What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-05-11 · 455 added, 604 removed, 369 unchanged (74% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30, June 30,

Current assets:

Cash and cash equivalents $ 300,089 $ 210,533

Accounts receivable, net of allowances of $10,317 and $8,906 at March 31, 2020 and June 30, 2019, respectively (including amounts receivable from related parties of $11,827 and $13,439 at March 31, 2020 and June 30, 2019, respectively)

Prepaid expenses and other current assets (including receivables from related parties of $21,354 and $21,302 at March 31, 2020 and June 30, 2019, respectively)

Accounts receivable, net of allowances of $ 3,290 and $ 4,586 at September 30, 2020 and June 30, 2020, respectively (including accounts receivable from related parties of $ 1,202 and $ 8,712 at September 30, 2020 and June 30, 2020, respectively)

322,845 403,745

Inventories 773,856 851,498

Prepaid expenses and other current assets (including other receivables from related parties of $ 7,708 and $ 19,791 at September 30, 2020 and June 30, 2020, respectively)

82,731 126,985

Total current assets 1,479,521 1,592,761

2 unchanged sentences

Deferred income taxes, net 55,122 54,898

Other assets 35,173 34,499

Total assets $ 1,816,693 $ 1,918,646

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable (including amounts due to related parties of $55,124 and $59,809 at March 31, 2020 and June 30, 2019, respectively)

Accrued liabilities (including amounts due to related parties of $20,270 and $10,536 at March 31, 2020 and June 30, 2019, respectively)

Accounts payable (including amounts due to related parties of $ 47,692 and $ 72,368 at September 30, 2020 and June 30, 2020, respectively)

$ 333,359 $ 417,673

Accrued liabilities (including amounts due to related parties of $ 12,629 and $ 16,206 at September 30, 2020 and June 30, 2020, respectively)

121,710 155,401

Income taxes payable 6,325 4,700

3 unchanged sentences

Deferred revenue, non-current 97,576 97,612

Other long-term liabilities (including related party balance of $2,871 and $3,000 at March 31, 2020 and June 30, 2019, respectively)

Long-term debt, net of debt issuance costs 11,980 5,697

Other long-term liabilities (including related party balance of $ 1,169 and $ 1,699 at September 30, 2020 and June 30, 2020, respectively)

44,707 41,995

Total liabilities 743,951 852,939

3 unchanged sentences

Authorized shares:

100,000,000 ;

Outstanding shares:

51,915,646 and 49,956,288 at March 31, 2020 and June 30, 2019, respectively

51,765,627 and 52,408,703 at September 30, 2020 and June 30, 2020, respectively

Issued shares:

53,248,771 and 51,289,413 at March 31, 2020 and June 30, 2019, respectively

Treasury stock (at cost), 1,333,125 shares at March 31, 2020 and June 30, 2019

Accumulated other comprehensive loss

54,241,046 and 53,741,828 at September 30, 2020 and June 30, 2020, respectively

400,157 389,972

Treasury stock (at cost), 2,475,419 and 1,333,125 shares at September 30, 2020 and June 30, 2020, respectively

( 50,491 ) ( 20,491 )

Accumulated other comprehensive gain (loss) 95 ( 152 )

Retained earnings 722,812 696,211

9 unchanged sentences

Three Months Ended

Nine Months Ended

Net sales (including related party sales of $21,528 and $17,590 in the three months ended March 31, 2020 and 2019, respectively, and $70,974 and $48,849 in the nine months ended March 31, 2020 and 2019, respectively)

Cost of sales (including related party purchases of $60,387 and $62,624 in the three months ended March 31, 2020 and 2019, respectively, and $200,753 and $215,331 in the nine months ended March 31, 2020 and 2019, respectively)

September 30,

Net sales (including related party sales of $ 13,899 and $ 27,662 in the three months ended September 30, 2020 and 2019, respectively)

$ 762,250 $ 799,804

Cost of sales (including related party purchases of $ 62,199 and $ 65,033 in the three months ended September 30, 2020 and 2019, respectively)

632,335 668,875

Gross profit 129,915 130,929

Operating expenses:

4 unchanged sentences

Income from operations 30,446 32,865

Other income (expense), net

Other (expense) income, net ( 841 ) 1,589

Interest expense ( 674 ) ( 552 )

Income before income tax provision 28,931 33,902

Income tax benefit (provision)

Share of loss from equity investee, net of taxes

Income tax provision ( 3,660 ) ( 8,568 )

Share of income from equity investee, net of taxes 1,330 1,011

Net income $ 26,601 $ 26,345

Net income per common share:

Basic $ 0.51 $ 0.52

Diluted $ 0.49 $ 0.51

Weighted-average shares used in calculation of net income per common share:

Basic 52,329 50,274

Diluted 54,426 51,704

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Net income $ 26,601 $ 26,345

Other comprehensive income (loss), net of tax:

Foreign currency translation (loss) gain

Foreign currency translation gain (loss) 247 ( 140 )

Total other comprehensive income (loss) 247 ( 140 )

4 unchanged sentences

(in thousands, except share amounts)

Three Months Ended March 31, 2020

Common Stock and

Additional Paid-In

Treasury Stock

Comprehensive

Non-controlling Interest

Stockholders’

Balance at December 31, 2019

Exercise of stock options, net of shares withheld for withholding taxes

Release of common stock shares upon vesting of restricted stock units

Shares withheld for the withholding tax on vesting of restricted stock units

Stock-based compensation

Foreign currency translation loss

Balance at March 31, 2020

Three Months Ended March 31, 2019

Common Stock and

Additional Paid-In

Treasury Stock

Comprehensive

Non-controlling Interest

Stockholders’

Balance at December 31, 2018

Release of common stock shares upon vesting of restricted stock units

Shares withheld for the withholding tax on vesting of restricted stock units

Stock-based compensation

Foreign currency translation gain

Balance at March 31, 2019

See accompanying notes to condensed consolidated financial statements.

SUPER MICRO COMPUTER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Nine Months Ended March 31, 2020

Common Stock and

Three Months Ended September 30, 2020 Common Stock and

Additional Paid-In

Treasury Stock

Capital Treasury Stock Accumulated

Comprehensive

Non-controlling Interest

(Loss) Gain Retained

Earnings Non-controlling Interest Total

Stockholders’

Shares Amount Shares Amount

Balance at June 30, 2020 53,741,828 $ 389,972 ( 1,333,125 ) $ ( 20,491 ) $ ( 152 ) $ 696,211 $ 167 $ 1,065,707

Exercise of stock options, net of shares withheld for withholding taxes

Release of common stock shares upon vesting of restricted stock units

Shares withheld for the withholding tax on vesting of restricted stock units

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

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

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

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

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

Foreign currency translation loss

Balance at March 31, 2020

Nine Months Ended March 31, 2019

Common Stock and

Foreign currency translation gain — — — — 247 — — 247

Net income — — — — — 26,601 2 26,603

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

Three Months Ended September 30, 2019 Common Stock and

Additional Paid-In

Treasury Stock

Capital Treasury Stock Accumulated

Comprehensive

Non-controlling Interest

Loss Retained

Earnings Non-controlling Interest Total

Stockholders’

Shares Amount Shares Amount

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

Cumulative effective adjustment from adoption of standards, net of taxes

Release of common stock shares upon vesting of restricted stock units

Shares withheld for the withholding tax on vesting of restricted stock units

Release of shares of common stock upon vesting of restricted stock units 100,186 — — — — — — —

Shares of common stock withheld for the withholding tax on vesting of restricted stock units ( 30,789 ) ( 580 ) — — — — — ( 580 )

Stock-based compensation — 5,054 — — — — — 5,054

Foreign currency translation loss — — — — ( 140 ) — — ( 140 )

Balance at March 31, 2019

Net income — — — — — 26,345 1 26,346

Balance at September 30, 2019 51,358,810 $ 354,157 ( 1,333,125 ) $ ( 20,491 ) $ ( 220 ) $ 638,248 $ 162 $ 971,856

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended

Three Months Ended

September 30,

OPERATING ACTIVITIES:

Net income $ 26,601 $ 26,345

Reconciliation of net income to net cash provided by operating activities:

1 unchanged sentence

Stock-based compensation expense 7,170 5,054

Allowances for doubtful accounts

Provision for excess and obsolete inventories

Share of loss from equity investee

Allowances for (recovery of) doubtful accounts ( 154 ) 56

Provision for (recovery of) excess and obsolete inventories ( 902 ) 8,328

Share of income from equity investee ( 1,330 ) ( 1,011 )

Foreign currency exchange (gain) loss 618 ( 561 )

Deferred income taxes, net ( 224 ) ( 585 )

Other ( 719 ) 289

Changes in operating assets and liabilities:

Accounts receivable (including changes in related party balances of $1,612 and ($8,813) during the nine months ended March 31, 2020 and 2019, respectively)

Prepaid expenses and other assets (including changes in related party balances of ($52) and $9,741 during the nine months ended March 31, 2020 and 2019, respectively)

Accounts payable (including changes in related party balances of ($4,685) and ($24,882) during the nine months ended March 31, 2020 and 2019, respectively)

Accounts receivable (including changes in related party balances of $ 7,510 and $( 4,474 ) during the three months ended September 30, 2020 and 2019, respectively)

81,035 37,340

Inventories 78,544 ( 23,371 )

Prepaid expenses and other assets (including changes in related party balances of $ 12,083 and $( 3,554 ) during the three months ended September 30, 2020 and 2019, respectively)

43,724 ( 31,088 )

Accounts payable (including changes in related party balances of $( 24,676 ) and $ 3,796 during the three months ended September 30, 2020 and 2019, respectively)

( 85,704 ) ( 24,865 )

Income taxes payable 1,625 ( 9,215 )

Deferred revenue ( 1,946 ) ( 1,529 )

Accrued liabilities (including changes in related party balances of $9,734 and ($9,288) during the nine months ended March 31, 2020 and 2019, respectively)

Other long-term liabilities (including changes in related party balances of ($129) and $0 during the nine months ended March 31, 2020 and 2019, respectively)

Accrued liabilities (including changes in related party balances of $( 3,577 ) and $ 5,324 during the three months ended September 30, 2020 and 2019, respectively)

( 36,457 ) 12,693

Other long-term liabilities (including changes in related party balances of $( 530 ) and $ 1,272 during the three months ended September 30, 2020 and 2019, respectively)

Net cash provided by operating activities 120,555 5,560

INVESTING ACTIVITIES:

Purchases of property, plant and equipment (including payments to related parties of $4,384 and $4,203 during the nine months ended March 31, 2020 and 2019, respectively)

Proceeds from sale of investment in a privately-held company

Purchases of property, plant and equipment (including payments to related parties of $ 2,230 and $ 813 during the three months ended September 30, 2020 and 2019, respectively)

( 11,851 ) ( 13,325 )

Net cash used in investing activities ( 11,851 ) ( 13,325 )

3 unchanged sentences

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

Payment of other fees for debt financing

Proceeds from exercise of stock options 5,020 —

Payment of withholding tax on vesting of restricted stock units ( 2,005 ) ( 580 )

Stock repurchases ( 28,453 ) —

Payments of obligations under finance leases ( 26 ) ( 19 )

Net cash provided by (used in) financing activities

Net cash used in financing activities ( 19,327 ) ( 1,715 )

Effect of exchange rate fluctuations on cash 185 ( 38 )

Net increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash 89,562 ( 9,518 )

Cash, cash equivalents and restricted cash at the beginning of the period 212,390 262,140

4 unchanged sentences

Non-cash investing and financing activities:

Unpaid property, plant and equipment purchases (including due to related parties of $215 and $1,067 as of March 31, 2020 and 2019, respectively)

Contribution of certain technology rights to equity investee

Unpaid property, plant and equipment purchases (including due to related parties of $ 1,664 and $ 1,514 as of September 30, 2020 and 2019, respectively)

$ 6,661 $ 6,413

New operating lease assets obtained in exchange for operating lease liabilities

Unpaid stock repurchases 1,547 —

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Organization and Summary of Significant Accounting Policies

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.

Summary of Significant Accounting Policies

Significant Accounting Policies and Estimates

No material changes have been made to the significant accounting policies of Super Micro Computer, Inc., a corporation incorporated under the laws of Delaware, and its consolidated entities (together, the “Company”), disclosed in Note 1, Organization and Summary of Significant Accounting Policies, in its Annual Report on Form 10-K, filed on August 28, 2020, for the year ended June 30, 2020.

Management's estimates include, as applicable, the anticipated impacts of the coronavirus ("COVID-19') pandemic.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S.

The condensed 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 condensed consolidated statements of operations and condensed 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.

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.

The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals in the United States of America ("U.S.

GAAP") have been condensed or omitted pursuant to such rules and regulations.

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

The consolidated results of operations for the three and nine months ended March 31, 2020 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2020.

Use of Estimates

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:

allowances for doubtful accounts and sales returns, inventory valuation, useful lives of property, plant and equipment, product warranty accruals, stock-based compensation, valuation and recognition of performance awards liability, 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 coronavirus ("COVID-19") pandemic on our critical and significant accounting estimates, including assessment of collectibility of customer contracts, valuation of accounts receivable, provision for excess and obsolete inventory and impairment of long-lived assets.

Collectibility of customer contracts assessment resulted in delaying revenue recognition of $ 3.4 million for certain orders shipped during the three months ended March 31, 2020.

Revenue Recognition

The Company generates revenues from the sale of server and storage systems, subsystems, accessories, services, server software management solutions, and support services.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 customer 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, unless customer acceptance is uncertain, and in the amount of consideration to which the Company expects to be entitled.

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, with a corresponding decrease in revenue, and an asset is recognized for the amount expected to be recorded in inventory upon product return, less the expected recovery costs, with a corresponding decrease in cost of sales.

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.

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 through past transactions, the Company estimates 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 products sold.

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.

Product Warranties

The Company offers product warranties 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

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 repair and replacement 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 charged 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.

Research and Development

Research and development expenses consist of personnel expenses including:

salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our research and development personnel, as well as materials and supplies, consulting services, third-party testing services and equipment and facility expenses related to our 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 $ 0.8 million and $ 2.0 million for the nine months ended March 31, 2020 and 2019, respectively.

Such amounts recorded as a reduction of research and development expenses were not significant for the three months ended March 31, 2020 and 2019.

During the three and nine months ended March 31, 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.

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 lower of cost or net realizable value and excess and obsolescence and, as necessary, writes down the valuation of inventories based upon the Company's 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.

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 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 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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 options and RSUs awards are recognized to expense on a straight-line basis over the requisite service period.

PRSUs awards are recognized to expense using an accelerated method only when it is probable that any 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 as 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.

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.

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 condensed 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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 condensed 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.

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 in accordance with applicable accounting standards and guidance;

however, the Company is not the primary beneficiary with respect to either Ablecom or Compuware 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, including the supplier arrangements.

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 those 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 and operated manufacturing facilities.

In fiscal year 2012, each company contributed $ 0.2 million and owns 50 % 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 three and nine months ended March 31, 2020 and 2019 , 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 condensed consolidated statements of operations.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The consolidated results of operations for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for future quarters or for the fiscal year ending June 30, 2021.

Investment in a Corporate Venture

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

The Corporate Venture is 30 % owned by the Company and 70 % owned by a third party in China.

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

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

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

As of March 31, 2020 and June 30, 2019 , the Company's equity investment in the Corporate Venture was $ 0 and $ 1.7 million , respectively, and was recorded under investment in equity investee on the Company's condensed consolidated balance sheets.

The Company's share of losses, net of taxes, of the Corporate Venture were $ 1.1 million and $ 0.4 million for the three months ended March 31, 2020 and 2019 , respectively, and $ 1.1 million and $ 3.6 million for the nine months ended March 31, 2020 and 2019 , respectively, and were recorded as share of loss from equity investee, net of taxes in the Company’s condensed consolidated statements of operations.

The Company does not have an obligation or commitment to share in losses of the Corporate Venture above its investment amounts and will discontinue equity method accounting if the investment carrying value is below zero.

The Company previously recorded a deferred gain related to the contribution of certain technology rights of $ 10.0 million .

The amortization of the deferred gain is being recognized as a credit to research and development expenses in the Company's condensed consolidated statement of operations over a period of five years which represents the estimated period over which the remaining obligations will be fulfilled.

As of March 31, 2020 and June 30, 2019 , the Company had unamortized deferred gain balance of $ 2.5 million and $ 2.0 million , respectively, in accrued liabilities and $ 1.5 million and $ 3.0 million , respectively, in other long-term liabilities in the Company’s condensed consolidated balance sheets.

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

No impairment charge was recorded for the three and nine months ended March 31, 2020 and 2019 , respectively.

In addition, the Company sells products to the Corporate Venture.

The Company's share of intra-entity profits on the products that remained unsold by the Corporate Venture as of each period end is eliminated and recorded as a reduction of the Company's investment balance in the Corporate Venture.

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

As of September 30, 2020 and June 30, 2020, the Company had unamortized deferred gain balance of $ 2.0 million and $ 2.0 million, respectively, in accrued liabilities and $ 0.5 million and $ 1.0 million, respectively, in other long-term liabilities in the Company’s condensed consolidated balance sheets.

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

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

government export control list, along with

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

The Corporate Venture is not itself a restricted party.

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

The Company does not believe that the equity investment carrying value is impacted as of September 30, 2020.

No impairment charge was recorded for the three months ended September 30, 2020 and 2019, respectively.

The Company sold products worth $ 0.6 million and $ 22.1 million to the Corporate Venture in the three months ended September 30, 2020 and 2019, respectively, and the Company’s share of intra-entity profits on the products that remained unsold by the Corporate Venture in the amounts of $ 2.3 million and $ 3.0 million as of September 30, 2020 and June 30, 2020, respectively, 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 sold products worth $ 14.0 million and $ 13.7 million to the Corporate Venture in the three months ended March 31, 2020 and 2019 , respectively, and $ 51.5 million and $ 35.2 million in the nine months ended March 31, 2020 and 2019 , respectively.

As of March 31, 2020 , the Company recorded $0.5 million related to unrealized intra-entity profits in accrued liabilities in the Company’s condensed consolidated balance sheet.

The Company had $ 10.4 million and $ 13.1 million due from the Corporate Venture in accounts receivable, net as of March 31, 2020 and June 30, 2019 , respectively, in its condensed consolidated balance sheets.

The Company had $ 0.6 million and $ 7.8 million due from the Corporate Venture in accounts receivable, net as of September 30, 2020 and June 30, 2020, respectively.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Concentration of Supplier Risk

Certain materials used by the Company in the manufacture of its products are available from a limited number of suppliers.

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.

The COVID-19 pandemic has already and may further disrupt our supply chain.

One supplier accounted for 26.1 % and 20.1 % of total purchases for the three months ended March 31, 2020 and 2019 , respectively, and 27.9 % and 21.2 % for the nine months ended March 31, 2020 and 2019 , respectively.

Ablecom and Compuware, related parties of the Company as noted in Note 9, "Related Party Transactions," accounted for 9.4 % and 9.9 % of total cost of sales for the three months ended March 31, 2020 and 2019 , respectively, and 9.8 % and 9.4 % for the nine months ended March 31, 2020 and 2019 , respectively.

One supplier accounted for 22.0 % and 28.7 % of total purchases for the three months ended September 30, 2020 and 2019, respectively.

Ablecom and Compuware, related parties of the Company (see Note 8, "Related Party Transactions") accounted for 9.8 % and 9.7 % of total cost of sales for the three months ended September 30, 2020 and 2019, respectively.

Concentration of Credit Risk

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

No single customer accounted for 10% or more of the net sales for the three and nine months ended March 31, 2020 and 2019 .

No country other than the United States represented greater than 10% of the Company’s total net sales in the three and nine months ended March 31, 2020 and 2019 .

No customer accounted for greater than 10% of the Company's accounts receivable, net as of March 31, 2020 , whereas one customer accounted for 17.0 % of accounts receivable, net as of June 30, 2019 .

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

No single customer accounted for 10% or more of the net sales for the three months ended September 30, 2020 and 2019.

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

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 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 8, "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 a material 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 Company has started its accounting assessment of the adoption of the new standard, the process of establishing new accounting policies and evaluation of changes to systems and internal controls necessary to support the requirements of the new standard.

The Company will continue to update its assessment as more information becomes available.

The Company cannot reasonably estimate quantitative information related to the impact of the new guidance on its consolidated financial statements at this time.

Measurement of Credit Losses on Financial Instruments .

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

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

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

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

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

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

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

The new guidance has no material impact on the Company's condensed consolidated financial statements for the three months ended September 30, 2020.

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 simplify the disclosure of the fair value measurements for the Company's financial assets and liabilities.

The Company adopted this guidance on July 1, 2020.

As of September 30, 2020, the Company’s investment in an auction rate security is the only Level 3 investment measured at fair value on a recurring basis.

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

See Note 5 below.

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, the entity shall determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense.

It requires the 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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

The accounting for the service element of a hosting arrangement that is a service contract is not affected by the new guidance.

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

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

Accounting Pronouncements Not Yet Adopted

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

1 unchanged sentence

The guidance is effective for the Company from July

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

early adoption is permitted.

The Company is currently evaluating the effect the guidance will have on its consolidated financial statement disclosures, results of operations and financial position.

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

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

2 unchanged sentences

The amendment is effective for all entities through December 15, 2022.

The 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 terminates on June 30, 2020 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.

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 statements and disclosures.

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 Company disaggregates revenue by type of product and by geographical market in order to depict the nature, amount, and timing of revenue and cash flows.

Service revenues, which are less than 10%, are not a significant component of total revenue, and are aggregated within the respective categories.

The following is a summary of net sales by product type (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Server and storage systems $ 617,788 $ 636,026

Subsystems and accessories 144,462 163,778

Total $ 762,250 $ 799,804

Server and storage systems constitute an assembly and integration of subsystems and accessories, and related services.

1 unchanged sentence

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

The following is a summary for the three and nine months ended March 31, 2020 and 2019 , of net sales by geographic region (in thousands):

The following is a summary for the three months ended September 30, 2020 and 2019, of net sales by geographic region (in thousands):

Three Months Ended

Nine Months Ended

September 30,

United States $ 496,086 $ 468,841

Europe 112,089 128,059

Asia 126,707 161,639

Others 27,368 41,265

$ 762,250 $ 799,804

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 the three and nine months ended March 31, 2020 and 2019 (in thousands):

Three Months Ended

Nine Months Ended

Indirect sales channel

Direct customers and OEMs

Total net sales

Contract Balances

1 unchanged sentence

In certain instances, customers may prepay for products and services in advance of delivery.

Accounts receivable 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.

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

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

2 unchanged sentences

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

Revenue recognized during the three and nine months ended March 31, 2020 , which was included in the opening deferred revenue balance as of June 30, 2019, was $ 22.9 million and $ 71.6 million , respectively.

Deferred revenue increased during the nine months ended March 31, 2020 because the amounts for service contracts invoiced during the period exceeded the recognition of revenue from contracts entered into in prior periods.

Revenue recognized during the three months ended September 30, 2020, which was included in the opening deferred revenue balance as of June 30, 2020 of $ 203.8 million, was $ 28.6 million.

Deferred revenue decreased $ 1.9 million during the three months ended September 30, 2020 because the recognition of revenue from contracts entered into in prior periods was greater than the invoiced amounts for service contracts during the period.

Transaction Price Allocated to the Remaining Performance Obligations

2 unchanged sentences

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

The value of the transaction price allocated to remaining performance obligations as of March 31, 2020 was approximately $ 205.5 million .

The value of the transaction price allocated to remaining performance obligations as of September 30, 2020 was $ 201.8 million.

The Company expects to recognize approximately 52 % of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter.

Stock-based Compensation

Equity Incentive Plan

Commencing March 8, 2016, the Company began granting stock options, RSUs, PRSUs and other equity-based awards under the 2016 Equity Incentive Plan (the "2016 Plan").

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

sixteenth per quarter thereafter.

As of March 31, 2020 , the Company had 231,312 authorized shares available for future issuance under the 2016 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 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 three and nine months ended March 31, 2020 and 2019 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Three Months Ended

Nine Months Ended

Risk-free interest rate

0.53% - 1.49%

0.53% - 1.72%

2.56% - 2.97%

Expected term

Dividend yield

49.61% - 50.46%

47.34% - 50.25%

Weighted-average fair value

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three and nine months ended March 31, 2020 and 2019 (in thousands):

Three Months Ended

Nine Months Ended

Cost of sales

Research and development

Sales and marketing

General and administrative

Stock-based compensation expense before taxes

Income tax impact

Stock-based compensation expense, net

As of March 31, 2020 , $ 6.5 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.32 years, $ 34.2 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.63 years and $ 0.7 million of unrecognized compensation cost related to unvested PRSUs is expected to be recognized over a period of 1.04 years.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock Option Activity

The following table summarizes stock option activity during the nine months ended March 31, 2020 under all plans:

Term (in Years)

Balance as of June 30, 2019

Forfeited/Cancelled

Balance as of March 31, 2020

Options vested and exercisable at March 31, 2020

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.

The one-year PRSUs would be earned based on the Company’s performance as it relates 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 30,000 units based on revenue growth if the minimum non-GAAP operating margin is achieved.

If the performance metrics were met, 50 % of the PRSUs would vest at June 30, 2018 while the remainder would 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 (the "Board") 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 35 % of the PRSUs vested during the seven quarters ended March 31, 2020, in accordance with the terms of the grant.

The two-year PRSUs would be 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 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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes RSU and PRSU activity during the nine months ended March 31, 2020 under all plans:

Time-Based RSUs

Grant-Date Fair Value per Share

Balance as of June 30, 2019

Balance as of March 31, 2020

__________________________

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

Capitalized Contract Acquisition Costs and Fulfillment Cost

Contract acquisition costs are those incremental costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained.

Contract acquisition costs consist primarily of incentive bonuses.

Contract acquisition costs are considered incremental and recoverable costs of obtaining and fulfilling a contract with a customer and are therefore capitalizable.

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

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

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

Net Income Per Common Share

The following table shows the computation of basic and diluted net income per common share for the three and nine months ended March 31, 2020 and 2019 (in thousands, except per share amounts):

The following table shows the computation of basic and diluted net income per common share for the three months ended September 30, 2020 and 2019 (in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

September 30,

Net income $ 26,601 $ 26,345

Weighted-average shares outstanding 52,329 50,274

3 unchanged sentences

Diluted net income per common share $ 0.49 $ 0.51

For the three and nine months ended March 31, 2020 and 2019 , the Company had stock options and RSUs 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 1,882,238 and 2,305,538 for three and nine months ended March 31, 2020 , respectively, and 4,443,127 and 4,194,283 for the three and nine months ended March 31, 2019 , respectively.

For the three months ended September 30, 2020 and 2019, the Company had stock options, restricted stock units ("RSUs") and performance based restricted stock units ("PRSUs") outstanding that could potentially dilute basic earnings per share in the future, but were excluded from the computation of diluted net income per share in the periods presented, as their effect would have been anti-dilutive.

The anti-dilutive common share equivalents resulting from outstanding equity awards were 1,177,694 and 3,958,789 for three months ended September 30, 2020, and 2019, respectively.

Balance Sheet Components

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

September 30, 2020 June 30, 2020

Finished goods $ 553,950 $ 656,817

2 unchanged sentences

Total inventories $ 773,856 $ 851,498

The Company recorded a (recovery) provision for excess and obsolete inventory to cost of sales totaling $( 0.8 ) million and $ 10.1 million in the three months ended September 30, 2020 and 2019, respectively.

These amounts exclude a provision (recovery) for adjusting the cost of certain inventories to net realizable value of $ 0.9 million and $( 1.8 ) million for the three months ended September 30, 2020 and 2019, respectively.

The recovery is recognized when previously reserved inventories are sold.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company recorded a provision for excess and obsolete inventory to cost of sales totaling $ 4.7 million and $ 21.6 million in the three and nine months ended March 31, 2020 , respectively, and $ 4.7 million and $ 17.3 million in the three and nine months ended March 31, 2019 , respectively.

These amounts exclude a (recovery) provision for adjusting the cost of certain inventories to net realizable value of $( 0.8 ) million and $( 3.5 ) million for the three and nine months ended March 31, 2020 , respectively, and $ 5.7 million and $ 7.3 million for the three and nine months ended March 31, 2019 , respectively.

Prepaid Expenses and Other Current Assets:

Receivables from vendors (1)

September 30, 2020 June 30, 2020

Other receivables (1) $ 40,417 $ 94,859

Prepaid income tax 13,846 14,323

Restricted cash

Prepaid expenses 5,832 7,075

Deferred service costs 4,431 4,161

Restricted cash 250 250

Others 17,955 6,317

Total prepaid expenses and other current assets $ 82,731 $ 126,985

__________________________

(1) Includes receivables from contract manufacturers based on certain buy-sell arrangements of $ 87.1 million and $ 82.0 million as of March 31, 2020 and June 30, 2019 , respectively.

(2) Includes input value added tax (“VAT”) paid for inventories purchased in Taiwan of $ 8.4 million and $ 0 as of March 31, 2020 and June 30, 2019 , respectively.

(1) Includes other receivables from contract manufacturers based on certain buy-sell arrangements of $ 33.6 million and $ 83.8 million as of September 30, 2020 and June 30, 2020, respectively.

Cash, cash equivalents and restricted cash:

September 30, 2020 June 30, 2020

Cash and cash equivalents $ 300,089 $ 210,533

3 unchanged sentences

Property, Plant, and Equipment:

September 30, 2020 June 30, 2020

Buildings $ 86,930 $ 86,930

Land 75,264 75,251

Machinery and equipment 87,876 85,381

1 unchanged sentence

Building and leasehold improvements 24,886 24,517

Software 22,616 20,597

Furniture and fixtures 21,769 21,544

373,896 360,531

Accumulated depreciation and amortization ( 132,044 ) ( 126,746 )

1 unchanged sentence

__________________________

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

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

SUPER MICRO COMPUTER, INC.

1 unchanged sentence

Other Assets:

September 30, 2020 June 30, 2020

Operating lease right-of-use asset $ 24,075 $ 23,784

Deferred service costs, non-current 4,828 4,632

Prepaid expense, non-current

Restricted cash, non-current 1,613 1,607

Investment in auction rate security 1,571 1,571

Deposits 1,252 1,201

Non-marketable equity securities 128 128

Prepaid expense, non-current 1,706 1,576

Total other assets $ 35,173 $ 34,499

Accrued Liabilities:

Contract manufacturing liabilities

September 30, 2020 June 30, 2020

Accrued payroll and related expenses $ 34,059 $ 33,577

Accrued legal liabilities (Note 11)

Customer deposits

Performance awards liability, current

Contract manufacturing liabilities 20,366 36,249

Accrued warranty costs 11,057 9,984

Accrued cooperative marketing expenses

Customer deposits 10,306 9,942

Operating lease liability 7,027 6,310

Accrued cooperative marketing expenses 5,818 5,925

Accrued professional fees 2,630 5,661

Accrued legal liabilities (Note 11) — 18,114

Others (accrued liabilities) 30,447 29,639

1 unchanged sentence

Performance Awards Liability

In March 2020, the Board approved $ 25.3 million one-time performance bonuses to employees, which include $ 8.0 million payable in cash during the fourth quarter of fiscal year 2020 and $ 17.3 million payable in cash if the average closing price for the Company’s common stock equals or exceeds $ 21.39 for any period of 10 consecutive trading days following March 26, 2020.

The target price criteria were achieved in April 2020.

Therefore, the Company expects to pay the entire amount of the one-time performance bonuses to employees in the fourth fiscal quarter 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.

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

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

2 unchanged sentences

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 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

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A senior executive can earn an aggregate cash payment up to $ 0.1 million and the two members of the Board can earn aggregate cash payments of $ 0.3 million .

The target average closing price ranges from $ 25.80 to $ 32.99 per share.

These awards expire in two equal amounts at September 30, 2021 and June 30, 2022 for the two Board members' awards, and in September 30, 2022 for the senior executive’s award.

Except for cash bonuses of $ 8.0 million to employees, the Company accounts for these performance bonuses as liabilities and estimates fair value of payable amounts using a Monte-Carlo simulation model.

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

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 operating expenses.

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

3 unchanged sentences

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 March 31, 2020, the Company recorded a $ 10.3 million compensation expense related to performance bonuses, which amount includes the $ 8.0 million in cash payable in the fourth quarter of fiscal year 2020.

An unrecognized compensation expense of $ 15.6 million will be recorded over the remaining service periods from one month for employees’ awards to 1.43 years for the first 50 % of the Chief Executive Officer’s award.

The unrecognized expense and remaining service periods will be remeasured each reporting period.

As of March 31, 2020, the Company recorded $ 10.3 million in accrued liabilities and $ 0.1 million in other long-term liabilities in its condensed consolidated balance sheet.

As of September 30, 2020 and June 30, 2020, the fair value of these performance bonuses was $ 2.2 million and $ 2.1 million, respectively, of which $ 2.2 million and $ 1.5 million, respectively, was recorded within accrued liabilities and $ 0 .0 million and $ 0.6 million, respectively, was recorded within other long-term liabilities on the Company's consolidated balance sheet.

An unrecognized compensation expense of $ 2.3 million will be recorded over the remaining service periods from 0.26 years to 0.93 years.

The fair value of these awards is remeasured each reporting period.

The expense recognized during the three months ended September 30, 2020 and September 30, 2019 was $ 0.1 million and $ 0.0 million respectively.

Other Long-term Liabilities:

September 30, 2020 June 30, 2020

Operating lease liability, non-current $ 17,892 $ 18,102

1 unchanged sentence

Accrued warranty costs, non-current 2,670 2,395

Others 8,078 6,002

Total other long-term liabilities $ 44,707 $ 41,995

Product Warranties:

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended

September 30,

Balance, beginning of the period $ 12,379 $ 11,034

5 unchanged sentences

Non-current portion $ 2,670 $ 2,630

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Value Disclosure

1 unchanged sentence

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

The Company’s investment in an auction rate security is classified within Level 3 of the fair value hierarchy as the determination of its fair value was not based on observable inputs as of March 31, 2020 and June 30, 2019 .

The Company used discounted cash flows to estimate the fair value of the auction rate security as of March 31, 2020 and June 30, 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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

(i) the expected yield based on observable market rate of similar securities, (ii) the security coupon rate that is reset monthly, (iii) the estimated holding period and (iv) a liquidity discount.

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

The Company performed a sensitivity analysis and applying a change of either plus or minus 100 basis points in the liquidity discount does not result in a significantly higher or lower fair value measurement of the auction rate security as of September 30, 2020.

Financial Assets and Liabilities Measured on a Recurring Basis

The following table sets forth the Company’s cash equivalents, certificates of deposit, investment in an auction rate security and performance awards liability as of March 31, 2020 and June 30, 2019 , which are measured at fair value on a recurring basis by level within the fair value hierarchy.

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

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

March 31, 2020

September 30, 2020 Level 1 Level 2 Level 3 Asset at

Money market funds (1) $ 841 $ — $ — $ 841

4 unchanged sentences

Total liabilities measured at fair value $ — $ 2,196 $ — $ 2,196

June 30, 2019

June 30, 2020 Level 1 Level 2 Level 3 Asset at

Money market funds (1) $ 1,163 $ — $ — $ 1,163

2 unchanged sentences

Total assets measured at fair value $ 1,163 $ 836 $ 1,571 $ 3,570

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

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

__________________________

(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 condensed consolidated balance sheets as of March 31, 2020 and June 30, 2019 , respectively.

(2) $ 0.2 million and $ 0.2 million in certificates of deposit are included in cash and cash equivalents and $ 0.4 million and $ 1.1 million in certificates of deposit are included in restricted cash, non-current in other assets in the condensed consolidated balance sheets as of March 31, 2020 and June 30, 2019 , respectively.

(3) As of March 31, 2020 , the current portion of the performance awards liability of $ 2.2 million is included in accrued liabilities and the noncurrent portion of $ 0.1 million is included in other long-term liabilities in the condensed consolidated balance sheets.

There was no such liability outstanding as of June 30, 2019 .

(1) $ 0.0 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 condensed consolidated balance sheets as of September 30, 2020 and June 30, 2020, respectively.

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The performance awards liability consists of one-time employee performance bonuses for the Company's Chief Executive Officer, a senior executive, two members of the Board, and other employees 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 March 31, 2020 are as follows:

Stock Price as of Period End

Performance Period

Risk-free Rate

Dividend Yield

(3) As of September 30, 2020 and June 30, 2020, the current portion of the performance awards liability of $ 2.2 million and $ 1.5 million, respectively, is included in accrued liabilities and the noncurrent portion of $ 0.0 million and $ 0.6 million, respectively, is included in other long-term liabilities in the condensed consolidated balance sheets.

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

For the three months ended September 30, 2020, the credit losses related to the Company’s investments was not significant.

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

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

September 30, 2020

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

$ 26.4 1.0 - 1.75 years

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three and nine months ended March 31, 2020 and 2019 .

There was no movement in the balances of the Company's financial assets measured at fair value on a recurring basis, consisting of investment in an auction rate security, using significant unobservable inputs (Level 3) for the three and nine months ended March 31, 2020 and 2019 .

The following is a summary of the Company’s investment in an auction rate security as of March 31, 2020 and June 30, 2019 (in thousands):

March 31, 2020 and June 30, 2019

0.13 % 53.58 % — %

June 30, 2020

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

$ 28.39 1.25 - 2.0 years

0.16 % 53.75 % — %

There were no transfers between Level 1, Level 2 or Level 3 financial instruments in the three months ended September 30, 2020 and 2019.

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

September 30, 2020 and June 30, 2020

Cost Basis Gross

Losses Fair Value

Auction rate security $ 1,750 $ — $ ( 179 ) $ 1,571

No gain or loss was recognized in other comprehensive income for the auction rate security for the three months ended September 30, 2020 and 2019.

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

As of March 31, 2020 and June 30, 2019 , total debt of $ 33.2 million and $ 23.6 million , respectively, is reported at amortized cost.

As of September 30, 2020 and June 30, 2020, total debt of $ 36.0 million and $ 29.4 million, respectively, is reported at amortized cost.

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

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.

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 three and nine months ended March 31, 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 the three and nine months ended March 31, 2020 .

During the three and nine months ended March 31, 2019, the Company recorded impairment charges of $ 0.7 million for its non-marketable equity securities which had an initial cost basis of $ 0.7 million as it was determined the carrying value of the investments were not recoverable.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Short-term Debt

Short-term debt obligations as of March 31, 2020 and June 30, 2019 consisted of the following (in thousands):

Line of credit:

Bank of America

Total line of credit

CTBC Bank term loan

Total short-term debt

Short-term and Long-term Debt

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

September 30, June 30,

CTBC Bank term loan, due August 31, 2021 $ 24,047 $ 23,704

CTBC Bank term loan, due June 4, 2030 11,980 5,697

Total debt 36,027 29,401

Short-term debt and current portion of long-term debt 24,047 23,704

Debt, Non-current $ 11,980 $ 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 was extended to June 30, 2020 through subsequent amendments.

Prior to its maturity, at the Company's option and if certain conditions are satisfied, the 2018 Bank of America Credit Facility may convert into a five-year revolving credit facility.

If and upon such conversion, the lenders for the 2018 Bank of America Credit Facility shall extend, in aggregate, a principal amount of up to $ 400.0 million .

Prior to the 2018 Bank of America Credit Facility’s conversion to the five-year revolving credit facility, interest shall accrue at the LIBOR rate plus 2.75 % per annum.

Upon the 2018 Bank of America Credit Facility converting to the five-year revolving credit facility, interest shall accrue at the LIBOR rate plus an amount between 1.50 % and 2.00 % for loans to both Super Micro Computer and Super Micro Computer B.V.

Under the terms of the 2018 Bank of America Credit Facility, 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.

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, unless payment is required earlier as determined by the lenders.

In April 2018, the Company entered into a revolving line of credit with Bank of America (the "2018 Bank of America Credit Facility"), which was amended 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 terms of the May 12, 2020 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 amendment released the real property of Super Micro Computer as a collateral.

Voluntary prepayments are permitted without early repayment fees or penalties.

The terms of the arrangement require any amounts in the deposit accounts to be applied against the Company's line of credit the next business day.

Subject to customary exceptions, the 2018 Bank of America Credit Facility is secured by substantially all of Super Micro Computer’s assets.

If converted to the five-year revolving credit facility, Super Micro Computer’s assets, and at the Company's option, Super Micro Computer B.V.'s assets will be used as collateral for the 2018 Bank of America Credit Facility.

Under the terms of the 2018 Bank of America Credit Facility, the Company is not permitted to either repurchase its common stock or pay any dividends.

On 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.

The Company is in the process of negotiating an extension of its credit facility with Bank of America and expects this process will be completed by the end of May, 2020.

As of March 31, 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 March 31, 2020 and June 30, 2019 were 3.63 % per annum and 4.50 % per annum, respectively.

In October 2018, a $ 3.2 million letter of credit was issued under the 2018 Bank of America Credit Facility.

In October 2019, the letter of credit amount was increased from $ 3.2 million to $ 6.4 million .

The balance of debt issuance costs outstanding were immaterial as of March 31, 2020 and June 30, 2019 .

As of March 31, 2020 , the Company's

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 September 30, 2020 and June 30, 2020, the Company had no outstanding borrowings under the 2018 Bank of America Credit Facility.

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

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

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

The balance of debt issuance costs outstanding were $ 0.5 million and $ 0.6 million as of September 30, 2020 and June 30, 2020, respectively.

The Company has been in compliance with all the covenants under the 2018 Bank of America Credit Facility, and as of September 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 Credit Facility

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

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

dollar equivalent) term loan facility secured by the land and building located in Bade,

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

available borrowing capacity under the 2018 Bank of America Credit Facility was $ 243.6 million , subject to the borrowing base limitation and compliance with other applicable terms.

In January 2018, the Company entered into a credit agreement with 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.

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 ($ 3.4 million U.S.

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

dollar equivalent) term loan facility up to 100 % of eligible accounts receivable in an aggregate amount with an interest rate equal to the lender's established NTD interest rate ranging from 0.30 % to 0.50 % per annum which is adjusted monthly, and (iii) a 12 -month revolving line of credit of up to 100 % of eligible accounts receivable in an aggregate amount of up to $ 50.0 million with an interest rate equal to the lender's established USD interest rate plus an interest rate ranging from 0.30 % to 0.50 % per annum which is adjusted monthly (collectively, the “2019 CTBC Credit Facility”).

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

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

The 2019 CTBC Credit Facility is to mature on June 30, 2020.

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

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

dollars of $ 23.2 million and $ 22.5 million at March 31, 2020 and June 30, 2019 , respectively.

As of March 31, 2020 , the total outstanding borrowings under the 2019 CTBC Credit Facility revolving line of credit were $ 10.0 million in U.S.

At June 30, 2019 , the Company did not have any outstanding balance under the 2019 CTBC Credit Facility revolving line of credit.

The interest rate for these loans were 0.91 % per annum as of March 31, 2020 and 0.93 % per annum as of June 30, 2019 .

At March 31, 2020 , the amount available for future borrowing under the 2019 CTBC Credit Facility was $ 16.8 million .

As of March 31, 2020 , the net book value of land and building located in Bade, Taiwan, collateralizing the 2019 CTBC Credit Facility term loan was $ 25.5 million .

Covenant Compliance

2018 Bank of America Credit Facility

The credit agreement with Bank of America related to 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.

The credit agreement contains a financial covenant, which requires that the Company maintain a Fixed Charge Coverage Ratio, as defined in the agreement of at least 1.00 for each twelve-month period while a Trigger Period, as defined in the agreement, is in effect.

The Company has been in compliance with all the covenants under the 2018 Bank of America Credit Facility.

On September 7, 2018, Bank of America issued an extension letter to the Company in connection with the 2018 Bank of America Credit Facility, which extended the delivery date of the Company's audited consolidated financial statements, compliance certificates and other material reports for the fiscal year ended June 30, 2018 to January 31, 2019.

On January 31, 2019, the Company entered into an amendment of the loan and security agreement with respect to the 2018 Bank of America Credit Facility to, among other matters, (a) extend the delivery date of the Company's audited consolidated financial statements, compliance certificates and other material reports for the fiscal year ended June 30, 2018 to June 30, 2019, and (b) require the delivery, by no later than March 31, 2019 of the Company's audited consolidated financial statements for the fiscal year ended

dollars of $ 24.0 million and $ 23.7 million at September 30, 2020 and June 30, 2020, respectively.

As of September 30, 2020 and June 30, 2020, the Company did no t have any outstanding borrowings under the CTBC Credit Facility revolving line of credit.

The interest rate for these loans were 0.73 % per annum as of September 30, 2020 and 0.63 % per annum as of June 30, 2020.

At September 30, 2020, the amount available for future borrowing under the CTBC Credit Facility was $ 26.0 million.

As of September 30, 2020, the net book value of land and building located in Bade, Taiwan, collateralizing the CTBC Credit Facility term loan was $ 25.3 million.

2020 CTBC Term Loan Facility

In May 2020, the Company entered into a ten-year , non-revolving term loan facility (“2020 CTBC Term Loan Facility”) to obtain up to NTD 1.2 billion ($ 40.7 million in U.S.

dollar equivalents) in financing for use in the expansion and renovation of the Company’s Bade Manufacturing Facility located in Taiwan.

Drawdowns on the 2020 CTBC Term Loan Facility are based on 80 % of balances owed on commercial invoices from the contractor and shall be drawn according to the progress of the renovations.

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

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

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

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

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

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

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

As of September 30, 2020 and June 30, 2020, the amounts outstanding under the 2020 CTBC Term Loan Facility were $ 12.0 million and $ 5.7 million, respectively.

The interest rate for these loans were 0.45 % per annum as of September 30, 2020 and June 30, 2020.

The net book value of the property serving as collateral as of September 30, 2020 was $ 17.1 million.

As of September 30, 2020, the Company was in compliance with all financial covenants under the 2020 CTBC Term Loan Facility.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2017.

In April 2019, the Company paid a fee to extend the delivery to June 30, 2019 of its audited consolidated financial statements for the fiscal year ended June 30, 2017.

In connection with the second amendment of the 2018 Bank of America Credit Facility to extend the maturity of the 2018 Bank of America Credit Facility, the Company was required to deliver its audited consolidated financial statements for the fiscal year ended June 30, 2018 by December 31, 2019, and deliver its audited consolidated financial statements for the fiscal year ended June 30, 2019 by March 31, 2020.

If the Company elects to deliver the audited consolidated financial statements for the fiscal years ended June 30, 2019 and 2018 together in a combined filing with the SEC, the Company is required to deliver its audited financial statements by March 31, 2020.

On December 19, 2019, the Company filed with the SEC its comprehensive Annual Report on Form 10-K for the fiscal year ended June 30, 2019, with expanded financial and other disclosures in lieu of filing a separate Annual Report on Form 10-K for the fiscal year ended June 30, 2018 and in lieu of filing Quarterly Reports on Form 10-Q for the first three quarters of fiscal year 2018.

On December 19, 2019, the Company also filed with the SEC its Quarterly Reports on Form 10-Q for the quarters ended September 30, 2018, December 31, 2018 and March 31, 2019.

As such, the Company complied with the requirements of the second amendment of the 2018 Bank of America Credit Facility.

There are no financial covenants associated with the 2018 CTBC Credit Facility or the 2019 CTBC Credit Facility.

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 three and nine months ended March 31, 2020 were as follows (in thousands):

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

Operating lease expense recognized and supplemental cash flow information related to operating leases for the three months ended September 30, 2020 and 2019 were as follows (in thousands):

Three Months Ended

Nine Months Ended

March 31, 2020

Operating lease expense (including expense for lease agreements with related parties of $359 and $1,086 for the three and nine months ended March 31, 2019, respectively)

Cash payments for operating leases (including payments to related parties of $369 and $1,106 for the three and nine months ended March 31, 2019, respectively)

New operating lease assets obtained in exchange for operating lease liabilities

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

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

As of March 31, 2020 , the weighted average remaining lease term for operating leases was 4.7 years and the weighted average discount rate was 3.6 % .

Future minimum lease payments under noncancelable operating lease arrangements as of March 31, 2020 were as follows (in thousands):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30,

Operating lease expense (including expense for lease agreements with related parties of $ 347 and $ 365 for the three months ended September 30, 2020 and 2019, respectively)

$ 2,000 $ 1,709

Cash payments for operating leases (including payments to related parties of $ 347 and $ 357 for the three months ended September 30, 2020 and, 2019, respectively)

$ 1,966 $ 1,845

During the three months ended September 30, 2020 and 2019, the Company's costs related to short-term lease arrangements for real estate and non-real estate assets were immaterial.

Variable payments expensed in the three months ended September 30, 2020 and September 30, 2019 were immaterial.

As of September 30, 2020, the weighted average remaining lease term for operating leases was 4.3 years and the weighted average discount rate was 3.5 %.

Future minimum lease payments under noncancelable operating lease arrangements as of September 30, 2020 were as follows (in thousands):

Minimum lease payments

2020 (remainder)

2026 and beyond 993

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Present value of operating lease liabilities $ 24,919

As of March 31, 2020 , commitments under short-term lease arrangements were immaterial.

As of March 31, 2020 , operating and financing leases that have not yet commenced were immaterial.

As of September 30, 2020, commitments under short-term lease arrangements, and operating and financing leases that have not yet commenced were immaterial.

The Company has entered into lease agreements with related parties.

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

As of March 31, 2020 , 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.

The Company does not own, nor has it ever owned, any of Ablecom’s capital stock.

Steve Liang and his family members owned approximately 28.8 % of Ablecom’s stock as of March 31, 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.

None of the Company, Charles Liang or Sara Liu own any capital stock of Compuware.

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 September 30, 2020.

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

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

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

Charles Liang and

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Dealings with Ablecom

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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 95.1 % and 96.0 % of the chassis included in the products sold by the Company during the three months ended March 31, 2020 and 2019 , respectively;

and approximately 95.3 % and 95.5 % of the chassis included in the products sold by the Company during the nine months ended March 31, 2020 and 2019 , respectively.

Ablecom manufactured approximately 93.6 % and 92.7 % of the chassis included in the products sold by the Company during the three months ended September 30, 2020 and 2019, respectively.

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

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

For the components purchased from the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

Outstanding purchase orders from the Company to Ablecom were $ 60.0 million and $ 31.0 million at March 31, 2020 and June 30, 2019 , respectively, representing the maximum exposure to financial loss.

Outstanding purchase orders from the Company to Ablecom were $ 11.1 million and $ 23.2 million at September 30, 2020 and June 30, 2020, 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.

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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.

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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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 $ 111.2 million and $ 70.6 million at March 31, 2020 and June 30, 2019 , respectively, representing the maximum exposure to financial loss.

Outstanding purchase orders from the Company to Compuware were $ 21.9 million and $ 45.7 million at September 30, 2020 and June 30, 2020, 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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company’s results from transactions with Ablecom and Compuware for each of the three and nine months ended March 31, 2020 and 2019 , are as follows (in thousands):

The Company’s results from transactions with Ablecom and Compuware for each of the three months ended September 30, 2020 and 2019, are as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Purchases (1) $ 26,324 $ 33,120

Net sales $ 13,299 $ 5,547

Purchases (1) 38,927 33,316

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

The Company's net sales to Ablecom were not material for the three and nine months ended March 31, 2020 and 2019 .

The Company had the following balances related to transactions with Ablecom and Compuware as of March 31, 2020 and June 30, 2019 (in thousands):

The Company's net sales to Ablecom were not material for the three months ended September 30, 2020 and 2019.

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

September 30, 2020 June 30, 2020

Accounts receivable and other receivables (1) $ 2,164 $ 6,379

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(2) Includes current portion of operating lease liabilities.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

Stock-based Compensation

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.

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

As of September 30, 2020, the Company had 4,593,009 authorized shares available for future issuance under the 2020 Plan.

Share Repurchase Program

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

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

During the three months ended September 30, 2020, 1,142,294 shares of common stock were repurchased for $ 30.0 million and the program ended.

Repurchased shares were recorded as treasury shares in the Company's condensed consolidated balance sheet.

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 Volatility—Expected volatility is based on the Company's 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.

The fair value of stock option grants for the three months ended September 30, 2020 and 2019 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

The Company recorded provisions for income taxes of $ 0.5 million and $ 10.5 million for the three and nine months ended March 31, 2019 , respectively.

The effective tax rate was ( 5.6 )% and 12.8 % for the three and nine months ended March 31, 2020 , respectively, and 4.3 % and 16.9 % for the three and nine months ended March 31, 2019 , respectively.

The effective tax rate for the three and nine months ended March 31, 2020 is lower than that for the three and nine months ended March 31, 2019 , primarily due to the tax benefit from employees’ exercises of stock options.

Three Months Ended

September 30,

Risk-free interest rate 0.27 % 1.58 %

Expected term 5.98 years 6.27 years

Dividend yield — % — %

Volatility 50.43 % 50.04 %

Weighted-average fair value $ 14.16 $ 8.72

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended

September 30,

Cost of sales $ 503 $ 395

Research and development 3,702 3,130

Sales and marketing 517 436

General and administrative 2,448 1,093

Stock-based compensation expense before taxes 7,170 5,054

Income tax impact ( 1,955 ) ( 1,143 )

Stock-based compensation expense, net $ 5,215 $ 3,911

As of September 30, 2020, $ 7.2 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 2.39 years, $ 39.7 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.56 years and $ 0.4 million of unrecognized compensation cost related to unvested PRSUs is expected to be recognized over a period of 0.76 years.

Stock Option Activity

The following table summarizes stock option activity during the three months ended September 30, 2020 under all plans:

Outstanding Weighted

Share Weighted

Term (in Years)

Balance as of June 30, 2020 5,379,768 $ 19.38

Granted 207,270 $ 30.43

Exercised ( 350,830 ) $ 14.31

Forfeited/Cancelled ( 21,357 ) $ 24.42

Balance as of September 30, 2020 5,214,851 $ 20.14 4.20

Options vested and exercisable at September 30, 2020 4,457,311 $ 19.67 3.43

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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

As of September 30, 2020, an additional 45 % of the PRSUs vested and 5 % are expected to vest in the three months ended December 31, 2020, in accordance with the terms of the grant.

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

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.

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

The following table summarizes RSU and PRSU activity during the three months ended September 30, 2020 under all plans:

Time-Based RSUs

Outstanding Weighted

Grant-Date Fair Value per Share PRSUs

Outstanding Weighted

Grant-Date Fair Value per Share

Balance as of June 30, 2020 1,768,027 $ 20.08 42,000 (1) $ 22.29

Granted 524,357 $ 29.97 — $ —

Released ( 211,519 ) $ 20.10 ( 6,000 ) $ 27.10

Forfeited ( 57,081 ) $ 22.98 — $ —

Balance as of September 30, 2020 2,023,784 $ 22.55 36,000 $ 21.49

__________________________

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company recorded a provision for income taxes of $ 3.7 million and $ 8.6 million for the three months ended September 30, 2020 and 2019, respectively.

The effective tax rate was 12.7 % and 25.3 % for the three months ended September 30, 2020 and 2019, respectively.

The effective tax rate for the three months ended September 30, 2020 is lower than that for the three months ended September 30, 2019, primarily due to decrease in tax reserves for uncertain tax positions after settlement of certain tax audits, and increase in the tax benefit related to employees’ stock-based compensation.

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

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

This tax restructuring is not expected to have a material impact on the estimated annual effective tax rate.

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

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 is not expected to have a material impact on the Company.

As of March 31, 2020 , the Company had a liability for gross unrecognized tax benefits of $ 25.8 million , substantially all of which, if recognized, would affect the Company's effective tax rate.

During the nine months ended March 31, 2020 , there were no material changes in the total amount of the liability for gross unrecognized tax benefits.

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

As of September 30, 2020, the Company had gross unrecognized tax benefits of $ 30.5 million, of which, $ 14.1 million if recognized, would affect the Company's effective tax rate.

During the three months ended September 30, 2020, there was a $ 3.3 million increase in gross unrecognized tax benefits.

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

As of March 31, 2020 , the Company had accrued $ 2.0 million of interest and penalties relating to unrecognized tax benefits.

As of September 30, 2020, the Company had accrued $ 2.3 million of interest and penalties relating to unrecognized tax benefits.

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

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

In October 2019, the Taiwan tax authority completed its audit in Taiwan for fiscal year 2018 and proposed 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 accordance with the tax assessment notice issued in February 2020.

The impact of this adjustment on the income statement has been offset by the recognition of previously unrecognized tax benefits for the three months ended March 31, 2020 .

In February 2020, the Taiwan tax authority proposed an adjustment to the Company’s fiscal year 2019 transfer pricing which resulted in additional tax liability of $ 1.0 million .

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

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

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

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

The impact of this adjustment on the income statement has been offset by the recognition of previously unrecognized tax benefits for the three months ended March 31, 2020 .

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

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

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The 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 2019.

Various states statutes 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, 2015 through 2020.

The Company does not expect its unrecognized tax benefits to change materially over the next 12 months, except for the reductions arising from the lapse of the statute of limitations.

It is reasonably possible that our gross unrecognized tax benefits will decrease by approximately $ 5.5 million in the next 12 months, primarily due to the lapse of the statute of limitations and

It is 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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

settlement with the Tax Authorities.

These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits.

Commitments and Contingencies

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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 was calendared for September 23, 2020;

however, the Court held a conference on September 15 to discuss how the Court could efficiently address the recent SEC settlement agreement.

The parties stipulated to allow plaintiffs to further amend the complaint solely to add allegations relating to the SEC settlement.

On October 14, 2020, plaintiffs filed a Fourth Amended Complaint.

On October 28, 2020, defendants filed a supplemental motion to dismiss.

The Court has not set a new date for the motion to dismiss hearing, but expects the hearing will be set in late 2020 or early 2021 following completion of supplemental motion to dismiss briefing.

The Company believes the claims are without merit and intends to vigorously defend against the lawsuit.

SEC Matter — The Company has cooperated with the SEC in its investigation of marketing expenses that contained certain irregularities discovered by the Company’s management, which irregularities were disclosed on August 31, 2015.

In addition, the Company received subpoenas from the SEC in connection with the matters underlying its inability to timely file the Company's Form 10-K for the fiscal year ended June 30, 2017.

The Company also received a subpoena from the SEC following the publication of a false and widely discredited news article in October 2018 concerning its products.

The Company has cooperated fully to comply with these government requests.

The Company has reached an agreement in principle regarding a proposed settlement of these matters with the staff of the SEC, subject to final approval by the Commissioners of the SEC.

Under the terms of the proposed resolution, the Company will pay a penalty of $ 17.5 million .

In addition, the Company’s Chief Executive Officer has reached an agreement in principle regarding a proposed settlement of these matters with the staff of the SEC, subject to final approval by the Commissioners of the SEC.

Under the terms of the proposed resolution, the 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 March 31, 2020, the Company recorded a liability of $ 17.5 million for the Company’s potential SEC settlement included in general and administrative expenses and accrued liabilities in the condensed consolidated financial statements.

The Chief Executive Officer’s potential payment of $ 2,122,000 to the Company is a contingent gain and will be recorded if and when it is realized.

The Company and the Chief Executive Officer have not reached final resolutions of these matters with the SEC and the Company cannot predict when settlements, if finally agreed, would become final, nor whether any of the proposed terms may change in connection with final resolutions.

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 agreed and paid a civil money penalty of $ 17,500,000 during the three months ended September 30, 2020, which was recorded to general and administrative expense in the Company's condensed consolidated statement of operations.

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 paid 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.

The settlement amount was paid during the first quarter of fiscal 2021 and the Company recorded the payment as a credit to general and administrative expense.

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 March 31, 2020 and any prior periods.

The resolution of any such matters have not had a material impact on the Company’s consolidated financial condition, results of operations or liquidity as of September 30, 2020 and any prior periods.

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

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However, the Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations.

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

As of March 31, 2020 , these remaining noncancelable commitments were $ 381.1 million , including $ 122.2 million for related parties.

SUPER MICRO COMPUTER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Standby Letter of Credit — In October 2019, Bank of America increased the value of a previously issued standby letter of credit from $ 3.2 million to $ 6.4 million to facilitate ongoing operations of the Company.

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

As of September 30, 2020, these remaining noncancelable commitments were $ 119.7 million, including $ 33.1 million for related parties.

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

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

4 unchanged sentences

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

September 30, June 30,

Long-lived assets:

United States $ 179,629 $ 178,812

The Company’s revenue is presented on a disaggregated basis in Note 2, “Revenue,” by type of product, by geographical market, and by products sold through its indirect sales channel or to its direct customers and OEMs.

Asia 59,095 51,605

Europe 3,128 3,368

$ 241,852 $ 233,785

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

Subsequent Events

On October 27, 2020, certain current and former directors and officers of the Company were named as defendants in a putative derivative lawsuit filed in the Superior Court of the State of California, County of Santa Clara (the “Court”), captioned Barry v.

Liang, et al., 20-CV-372190 (the “Derivative Action”).

The Company was also named as a nominal defendant.

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

The plaintiffs seek unspecified compensatory damages and other equitable relief.

On October 31, 2020, the Company's Board of Directors approved a share repurchase program to repurchase shares of its common stock for up to $ 50 million at prevailing prices in the open market.

The share repurchase program is effective until October 31, 2021 or until the maximum amount of common stock is repurchased, whichever occurs first.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements