operating lease ROU assets for prepaid rent and deferred rent that existed as of the date of adoption. These operating lease ROU assets relate to offices, warehouses and other premises leased under non-cancelable operating leases expiring through June 2026 and vehicles and certain equipment leased under non-cancelable operating leases expiring through August 2023. 
 Operating lease expense recognized and supplemental cash flow information related to operating leases for the years ended June 30, 2020 and 2019 were as follows (in thousands): 
 
 Years Ended June 30, 
 
 2020 
 
 Operating lease expense (including expense for lease agreements with related parties of $1,421 and $0 for the years ended June 30, 2020 and 2019, respectively) 
 
 $ 
 6,993 
 
 Cash payments for operating leases (including payments to related parties of $1,443 and $0 for the years ended June 30, 2020 and 2019, respectively) 
 
 $ 
 6,411 
 
 New operating lease assets obtained in exchange for operating lease liabilities 
 
 $ 
 15,229 
 
 During the years ended June 30, 2020 and 2019 , 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 years ended June 30, 2020 , 2019 and 2018 were $ 1.3 million , $ 0.0 million and $ 0.0 million respectively. 
 As of June 30, 2020 , the weighted average remaining lease term for operating leases was 4.6 and the weighted average discount rate was 3.5 % . Maturities of operating lease liabilities under noncancelable operating lease arrangements as of June 30, 2020 were as follows (in thousands): 
 
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 Fiscal Year: 
 
 Maturities of operating leases 
 
 2021 
 
 $ 
 7,073 
 
 2022 
 
 5,696 
 
 2023 
 
 4,246 
 
 2024 
 
 4,221 
 
 2025 
 
 4,309 
 
 2026 and beyond 
 
 956 
 
 Total future lease payments 
 
 $ 
 26,501 
 
 Less: Imputed interest 
 
 ( 2,089 
 ) 
 
 Present value of operating lease liabilities 
 
 $ 
 24,412 
 
 As of June 30, 2019, prior to the adoption of the new lease accounting guidance, future minimum payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows (in thousands): 
 
 Fiscal Year: 
 
 Minimum lease payments 
 
 2020 
 
 $ 
 6,582 
 
 2021 
 
 3,831 
 
 2022 
 
 2,439 
 
 2023 
 
 1,175 
 
 2024 
 
 1,166 
 
 2025 and beyond 
 
 2,279 
 
 Total minimum lease payments 
 
 $ 
 17,472 
 
 As of June 30, 2020 , commitments under short-term lease and financing lease arrangements were immaterial. As of June 30, 2020 , operating and financing leases that have not yet commenced were immaterial. 
 
 The Company has entered into lease agreements with related parties. See Note 13, "Related Party Transactions," for a further discussion. 
 
 Note 13. Related Party Transactions 
 
 The Company has a variety of business relationships with Ablecom and Compuware. Ablecom and Compuware are both Taiwan corporations. Ablecom is one of the Company’s major contract manufacturers; Compuware is both a distributor of the Company’s products and a contract manufacturer for the Company. 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 of Directors. 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 June 30, 2020 . Certain family members of Yih-Shyan (Wally) Liaw, who until January 2018 was the Senior Vice President of International Sales and a director of the Company, owned approximately 11.7 % of Ablecom’s capital stock as of June 30, 2020 . 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 or 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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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 Dealings with Ablecom 
 
 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. 
 
 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 95.5 % , 96.3 % and 97.0 % of the chassis included in the products sold by the Company during fiscal years 2020 , 2019 and 2018 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. The Company pays Ablecom for the design and engineering services, and further agrees to pay Ablecom for the tooling. The Company retains full ownership of any intellectual property resulting from the design of these products and tooling. 
 
 With respect to the manufacturing aspects of the relationship, Ablecom purchases most of materials needed to manufacture the chassis from third parties and the Company provides certain components used in the manufacturing process (such as power supplies) to Ablecom through consignment or sales transactions. 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 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. In addition to inventory purchases, the Company also incurs other costs associated with design services, tooling and other miscellaneous costs from Ablecom. 
 
 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 $ 23.2 million and $ 31.0 million at June 30, 2020 and 2019 , respectively, representing the maximum 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. Since Ablecom manufactures substantially all the chassis that the Company incorporates into its products, if Ablecom were to suddenly be unable to manufacture chassis for the Company, the Company’s business could suffer if the Company is unable to quickly qualify substitute suppliers who can supply high-quality chassis to the Company in volume and at acceptable prices. 
 
 Dealings with Compuware 
 
 The Company has entered into a distribution agreement with Compuware, under which the Company appointed Compuware as a non-exclusive distributor of the Company’s products in Taiwan, China and Australia. Compuware assumes the responsibility to install the Company's products at the site of the end customer, if required, and administers customer support in exchange for a discount from the Company's standard price for its purchases. 
 
 The Company also has entered into a series of agreements with Compuware, including a multiple product development, production and service agreements, product manufacturing agreements, and lease agreements for office space. 
 
 Under these agreements, the Company outsources to Compuware a portion of its design activities and a significant part of its power supplies manufacturing as well as an immaterial portion of other components. With respect to design activities, Compuware 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. The Company pays Compuware for the design and engineering services, and further agrees to pay Compuware for the tooling. The Company retains full ownership of any intellectual property resulting from the design of these products and tooling. With respect to the manufacturing aspects of the relationship, Compuware purchases most of materials needed to manufacture the power supplies from outside markets and uses these materials to manufacture the products and then sell those products to the Company. The Company and Compuware frequently review and negotiate the prices of the power supplies the Company purchases from Compuware. 
 
 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 
 
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 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. In addition to the inventory purchases, the Company also incurs costs associated with design services, tooling assets, and miscellaneous costs. 
 
 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 $ 45.7 million and $ 70.6 million at June 30, 2020 and 2019 , respectively, representing the maximum 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 fiscal years ended June 30, 2020 , 2019 , and 2018 are as follows (in thousands): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Ablecom 
 
 Purchases (1) 
 $ 
 160,084 
 
 $ 
 145,273 
 
 $ 
 152,332 
 
 Compuware 
 
 Net sales 
 $ 
 23,867 
 
 $ 
 17,651 
 
 $ 
 46,921 
 
 Purchases (1) 
 131,763 
 
 139,579 
 
 119,548 
 
 __________________________ 
 (1) Includes principally purchases of inventory and other miscellaneous items. 
 
 The Company's net sales to Ablecom were not material for the fiscal years ended June 30, 2020 , 2019 , and 2018 . 
 
 The Company had the following balances related to transactions with Ablecom and Compuware as of June 30, 2020 and 2019 (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Ablecom 
 
 Accounts receivable and other receivables (1) 
 $ 
 6,379 
 
 $ 
 7,236 
 
 Accounts payable and accrued liabilities (2) 
 40,056 
 
 33,928 
 
 Other long-term liabilities (3) 
 513 
 
 — 
 
 Compuware 
 
 Accounts receivable and other receivables (1) 
 14,323 
 
 14,396 
 
 Accounts payable and accrued liabilities (2) 
 46,518 
 
 34,417 
 
 Other long-term liabilities (3) 
 186 
 
 — 
 
 __________________________ 
 (1) Other receivables include receivables from vendors. 
 (2) Includes current portion of operating lease liabilities. 
 (3) Represents non-current portion of operating lease liabilities. 
 
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 In October 2016, the Company entered into agreements pursuant to which the Company contributed certain technology rights in connection with an investment in the Corporate Venture, which is accounted for using the equity method. See Note 8, "Investment in a Corporate Venture" for a discussion of the investment and the transactions that took place during the fiscal years 2020 , 2019 , and 2018 . 
 
 Note 14. Stock-based Compensation and Stockholders’ Equity 
 
 Equity Incentive Plan 
 
 On June 5, 2020, the stockholders of the Company approved the 2020 Equity and Incentive Compensation Plan (the "2020 Plan"). The maximum number of shares available under the 2020 Plan is 5,000,000 plus 1,045,000 shares of common stock that remained available for future awards under the 2016 Equity Incentive Plan (the “2016 Plan”), at the time of adoption of the 2020 Plan. No other awards can be granted under the 2016 Plan and 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. 
 
 Under the 2020 Plan, the Company can grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents, and certain other awards, including those denominated or payable in, or otherwise based on, the Company’s common stock. The exercise price per share for incentive stock options granted to employees owning shares representing more than 10 % of the Company's outstanding voting stock at the time of grant cannot be less than 110 % of the fair value of the underlying shares on the grant date. Nonqualified stock options and incentive stock options granted to all other persons are granted at a price not less than 100 % of the fair value. Options generally expire ten years after the date of grant. Stock options and RSUs generally vest over four years ; 25 % at the end of one year and one sixteenth per quarter thereafter. 
 
 As of June 30, 2020 , the Company had 5,249,198 authorized shares available for future issuance under the 2020 Plan. 
 
 Determining Fair Value 
 
 The Company's fair value of RSUs and PRSUs is based on the closing market price of the Company's common stock on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes-option-pricing model. This fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period. The key inputs in using the Black-Scholes-option-pricing model were as follows: 
 
 Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on the Company's historical experience. 
 
 Expected Volatility—Expected volatility is based on the Company's implied and historical volatility. 
 
 Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input and the Company has no plans to pay dividends. 
 
 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 fiscal years ended June 30, 2020 , 2019 and 2018 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Risk-free interest rate 
 0.47% - 1.72% 
 
 2.32% - 2.97% 
 
 1.92% - 2.86% 
 
 Expected term 
 6.27 years 
 
 6.05 years 
 
 5.82 years 
 
 Dividend yield 
 — 
 % 
 
 — 
 % 
 
 — 
 % 
 
 Volatility 
 49.61% - 50.46% 
 
 47.34% - 50.28% 
 
 45.32% - 48.07% 
 
 Weighted-average fair value 
 $ 
 9.59 
 
 $ 
 9.25 
 
 $ 
 10.98 
 
 The following table shows total stock-based compensation expense included in the consolidated statements of operations for the fiscal years ended June 30, 2020 , 2019 and 2018 (in thousands): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Cost of sales 
 $ 
 1,504 
 
 $ 
 1,663 
 
 $ 
 1,812 
 
 Research and development 
 12,202 
 
 12,981 
 
 13,893 
 
 Sales and marketing 
 1,680 
 
 1,805 
 
 1,980 
 
 General and administrative 
 4,803 
 
 4,735 
 
 6,971 
 
 Stock-based compensation expense before taxes 
 20,189 
 
 21,184 
 
 24,656 
 
 Income tax impact 
 ( 6,814 
 ) 
 
 ( 4,349 
 ) 
 
 ( 6,902 
 ) 
 
 Stock-based compensation expense, net 
 $ 
 13,375 
 
 $ 
 16,835 
 
 $ 
 17,754 
 
 As of June 30, 2020 , $ 5.5 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.19 years, $ 31.2 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.52 years and $ 0.5 million of unrecognized compensation cost related to unvested PRSUs is expected to be recognized over a period of 0.90 year. 
 
 Stock Option Activity 
 
 The following table summarizes stock option activity during the fiscal years ended June 30, 2020 , 2019 and 2018 under all plans: 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 Options 
 Outstanding 
 
 Weighted 
 Average 
 Exercise 
 Price per 
 Share 
 
 Weighted 
 Average 
 Remaining 
 Contractual 
 Term 
 (in Years) 
 
 Aggregate 
 Intrinsic 
 Value 
 (in thousands) 
 
 Balance as of June 30, 2017 
 
 8,375,659 
 
 $ 
 15.88 
 
 Granted 
 
 489,705 
 
 $ 
 23.58 
 
 Exercised 
 
 ( 267,970 
 ) 
 
 $ 
 11.36 
 
 Forfeited/Cancelled 
 
 ( 296,256 
 ) 
 
 $ 
 15.36 
 
 Balance as of June 30, 2018 
 
 8,301,138 
 
 $ 
 16.50 
 
 Granted 
 
 434,320 
 
 $ 
 18.58 
 
 Forfeited/Cancelled 
 
 ( 1,360,823 
 ) 
 
 $ 
 8.94 
 
 Balance as of June 30, 2019 
 
 7,374,635 
 
 $ 
 18.02 
 
 Granted 
 
 273,260 
 
 $ 
 19.61 
 
 Exercised 
 
 ( 1,812,000 
 ) 
 
 $ 
 15.74 
 
 Forfeited/Cancelled 
 
 ( 456,127 
 ) 
 
 $ 
 11.97 
 
 Balance as of June 30, 2020 
 
 5,379,768 
 
 $ 
 19.38 
 
 4.07 
 
 $ 
 50,245 
 
 Options vested and exercisable at June 30, 2020 
 
 4,723,734 
 
 $ 
 19.25 
 
 3.46 
 
 $ 
 44,932 
 
 The total pretax intrinsic value of options exercised during the fiscal year ended June 30, 2020 , 2019 and 2018 was $ 19.3 million , $ 0 and $ 4.0 million , respectively. Additional information regarding options outstanding as of June 30, 2020 , is as follows: 
 
 Options Outstanding 
 
 Options Vested and Exercisable 
 
 Range of 
 Exercise Prices 
 
 Number 
 Outstanding 
 
 Weighted- 
 Average 
 Remaining 
 Contractual 
 Term (Years) 
 
 Weighted- 
 Average 
 Exercise 
 Price Per 
 Share 
 
 Number 
 Exercisable 
 
 Weighted- 
 Average 
 Exercise 
 Price Per 
 Share 
 
 $9.24 - $11.76 
 
 613,268 
 
 2.35 
 
 $ 
 10.26 
 
 613,268 
 
 $ 
 10.26 
 
 12.37 - 13.67 
 
 554,260 
 
 2.62 
 
 $ 
 13.01 
 
 489,132 
 
 $ 
 13.01 
 
 14.23 - 15.22 
 
 583,989 
 
 2.84 
 
 $ 
 14.65 
 
 559,995 
 
 $ 
 14.64 
 
 15.54 - 17.60 
 
 588,616 
 
 3.69 
 
 $ 
 17.29 
 
 454,312 
 
 $ 
 17.20 
 
 17.69 - 18.93 
 
 776,839 
 
 2.65 
 
 $ 
 18.51 
 
 776,839 
 
 $ 
 18.51 
 
 20.37 - 22.05 
 
 546,617 
 
 5.61 
 
 $ 
 20.93 
 
 385,163 
 
 $ 
 20.98 
 
 22.10 - 25.44 
 
 786,440 
 
 6.40 
 
 $ 
 23.98 
 
 562,458 
 
 $ 
 24.51 
 
 26.60 - 28.45 
 
 652,579 
 
 5.66 
 
 $ 
 27.15 
 
 606,617 
 
 $ 
 27.09 
 
 28.71 - 37.06 
 
 249,160 
 
 4.76 
 
 $ 
 34.28 
 
 247,950 
 
 $ 
 34.31 
 
 39.19 
 
 28,000 
 
 4.62 
 
 $ 
 39.19 
 
 28,000 
 
 $ 
 39.19 
 
 $9.24 - $39.19 
 
 5,379,768 
 
 4.07 
 
 $ 
 19.38 
 
 4,723,734 
 
 $ 
 19.25 
 
 RSU and PRSU Activity 
 
 In January 2015, the Company began to grant RSUs to employees. The Company grants RSUs to certain employees as part of its regular employee equity compensation review program as well as to selected new hires. 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. The first award was a one -year PRSU and the second award was a two -year PRSU. 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 The one -year PRSUs were earned based on the Company’s performance as it related to a revenue growth metric and a minimum non-GAAP operating margin metric during the fiscal year ended June 30, 2018 with eligibility up to 200 % of the targeted number of units based on revenue growth if the minimum non-GAAP operating margin was achieved. Upon achievement of the performance metrics, 50 % of the PRSUs vested at June 30, 2018 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. In December 2019, the Compensation Committee of the Company's Board of Directors determined that the Company achieved the revenue and non-GAAP operating margin metrics for the fiscal year ended June 30, 2018 at a level that entitled the Chief Executive Officer to 200 % of the originally targeted number of shares subject to the one -year PRSU. 50 % of the PRSUs so earned were vested as of June 30, 2018, and an additional 40 % of the PRSUs vested during the eight quarters ended June 30, 2020, in accordance with the terms of the grant. 
 
 The two -year PRSUs are earned based on the Company’s performance for the average non-GAAP operating margin metric for the two fiscal years ended June 30, 2019 with eligibility up to 100 % of the targeted number of units. If the performance metrics were met, 50 % of the PRSUs would have vested at June 30, 2019 while the remainder would have been vested in equal amounts over the following ten quarters if the Chief Executive Officer continued to be employed during those ten quarters. In December 2019, the Compensation Committee of the Board determined that the Company did not achieve the required performance metrics for the two -year PRSUs and none of the two -year PRSUs vested. 
 
 In March 2020, the Compensation Committee granted a PRSU award to one of the Company's senior executives. The award vests in two tranches and includes service and performance conditions. Each tranche has 15,000 RSUs that vest in May 2021 and November 2021 based on service conditions only. Additional units can be earned based on revenue growth percentage in fiscal year 2020 compared to fiscal year 2019, which units would vest in May 2021, and based on revenue growth percentage in fiscal year 2021 compared to fiscal year 2020, which units would vest in November 2021. No additional units were earned for fiscal year 2020 as revenue decreased from fiscal year 2019. 
 
 The following table summarizes RSUs and PRSUs activity during the fiscal years ended June 30, 2020 and 2019 under all plans: 
 
 Time-based RSUs Outstanding 
 
 Weighted 
 Average 
 Grant-Date Fair Value per Share 
 
 PRSUs Outstanding 
 
 Weighted 
 Average 
 Grant-Date Fair Value per Share 
 
 Balance as of June 30, 2017 
 
 1,226,357 
 
 $ 
 26.11 
 
 — 
 
 Granted 
 
 986,680 
 
 $ 
 21.90 
 
 120,000 
 
 (1) 
 
 $ 
 27.10 
 
 Released (2) 
 
 ( 572,789 
 ) 
 
 $ 
 26.34 
 
 — 
 
 Forfeited 
 
 ( 159,643 
 ) 
 
 $ 
 24.90 
 
 — 
 
 Balance as of June 30, 2018 
 
 1,480,605 
 
 $ 
 23.34 
 
 120,000 
 
 $ 
 27.10 
 
 Granted 
 
 1,086,911 
 
 $ 
 18.37 
 
 — 
 
 Released (2) 
 
 ( 549,886 
 ) 
 
 $ 
 24.87 
 
 — 
 
 Forfeited 
 
 ( 144,528 
 ) 
 
 $ 
 20.25 
 
 — 
 
 Balance as of June 30, 2019 
 
 1,873,102 
 
 $ 
 20.25 
 
 120,000 
 
 $ 
 27.10 
 
 Granted 
 
 943,650 
 
 $ 
 20.45 
 
 30,000 
 
 $ 
 20.37 
 
 Released (2) 
 
 ( 871,274 
 ) 
 
 $ 
 20.97 
 
 ( 108,000 
 ) 
 
 $ 
 27.10 
 
 Forfeited 
 
 ( 177,451 
 ) 
 
 $ 
 19.49 
 
 — 
 
 Balance as of June 30, 2020 
 
 1,768,027 
 
 $ 
 20.08 
 
 42,000 
 
 $ 
 22.29 
 
 __________________________ 
 
 (1) 
 Reflects the number of PRSUs that have been earned based on the achievement of performance metrics. 
 
 (2) 
 The number of shares released excludes 172,857 RSUs that were vested but not released in fiscal year 2019. The number of vested but not released RSUs for fiscal year 2020 was not material. The number of shares released also excludes 24,000 and 60,000 PRSUs that were vested but not released in fiscal years 2019 and 2018, respectively. These vested RSUs and PRSUs were primarily released in fiscal year 2020 and included in fiscal year 2020 number upon the effectiveness of the Company's registration statement on Form S-8. 
 
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 The total pretax intrinsic value of RSUs and PRSUs vested was $ 18.9 million , $ 14.3 million and $ 16.8 million for the fiscal years ended June 30, 2020 , 2019 and 2018 , respectively. In fiscal years 2020 , 2019 and 2018 , the Company withheld 331,648 , 175,044 and 199,715 shares with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes from the vesting and release of 979,274 , 549,886 and 572,789 RSUs and PRSUs, respectively, and remitted the cash to the appropriate taxing authorities. The total shares withheld were based on the value of the RSUs on their respective vesting dates as determined by the Company's closing stock price. Total payments for the employees' tax obligations to tax authorities were $ 8.2 million , $ 3.1 million and $ 4.5 million for the fiscal years ended June 30, 2020 , 2019 and 2018 , respectively, and are reflected as a financing activity within the consolidated statements of cash flows. Pursuant to the terms of the 2016 Plan, shares withheld in connection with net-share settlements are returned to the 2016 Plan and are available for future grants under the 2016 Plan. 
 
 Note 15. Income Taxes 
 
 The components of income before income tax provision for the fiscal years ended June 30, 2020 , 2019 and 2018 are as follows (in thousands): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 United States 
 $ 
 35,701 
 
 $ 
 45,126 
 
 $ 
 39,394 
 
 Foreign 
 49,127 
 
 44,397 
 
 48,821 
 
 Income before income tax provision 
 $ 
 84,828 
 
 $ 
 89,523 
 
 $ 
 88,215 
 
 The income tax provision for the fiscal years ended June 30, 2020 , 2019 and 2018 , consists of the following (in thousands): 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Current: 
 
 Federal 
 $ 
 4,568 
 
 $ 
 12,308 
 
 $ 
 11,090 
 
 State 
 1,727 
 
 2,917 
 
 815 
 
 Foreign 
 10,399 
 
 16,531 
 
 12,984 
 
 16,694 
 
 31,756 
 
 24,889 
 
 Deferred: 
 
 Federal 
 ( 10,108 
 ) 
 
 ( 13,078 
 ) 
 
 14,304 
 
 State 
 ( 1,621 
 ) 
 
 ( 2,888 
 ) 
 
 265 
 
 Foreign 
 ( 2,043 
 ) 
 
 ( 906 
 ) 
 
 ( 1,015 
 ) 
 
 ( 13,772 
 ) 
 
 ( 16,872 
 ) 
 
 13,554 
 
 Income tax provision 
 $ 
 2,922 
 
 $ 
 14,884 
 
 $ 
 38,443 
 
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 SUPER MICRO COMPUTER, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 The Company’s net deferred tax assets as of June 30, 2020 and 2019 consist of the following (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Research and development credits 
 $ 
 24,304 
 
 $ 
 20,858 
 
 Deferred revenue 
 20,354 
 
 18,963 
 
 Inventory valuation 
 13,946 
 
 11,856 
 
 Capitalized research and development costs 
 7,509 
 
 — 
 
 Stock-based compensation 
 4,075 
 
 6,080 
 
 Lease obligations 
 3,632 
 
 — 
 
 Accrued vacation and bonus 
 3,281 
 
 2,681 
 
 Prepaid and accrued expenses 
 2,560 
 
 — 
 
 Warranty accrual 
 2,051 
 
 1,948 
 
 Bad debt and other reserves 
 1,917 
 
 1,283 
 
 Marketing fund accrual 
 548 
 
 554 
 
 Other 
 3,652 
 
 3,276 
 
 Total deferred income tax assets 
 87,829 
 
 67,499 
 
 Deferred tax liabilities-depreciation and other 
 ( 4,428 
 ) 
 
 ( 5,406 
 ) 
 
 Right of use asset 
 ( 3,612 
 ) 
 
 — 
 
 Valuation allowance 
 ( 24,891 
 ) 
 
 ( 20,967 
 ) 
 
 Deferred income tax assets, net 
 $ 
 54,898 
 
 $ 
 41,126 
 
 The Company assesses its deferred tax assets for recoverability on a regular basis, and where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future. As of June 30, 2020 , the Company believes that most of its deferred tax assets are “more-likely-than not” to be realized with the exception state research and development tax credits that have not met the “more-likely than not” realization threshold criteria. As a result, at June 30, 2020 , the gross excess credits of $ 30.8 million , or net of federal tax benefit of $ 24.3 million , are sub ject to a full valuation allowance. At June 30, 2019, the gross excess credits of $ 26.4 million , or net of federal tax benefit of $ 20.9 million , are subject to a full valuation allowance. The change in valuation allowance is $ 3.9 million and $ 4.7 million for the fiscal years ended June 30, 2020 and 2019, respectively. The Company will continue to review its deferred tax assets in accordance with the applicable accounting standards. The net deferred tax assets balance as of June 30, 2020 and 2019 was $ 54.9 million and $ 41.1 million , respectively. 
 
 In December 2017, the U.S. federal government enacted the 2017 Tax Reform Act. The 2017 Tax Reform Act reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018 and created a one-time transition tax on foreign earnings of U.S. subsidiaries that were not previously subject to U.S. income tax. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate. As a result, the Company has completed its analysis and has recorded a one-time $ 12.9 million , net write down of its U.S. deferred tax assets and liabilities resulting from the U.S. federal corporate income tax rate decrease from 35% to 21%, and a one-time transition tax of $ 2.8 million , in its income tax provision for the fiscal year ended June 30, 2018. 
 The 2017 Tax Reform Act also creates a new requirement that Global Intangible Low-Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) that must be included currently in the gross income of a CFC’s U.S. stockholder starting in the tax year that begins after 2017. GILTI does not have material impact on the Company's income tax provision. 
 Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (ii) factoring such amounts into a company’s measurement of its deferred taxes. The Company's selection of an accounting policy with respect to the GILTI tax rules is to treat GILTI tax as a current period expense under the period cost method. 
 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. The Company previously asserted that all of its foreign undistributed earnings 
 
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 were indefinitely reinvested. As a result of the 2017 Tax Reform Act, the Company has determined that its foreign undistributed earnings are indefinitely reinvested except for Netherlands. The Company may repatriate foreign earnings from Netherlands which are previously taxed income as a result of the 2017 Tax Reform Act. The tax impact of such repatriation is estimated to be immaterial. 
 
 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. As a result of this restructuring, the Company estimated approximately $ 1.9 million additional tax benefit from foreign derived intangible income in fiscal year 2020 as compared to fiscal year 2019. 
 
 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act provides temporary relief from certain aspects of the 2017 Tax Reform Act that imposed limitations on the utilization of certain losses, interest expense deductions and alternative minimum tax credits and made a technical correction to the 2017 Tax Reform Act related to the depreciable life of qualified improvement property. The CARES Act did not have a material impact on the Company. 
 
 The following is a reconciliation for the fiscal years ended June 30, 2020 , 2019 and 2018 , of the statutory rate to the Company’s effective federal tax rate: 
 
 Years Ended June 30, 
 
 2020 
 
 2019 
 
 2018 
 
 Income tax provision at statutory rate 
 
 21.0 
 % 
 
 21.0 
 % 
 
 28.1 
 % 
 
 State income tax, net of federal tax benefit 
 
 — 
 
 0.5 
 
 ( 0.1 
 ) 
 
 Foreign rate differential 
 
 — 
 
 1.1 
 
 ( 6.0 
 ) 
 
 Research and development tax credit 
 
 ( 13.1 
 ) 
 
 ( 9.5 
 ) 
 
 ( 8.7 
 ) 
 
 Uncertain tax positions, net of (settlement) with Tax Authorities 
 
 ( 2.3 
 ) 
 
 4.1 
 
 6.3 
 
 Foreign derived intangible / Subpart F income inclusion 
 
 ( 3.8 
 ) 
 
 ( 2.1 
 ) 
 
 0.7 
 
 Stock-based compensation 
 
 ( 2.8 
 ) 
 
 2.1 
 
 1.8 
 
 Non deductible penalty on SEC matter 
 
 4.4 
 
 — 
 
 — 
 
 Provision to return true-up 
 
 ( 1.1 
 ) 
 
 ( 1.6 
 ) 
 
 1.5 
 
 Tax reform related charge 
 
 — 
 
 — 
 
 17.9 
 
 Qualified production activity deduction 
 
 — 
 
 — 
 
 ( 1.3 
 ) 
 
 Other, net 
 
 1.1 
 
 1.0 
 
 3.4 
 
 Effective tax rate 
 
 3.4 
 % 
 
 16.6 
 % 
 
 43.6 
 % 
 
 As of June 30, 2020 , the Company had state research and development tax credit carryforwards of $ 40.1 million . The state research and development tax credits will carryforward indefinitely to offset future state income taxes. 
 
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 SUPER MICRO COMPUTER, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 The following table summarizes the activity related to the unrecognized tax benefits (in thousands): 
 
 Gross* 
 Unrecognized 
 Income Tax 
 Benefits 
 
 Balance at June 30, 2017 
 19,217 
 
 Gross increases: 
 
 For current year’s tax positions 
 6,864 
 
 For prior years’ tax positions 
 — 
 
 Gross decreases: 
 
 Decreases due to a lapse of the statute of limitations 
 ( 964 
 ) 
 
 Balance at June 30, 2018 
 25,117 
 
 Gross increases: 
 
 For current year’s tax positions 
 7,789 
 
 For prior years’ tax positions 
 — 
 
 Gross decreases: 
 
 Decreases due to settlements with taxing authority 
 ( 1,504 
 ) 
 
 Decreases due to lapse of statute of limitations 
 ( 3,354 
 ) 
 
 Balance at June 30, 2019 
 28,048 
 
 Gross increases: 
 
 For current year’s tax positions 
 8,769 
 
 For prior years’ tax positions 
 505 
 
 Gross decreases: 
 
 Decreases due to settlements with taxing authority 
 ( 7,632 
 ) 
 
 Decreases due to lapse of statute of limitations 
 ( 2,484 
 ) 
 
 Balance at June 30, 2020 
 $ 
 27,206 
 
 ________________________ 
 *excludes interest, penalties, federal benefit of state reserves 
 
 The total amount of unrecognized tax benefits that would affect the effective tax rate, if recognized, was $ 13.4 million and $ 18.6 million as of June 30, 2020 and 2019 , respectively. 
 
 The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the income tax provision in the consolidated statements of operations. As of June 30, 2020 and 2019 , the Company had accrued $ 2.1 million and $ 1.5 million for the payment of interest and penalties relating to unrecognized tax benefits, respectively. 
 
 In October 2019, the Taiwan tax authority completed its audit in Taiwan for fiscal year 2018 and proposed a transfer pricing adjustment on the Company which resulted 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 a transfer pricing adjustment on the Company which resulted in 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; however, amounts asserted by tax authorities could be greater or less than the Company’s current position. Accordingly, the Company’s provision on federal, state and foreign tax related matters to be recorded in the future may change as revised estimates are made or as the underlying matters are settled or otherwise resolved. 
 
 The federal statute of limitations remains open in general for tax years ended June 30, 2017 through 2020. Various states statute of limitations remain open in general for tax years ended June 30, 2016 through 2020. Certain statutes of limitations in major foreign jurisdictions remain open in general for the tax years ended June 30, 2016 through 2020. It is 
 
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 SUPER MICRO COMPUTER, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 reasonably possible that our gross unrecognized tax benefits will decrease by approximately $ 1.2 million , in the next 12 months, due to the lapse of the statute of limitations. These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits. 
 
 Note 16. Commitments and Contingencies 
 
 Litigation and Claims — On February 8, 2018, two putative class action complaints were filed against the Company, the Company's Chief Executive Officer, and the Company's former Chief Financial Officer in the U.S. District Court for the Northern District of California (Hessefort v. Super Micro Computer, Inc., et al., No. 18-cv-00838 and United Union of Roofers v. Super Micro Computer, Inc., et al., No. 18-cv-00850). The complaints contain similar allegations, claiming that the defendants violated Section 10(b) of the Securities Exchange Act due to alleged misrepresentations and/or omissions in public statements regarding recognition of revenue. The court subsequently appointed New York Hotel Trades Council & Hotel Association of New York City, Inc. Pension Fund as lead plaintiff. The lead plaintiff then filed an amended complaint naming the Company's Senior Vice President of Investor Relations as an additional defendant. On June 21, 2019, the lead plaintiff filed a further amended complaint naming the Company's former Senior Vice President of International Sales, Corporate Secretary, and Director as an additional defendant. On July 26, 2019, the Company filed a motion to dismiss the complaint. On March 23, 2020, the Court granted the Company’s motion to dismiss the complaint, with leave for lead plaintiff to file an amended complaint within 30 days. On April 22, 2020, lead plaintiff filed a further amended complaint. On June 15, 2020, the Company filed a motion to dismiss the further amended complaint, the hearing for which is calendared for September 23, 2020. 
 The Company believes the claims are without merit and intends to vigorously defend against the lawsuit. 
 
 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 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. The Company admitted the SEC’s jurisdiction over the Company and the subject matter of the proceedings, but otherwise neither admitted nor denied the SEC’s findings, as described in the Order. The Company agreed to cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The Company also agreed to pay a civil money penalty of $ 17.5 million . In addition, the Company’s Chief Executive Officer concluded a settlement with the SEC on August 25, 2020, as announced by the SEC. The Company’s Chief Executive Officer will pay the Company the sum of $ 2,122,000 as reimbursement of profits from certain stock sales during the relevant period, pursuant to Section 304 of the Sarbanes-Oxley Act of 2002. As of and for the year ended June 30, 2020, the Company recorded a liability of $ 17.5 million for its SEC settlement which is included in accrued liabilities and general and administrative expenses in the consolidated financial statements. The Company’s Chief Executive Officer’s payment of $ 2,122,000 to the Company is a contingent gain and will be recorded when it is realized. 
 
 Other legal proceedings and indemnifications 
 
 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 June 30, 2020 and any prior periods. 
 
 The Company has entered into indemnification agreements with its current and former directors and executive officers. 
 Under these agreements, the Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is not possible to determine the maximum potential amount of payments the Company could be required to make under these agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim. However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations. 
 
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 SUPER MICRO COMPUTER, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 Purchase Commitments - The Company has agreements to purchase inventory and non-inventory items primarily through the next 12 months. As of June 30, 2020 , these remaining noncancelable commitments were $ 193.6 million , including $ 68.9 million for related parties. 
 
 Standby Letter of Credit - In October 2019, Bank of America increased the value of a previously issued standby letter of credit to a beneficiary from $ 3.2 million to $ 6.4 million to facilitate ongoing operations of the Company. The standby letter of credit is cancellable upon written notice from the issuer. No amounts have been drawn under the standby letter of credit. 
 
 Lease Commitments - See Note 12, "Leases," for a discussion of the Company's operating lease and financing lease commitments. 
 
 Note 17. Retirement Plans 
 
 The Company sponsors a 401(k) savings plan for eligible United States employees and their beneficiaries. Contributions by the Company are discretionary, and no contributions have been made by the Company for the fiscal years ended June 30, 2020 , 2019 and 2018 . 
 
 Beginning in March 2003, employees of Super Micro Computer, B.V. are required to deduct a portion of their gross wages based on a defined age-dependent premium and invest the amount in a defined contribution plan. The Company is required to match the amount that is deducted monthly from employees’ wages. Similar to contributions into a 401(k) plan, the Company's obligation is limited to the contributions made to the contribution plan. Investment risk and investment rewards are assumed by the employees and not by the Company. For the fiscal years ended June 30, 2020 , 2019 and 2018 , the Company’s matching contribution was $ 0.6 million , $ 0.5 million , and $ 0.5 million , respectively. 
 
 The Company contributes to a defined contribution pension plan administered by the government of Taiwan that covers all eligible employees within Taiwan. Pension plan benefits are based primarily on participants’ compensation and years of service credited as specified under the terms of Taiwan’s plan. The funding policy is consistent with the local requirements of Taiwan. The Company's obligation is limited to the contributions made to the pension plan. The Company has no control over the investment strategy of the assets of the government administered pension plan. For the fiscal years ended June 30, 2020 , 2019 and 2018 , the Company’s contribution was $ 2.0 million , $ 1.6 million and $ 1.5 million , respectively. 
 
 Note 18. Segment Reporting 
 
 The Company operates in one operating segment that develops and provides high performance server solutions based upon an innovative, modular and open-standard architecture. The Company’s chief operating decision maker is the Chief Executive Officer. 
 
 The following is a summary of property, plant and equipment, net (in thousands): 
 
 June 30, 
 
 2020 
 
 2019 
 
 Long-lived assets: 
 
 United States 
 $ 
 178,812 
 
 $ 
 162,835 
 
 Asia 
 51,605 
 
 41,915 
 
 Europe 
 3,368 
 
 2,587 
 
 $ 
 233,785 
 
 $ 
 207,337 
 
 The Company’s revenue is presented on a disaggregated basis in Note 3, “Revenue” by type of product, by geographical market, and by products sold through its indirect sales channel or to its direct customers and OEMs. 
 
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 SUPER MICRO COMPUTER, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 

 Note 19. Selected Quarterly Financial Data (Unaudited) 
 
 The following table presents the Company's unaudited consolidated quarterly financial data. This information has been prepared on a basis consistent with that of the audited consolidated financial statements. The Company believes that all necessary adjustments, consisting of normal recurring accruals and adjustments, have been included to present fairly the quarterly financial data. The Company's quarterly results of operations for these periods are not necessarily indicative of future results of operations. 
 
 Three Months Ended 
 
 Jun. 30 
 2020 
 Mar. 31 
 2020 
 Dec. 31 
 2019 
 Sep. 30 
 2019 
 Jun. 30 
 2019 
 Mar. 31 
 2019 
 Dec. 31 
 2018 
 Sep. 30 
 2018 
 
 (In thousands, except per share data) 
 
 Net sales 
 $ 
 896,126 
 
 $ 
 772,408 
 
 $ 
 870,943 
 
 $ 
 799,804 
 
 $ 
 854,234 
 
 $ 
 743,499 
 
 $ 
 931,509 
 
 $ 
 971,118 
 
 Gross profit 
 123,517 
 
 133,360 
 
 138,404 
 
 130,929 
 
 132,034 
 
 112,327 
 
 127,922 
 
 123,239 
 
 Net income 
 18,450 
 
 15,807 
 
 23,706 
 
 26,345 
 
 23,710 
 
 10,646 
 
 18,220 
 
 19,342 
 
 Net income per common share: 
 
 Basic 
 0.35 
 
 0.31 
 
 0.47 
 
 0.52 
 
 0.47 
 
 0.21 
 
 0.37 
 
 0.39 
 
 Diluted 
 0.34 
 
 0.29 
 
 0.46 
 
 0.51 
 
 0.46 
 
 0.21 
 
 0.36 
 
 0.37 
 
 Note 20. Subsequent Events 
 
 On August 9, 2020, the Company's Board of Directors approved a share repurchase program to repurchase shares of common stock for up to $ 30.0 million at prevailing prices in the open market. The share repurchase program is effective until December 31, 2020 or until the maximum amount of common stock is repurchased. 385,000 shares of common stock were repurchased through the date these consolidated financial statements were issued. 
 
 90 
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
 
 None.
Super Micro Computer, Inc. 10-K

Item 8. Financial Statements and Supplementary Data
