What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-08-27 compared with 2020-08-31 · 510 added, 367 removed, 897 unchanged (49% of the section changed)

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated August 28, 2020, expressed an adverse opinion on the Company’s internal control over financial reporting because of a material weakness.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated August 27, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Variable Interest Entities and Related Party Transactions - Refer to Notes 1 and 13 to the financial statements

Critical Audit Matter Description

The Company has a variety of business relationships defined by various agreements with Ablecom Technology, Inc.

(“Ablecom”) and its affiliate, Compuware Technology, Inc.

("Compuware").

Ablecom is one of the Company’s major contract manufacturers;

Compuware is both a distributor of the Company’s products and a contract manufacturer for the Company.

Purchases from Ablecom and Compuware were $160.1 million and $131.8 million, respectively, for the fiscal year ended June 30, 2020.

Net sales to Compuware as a distributor were $23.9 million for the fiscal year ended June 30, 2020.

The Company concluded that Ablecom and Compuware are variable interest entities (VIEs) and that it is not the primary beneficiary as it does not have the power to direct the activities that are most significant to Ablecom and Compuware.

Therefore, the Company does not consolidate Ablecom and Compuware.

The Company considered its explicit arrangements with Ablecom and Compuware, including its supplier arrangements, and as a result of the substantial related party relationships between the Company, Ablecom and Compuware, the Company also considered whether any implicit arrangements exist that

would cause the Company to protect those related parties’ interests from suffering losses.

The Company determined that no material implicit arrangements exist with Ablecom, Compuware, or their shareholders.

We identified management’s conclusion that it is not the primary beneficiary as a critical audit matter because of the judgments necessary for management to determine whether any explicit and implicit arrangements exist that would cause the Company to protect those related parties’ interest from absorbing losses.

This required extensive audit effort due to the complexity and variety of related party relationships with Ablecom and Compuware and required a high degree of auditor judgment when performing audit procedures to audit the Company’s conclusion that it is not the primary beneficiary.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s conclusion that it is not the primary beneficiary included the following, among others:

We evaluated and tested whether the arrangements are accurately considered and that such arrangements have been included in the consideration by comparing those related parties we had identified during our audit procedures for proper inclusion in the Company’s evaluation and performed inspection of source documents on a sample basis.

We tested management’s assertion that the Company does not direct the operations of, or is required to absorb and record losses incurred by Ablecom and Compuware by analyzing the gross margin for contract manufacturing transactions with Ablecom and Compuware in comparison to unrelated third parties to determine if there is an indication of off-market terms, assessing leasing arrangements by performing independent market data searches to assess if such leases are within the normal range of prices for Ablecom and Compuware and recalculating days sales outstanding as well as days purchases outstanding and compared to other contract manufacturers to assess comparability of payment terms.

We obtained confirmations directly from Ablecom and Compuware regarding the nature of their business relationships with the Company, the extent of power, if any, held by the Company over the most significant activities of Ablecom and Compuware’s businesses, and the existence of any implicit arrangements that may have a bearing on the Company’s ability to have power over Ablecom and Compuware.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventories - Excess and Obsolescence Reserve — Refer to Notes 1 and 5 to the financial statements

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The Company’s inventories are stated at lower of cost, using weighted average cost method, or net realizable value.

The Company evaluates inventory for lower of cost or net realizable value and excess and obsolescence and, as necessary, writes down the valuation of units based upon inventory aging, forecasted usage and sales, anticipated selling price, product obsolescence and other factors.

The provision for excess and obsolete inventory for the fiscal year ended June 30, 2020, was $22.6 million.

We identified the excess and obsolescence reserve as a critical audit matter because of judgments made by management in recording the manual adjustments that management may make to estimate the excess and obsolescence reserve.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the methodology and the reasonableness of the excess and obsolescence reserve.

The Company evaluates inventory on a quarterly basis for excess and obsolescence and lower of cost or net realizable value and, as necessary, writes down the valuation of inventory based upon inventory aging, forecasted usage and sales, anticipated selling price, product obsolescence and other factors.

We identified the excess and obsolescence reserve as a critical audit matter because of judgments made by management in determining the reserve rates applied by inventory aging category to estimate the Company’s excess and obsolescence reserve.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the Company’s reserve rates within its estimation of the inventory excess and obsolescence reserve.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s excess and obsolescence reserve included the following procedures, among others:

We gained an understanding and evaluated the Company’s methodology for determining inventory that is excess or obsolete and the key assumptions and judgments made as part of the process, including manual adjustments.

We evaluated management’s estimate by performing corroborative inquiry with the Company’s program managers, sales personnel, and/or buyers, and inspected correspondence and other communications between the Company’s operations team and customers.

As a result of the Company’s material weakness identified in IT general controls, we increased the extent of testing on reports derived from the Company’s systems and applications.

Our audit procedures related to the reserve rates applied to the inventory aging categories to estimate the Company’s excess and obsolescence reserve included the following procedures, among others:

We tested the effectiveness of controls over the review of the calculation of excess and obsolescence reserve based on the Company’s reserve methodology, including management’s evaluation of the reserve rates by inventory aging category using historical data.

To understand and evaluate the Company’s methodology for determining inventory that is excess or obsolete and the key assumptions and judgments made as part of the process, including the reserve rates, we made inquiries of various personnel in the Company including but not limited to finance and operations personnel about the expected product lifecycles and product development plans.

We involved data specialists to assess management’s estimate on reserve rates by recalculating historical reserve rates across multiple fiscal periods.

We compared our independently developed historical reserve rates with the reserve rates used by management.

We tested the accuracy and completeness of the underlying data utilized in management’s excess and obsolescence reserve, including the classification of inventory by aging category.

Then, selected a sample of inventory products and verified the items were properly included in the correct aging category for determination of the reserve rate.

We considered the existence of contradictory evidence based on reading of internal communications to management, Company press releases, and industry reports, as well as our observations and inquires as to changes within the business.

/s/ Deloitte & Touche LLP

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(in thousands, except share and per share amounts)

June 30, June 30,

Current assets:

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Accounts receivable, net of allowances of $ 2,591 and $ 4,586 at June 30, 2021 and 2020, respectively (including amounts receivable from related parties of $ 8,678 and $ 8,712 at June 30, 2021 and 2020, respectively)

463,834 403,745

Inventories 1,040,964 851,498

Prepaid expenses and other current assets (including receivables from related parties of $ 23,748 and $ 19,791 at June 30, 2021 and 2020, respectively)

130,195 126,985

Total current assets 1,867,259 1,592,761

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Deferred income taxes, net 63,288 54,898

Other assets 32,126 34,499

Total assets $ 2,241,964 $ 1,918,646

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Accounts payable (including amounts due to related parties of $ 70,096 and $ 72,368 at June 30, 2021 and 2020, respectively)

$ 612,336 $ 417,673

Accrued liabilities (including amounts due to related parties of $ 18,528 and $ 16,206 at June 30, 2021 and 2020, respectively)

178,850 155,401

Income taxes payable 12,741 4,700

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Other long-term liabilities (including related party balance of $ 0 and $ 1,699 at June 30, 2021 and 2020, respectively)

41,132 41,995

Total liabilities 1,145,566 852,939

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Authorized shares:

100,000,000 ;

Outstanding shares:

52,408,703 and 49,956,288 at June 30, 2020 and June 30, 2019, respectively

50,582,078 and 52,408,703 at June 30, 2021 and 2020, respectively

Issued shares:

50,582,078 and 53,741,828 at June 30, 2021 and 2020, respectively

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

Accumulated other comprehensive loss

438,012 389,972

Treasury stock (at cost), 0 and 1,333,125 shares at June 30, 2021 and 2020, respectively

Accumulated other comprehensive income (loss) 453 ( 152 )

Retained earnings 657,760 696,211

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Years Ended June 30,

2021 2020 2019

Net sales (including related party sales of $ 79,018 , $ 85,759 , and $ 69,906 in fiscal years 2021, 2020 and 2019, respectively)

$ 3,557,422 $ 3,339,281 $ 3,500,360

Cost of sales (including related party purchases of $ 239,558 , $ 283,056 , and $ 276,843 in fiscal years 2021, 2020 and 2019, respectively)

3,022,884 2,813,071 3,004,838

Gross profit 534,538 526,210 495,522

Operating expenses:

Research and development

224,369 221,478 179,907

Sales and marketing

85,683 85,137 77,154

General and administrative

100,539 133,941 141,228

Total operating expenses 410,591 440,556 398,289

Income from operations 123,947 85,654 97,233

Other income (expense), net

Other (expense) income, net ( 2,834 ) 1,410 ( 1,020 )

Interest expense ( 2,485 ) ( 2,236 ) ( 6,690 )

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Share of income (loss) from equity investee, net of taxes 173 2,402 ( 2,721 )

Net income $ 111,865 $ 84,308 $ 71,918

Net income per common share:

$ 2.19 $ 1.65 $ 1.44

$ 2.09 $ 1.60 $ 1.39

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

51,157 50,987 49,917

53,507 52,838 51,716

See accompanying notes to consolidated financial statements.

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Years Ended June 30,

Other comprehensive (loss) income, net of tax:

Foreign currency translation (loss) gain

Net changes in unrealized loss on investments

Total other comprehensive (loss) income

2021 2020 2019

Net income $ 111,865 $ 84,308 $ 71,918

Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss) 605 ( 72 ) ( 245 )

Total other comprehensive income (loss) 605 ( 72 ) ( 245 )

Total comprehensive income $ 112,470 $ 84,236 $ 71,673

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Additional Paid-In

Treasury Stock

Capital Treasury Stock Accumulated

Comprehensive

(Loss) Income

Non-controlling Interest

Income (Loss) Retained

Earnings Non-controlling Interest Total

Stockholders’

Shares Amount Shares Amount

Balance at June 30, 2018 50,914,571 $ 331,550 ( 1,333,125 ) $ ( 20,491 ) $ 165 $ 532,271 $ 157 $ 843,652

Cumulative effect of adjustment from adoption of new accounting standard, net of taxes — — — — — 7,714 — 7,714

Exercise of stock options, net of taxes

Release of common stock shares upon vesting of restricted stock units 549,886 — — — — — — —

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Stock-based compensation — 21,184 — — — — — 21,184

Net changes in unrealized loss on investments, net of taxes

Foreign currency translation gain

Net income (loss)

Foreign currency translation loss — — — — ( 245 ) — — ( 245 )

Net income — — — — — 71,918 4 71,922

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

Cumulative effect of adjustment from adoption of new accounting standard, net of taxes

Exercise of stock options, net of taxes 1,804,789 28,343 28,343

Release of common stock shares upon vesting of restricted stock units 979,274 — — — — — — —

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Foreign currency translation loss — — — — ( 72 ) — — ( 72 )

Net income — — — — — 84,308 6 84,314

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

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Shares withheld for the withholding tax on vesting of restricted stock units ( 274,620 ) ( 8,721 ) — — — — — ( 8,721 )

Share repurchase and retirement ( 5,542,336 ) ( 175 ) 1,333,125 20,491 ( 150,316 ) ( 130,000 )

Stock-based compensation — 28,549 — — — — — 28,549

Foreign currency translation loss

Foreign currency translation gain — — — — 605 — — 605

Net income — — — — — 111,865 6 111,871

Balance at June 30, 2021 50,582,078 $ 438,012 — $ — $ 453 $ 657,760 $ 173 $ 1,096,398

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Years Ended June 30,

2021 2020 2019

OPERATING ACTIVITIES:

Net income $ 111,865 $ 84,308 $ 71,918

Reconciliation of net income to net cash (used in) provided by operating activities:

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Stock-based compensation expense 28,549 20,189 21,184

Allowance (recoveries) for doubtful accounts

(Recoveries of) Allowance for doubtful accounts ( 820 ) ( 3,081 ) 7,058

Provision for excess and obsolete inventories 6,805 18,373 32,946

Other ( 1,044 ) 1,364 733

Impairment of investments — — 2,661

Share of (income) loss from equity investee ( 173 ) ( 2,402 ) 2,721

Foreign currency exchange (gain) loss

Foreign currency exchange loss (gain) 2,482 1,008 ( 313 )

Deferred income taxes, net ( 8,390 ) ( 13,772 ) ( 17,100 )

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Accounts receivable, net (including changes in related party balances of $ 34 , $ 4,727 and $( 10,357 ) in fiscal years 2021, 2020 and 2019, respectively)

( 59,325 ) ( 7,023 ) 85,027

Inventories ( 196,271 ) ( 199,683 ) 119,314

Prepaid expenses and other assets (including changes in related party balances of $( 3,957 ), $ 1,511 and $ 2,714 in fiscal years 2021, 2020 and 2019, respectively)

( 5,291 ) ( 29,869 ) 8,410

Accounts payable (including changes in related party balances of $( 2,272 ), $ 12,559 and $( 18,001 ) in fiscal years 2021, 2020 and 2019, respectively)

189,309 59,889 ( 173,410 )

Income taxes payable 8,041 ( 8,321 ) 5,831

Accrued liabilities (including changes in related party balances of $ 2,322 , $ 5,670 and $( 7,858 ) in fiscal years 2021, 2020 and 2019, respectively)

24,705 27,865 11,456

Deferred revenue ( 1,452 ) 350 59,800

Other long-term liabilities (including changes in related party balances of $( 1,699 ), $( 1,301 ) and $( 500 ) in fiscal years 2021, 2020 and 2019, respectively)

Net cash (used in) provided by operating activities

( 4,220 ) ( 8,001 ) 116

Net cash provided by (used in) operating activities 122,955 ( 30,334 ) 262,554

INVESTING ACTIVITIES:

Purchases of property, plant and equipment (including payments to related parties of $ 7,347 , $ 4,386 and $ 4,472 in fiscal years 2021, 2020 and 2019, respectively)

Proceeds from redemption of auction rate security

( 58,016 ) ( 44,338 ) ( 24,849 )

Proceeds from sale of investment in a privately-held company — 750 —

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Repayment of debt ( 60,629 ) ( 159,191 ) ( 67,700 )

Net (repayment) borrowings on asset-backed revolving line of credit, net of costs

Net repayment on asset-backed revolving line of credit, net of costs — ( 1,116 ) ( 65,945 )

Payment of other fees for debt financing ( 561 ) ( 650 ) ( 625 )

Proceeds from exercise of stock options 28,387 28,343 —

Payments of obligations under capital leases

Changes in obligations under capital leases 25 ( 138 ) ( 267 )

Payment of withholding tax on vesting of restricted stock units ( 8,721 ) ( 8,243 ) ( 3,051 )

Net cash provided by (used in) financing activities

Stock repurchases ( 130,000 ) — —

Net cash (used in) provided by financing activities ( 44,440 ) 23,796 ( 95,828 )

Effect of exchange rate fluctuations on cash 560 376 ( 119 )

Net (decrease) increase in cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash 21,059 ( 49,750 ) 141,758

Cash, cash equivalents and restricted cash at beginning of year 212,390 262,140 120,382

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Unpaid property, plant and equipment purchases (including due to related parties of $ 400 , $ 2,223 and $ 1,609 as of June 30, 2021, 2020 and 2019, respectively)

$ 9,003 $ 12,051 $ 9,232

Equipment purchased under capital leases $ 3,258 $ — $ —

Contribution of certain technology rights to equity investee $ — $ — $ 3,000

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These restricted cash balances have been excluded from the Company's cash and cash equivalents balance.

Investments in Auction Rate Securities

The Company classifies its investments in auction rate securities ("auction rate securities") as non-current available-for-sale investments.

The auction rate securities consist of municipal securities, which are debt securities.

The Company uses discounted cash flow to estimate the fair value of any auction rate securities.

These auction rate securities are recorded within other assets in the consolidated balance sheets at fair value.

Unrealized gains and losses on auction rate securities are included as a component of accumulated other comprehensive (loss) income, net of tax.

Inventories are stated at lower of cost, using weighted average cost method, or net realizable value.

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Property, plant and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets as follows:

Machinery and equipment

Furniture and fixtures

Building improvements

Up to 20 years

Land improvements

Leasehold improvements

Shorter of lease term or estimated useful life

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Software 3 to 5 years

Machinery and equipment 3 to 7 years

Furniture and fixtures 5 years

Buildings 39 years

Building improvements Up to 20 years

Land improvements 15 years

Leasehold improvements Shorter of lease term or estimated useful life

Long-Lived Assets

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No impairment charge for long-lived assets has been recorded in any of the periods presented.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue Recognition

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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

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

through past transactions, the Company applies judgment to estimate the standalone selling price taking into account available information, such as internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives, for the related performance obligations.

If the standalone selling price is not observable through past transactions, the Company applies judgment to estimate the standalone selling price taking into account available information, such as internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives, for the related performance obligations.

When the Company receives consideration from a customer prior to transferring goods or services to the customer, the Company records a contract liability (deferred revenue).

The Company also recognizes deferred revenue when it has an unconditional right to consideration (i.e., a receivable) before transfer of control of goods or services to a customer.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company considers shipping & handling activities as costs to fulfill the sales of products.

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Years Ended June 30,

2021 2020 2019

Balance, beginning of the year $ 12,379 $ 11,034 $ 9,884

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Non-current portion $ 2,678 $ 2,395 $ 2,373

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Research and Development

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Such amounts are recorded as a reduction of research and development expenses and were $ 10.9 million, $ 2.1 million, and $ 2.8 million for the fiscal years ended June 30, 2021, 2020 and 2019, respectively.

During the fiscal year ended June 30, 2020, the Company also recorded a $ 9.5 million net settlement fee as a reduction in the research and development expenses related to the reimbursement of previously incurred expenses for one canceled joint product development agreement.

During the fiscal year ended June 30, 2020, the Company also recorded a

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$ 9.5 million net settlement fee as a reduction in the research and development expenses related to the reimbursement of previously incurred expenses for one canceled joint product development agreement.

Software development costs, including costs to develop software sold, leased, or otherwise marketed, that are incurred subsequent to the establishment of technological feasibility are capitalized if significant.

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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.

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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Operating Leases

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The Company's leases with an initial term of 12 months or less are immaterial.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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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.

The Company accounts for income taxes under an asset and liability approach.

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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

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

being realized upon ultimate settlement with the tax authority.

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.

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In performing its analysis, the Company considered its explicit arrangements with Ablecom and Compuware, all contractual arrangements with these entities.

Also, as a result of the substantial related party relationships between the Company and these entities, the Company considered whether any implicit arrangements exist that would cause the Company to protect these related parties’ interests from suffering losses.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

interests from suffering losses.

The Company determined it has no material implicit arrangements with Ablecom, Compuware or their shareholders.

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The effects of foreign currency translation are included in stockholders’ equity as a component of accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets and periodic movements are summarized as a line item in the consolidated statements of comprehensive income.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has an investment in a privately-held company that is accounted for under the equity method (the "Corporate Venture").

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The computation of basic and diluted net income per common share is as follows (in thousands, except per share amounts):

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended June 30,

2021 2020 2019

$ 111,865 $ 84,308 $ 71,918

Weighted-average shares outstanding

51,157 50,987 49,917

Effect of dilutive securities

2,350 1,851 1,799

Weighted-average diluted shares

53,507 52,838 51,716

Basic net income per common share $ 2.19 $ 1.65 $ 1.44

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One supplier accounted for 20.3 %, 26.8 %, and 21.8 % of total purchases for the fiscal years ended June 30, 2021, 2020 and 2019, respectively.

Ablecom and Compuware, related parties of the Company as noted in Note 13, "Related Party Transactions,"

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

accounted for 10.1 % , 9.2 % , and 9.0 % of total cost of sales for the fiscal years ended June 30, 2020 , 2019 and 2018 , respectively.

Purchases from Ablecom and Compuware, related parties of the Company as noted in Note 13, "Related Party Transactions," accounted for a combined 7.8 %, 10.1 %, and 9.2 % of total cost of sales for the fiscal years ended June 30, 2021, 2020 and 2019, respectively.

Concentration of Credit Risk

2 unchanged sentences

One customer accounted for 13.5 % and 10.1 % of accounts receivable, net as of June 30, 2021 and 2020, respectively.

Treasury Stock

The Company accounts for treasury stock under the cost method.

Upon the retirement of treasury shares, the Company deducts the par value of the retired treasury shares from common stock and allocates the excess of cost over par as a deduction to additional paid-in capital based on the pro-rata portion of additional paid-in-capital, and the remaining excess as a deduction to retained earnings.

Retired treasury shares revert to the status of authorized but unissued shares.

Accounting Pronouncements Recently Adopted

In February 2016, the FASB issued an amendment to the accounting guidance, Leases .

The new lease accounting guidance supersedes the existing guidance.

Under the new lease accounting guidance, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures.

Leases will continue to be classified as either finance or operating.

The Company adopted the new lease accounting guidance on July 1, 2019 using the modified retrospective approach, and as a result did not restate prior comparative periods.

The Company elected to apply the “package of practical expedients” under the transition guidance of the new standard, which permits it not to reassess under the new lease accounting guidance its prior conclusions about lease identification, lease classification and initial direct costs, for leases that are in effect as of the date of adoption of the new lease accounting guidance.

In connection with the adoption of the new lease accounting guidance, the Company recorded a transition adjustment to recognize ROU assets and lease liabilities on the Company’s consolidated balance sheet of $ 14.8 million and $ 15.2 million , respectively, on July 1, 2019, primarily related to real estate leases.

See Note 12, "Leases," for further details.

In February 2018, the FASB issued Income Statement - Reporting Comprehensive Income:

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act ("2017 Tax Reform Act"), from accumulated other comprehensive income to retained earnings.

The guidance also requires certain new disclosures regardless of the election.

The Company adopted this guidance on July 1, 2019.

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

In June 2018, the FASB issued amended guidance to expand the scope of ASC 718 - Compensation-Stock Compensation , to include share-based payment transactions for acquiring goods and services from non-employees.

The amendments specify that the guidance applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

The Company adopted this guidance on July 1, 2019.

The adoption of the guidance did not have an impact on the Company's consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued authoritative guidance, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments , that amends the impairment model for certain financial assets by requiring the use of an expected loss methodology, which will result in more timely recognition of credit losses.

The amendment is effective for the Company from July 1, 2020.

Early adoption is permitted.

The adoption of the guidance is expected to result in the presentation of allowances for credit losses separately from the amortized cost of financial instruments that are not classified as available-for-sale debt securities.

The adoption is also expected to change the presentation of the Company’s available-for-sale debt securities to include the amortized cost and the allowance for credit losses parenthetically.

The adoption will have an immaterial effect on the allowance for credit losses for trade receivables and beginning retained earnings and will have an immaterial effect on the Company’s financial statement disclosures.

In August 2018, the FASB issued amended guidance, Fair Value Measurement:

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements based on the concepts in the FASB Concepts Statements, including the consideration of costs and benefits.

The new standard is effective for the Company from July 1, 2020.

The adoption of the new guidance will require the Company to present, on a prospective basis, narrative information regarding the uncertainty of the fair value measurements from the use of unobservable

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 consolidated financial statements as of July 1, 2020.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

inputs used in recurring fair value measurements categorized in Level 3 of the fair value hierarchy, to disclose the amount of gains and losses recognized in other comprehensive income for the period for financial instruments categorized within Level 3 of the fair value hierarchy, and quantitative information for the significant unobservable inputs used to develop the Level 3 fair value measurements.

The adoption of the new guidance will also allow the Company to discontinue the presentation of information regarding transfers between Level 1 and Level 2 of the fair value hierarchy.

As at June 30, 2020 the only financial instrument of the Company for which the recurring fair value measurements are categorized in Level 3 of the fair value hierarchy is its investment in an auction rate security.

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 consolidated financial statements for the year ended June 30, 2021.

In August 2018, the FASB issued amended guidance, Fair Value Measurement:

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measuremen t, 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 Company adopted this guidance on July 1, 2020.

As of June 30, 2021, 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 consolidated financial statements were immaterial.

See Note 2, "Fair Value Disclosure".

In August 2018, the FASB issued authoritative guidance, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

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

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

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

It requires an entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement.

The new standard is effective for the Company from July 1, 2020.

The Company will adopt the new guidance on a prospective basis for any new hosting arrangement entered into after July 1, 2020 and does not expect the adoption of the guidance to have a material impact on its consolidated financial statement disclosures, results of operations and financial position.

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 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.

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early adoption is permitted.

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

The Company determined that the adoption of the guidance will not have a material impact on the Company's consolidated financial statements and disclosures.

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

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The amendment is effective for all entities through December 31, 2022.

LIBOR is used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility.

As the 2018 Bank of America Credit Facility, as amended, will terminate on June 30, 2021 before the phase out of LIBOR, the Company does not expect the adoption of the guidance to have an impact on its consolidated financial statement disclosures, results of operations and financial position.

In January 2021, the FASB issued further guidance on this topic, which clarified the scope and application of the original guidance.

LIBOR is used to calculate the interest on borrowings under the Company's 2018 Bank of America Credit Facility and E.SUN Credit Facility.

The 2018 Bank of America Credit Facility was amended on June 28, 2021 with a new maturity date of June 28, 2026 and fallback terms related to LIBOR replacement mechanics.

As the amendment has changes not related to LIBOR replacement, optional expedients under this guidance cannot be elected.

E.SUN Credit Facility will terminate on September 18, 2021 before the phase out of LIBOR.

Therefore, the Company does not expect the adoption of the guidance to have an impact on its consolidated financial statements and disclosures.

Fair Value Disclosure

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

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

See Note 1, "Organization and Summary of Significant Accounting Policies," for a discussion of the Company’s policies regarding the fair value hierarchy.

The Company used discounted cash flows to estimate the fair value of the auction rate security as of June 30, 2020 and 2019 .

The material factors used in preparing the discounted cash flows are (i) the discount rate utilized to present value the cash flows, (ii) the time period until redemption and (iii) the estimated rate of return.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

See Note 1, "Organization and Summary of Significant Accounting Policies," for a discussion of the Company’s policies regarding the fair value hierarchy.

The Company 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 June 30, 2021.

Financial Assets and Liabilities Measured on a Recurring Basis

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

June 30, 2020

June 30, 2021 Level 1 Level 2 Level 3 Asset at

Money market funds (1)

$ 151 $ — $ — $ 151

Certificates of deposit (2)

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Total assets measured at fair value $ 151 $ 863 $ 1,556 $ 2,570

Performance awards liability (3)

Total liabilities measured at fair value

June 30, 2019

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

Money market funds (1)

$ 1,163 $ — $ — $ 1,163

Certificates of deposit (2)

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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) $ 0.0 million and $ 0.4 million in money market funds are included in cash and cash equivalents and $ 0.2 million and $ 0.8 million in money market funds are included in restricted cash, non-current in other assets in the consolidated balance sheets as of June 30, 2021 and 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 in certificates of deposit are included in prepaid expenses and other assets, and $ 0.3 million and $ 1.1 million in certificates of deposit are included in restricted cash, non-current in other assets in the consolidated balance sheets as of June 30, 2020 and 2019 , respectively.

(2) $ 0.2 million and $ 0.2 million in certificates of deposit are included in cash and cash equivalents, $ 0.3 million and $ 0.3 million in certificates of deposit are included in prepaid expenses and other assets, and $ 0.4 million and $ 0.3 million in certificates of deposit are included in restricted cash, non-current in other assets in the consolidated balance sheets as of June 30, 2021 and 2020, respectively.

(3) As of June 30, 2021, the Company no longer measures performance awards liability at fair value because the Company trued up the performance awards liability to the cash payment value.

As of June 30, 2020, the current portion of the performance awards liability of $ 1.5 million is included in accrued liabilities and the noncurrent portion of $ 0.6 million is included in other long-term liabilities in the consolidated balance sheets.

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

The performance awards liability consists of one-time employee performance bonuses for the Company's Chief Executive Officer and two members of the Board that are payable when specified market and performance conditions are achieved.

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

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

Stock Price as of Period End

Performance Period

Risk-free Rate

Dividend Yield

1.25 - 2.00 years

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 fiscal year ended June 30, 2021, the credit losses related to the Company’s investments was not significant.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of June 30, 2020, 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 June 30, 2020 are as follows:

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

$ 28.39 1.25 - 2.00 years

0.16 % 53.75 % —

There was no movement in the balances of the Company's financial assets measured at fair value on a recurring basis, consisting of investment in an auction rate security, using significant unobservable inputs (Level 3) for fiscal years 2021 and 2020.

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The following is a summary of the Company’s investment in an auction rate security as of June 30, 2021 and 2020 (in thousands):

June 30, 2020 and 2019

June 30, 2021

Cost Basis Gross

Losses Fair Value

Auction rate security $ 1,750 $ — $ ( 194 ) $ 1,556

June 30, 2020

Cost Basis Gross

Losses Fair Value

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

For the fiscal year ended June 30, 2021, the Company's loss recognized in other comprehensive income for the auction rate security was immaterial.

No gain or loss was recognized in other comprehensive income for the auction rate security for the fiscal years ended June 30, 2020 and 2019.

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

As of June 30, 2020 and 2019 , total debt of $ 29.4 million and $ 23.6 million , respectively, are reported at amortized cost.

As of June 30, 2021 and 2020, total debt of $ 98.2 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.

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Other Financial Assets - Investments into Non-Marketable Equity Securities

The Company's non-marketable equity securities are investments in privately held companies without readily determinable fair values in the amount of $ 0.1 million and $ 0.9 million as of June 30, 2020 and 2019, respectively.

The Company's non-marketable equity securities are investments in privately held companies without readily determinable fair values in the amount of $ 0.1 million as of June 30, 2021 and 2020, respectively.

The Company accounts for these investments at cost minus impairment, if any, plus or minus changes from observable price changes in orderly transactions for the identical or similar investments by the same issuer.

During the years ended June 30, 2021 and 2020, the Company did not record any upward or downward adjustments to the carrying values of the non-marketable equity securities related to observable price changes.

The Company also did not record any impairment to the carrying values of the non-marketable equity securities during fiscal year 2020.

The Company also did not record any impairment to the carrying values of the non-marketable equity securities during fiscal year 2021 and 2020.

During fiscal year 2019, the Company recorded impairment charges of $ 2.7 million for its non-marketable equity securities which had an initial cost basis of $ 2.7 million as it was determined the carrying value of the investments were not recoverable.

During fiscal year 2018 , the Company did not record any other-than-temporary impairments on financial assets required to be measured at fair value on a non-recurring basis.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 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):

Years Ended June 30,

2021 2020 2019

Server and storage systems $ 2,790,305 $ 2,620,754 $ 2,858,644

Subsystems and accessories 767,117 718,527 641,716

Total $ 3,557,422 $ 3,339,281 $ 3,500,360

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

Subsystems and accessories are comprised of serverboards, chassis and accessories.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

The following is a summary for the fiscal years ended June 30, 2020 , 2019 and 2018 , of net sales by geographic region (in thousands):

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

The following is a summary of net sales by geographic region (in thousands):

Years Ended June 30,

2021 2020 2019

United States $ 2,107,910 $ 1,957,329 $ 2,032,948

The following table presents the net sales from products sold through the Company's indirect sales channel and to its direct customers and OEMs for fiscal years 2020 , 2019 and 2018 (in thousands):

Years Ended June 30,

Indirect sales channel

Direct customers and OEMs

Total net sales

Asia 699,653 650,652 712,211

Europe 614,826 598,558 611,014

Other 135,033 132,742 144,187

Total $ 3,557,422 $ 3,339,281 $ 3,500,360

Starting July 1, 2020, the Company does not separately disclose 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.

Contract Balances

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

Receivables relate to the Company’s right to consideration for performance obligations completed (or partially completed) for which the Company has an unconditional right to consideration.

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.

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

Revenue recognized during fiscal year 2020, which was included in the opening deferred revenue balance as of June 30, 2019, was $ 91.9 million .

Deferred revenue decreased during the fiscal year ended June 30, 2020 because the recognition of revenue from contracts entered into in prior periods exceeded the value of the transaction price allocated for service contracts obligations during the current period.

Revenue recognized during fiscal year ended June 30, 2021, which was included in the opening deferred revenue balance as of June 30, 2020 of $ 203.8 million, was $ 101.6 million.

Deferred revenue decreased $ 1.5 million during the fiscal year ended June 30, 2021 as compared to the fiscal year ended June 30, 2020 mainly due to the recognition of revenue from contracts entered into in prior periods exceeding the value of the transaction price allocated for service contract performance obligations during the fiscal year ended June 30, 2021.

Transaction Price Allocated to the Remaining Performance Obligations

Remaining performance obligations represent in aggregate the amount of transaction price that has been allocated to performance obligations not delivered, or only partially undelivered, as of the end of the reporting period.

The Company applies the optional exemption to not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less.

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

The value of the transaction price allocated to remaining performance obligations as of June 30, 2020 was approximately $ 203.8 million .

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Remaining performance obligations represent the aggregate the amount of transaction price that is allocated to performance obligations not delivered, or only partially undelivered, as of the end of the reporting period.

The Company applies the exemption to not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less.

These performance obligations generally consist of services, such as on-site services, including integration services and extended warranty services.

that are contracted for one year or less, and products for which control has not yet been transferred.

The value of the transaction price allocated to remaining performance obligations as of June 30, 2021 was approximately $ 202.3 million.

The Company expects to recognize approximately 50 % of remaining performance obligations as revenue in the next 12 months, and the remainder thereafter.

Capitalized Contract Acquisition Costs and Fulfillment Cost

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

Such contract acquisition costs allocated to service performance obligations that are subject to capitalization are insignificant to the Company’s consolidated financial statements.

Contract 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.

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Accounts receivable allowances as of June 30, 2021, 2020 and 2019 consisted of the following (in thousands):

Expenses (Recovered), net

Balance Charged to

Expenses (Recovered), net Write-offs Ending

Allowance for doubtful accounts:

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Total inventories $ 1,040,964 $ 851,498

During fiscal years 2020 , 2019 and 2018 , the Company recorded a provision for excess and obsolete inventory to cost of sales totaling $ 22.6 million , $ 28.5 million and $ 9.4 million , respectively, excluding a (recovery) provision for adjusting the cost of certain inventories to net realizable value of $( 4.2 ) million and $ 4.4 million in fiscal years 2020 and 2019, respectively.

The adjustment for lower of cost or net realizable value and lower of cost or market was not material in fiscal year 2018 .

The Company classifies subsystems and accessories that may be sold separately or incorporated into systems as finished goods.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During fiscal years 2021, 2020 and 2019, the Company recorded a net provision for excess and obsolete inventory to cost of sales totaling $ 6.8 million, $ 18.4 million and $ 32.9 million, respectively.

The Company classifies subsystems and accessories that may be sold separately or incorporated into systems as finished goods.

Property, Plant, and Equipment

Property, plant and equipment as of June 30, 2021 and 2020 consisted of the following (in thousands):

Buildings $ 86,930 $ 86,930

Land 76,421 75,251

Machinery and equipment 97,671 85,381

Buildings construction in progress (1)

87,438 46,311

Building and leasehold improvements 26,640 24,517

Software 22,592 20,597

Furniture and fixtures 22,843 21,544

420,535 360,531

Accumulated depreciation and amortization ( 145,822 ) ( 126,746 )

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__________________________

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

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

Prepaid Expenses and Other Assets

Prepaid expenses and other current assets as of June 30, 2021 and 2020 consisted of the following (in thousands):

Receivables from vendors (1)

Other receivables (1)

$ 99,921 $ 96,669

Prepaid income tax 12,288 14,323

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Restricted cash 251 250

Others 6,116 4,507

Total prepaid expenses and other current assets $ 130,195 $ 126,985

__________________________

(1) Includes receivables from contract manufacturers based on certain buy-sell arrangements of $ 83.8 million and $ 82.0 million as of June 30, 2020 and 2019 , respectively.

(1) Includes other receivables from contract manufacturers based on certain buy-sell arrangements of $ 76.2 million and $ 83.8 million as of June 30, 2021 and 2020, respectively.

SUPER MICRO COMPUTER, INC.

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Deferred service costs, non-current 5,421 4,632

Restricted cash, non-current

Investment in auction rate security

Non-marketable equity securities

Deposits 1,669 1,201

Prepaid expense, non-current 1,973 1,576

Investment in auction rate security 1,556 1,571

Restricted cash, non-current 932 1,607

Others 528 128

Total other assets $ 32,126 $ 34,499

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

The Company recorded a deferred gain related to the contribution of certain technology rights of $ 7.0 million in the third fiscal quarter of 2017.

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

As a result of the adoption of new accounting guidance as of the beginning of fiscal year 2019, the Company recorded an increase of $ 3.0 million to the investment in equity investee for the contribution of those technology rights, and corresponding increases in deferred gain and retained earnings of $ 2.1 million and $ 0.9 million , respectively.

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

As of June 30, 2021 and 2020, the Company had unamortized deferred gain balance of $ 1.0 million and $ 2.0 million, respectively, in accrued liabilities and $ 0.0 million and $ 1.0 million, respectively, in other long-term liabilities in the Company’s consolidated balance sheets.

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

government export control list, along with several related entities.

The Company is working with the Corporate Venture management to ensure that any future related parties transactions with the Corporate Venture are in accordance with the new restrictions and does not believe that the equity investment carrying value is impacted as of June 30, 2020.

The Company did no t recognize any impairment in the years ended June 30, 2020, 2019 and 2018 .

As of June 30, 2020 and June 30, 2019 , the Company's equity investment in the Corporate Venture was $ 2.7 million and $ 1.7 million , respectively, and was recorded under investment in equity investee on the Company's consolidated balance sheet.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company's share of income (losses), net of taxes, of the Corporate Venture net of taxes were $ 2.4 million , $( 2.7 ) million , and $( 3.6 ) million for the fiscal years ended June 30, 2020 , June 30, 2019 , and June 30, 2018 , respectively.

Additionally, the Company sold products worth $ 61.9 million , $ 52.2 million , $ 21.7 million to the Corporate Venture in the fiscal years 2020 , 2019 , 2018 , respectively, and the Company's share of intra-entity profits on the products that remained unsold by the Corporate Venture in the amounts of $ 3.0 million and $ 1.7 million as of June 30, 2020 and June 30, 2019 have been eliminated and have reduced the carrying value of the Company's investment in the Corporate Venture.

government export control list, along with

several of such third-party parent's related entities and a separate listing for one of its subsidiaries.

The Corporate Venture is not itself a restricted party.

The Company has concluded that the Corporate Venture is in compliance with the new restrictions.

The Company does not believe that the equity investment carrying value is impacted as of June 30, 2021.

No impairment charge was recorded for the fiscal years ended June 30, 2021 and 2020.

The Company sold products worth $ 51.2 million, $ 61.9 million, $ 52.2 million to the Corporate Venture in the fiscal years 2021, 2020, 2019, respectively, and the Company's share of intra-entity profits on the products that remained unsold by the Corporate Venture as of June 30, 2021 and June 30, 2020 have been eliminated and have reduced the carrying value of the Company's investment in the Corporate Venture.

To the extent that the elimination of intra-entity profits reduces the investment balance below zero, such amounts are recorded within accrued liabilities.

The Company had $ 7.8 million and $ 13.1 million due from the Corporate Venture in accounts receivable, net as of June 30, 2020 and 2019 , respectively, in its consolidated balance sheets.

The Company had $ 8.5 million and $ 7.8 million due from the Corporate Venture in accounts receivable, net as of June 30, 2021 and 2020, respectively.

Accrued Liabilities

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accrued liabilities as of June 30, 2021 and 2020 consisted of the following (in thousands):

Accrued payroll and related expenses $ 45,770 $ 33,577

Contract manufacturers liability

Accrued legal liabilities

Accrued professional fees

Contract manufacturers liabilities 45,319 36,249

Customer deposits 32,419 9,942

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Accrued cooperative marketing expenses 5,652 5,925

Accrued professional fees 2,737 5,661

Accrued legal liabilities — 18,114

Others 30,446 29,639

Total accrued liabilities $ 178,850 $ 155,401

Performance Awards Liability

In March 2020, the Company’s Board of Directors (the “Board”) approved $ 25.3 million of special performance bonuses to employees, which included $ 8.0 million paid in cash during the fourth quarter of fiscal year 2020 and $ 17.3 million paid in cash upon the occurrence of the average closing price for the Company's common stock equaling or exceeding $ 21.39 for any period of 10 consecutive trading days following March 26, 2020.

The entire amount of the special performance bonuses to employees was paid in the fourth quarter of fiscal year 2020.

The Board also approved performance bonuses for the Chief Executive Officer, a senior executive and two members of the Board, which payments will be earned when specified market and performance conditions are achieved.

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

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

The first 50 % is payable if the average closing price for the Company’s common stock equals or exceeds $ 31.61 for any period of 20 consecutive trading days following the date of the agreement and ending prior to September 30, 2021 and the Chief Executive Officer remains employed with the Company through the date that such common stock price goal is determined to have been achieved and the date that the payment is made.

This payment can be reduced at the discretion of the Board to the extent the Company has not made adequate progress in remediating its material weaknesses in its internal control over financial reporting as determined by the Board.

The second 50 % is payable if the average closing price for the Company’s common stock equals or exceeds $ 32.99 for any period of 20 consecutive trading days following the date of the agreement and ending prior to June 30, 2022 and the Chief Executive Officer remains employed with the Company through the date that such common stock price goal is achieved and the date that the payment is made.

Performance bonuses for a senior executive and two members of the Board are earned based on achieving a specified target average closing price for the Company’s common stock over the specified period as determined by the Board at the grant

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

dates and continuous services through the payment dates.

During the fiscal year ended June 30, 2021, the target average closing prices for both tranches were met but no determination has been made if there has been adequate progress in remediating the Company’s internal weaknesses in its internal control over financial reporting.

The cash payment under the second tranche has been made as of June 30, 2021, but no cash payment had been made for the first tranche as the Board has to approve this payment.

A senior executive earned an aggregate cash payment of $ 0.1 million when the target average closing price was met in the fourth quarter of fiscal year 2020.

The two members of the Board can earn aggregate cash payments of $ 0.3 million in two tranches if the target average closing price reaches $ 31.61 for the first tranche and $ 32.99 per share for the second tranche.

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

During the fiscal year ended June 30, 2021, the target average closing prices for both tranches were met and the cash payment for both tranches was made to the two Board members.

The Company accounts for the outstanding performance bonuses as liabilities and estimates fair value of payable amounts using a Monte-Carlo simulation model.

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

The 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.

The requisite service periods over which expenses are recognized are derived from the Monte-Carlo model for all performance awards, except for the first 50 % of the Chief Executive Officer’s award that includes a performance condition.

The Company estimates if it is probable that the performance condition will be met through the expiration date of this award.

The Company estimates if it is probable that the performance condition will be met prior to the expiration date of this award.

If at the measurement date it is determined to be probable, the Company estimates the requisite period as the longer of the service period derived by the Monte-Carlo model and the implicit service period when the Company expects to make adequate progress in remediating its material weaknesses in its internal control over financial reporting, as reported by the Company's Audit Committee.

If it is determined to not be probable, then the Company will reverse any previously recognized expense for this award in the period when it is no longer probable that the performance condition will be achieved.

As of June 30, 2020, the Company's outstanding balance related to performance bonuses was $ 2.1 million of which $ 1.5 million is recorded within accrued liabilities and $ 0.6 million is recorded within other long-term liabilities on the Company's consolidated balance sheet.

An unrecognized compensation expense of $ 3.3 million will be recorded over the remaining service periods from 0.19 years to 1.18 years .

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

If it is determined to not be probable,

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

With the satisfaction of the target average closing price conditions in the fiscal year ended June 30, 2021, the Company trued up all the unpaid performance bonuses to the cash payment value.

As of June 30, 2021, the full cash value of the bonuses were paid, except the Chief Executive Officer's first tranche performance bonus which was recorded as an accrued liability on the Company's consolidated balance sheet.

The Company has completed the remediation of its material weaknesses in its internal control over financial reporting, and anticipates that the Board will conclude that there has been adequate progress in remediating the Company's material weaknesses in its internal control over financial reporting by October 31, 2021.

Therefore, as of June 30, 2021, the Company trued up the accrued liability for the Chief Executive Officer’s first tranche award to the expected payable amount vested through the period end and the unrecognized cash value will be recorded over the remaining service period.

Based on the cash payment value and estimated fair value of these performance bonuses as of June 30, 2021 and June 30, 2020, the Company recorded a $ 3.6 million and $ 2.1 million liability, respectively, of which $ 3.6 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 $ 0.5 million will be recorded over the remaining service periods of 0.18 years.

The expense recognized during fiscal years 2021 and 2020 was $ 5.8 million and $ 2.1 million, respectively.

Short-term and Long-term Debt

1 unchanged sentence

Line of credit:

Bank of America

CTBC Bank $ 18,000 $ —

E.SUN Bank 20,400 —

Total line of credit 38,400 —

CTBC Bank, due August 31, 2021 25,090 23,704

1 unchanged sentence

Total term loans 59,790 29,401

Total debt 98,190 29,401

Short-term debt and current portion of long-term debt 63,490 23,704

3 unchanged sentences

2018 Bank of America Credit Facility

In April 2018, the Company entered into a revolving line of credit with Bank of America (the "2018 Bank of America Credit Facility"), which replaced the then existing credit facility with Bank of America (the "2016 Bank of America Credit Facility").

The 2018 Bank of America Credit Facility provides for a revolving credit line and other financial accommodations of up to $ 250.0 million extended by certain lenders, including a $ 5.0 million letter of credit sublimit, which was extended to $ 15.0 million in October 2019.

The 2018 Bank of America Credit Facility was originally set to expire after 364 days and on

In April 2018, the Company entered into a revolving line of credit with Bank of America for up to $ 250.0 million (as amended from time to time, the "2018 Bank of America Credit Facility").

On June 28, 2021, the 2018 Bank of America Credit Facility was amended to, among other items, extend the maturity to June 28, 2026, reduce the size of the facility from $ 250.0 million to $ 200.0 million, increase the maximum amount that the Company can request the facility be increased (the accordion feature) from $ 100.0 million to $ 150.0 million, and update provisions relating to erroneous payments and LIBOR replacement mechanics.

In addition, the amendment reduced both the unused line fee from 0.375 % per annum to 0.2 % or 0.3 % per annum (depending upon amount drawn under the facility) and the interest rate applicable to the facility from LIBOR plus 2.00 % or 3.00 % per annum (depending upon amount drawn under the facility) to LIBOR plus 1.375 % or 1.625 % per annum.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

January 31, 2019, the Company paid a fee and entered into an amendment of the 2018 Bank of America Credit Facility that resulted in the extension of the maturity date from April 19, 2019 to June 30, 2019.

On June 27, 2019, the Company entered into a second amendment of the 2018 Bank of America Credit Facility that extended the maturity date from June 30, 2019 to June 30, 2020.

On May 12, 2020, the Company paid a fee of $ 0.7 million and entered into a third amendment of the 2018 Bank of America Credit Facility that extended the maturity of the credit facility to June 30, 2021 and changed certain terms of the original agreement.

The amendment was accounted for as a modification and the impact was immaterial to the consolidated financial statements.

Under the original terms, interest accrued at the LIBOR rate plus 2.75 % per annum, while under the third amendment, interest shall accrue at LIBOR rate plus 2.00 % on outstanding borrowings less than $ 125.0 million and LIBOR rate plus 2.25 % on outstanding borrowings in excess of $ 125.0 million .

Under the terms of the third amendment of the 2018 Bank of America Credit Facility, in the event of default or if outstanding borrowings are in excess of $ 220.0 million , the Company is required to grant the lenders a continuing security interest in and lien upon all amounts credited to any of the Company's deposit accounts.

In addition, the third amendment released the real property of Super Micro Computer as a collateral.

Interest accrued on any loans under the 2018 Bank of America Credit Facility is due on the first day of each month, and the loans are due and payable in full on the termination date of the 2018 Bank of America Credit Facility.

2 unchanged sentences

Under the terms of the 2018 Bank of America Credit Facility, the Company is not permitted to pay any dividends.

The Company is required to pay 0.375 % per annum on the 2018 Bank of America Credit Facility for any unused borrowings.

The 2018 Bank of America Credit Facility contains customary representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries and contains a financial covenant, which requires that the Company maintain a certain fixed charge coverage ratio, for each twelve-month period while in a Trigger Period, as defined in the agreement, is in effect.

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

As of June 30, 2019 , the total outstanding borrowings under the 2018 Bank of America Credit facility were $ 1.1 million .

The interest rates under the 2018 Bank of America Credit Facility as of June 30, 2020 and 2019 were 3.0 % per annum and 4.5 % per annum, respectively.

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

and in October 2019, the letter of credit amount was increased to $ 6.4 million .

As of June 30, 2021 and 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 June 30, 2021 and 2020 were 1.50 % and 3.00 %, respectively.

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

No amount was drawn under the standby letter of credit.

In May 2021, the letter of credit was cancelled.

The balance of debt issuance costs outstanding were $ 0.5 million and $ 0.6 million as of June 30, 2021 and 2020, respectively.

1 unchanged sentence

CTBC Credit Facility

In January 2018, the Company entered into a credit agreement with China Trust and Bank Corp ("CTBC Bank") that provided for (i) a 12 -month NTD $ 700.0 million ( $ 23.6 million U.S.

dollar equivalent) term loan facility secured by the land and building located in Bade, Taiwan with an interest rate equal to the lender's established NTD interest rate plus 0.25 % per annum, which was adjusted monthly, which term loan facility also included a 12 -month guarantee of up to NTD $ 100.0 million ( $ 3.4 million U.S.

dollar equivalent) with an annual fee equal to 0.50 % per annum, and (ii) a 12 -month NTD $ 1,500.0 million ( $ 50.5 million U.S.

dollar equivalent) term loan facility with an interest rate equal to the lender's established NTD interest rate plus 0.25 % per annum, which was adjusted monthly (collectively, the “2018 CTBC Credit Facility”).

The total borrowings allowed under the 2018 CTBC Credit Facility was initially capped at $ 50.0 million and in August 2018 was reduced to $ 40.0 million .

In June 2019 prior to its maturity, the 2018 CTBC Credit Facility was replaced by the 2019 CTBC Credit Facility (defined below).

In June 2019, the Company entered into a credit agreement with CTBC Bank that provides for (i) a 12 -month NTD $ 700.0 million ( $ 22.5 million U.S.

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, 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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

In February 2021, CTBC Bank amended the USD interest rate to be the lender's established USD interest rate plus 0.70 % to 0.75 % per annum which is adjusted monthly.

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

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

On June 30, 2020, the maturity date of the 2019 CTBC credit facility was extended to August 31, 2020.

On August 24, 2020, the maturity of the 2019 CTBC credit facility was further extended to August 31, 2021.

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

dollars of $ 25.1 million and $ 23.7 million at June 30, 2021 and 2020, respectively.

As of June 30, 2020 and 2019 , the Company did no t have any outstanding borrowings under the 2019 CTBC Credit Facility revolving line of credit.

The interest rate for these loans were 0.75 % per annum as of June 30, 2021 and 0.63 % per annum as of June 30, 2020.

At June 30, 2020 , the amount available for future borrowing under the 2019 CTBC Credit Facility was $ 26.3 million .

As of June 30, 2021 and 2020, the outstanding borrowings under the CTBC Credit Facility revolving line of credit were $ 18.0 million and $ 0.0 million , respectively.

The interest rate was 0.98 % per annum as of June 30, 2021.

As of June 30, 2021, the amount available for future borrowing under the CTBC Credit Facility was $ 6.9 million.

As of June 30, 2021, the net book value of land and building located in Bade, Taiwan, collateralizing the CTBC Credit Facility term loan was $ 24.8 million.

2020 CTBC Term Loan Facility

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

2020 CTBC Term Loan Facility due June 4, 2030

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.

2 unchanged sentences

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.

Interest under the 2020 CTBC Term Loan Facility is the two-year term

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 %.

2 unchanged sentences

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

The Company borrowed $ 5.7 million in June 2020 with an interest rate of 0.45 % per annum.

As of June 30, 2020 , the amount outstanding under the 2020 CTBC Term Loan Facility was $ 5.7 million and the net book value of the property serving as collateral was $ 10.1 million .

As of June 30, 2021 and 2020, the amounts outstanding under the 2020 CTBC Term Loan Facility were $ 34.7 million and $ 5.7 million, respectively.

The interest rates for these loans were 0.45 % per annum as of June 30, 2021 and June 30, 2020.

The net book value of the property serving as collateral as of June 30, 2021 was $ 45.9 million.

As of June 30, 2021, the Company was in compliance with all financial covenants under the 2020 CTBC Term Loan Facility.

2021 CTBC Credit Lines

On July 20, 2021 (the “Effective Date”), the Company entered into a general agreement for omnibus credit lines with CTBC Bank, which replaced the CTBC Credit Facility and 2020 CTBC Term Loan Facility (the “Prior CTBC Credit Lines”) in their entirety and permit borrowings, from time to time, of (i) a term loan facility of up to NTD 1,550.0 million ($ 55.4 million in U.S.

dollar equivalents) and (ii) a line of credit facility of up to US$ 105.0 million (the “2021 CTBC Credit Lines”).

Interest rates are to be established according to individual credit arrangements established pursuant to the 2021 CTBC Credit Lines, which interest rates shall be subject to adjustment depending on the satisfaction of certain conditions.

Term loans made pursuant to the 2021 CTBC Credit Lines are secured by certain of the Company’s assets, including certain property, land, plant, and equipment.

As of June 30, 2021, the net book value of land and building located in Bade, Taiwan, collateralizing the New CTBC Credit Facility term loan was $ 70.7 million.

The Company is subject to various financial covenants under the 2021 CTBC Credit Lines, including current ratio, debt service coverage ratio, and financial debt ratio requirements.

Amounts outstanding under the Prior CTBC Credit Lines on the Effective Date were assumed by the 2021 CTBC Credit Lines.

E.SUN Bank Credit Facility

In December 2020, Super Micro Computer Inc, Taiwan, a wholly-owned Taiwan subsidiary of the Company, entered into a General Credit Agreement (the “E.SUN Credit Facility”) with E.SUN Bank in Taiwan.

The E.SUN Credit Facility provides for the issuance of loans, advances, acceptances, bills, bank guarantees, overdrafts, letters of credit, and other types of drawdown instruments up to a credit limit of $ 30.0 million.

The E.SUN Credit Facility expires on September 18, 2021.

Generally, the interest for base rate loans made under the E.SUN Credit Facility is based upon an average interbank overnight call loan rate in the finance industry (such as LIBOR or TAIFX) plus a fixed margin, and is subject to occasional adjustment.

Interest for adjustable loan rate loans made under the E.SUN Credit Facility is based upon an average one-year fixed rate time saving deposit rate of a selected reference bank which shall be a well-known domestic bank in Taiwan, and is subject to occasional adjustment.

The E.SUN Credit Facility has customary default provisions permitting E.SUN Bank to terminate or reduce the credit limit, shorten the credit period, or deem all liabilities due and payable, including in the event such Taiwan subsidiary of the Company has an overdue liability at another financial organization.

There are no financial covenants associated with the E.SUN Credit Facility.

Terms for specific drawdown instruments issued under the E.SUN Credit Facility, such as credit amount, term of use, mode of drawdown, specific lending rate, and other relevant terms, are to be set forth in Notifications and Confirmation of Credit Conditions by and between the Company and E.SUN Bank.

A Notification and Confirmation of Credit Conditions agreement under the E.SUN Credit Facility was entered into on December 2, 2020 for a $ 30.0 million import loan (the “Import Loan”) with a tenor of 120 days.

In June 2021, the Import Loan was amended to, among other items, bearing interest at a rate based on the higher of LIBOR plus 1.00 % then divided by 0.946 or TAIFX plus 0.80 % then divided by 0.946 .

As of June 30, 2021, the amounts outstanding under the E.SUN Credit Facility was $ 20.4 million and the interest rates for these loans ranged from approximately 1.0 % to 1.29 % per annum.

As of June 30, 2021, the amount available for future borrowing under the E.SUN Credit Facility was $ 9.6 million .

Principal payments on short-term and long-term debt obligations are due as follows (in thousands):

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Principal Payments

2022 $ 63,490

2027 and thereafter 19,416

Total short-term and long-term debt $ 98,190

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Long-term Liabilities

Other long-term liabilities as of June 30, 2021 and 2020 consisted of the following (in thousands):

Operating lease liability, non-current

Accrued unrecognized tax benefits including related interest and penalties $ 17,841 $ 15,496

Operating lease liability, non-current 14,539 18,102

Accrued warranty costs, non-current 2,678 2,395

Others 6,074 6,002

Total other long-term liabilities $ 41,132 $ 41,995

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.

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 years ended June 30, 2021 and 2020 were as follows (in thousands):

1 unchanged sentence

Operating lease expense (including expense for lease agreements with related parties of $ 1,319 and $ 1,421 for the years ended June 30, 2021 and 2020, respectively)

$ 7,827 $ 6,993

Cash payments for operating leases (including payments to related parties of $ 1,351 and $ 1,443 for the years ended June 30, 2021 and 2020, respectively)

2 unchanged sentences

Non-lease variable payments expensed in the years ended June 30, 2021, 2020 and 2019 were $ 1.8 million, $ 1.3 million and $ 0.0 million , respectively.

As of June 30, 2020 , the weighted average remaining lease term for operating leases was 4.6 and the weighted average discount rate was 3.5 % .

As of June 30, 2021, the weighted average remaining lease term for operating leases was 3.8 years and the weighted average discount rate was 3.4 %.

Maturities of operating lease liabilities under noncancelable operating lease arrangements as of June 30, 2021 were as follows (in thousands):

6 unchanged sentences

Present value of operating lease liabilities $ 20,861

As of June 30, 2019, prior to the adoption of the new lease accounting guidance, future minimum payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows (in thousands):

Minimum lease payments

2025 and beyond

Total minimum lease payments

As of June 30, 2020 , commitments under short-term lease and financing lease arrangements were immaterial.

As of June 30, 2020 , operating and financing leases that have not yet commenced were immaterial.

As of June 30, 2021, 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.

5 unchanged sentences

Compuware is both a distributor of the Company’s products and a contract manufacturer for the Company.

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

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.

Steve Liang and his family members owned approximately 28.8 % of Ablecom’s stock and Charles Liang and his spouse, Sara Liu, who is also an officer and director of the Company, collectively owned approximately 10.5 % of Ablecom’s capital stock as of June 30, 2021.

Certain family members of Yih-Shyan (Wally) Liaw, who until January 2018 was the Senior Vice President of International Sales and a director of the Company, owned approximately 11.7 % of Ablecom’s capital stock as of June 30, 2020 .

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

2 unchanged sentences

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Dealings with Ablecom

10 unchanged sentences

In addition to inventory purchases, the Company also incurs other costs associated with design services, tooling and other miscellaneous costs from Ablecom.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

14 unchanged sentences

The Company sells to Compuware most of the components needed to manufacture the above products.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

uses the components to manufacture the products and then sells the products back to the Company at a purchase price equal to the price at which the Company sold the components to Compuware, plus a “manufacturing value added” fee and other miscellaneous material charges and costs.

Compuware uses the components to manufacture the products and then sells the products back to the Company at a purchase price equal to the price at which the Company sold the components to Compuware, plus a “manufacturing value added” fee and other miscellaneous material charges and costs.

The Company and Compuware frequently review and negotiate the amount of the “manufacturing value added” fee that will be included in the price of the products the Company purchases from Compuware.

4 unchanged sentences

The Company’s results from transactions with Ablecom and Compuware for each of the fiscal years ended June 30, 2021, 2020 and 2019 are as follows (in thousands):

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended June 30,

2021 2020 2019

Purchases (1)

$ 130,852 $ 160,084 $ 145,273

Net sales $ 27,865 $ 23,867 $ 17,651

Purchases (1)

115,213 131,763 139,579

__________________________

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

2 unchanged sentences

Accounts receivable and other receivables (1)

$ 5,577 $ 6,379

Accounts payable and accrued liabilities (2)

41,194 40,056

Other long-term liabilities (3)

Accounts receivable and other receivables (1)

18,371 14,323

Accounts payable and accrued liabilities (2)

46,430 46,518

Other long-term liabilities (3)

__________________________

(1) Other receivables include receivables from vendors.

(2) Includes current portion of operating lease liabilities.

(1) Other receivables include receivables from vendors included in prepaid and other current assets.

(2) Includes current portion of operating lease liabilities included in other current liabilities.

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In October 2016, the Company entered into agreements pursuant to which the Company contributed certain technology rights in connection with an investment in the Corporate Venture, which is accounted for using the equity method.

See Note 8, "Investment in a Corporate Venture" for a discussion of the investment and the transactions that took place during the fiscal years 2020 , 2019 , and 2018 .

The Company procures certain semiconductor products from Monolithic Power Systems, Inc.

(“MPS”), a fabless manufacturer of high-performance analog and mixed-signal semiconductors, for use in its products.

Saria Tseng, who serves as a member on the Board of Directors, also serves as Vice President of Strategic Corporate Development, General Counsel and Secretary of MPS.

The Company purchased $ 3.9 million, $ 5.2 million and $ 3.7 million of semiconductor products from MPS for use in its manufacturing process during the years ended June 30, 2021, 2020 and 2019, respectively.

The amounts due to MPS as of June 30, 2021 and 2020 were not material.

See Note 8, "Investment in a Corporate Venture" for a discussion of the investment and the transactions and balances in the Company's Corporate Venture.

Stock-based Compensation and Stockholders’ Equity

3 unchanged sentences

No other awards can be granted under the 2016 Plan and 7,246,000 shares of common stock remain reserved for outstanding awards issued under the 2016 Plan at the time of adoption of the 2020 Plan.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under the 2020 Plan, the Company can grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents, and certain other awards, including those denominated or payable in, or otherwise based on, the Company’s common stock.

5 unchanged sentences

As of June 30, 2021, the Company had 2,730,277 authorized shares available for future issuance under the 2020 Plan.

Common Stock Repurchase and Retirement

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

The program was 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 as of September 30, 2020.

On December 11, 2020, the Company retired 2,475,419 shares of common stock, which were recorded as treasury stock in the Company's condensed consolidated balance sheet as of September 30, 2020.

On October 31, 2020, the Board approved a share repurchase program to repurchase up to an aggregate of $ 50.0 million of the Company's common stock at market prices.

The program was effective until October 31, 2021 or if earlier, until the maximum amount of common stock was repurchased.

As of March 31, 2021, 1,675,746 shares of common stock were repurchased and retired for an aggregate $ 50.0 million and the program ended.

On January 29, 2021, a duly authorized subcommittee of the Board approved a share repurchase program to repurchase up to an aggregate of $ 200.0 million of the Company's common stock at market prices.

The program is effective until July 31, 2022 or if earlier, until the maximum amount of common stock is repurchased.

1,391,171 shares of common stock were repurchased and retired for an aggregate $ 50.0 million as of June 30, 2021.

During the fiscal year ended June 30, 2021, the Company repurchased and retired 4,209,211 shares of common stock for an aggregated $ 130.0 million.

Additionally, the Company retired 1,333,125 shares of common stock repurchased in prior years.

Determining Fair Value

11 unchanged sentences

Years Ended June 30,

Risk-free interest rate

2021 2020 2019

Risk-free interest rate 0.27 % - 1.09 %

0.47 % - 1.72 %

2.32 % - 2.97 %

Expected term

Expected term 5.98 years 6.27 years 6.05 years

Dividend yield — % — % — %

49.61% - 50.46%

Volatility 50.03 % - 50.43 %

49.61 % - 50.46 %

3 unchanged sentences

Years Ended June 30,

2021 2020 2019

Cost of sales $ 1,762 $ 1,504 $ 1,663

6 unchanged sentences

As of June 30, 2021, $ 8.4 million of unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 4 years, $ 45.1 million of unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted-average period of 2.73 years and $ 0.1 million of unrecognized compensation cost related to unvested PRSUs is expected to be recognized over a period of 0.36 year.

Additionally, as described below, $ 10.5 million of unrecognized compensation cost related to the 2021 CEO Performance Stock Option is expected to be recognized over a period of 5 years.

Stock Option Activity

The following table summarizes stock option activity during the fiscal years ended June 30, 2020 , 2019 and 2018 under all plans:

In March 2021, the Company’s Compensation Committee of the Board of Directors (the “Compensation Committee”) approved the grant of a stock option award for 1,000,000 shares of common stock to the Company’s CEO (the “2021 CEO Performance Stock Option”).

The 2021 CEO Performance Stock Option has five vesting tranches with a vesting schedule based entirely on the attainment of operational milestones (performance conditions) and market conditions, assuming (1) continued employment either as the CEO or in such capacity as agreed upon between the Company’s CEO and the Board and (2) service through each vesting date.

Each of the five vesting tranches of the 2021 CEO Performance Stock Option will vest upon certification by the Compensation Committee that both (i) the market price milestone for such tranche, which begins at $ 45.00 per share for the first tranche and increases up to $ 120.00 per share thereafter (based on a 60 calendar day average, counting only trading days), has been achieved, and (ii) any one of five operational milestones focused on total revenue, as reported under U.S.

GAAP, have been achieved for the previous four consecutive fiscal quarters.

Upon vesting and exercise, including the payment of the exercise price of $ 45.00 per share, prior to March 2, 2024, the Company’s CEO must hold shares that he acquires until March 2, 2024, other than those shares sold pursuant to a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

The achievement status of the operational and stock price milestones as of June 30, 2021 was as follows:

Annualized Revenue Milestone

Achievement Status

Stock Price Milestone

Achievement Status

(in billions)

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$ 4.0 Probable

$ 4.8 Probable

$ 5.8 Probable

$ 6.8 Probable

On the grant date, a Monte Carlo simulation was used to determine for each tranche (i) a fixed expense amount for such tranche and (ii) the future time when the market price milestone for such tranche was expected to be achieved, or its “expected market price milestone achievement time.” Separately, based on a subjective assessment of the Company’s future financial performance, each quarter, the Company will determine whether achievement is probable for each operational milestone that has not previously been achieved or deemed probable of achievement, and, if so, the future time when the Company expects to achieve that operational milestone, or its “expected operational milestone achievement time.” When the Company first determines that an operational milestone has become probable of being achieved, the Company will allocate the entire expense for the related tranche over the number of quarters between the grant date and the then-applicable “expected vesting time.” The “expected vesting time” at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market price milestone achievement time (if the related market price milestone has not yet been achieved).

The Company will immediately recognize a catch-up expense for all accumulated expenses from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved.

Each quarter thereafter, the Company will recognize the prorated portion of the then-remaining expense for the tranche based on the number of quarters between such quarter and the then-applicable expected vesting time, except that upon vesting of a tranche, all remaining expenses for that tranche will be immediately recognized.

During the fiscal year ended June 30, 2021, the Company recognized compensation expense related to the 2021 CEO Performance Stock Option of $ 1.1 million.

As of June 30, 2021, $ 10.5 million in unrecognized compensation cost related to the 2021 CEO Performance Stock Option is expected to be recognized over a period of 5 years.

The following table summarizes stock option activity during the fiscal years ended June 30, 2021, 2020 and 2019 under all plans:

Outstanding Weighted

Share Weighted

(in Years) Aggregate

(in thousands)

Balance as of June 30, 2018

8,301,138 $ 16.50

Granted 434,320 $ 18.58

Forfeited/Cancelled ( 1,360,823 ) $ 8.94

Balance as of June 30, 2019

7,374,635 $ 18.02

Granted 273,260 $ 19.61

Exercised ( 1,812,000 ) $ 15.74

Forfeited/Cancelled ( 456,127 ) $ 11.97

Balance as of June 30, 2020

5,379,768 $ 19.38

Granted 1,517,110 $ 40.49

Exercised ( 1,645,800 ) $ 17.25

Forfeited/Cancelled ( 75,524 ) $ 24.43

1 unchanged sentence

Options vested and exercisable at June 30, 2021 3,448,888 $ 20.47 3.41 $ 50,887

The total pretax intrinsic value of options exercised during the fiscal year ended June 30, 2020 , 2019 and 2018 was $ 19.3 million , $ 0 and $ 4.0 million , respectively.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The total pretax intrinsic value of options exercised during the fiscal year ended June 30, 2021, 2020 and 2019 was $ 24.3 million, $ 19.3 million and $ 0 , respectively.

Additional information regarding options outstanding as of June 30, 2021, is as follows:

Options Outstanding

Options Vested and Exercisable

Exercise Prices

Options Outstanding Options Vested and Exercisable

Exercise Prices Number

Outstanding Weighted-

Term (Years) Weighted-

Exercisable Weighted-

$ 9.24 - $ 12.50

8 unchanged sentences

614,906 5.81 $ 24.26 436,968 $ 24.67

$ 26.60 - $ 28.71

536,681 4.69 $ 27.08 529,181 $ 27.06

$ 30.33 - $ 38.50

590,341 7.26 $ 34.31 246,273 $ 34.48

$ 39.19 - $ 39.19

28,000 3.62 $ 39.19 28,000 $ 39.19

$ 42.35 - $ 42.35

8,390 4.82 $ 42.35 — $ —

$ 45.00 - $ 45.00

1,000,000 9.67 $ 45.00 — $ —

$ 9.24 - $ 45.00

5,175,554 5.36 $ 26.17 3,448,888 $ 20.47

RSU and PRSU Activity

3 unchanged sentences

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.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The one -year PRSUs were earned based on the Company’s performance as it related to a revenue growth metric and a minimum non-GAAP operating margin metric during the fiscal year ended June 30, 2018 with eligibility up to 200 % of the targeted number of units based on revenue growth if the minimum non-GAAP operating margin was achieved.

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

In December 2019, the Compensation Committee of the Company's Board of Directors determined that the Company achieved the revenue and non-GAAP operating margin metrics for the fiscal year ended June 30, 2018 at a level that entitled the Chief Executive Officer to 200 % of the originally targeted number of shares subject to the one -year PRSU.

50 % of the PRSUs so earned were vested as of June 30, 2018, and an additional 40 % of the PRSUs vested during the eight quarters ended June 30, 2020, in accordance with the terms of the grant.

The two -year PRSUs are earned based on the Company’s performance for the average non-GAAP operating margin metric for the two fiscal years ended June 30, 2019 with eligibility up to 100 % of the targeted number of units.

If the performance metrics were met, 50 % of the PRSUs would have vested at June 30, 2019 while the remainder would have been vested in equal amounts over the following ten quarters if the Chief Executive Officer continued to be employed during those ten quarters.

In December 2019, the Compensation Committee of the Board determined that the Company did not achieve the required performance metrics for the two -year PRSUs and none of the two -year PRSUs vested.

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 subject to the continued employment of the CEO.

As of June 30, 2021, the remaining 50 % of the PRSUs had vested 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.

4 unchanged sentences

The following table summarizes RSUs and PRSUs activity during the fiscal years ended June 30, 2021 and 2020 under all plans:

Time-based RSUs Outstanding

Grant-Date Fair Value per Share

PRSUs Outstanding

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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, 2018 1,480,605 $ 23.34 120,000 $ 27.10

Granted 1,086,911 $ 18.37 —

( 549,886 ) $ 24.87 —

Forfeited ( 144,528 ) $ 20.25 —

Balance as of June 30, 2019 1,873,102 $ 20.25 120,000 $ 27.10

Granted 943,650 $ 20.45 30,000 $ 20.37

( 871,274 ) $ 20.97 ( 108,000 ) $ 27.10

Forfeited ( 177,451 ) $ 19.49 —

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

Granted 1,334,418 $ 31.54 30,000 $ 34.27

( 984,406 ) $ 21.63 ( 27,000 ) $ 23.36

Forfeited ( 263,083 ) $ 25.01 ( 30,000 ) $ 20.37

Balance as of June 30, 2021 1,854,956 $ 26.79 15,000 $ 34.27

_________________

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

(1) The number of shares released excludes 172,857 RSUs that were vested but not released in fiscal year 2019.

The number of vested but not released RSUs for fiscal year 2020 was not material.

The number of shares released also excludes 24,000 and 60,000 PRSUs that were vested but not released in fiscal years 2019 and 2018, respectively.

The number of vested but not released RSUs for fiscal years 2021 and 2020 was not material.

The number of shares released also excludes 24,000 PRSUs that were vested but not released in fiscal year 2019.

These vested RSUs and PRSUs were primarily released in fiscal year 2020 and included in fiscal year 2020 number upon the effectiveness of the Company's registration statement on Form S-8.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The total pretax intrinsic value of RSUs and PRSUs vested was $ 32.6 million, $ 18.9 million and $ 14.3 million for the fiscal years ended June 30, 2021, 2020 and 2019, respectively.

2 unchanged sentences

Total payments for the employees' tax obligations to tax authorities were $ 8.7 million, $ 8.2 million and $ 3.1 million for the fiscal years ended June 30, 2021, 2020 and 2019, respectively, and are reflected as a financing activity within the consolidated statements of cash flows.

Pursuant to the terms of the 2016 Plan, shares withheld in connection with net-share settlements are returned to the 2016 Plan and are available for future grants under the 2016 Plan.

Pursuant to the terms of the 2020 and 2016 Plan, shares withheld in connection with net-share settlements are returned to the 2016 Plan and are available for future grants under the 2020 and 2016 Plan.

The components of income before income tax provision for the fiscal years ended June 30, 2021, 2020 and 2019 are as follows (in thousands):

Years Ended June 30,

2021 2020 2019

United States $ 80,922 $ 35,701 $ 45,126

Foreign 37,706 49,127 44,397

Income before income tax provision $ 118,628 $ 84,828 $ 89,523

The income tax provision for the fiscal years ended June 30, 2021, 2020 and 2019, consists of the following (in thousands):

Years Ended June 30,

Income tax provision

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended June 30,

2021 2020 2019

Federal $ 3,406 $ 4,568 $ 12,308

State 1,077 1,727 2,917

Foreign 10,843 10,399 16,531

15,326 16,694 31,756

Federal ( 5,489 ) ( 10,108 ) ( 13,078 )

State ( 409 ) ( 1,621 ) ( 2,888 )

Foreign ( 2,492 ) ( 2,043 ) ( 906 )

( 8,390 ) ( 13,772 ) ( 16,872 )

Income tax provision $ 6,936 $ 2,922 $ 14,884

The Company’s net deferred tax assets as of June 30, 2021 and 2020 consist of the following (in thousands):

10 unchanged sentences

Marketing fund accrual 720 548

Other 4,460 3,652

Total deferred income tax assets 100,169 87,829

4 unchanged sentences

The Company assesses its deferred tax assets for recoverability on a regular basis, and where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future.

As of June 30, 2020 , the Company believes that most of its deferred tax assets are “more-likely-than not” to be realized with the exception state research and development tax credits that have not met the “more-likely than not” realization threshold criteria.

As of June 30, 2021, the Company believes that most of its deferred tax assets are “more-likely-than not” to be realized with the exception of state research and development tax credits that have not met the “more-likely than not” realization threshold criteria.

As a result, at June 30, 2021, the gross excess credits of $ 37.1 million, or net of federal tax benefit of $ 29.3 million, are sub ject to a full valuation allowance.

3 unchanged sentences

The net deferred tax assets balance as of June 30, 2021 and 2020 was $ 63.3 million and $ 54.9 million, respectively.

In December 2017, the U.S.

federal government enacted the 2017 Tax Reform Act.

The 2017 Tax Reform Act reduced the U.S.

federal corporate income tax rate from 35% to 21% effective January 1, 2018 and created a one-time transition tax on foreign earnings of U.S.

subsidiaries that were not previously subject to U.S.

GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate.

As a result, the Company has completed its analysis and has recorded a one-time $ 12.9 million , net write down of its U.S.

deferred tax assets and liabilities resulting from the U.S.

federal corporate income tax rate decrease from 35% to 21%, and a one-time transition tax of $ 2.8 million , in its income tax provision for the fiscal year ended June 30, 2018.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The 2017 Tax Reform Act also creates a new requirement that Global Intangible Low-Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) that must be included currently in the gross income of a CFC’s U.S.

5 unchanged sentences

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

The Company previously asserted that all of its foreign undistributed earnings

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

were indefinitely reinvested.

The Company previously asserted that all of its foreign undistributed earnings were indefinitely reinvested.

As a result of the 2017 Tax Reform Act, the Company has determined that its foreign undistributed earnings are indefinitely reinvested except for Netherlands.

3 unchanged sentences

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

As a result of this restructuring, the Company estimated approximately $ 1.9 million additional tax benefit from foreign derived intangible income in fiscal year 2020 as compared to fiscal year 2019.

As a result of this restructuring, the Company estimated approximately $ 3.0 million and $ 1.9 million additional tax benefit from foreign derived intangible income in fiscal years 2021 and 2020 as compared to fiscal year 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted.

The CARES Act provides temporary relief from certain aspects of the 2017 Tax Reform Act that imposed limitations on the utilization of certain losses, interest expense deductions and alternative minimum tax credits and made a technical correction to the 2017 Tax Reform Act related to the depreciable life of qualified improvement property.

The CARES Act provides temporary relief from certain aspects of the 2017 Tax Reform Act that imposed limitations on the utilization of certain losses, interest expense deductions, alternative minimum tax credits and made a technical correction to the 2017 Tax Reform Act related to the depreciable life of qualified improvement property.

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

1 unchanged sentence

Years Ended June 30,

2021 2020 2019

Income tax provision at statutory rate 21.0 % 21.0 % 21.0 %

7 unchanged sentences

Provision to return true-up ( 1.9 ) ( 1.1 ) ( 1.6 )

Tax reform related charge

Qualified production activity deduction

Other, net 1.2 1.1 1.0

Effective tax rate 5.8 % 3.4 % 16.6 %

1 unchanged sentence

The state research and development tax credits will carryforward indefinitely to offset future state income taxes.

The following table summarizes the activity related to the unrecognized tax benefits (in thousands):

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the activity related to the unrecognized tax benefits (in thousands):

Balance at June 30, 2018 $ 25,117

3 unchanged sentences

Gross decreases:

Decreases due to a lapse of the statute of limitations

Decreases due to settlements with taxing authority ( 1,504 )

Decreases due to lapse of statute of limitations ( 3,354 )

Balance at June 30, 2019 28,048

10 unchanged sentences

Gross decreases:

Decreases due to settlements with taxing authority

Decreases due to lapse of statute of limitations ( 1,243 )

14 unchanged sentences

The federal statute of limitations remains open in general for tax years ended June 30, 2018 through 2021.

Various states statute of limitations remain open in general for tax years ended June 30, 2016 through 2020.

Various states statute of limitations remains open in general for tax years ended June 30, 2017 through 2021.

Certain statutes of limitations in major foreign jurisdictions remain open in general for the tax years ended June 30, 2016 through 2021.

It is reasonably possible that our gross unrecognized tax benefits will decrease by approximately $ 1.0 million, in the next 12

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

reasonably possible that our gross unrecognized tax benefits will decrease by approximately $ 1.2 million , in the next 12 months, due to the lapse of the statute of limitations.

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.

2 unchanged sentences

District Court for the Northern District of California ( Hessefort v.

Super Micro Computer, Inc., et al., No.

Super Micro Computer, Inc., et al.

18-cv-00838 and United Union of Roofers v.

Super Micro Computer, Inc., et al., No.

Super Micro Computer, Inc., et al.

18-cv-00850 ).

7 unchanged sentences

On April 22, 2020, lead plaintiff filed a further amended complaint.

On June 15, 2020, the Company filed a motion to dismiss the further amended complaint, the hearing for which is calendared for September 23, 2020.

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

On June 5, 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.

On March 29, 2021, the Court granted in part and denied in part defendants’ motions to dismiss.

Plaintiffs’ claims under Sections 10(b) and 20 of the Exchange Act were dismissed with prejudice as against the Company’s former head of Investor Relations, Perry Hayes.

Plaintiffs’ Section 10(b) claim, but not the Section 20 claim, was likewise dismissed as to Wally Liaw, a founder, former director, and former SVP of International Sales.

The Court denied the motions to dismiss the Section 10(b) and Section 20 claims against the Company, Charles Liang, and Howard Hideshima, the Company’s former CFO.

Discovery has commenced, and the Court has calendared a hearing on class certification for January 20, 2022.

The Company intends to defend the lawsuit vigorously.

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 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 plaintiff seeks unspecified compensatory damages and other equitable relief.

Defendants filed demurrers, which were set for hearing on August 4, 2021, but which were continued to September 15, 2021.

Following this continuance, on July 21, 2021, Plaintiffs' counsel filed an amended complaint in lieu of responding to the demurrer.

The amended complaint added no new claims;

primarily, the amendment added allegations describing the March 29, 2021 motion to dismiss decision in the Hessefort class action.

Defendants demurred to the amended complaint on August 24, 2021, and the Court has calendared the hearing for November 24, 2021.

The case is otherwise currently stayed.

The Company intends to defend the lawsuit vigorously.

On May 5, 2021, certain current and former directors and officers of the Company were named as defendants in a putative derivative lawsuit filed in the U.S.

District Court for the Northern District of California, captioned Stein v.

Liang, et al.

3:21-cv-03357-KAW (the “Stein 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, unjust enrichment, and contribution for violations of federal securities laws 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 plaintiff seeks unspecified compensatory damages and other equitable relief.

Defendants filed motions to dismiss the complaint on August 6, 2021, and the Court has calendared the hearing for November 4, 2021.

The Company intends to defend the lawsuit vigorously.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

2 unchanged sentences

The Company agreed to cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.

The Company also agreed to pay a civil money penalty of $ 17.5 million .

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 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 will pay the Company the sum of $ 2,122,000 as reimbursement of profits from certain stock sales during the relevant period, pursuant to Section 304 of the Sarbanes-Oxley Act of 2002.

As of and for the year ended June 30, 2020, the Company recorded a liability of $ 17.5 million for its SEC settlement which is included in accrued liabilities and general and administrative expenses in the consolidated financial statements.

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

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

5 unchanged sentences

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

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

3 unchanged sentences

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

In May 2021, the standby letter of credit was cancelled.

Lease Commitments - See Note 12, "Leases," for a discussion of the Company's operating lease and financing lease commitments.

6 unchanged sentences

Similar to contributions into a 401(k) plan, the Company's obligation is limited to the contributions made to the contribution plan.

Investment risk and investment rewards are assumed by the employees and not by the Company.

Investment risk and investment rewards are

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

assumed by the employees and not by the Company.

For the fiscal years ended June 30, 2021, 2020 and 2019, the Company’s matching contribution was $ 0.7 million, $ 0.6 million, and $ 0.5 million, respectively.

5 unchanged sentences

For the fiscal years ended June 30, 2021, 2020 and 2019, the Company’s contribution was $ 2.5 million, $ 1.9 million and $ 1.6 million, respectively.

The Company has a defined benefit pension plan under the R.O.C.

Labor Standards Law for certain employees of Super Micro Computer, Inc.

Taiwan that provides benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement.

The Company contributes an amount equal to 2 % of salaries paid each month to the pension fund (the “Fund” ), which is administered by the Labor Pension Fund Supervisory Committee (the “Committee” ) and deposited in the Committee’s name in the Bank of Taiwan.

Before the end of each year, the Company assesses the balance in the Fund.

If the amount of the balance in the Fund is inadequate to pay retirement benefits for eligible employees in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March 31 of the next year.

The Fund is operated and managed by the government’s designated authorities.

As such, the Company does not have any right to intervene in the investments of the Fund.

For the fiscal year ended June 30, 2021, the Company recorded a pension expense of $ 1.0 million.

For the fiscal years ended June 30, 2020 and 2019, the Company’s pension expense was immaterial.

Segment Reporting

4 unchanged sentences

United States $ 180,143 $ 178,812

The Company’s revenue is presented on a disaggregated basis in Note 3, “Revenue” by type of product, by geographical market, and by products sold through its indirect sales channel or to its direct customers and OEMs.

SUPER MICRO COMPUTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Selected Quarterly Financial Data (Unaudited)

The following table presents the Company's unaudited consolidated quarterly financial data.

This information has been prepared on a basis consistent with that of the audited consolidated financial statements.

The Company believes that all necessary adjustments, consisting of normal recurring accruals and adjustments, have been included to present fairly the quarterly financial data.

The Company's quarterly results of operations for these periods are not necessarily indicative of future results of operations.

Three Months Ended

(In thousands, except per share data)

Net income per common share:

Subsequent Events

On August 9, 2020, the Company's Board of Directors approved a share repurchase program to repurchase shares of common stock for up to $ 30.0 million at prevailing prices in the open market.

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

385,000 shares of common stock were repurchased through the date these consolidated financial statements were issued.

Asia 91,640 51,605

Europe 2,930 3,368

$ 274,713 $ 233,785

The Company’s revenue is presented on a disaggregated basis in Note 3, “Revenue” by type of product and by geographical market.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data