What changed in this filing

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Item 9A. Controls and Procedures

2020-08-21 compared with 2019-08-21 · 362 added, 266 removed, 950 unchanged (40% of the section changed)

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Management, with the participation of the Company’s Chief Executive Officer and Chief Accounting and Finance Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2020.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange

Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

A company’s internal control over financial reporting is a process designed by, or under the supervision of, its Chief Executive Officer and Chief Accounting and Finance Officer, and effected by such company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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Directors and Executive Officers and Corporate Governance

The information required by this Item 10 is incorporated by reference to our Proxy Statement for the 2019 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2019 fiscal year end) under the headings “Election of Directors – Executive Officers and Directors,” “Corporate Governance,” and “Section 16(a) Beneficial Ownership Reporting Compliance.”

The information required by this Item 10 is incorporated by reference to our Proxy Statement for the 2020 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2020 fiscal year end) under the headings “Election of Directors – Executive Officers and Directors,” “Corporate Governance,” and “Section 16(a) Beneficial

Ownership Reporting Compliance.”

Executive Compensation

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Exhibit Number Date Filed Filed

3.1 Third Amended and Restated Certificate of Incorporation of Ubiquiti Inc., as amended X

3.2 Amended and Restated Bylaws of Ubiquiti Inc., as amended X

3.1 Third Amended and Restated Certificate of Incorporation of Ubiquiti Inc., as amended 10-K August 21, 2019

3.2 Amended and Restated Bylaws of Ubiquiti Inc., as amended 10-K August 21, 2019

4.1 Specimen Common Stock Certificate of Ubiquiti Networks, Inc.

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S-1 4.3 June 17, 2011

4.4 Descriptions of the Company’s Securities X

10.1 Form of Indemnification Agreement between Ubiquiti Networks, Inc.

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S-1 10.1 June 17, 2011

Number Description Incorporated by Reference from Form Incorporated by

Reference from

Exhibit Number Date Filed Filed

10.6† Amended Technology License Agreement, dated as of September 1, 2010, between Ubiquiti Networks, Inc.

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10-Q 10.15 November 14, 2011

Number Description Incorporated by Reference from Form Incorporated by

Reference from

Exhibit Number Date Filed Filed

10.8 First Amendment dates as April 14, 2017, to Amended and Restated Credit Agreement, dated as of March 3, 2015, by and among Ubiquiti Networks, Inc.

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and Ubiquiti International Holding Company Limited, as borrowers, certain subsidiaries of the borrowers, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent 10-Q 10.1 May 10, 2019

Number Description Incorporated by Reference from Form Incorporated by

Reference from

Exhibit Number Date Filed Filed

10.13 Third Amendment, dated as of September 9, 2019, to Second Amended & Restated Credit Agreement, dated as of January 17, 2018, by Ubiquiti Inc., as borrower, Ubiquiti International Holding Company Limited, as a released party, and certain subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent 8-K 10.1 September 12, 2019

10.14 Aircraft Lease Agreement between Ubiquiti Networks, Inc.

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24.1 Power of Attorney (contained in the signature page to this Form 10-K) X

Number Description Incorporated by Reference from Form Incorporated by

Reference from

Exhibit Number Date Filed Filed

31.1 Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

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101.PRE XBRL Taxonomy Presentation Linkbase Document X

104 Cover Page Interactive Date File - (formatted as Inline XBRL and contained in Exhibit 101)

# Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

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Schedules not listed above have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

Form 10-K Summary

Not applicable.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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Chief Accounting and Finance Officer

(Principal Financial Officer)

(Principal Financial Officer and Principal Accounting Officer)

POWER OF ATTORNEY

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Kevin Radigan

Chief Accounting and Finance Officer (Principal Financial and Accounting Officer) August 21, 2019

Chief Accounting and Finance Officer (Principal Financial Officer and Principal Accounting Officer) August 21, 2020

/s/ Ronald A.

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Consolidated Statements of Operations and Comprehensive Income

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Ubiquiti Inc.:

To the Stockholders and Board of Directors

Ubiquiti Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Ubiquiti Inc.

and subsidiaries (the Company) as of June 30, 2019 and 2018, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2019 and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of June 30, 2020 and 2019, the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended June 30, 2020 and the related notes (collectively, the consolidated financial statements).

We also have audited 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.

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Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting under Item 9A.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial

statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of gross unrecognized tax benefits

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

Unrecognized tax benefits

As discussed in Notes 2 and 14 to the consolidated financial statements, the Company records a liability for unrecognized tax benefits associated with uncertain tax positions.

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We identified the assessment of gross unrecognized tax benefits as a critical audit matter.

Complex auditor judgment, including the involvement of tax professionals with specialized skills and knowledge, was required to evaluate the Company’s interpretation and application of tax law in the United States and certain foreign jurisdictions in which it operates.

This evaluation included the determination of which tax positions have more than a 50% likelihood of being sustained upon examination.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s gross unrecognized tax benefit process to:

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter.

This included controls over the Company’s gross unrecognized tax benefit process to:

• evaluate the Company’s tax structure and interpret United States and foreign tax laws and their inter-relationship,

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Accounts receivable, net of allowance for doubtful accounts of $ 203 and $ 203 at June 30, 2020 and June 30, 2019 respectively

142,160 156,043

Inventories 285,943 264,281

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Property and equipment, net 78,522 13,618

Operating lease right-of-use assets, net 24,444 —

Deferred tax assets — long-term 4,102 2,910

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Income tax payable — long-term 115,330 124,262

Operating lease liabilities — long-term 18,533 —

Debt — long-term 628,437 464,700

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50,000,000 shares authorized;

none issued — —

Common stock—$ 0.001 par value;

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Accumulated other comprehensive income 9 393

Retained earnings 98,815 315,281

Total stockholders’ equity 99,277 315,748

Retained (deficit) earnings ( 295,978 ) 98,815

Total stockholders’ (deficit) equity ( 295,458 ) 99,277

Total liabilities and stockholders’ equity $ 737,451 $ 875,865

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Other comprehensive income:

Unrealized gains on available-for-sale securities 393 — —

Other Comprehensive income 393 — —

Unrealized (losses) gains on available-for-sale securities ( 384 ) 393 —

Other Comprehensive (loss) income ( 384 ) 393 —

Comprehensive income 379,913 323,087 196,290

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UBIQUITI INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

In thousands, except share data

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity

Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Loss Total Stockholders’ Equity (Deficit)

Shares Amount Amount Amount Amount Amount

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Stock options exercised 1,484,110 2 1,537 — — 1,539

Payroll taxes settled on Option Exercises ( 582,497 ) ( 1 ) — ( 40,623 ) — ( 40,624 )

Restricted stock units issued, net of tax withholdings 57,255 — ( 1,415 ) — — ( 1,415 )

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Net Income — — — 322,694 — 322,694

Other comprehensive income (loss) — — — — 393 393

Stock options exercised 92,644 — 831 — — 831

Payroll taxes settled on Option Exercises ( 582,497 ) ( 1 ) — ( 40,623 ) — ( 40,624 )

Restricted stock units issued, net of tax withholdings 41,256 — ( 1,473 ) — — ( 1,473 )

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Stock-based compensation expense — — 2,890 — — 2,890

Dividends Paid on Common Stock ($ 1 per share)

— — — ( 71,358 ) — ( 71,358 )

Balances at June 30, 2019 69,472,568 $ 69 $ — $ 98,815 $ 393 $ 99,277

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Dividends Paid on Common Stock ($ 1.20 per share)

— — — ( 78,682 ) — ( 78,682 )

Balance at June 30, 2020 63,687,891 $ 64 $ 447 $ ( 295,978 ) $ 9 $ ( 295,458 )

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Depreciation and amortization 7,695 7,556 7,310

Impairment of cost-based investment 5,000 — —

Amortization of debt issuance costs 1,807 1,114 751

Non-cash lease expense 1,146 — —

Premium amortization and (discount accretion), net ( 52 ) ( 696 ) —

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Provision for inventory obsolescence 6,617 1,637 2,336

Provisions/(recovery) for loss on vendor deposits 2,911 14,891 ( 1,096 )

Provisions for loss on vendor deposits and purchase commitments 3,327 2,911 14,891

Stock-based compensation 2,888 2,890 3,208

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Private equity investment — ( 5,000 ) —

Deposits on long-term asset ( 42,000 ) — —

Purchase of investments ( 27,538 ) ( 220,076 ) —

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Non-Cash Investing and Financing Activities:

Right-of-use asset recognized $ 8,610 $ — $ —

Unpaid stock repurchases $ — $ 2,223 $ —

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Net unsettled investment purchases (sales, and maturities) $ 522 $ ( 522 ) $ —

(1) The Company reclassified $ 42 million reported in previous period, related to deposits on long term assets to purchase of property and equipment and other long-term assets, to conform to the current period presentation.

See notes to consolidated financial statements.

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All intercompany transactions and balances have been eliminated.

The Company has wholly owned subsidiaries in Canada, Cayman Islands, Hong Kong, China, Czech Republic, India, Latvia, Lithuania, Poland, Japan, Mexico, Brazil, Russia, Netherlands and Ukraine.

The Company's Hong Kong subsidiary also operates a branch office in Taiwan.

The Company has reclassified certain amounts reported in the previous period to conform to the current period presentation.

NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, the Company evaluates these estimates, including those related to allowance for doubtful accounts, inventory valuation, vendor deposits, warranty costs, stock-based compensation and income taxes, among others.

The Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.

Actual results may differ materially from these estimates.

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes.

Those estimated assumptions include, but are not limited to, revenue recognition and deferred revenue;

allowance for doubtful accounts and sales return reserves;

inventory valuation and vendor deposits;

accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions;

determinations of fair value for stock-based awards;

estimate of incremental borrowing rate for determining the present value of future lease payments;

and valuation of warranty accruals.

We evaluate our estimates and assumptions based on historical experience and other assumptions that are believed to be reasonable under the circumstances.

Actual results could differ materially from those estimates.

Management has determined that it operates as one reportable and operating segment as the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker, does not make decisions about resources to be allocated or assess performance on a segment basis.

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• Recognition of revenue when, or as, we satisfy the performance obligation

Transfer of control to the customer for products generally occurs at the point in time when products have been picked up at our logistic centers by our distribution partners or in the case of web based sales when the customer has received the products as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer.

Revenue for PCS is deferred and recognized ratably over time over the estimated period for which implied PCS services will be delivered.

Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to our customer as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer.

Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered.

PCS is the right to receive, on a when-and-if available basis, future unspecified software upgrades and features relating to the product’s essential software as well as technical support and bug fixes.

The Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is

The Company’s distinct performance obligations consist mainly of transferring control of its products identified in the contracts, purchase orders or invoices and implied PCS services.

Our contracts with majority of our distribution customers do not include provisions for cancellations, returns, inventory swaps, or refunds that materially impact recognized revenue.

Internet or Web based sales include regulatory provisions which allow customers to return the goods, generally within 30 days.

The Web based sales have not been material to the Company results and potential refund would not materially impact recognized revenue.

We record amounts billed to distributors for shipping and handling costs as revenues.

Our contracts with the majority of our distribution customers do not include provisions for cancellations, returns, inventory swaps, or refunds that materially impact recognized revenue.

Internet or Web based sales include regulatory provisions which allow customers to return the goods, generally within 30 days and did not materially impact recognized revenue.

We record amounts billed to distributors and Web based customers for shipping and handling costs as revenues.

We classify shipping and handling costs incurred by us as cost of revenue.

Deposits payments received from distributors in advance of recognition of revenues are included in current liabilities of our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met.

Deposit payments received from distributors in advance of recognition of revenues are included in current liabilities of our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met.

Transaction price and allocation to performance obligations

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We use observable list prices to determine the stand-alone selling price of our performance obligation related to our products, and we utilize a cost-plus margin approach to estimate the stand-alone selling price of our implied PCS obligation.

When our contracts contain multiple performance obligation, we allocate the transaction price based on the estimated standalone selling price s of the promised products or services underlying each performance obligation.

The expected costs associated with our base warranties continue to be recognized as an expense when the products are sold and is not considered a separate performance obligation.

When our contracts contain multiple performance obligations, we allocate the transaction price based on the estimated standalone selling price s of the promised products or services underlying each performance obligation.

The expected costs associated with our base warranties continue to be recognized as an expense when the products are sold and are not considered a separate performance obligation.

Costs for research and development and sales and marketing are expensed as incurred.

If the estimated life of the

hardware product should change, the future rate of amortization of the revenues allocated to PCS could also change.

If the estimated life of the hardware product should change, the future rate of amortization of the revenues allocated to PCS could also change.

Key factors considered by the Company in developing the estimated cost in the cost plus margin approach for PCS includes reviewing the activities for PCS include reviewing the activities of specific employees engaged in support and software enhancements to determine the amount of time that is allocated to the development of the undelivered elements, determining the cost of this development effort, and then adding an appropriate level of gross profit to these costs.

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Inventory and Inventory Valuation

The Company's inventories are primarily finished goods and, to a lesser extent, raw materials, which have been either consigned to the Company's contract manufacturers or are held by the Company.

The Company’s inventories are primarily finished goods and, to a lesser extent, raw materials.

Inventories are stated at the lower of actual cost, computed using the first-in, first-out method, and Net Realizable Value (NRV).

NRV is based upon an estimated average selling price reduced by the estimated costs of disposal.

The determination of net realizable value involves numerous judgments including estimating average selling prices based up recent sales, industry trends, existing customer orders, and seasonal factors.

Should actual market conditions differ from the Company's estimates, future results of operations could be materially affected.

The Company reduces the value of its inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected

inventory and the estimated market value.

The determination of net realizable value involves certain judgments including estimating average selling prices based on recent sales.

Should actual market conditions differ from the

Company’s estimates, future results of operations could be materially affected.

The Company reduces the value of its inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the estimated market value.

Write-downs are not reversed until the related inventory has been subsequently sold or scrapped.

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Historical factors include product failure rates, material usage and service delivery costs incurred in correcting product failures.

In certain circumstances, the Company may have recourse from its contract manufacturers for replacement cost of defective products, which it also factors into its warranty liability assessment.

In certain circumstances, the Company may have recourse from its contract manufacturers for the replacement cost of defective products, which it also factors into its warranty liability assessment.

Allowance for Doubtful Accounts

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The Company records securities available-for-sale at fair value on a recurring basis.

We classify our investments within Level 1 or 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly

observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded.

We classify our investments within Level 1 or 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded.

Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers.

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Software up to 3 years

Corporate aircraft 15 years

Leasehold improvements shorter of lease term or useful life

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Intangible Assets

The Company’s intangible assets consist primarily of legal costs associated with application for and registration of the Company’s trademarks and are included in other long term assets.

The Company amortizes all definite-lived intangible assets that are subject to amortization over the estimated useful life based on economic benefit, which is generally 5 years.

The Company’s intangible assets consist primarily of domain name purchase and legal costs associated with application for and registration of the Company’s trademarks, which are all included in other long-term assets.

The Company amortizes all definite-lived intangible assets that are subject to amortization over the estimated useful life based on economic benefit.

Domain names are amortized over 15 years, while other intangible assets are generally amortized over 5 years.

All patent filing and defense costs are expensed as incurred, however, to date these costs have not been significant.

The Company leases its facilities under cancelable and noncancelable operating leases.

For leases that contain rent escalation or rent concessions provisions, the Company records the total rent expense during the lease term on a straight line basis over the term of the lease.

The Company records the difference between the rent paid and the straight line rent as a deferred rent liability on the consolidated balance sheets.

The Company enters into agreements under which we lease various real estate spaces, including warehouse facilities and office space, that are generally leased under noncancelable agreements and include various renewal options for additional periods and/or have options to early terminate.

At contract inception, the Company determines if an arrangement is a lease, or contains a lease, of an identified asset for which the Company has the right to obtain substantially all of the economic benefits from its use and the right to direct its use.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, while

lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term.

The implicit discount rate in the Company’s leases generally cannot readily be determined and therefore, the Company uses its incremental borrowing rate based on information available at lease commencement date in determining the present value of future payments.

ROU assets are determined based upon the calculated lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received and cumulative deferred or prepaid lease payments.

The Company has options to renew or terminate certain leases.

These options are included in the determination of lease term when it is reasonably certain that the Company will exercise such options.

The Company does not separate lease and non-lease components in determining ROU assets or lease liabilities for operating leases.

Additionally, the Company does not recognize ROU assets or lease liabilities for leases with original terms or renewals of one year or less.

Lease expense for our operating leases is recognized on a straight-line basis over the term of the lease.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling, general and administrative expenses.

The Company accounts for income taxes in accordance with accounting guidance (ASC 740) which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns.

The Company accounts for income taxes in accordance with accounting guidance which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns.

Deferred tax assets and liabilities are determined based on the temporary difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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The Company establishes valuation allowances when necessary to reduce deferred tax assets to the amount it expects to realize.

The assessment of whether or not a valuation allowance is required often requires significant judgment including current

operating results, the forecast of future taxable income and ongoing prudent and feasible tax planning initiatives.

The assessment of whether or not a valuation allowance is required often requires significant judgment including current operating results, the forecast of future taxable income and ongoing prudent and feasible tax planning initiatives.

In addition, the Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

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Restricted stock units are valued based on the fair value of the Company’s common stock on the date of grant.

Since the Company's initial public offering on October 14, 2011, the fair value of our common stock is determined using the closing market price of the Company's common stock as of the date of grant.

Commitments and Contingencies

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Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which has been codified as Accounting Standards Codification 606 (“ASC 606”).

ASC 606 requires the Company’s revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

ASC 606 outlines a five-step model to make the revenue recognition determination and requires enhanced financial statement disclosures.

We adopted the updated guidance in the first quarter of fiscal 2019 using the modified retrospective method, which did not have a material impact on the consolidated financial statements.

Additional information and disclosures required by this new standard are contained in Note 3 of Notes to Consolidated Financial Statements.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No.

2016-02, Leases (“ ASU 2016-02 ”) and in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842):

Targeted Improvements (“ASU 2018-11”) (collectively referred to as “ASC 842”).

This guidance requires the recognition of ROU assets and lease liabilities, arising from financing and operating leases, on the consolidated balance sheet, along with additional qualitative and quantitative disclosures.

Companies are required to adopt this guidance using a modified retrospective approach and apply the transition provisions under the guidance at either 1) the later of the beginning of the earliest comparative period presented in the financial statements and the commencement date of the lease, or 2) the beginning of the period of adoption (i.e.

on the effective date).

Under the transition method using the second application date, a company initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company adopted the guidance on July 1, 2019, beginning of our fiscal year 2020, using the modified retrospective transition method and initially applied the transition provisions at July 1, 2019, which allowed us to continue to apply the legacy guidance in ASC 840 for periods prior to fiscal 2019.

We elected the package of transition practical expedients, which among other things, allows us to keep the historical lease classifications and not have to reassess the lease classification for any existing leases as of the date of adoption.

We also made the following accounting policy elections as allowed by ASC 842:

• to apply the short-term lease exception, which allows us to keep leases with an initial term of twelve months or less off the balance sheet.

• to account for each separate lease component of a contract and its associated non-lease components as a single-lease component for all our leases.

As a result of the adoption of this standard, there was no adjustment to the opening balance of retained earnings as there was no cumulative effect adjustment at the date of adoption.

Accordingly, the primary impact of adopting ASC 842 was the recognition of ROU assets and lease liabilities for operating leases of approximately $ 23.3 million and $ 24.0 million respectively for all existing leases which had remaining obligations as of July 1, 2019.

This included reclassifying deferred rent of $ 0.7 million from other current liabilities to a component of the ROU asset.

ASC 842 did not have a material impact on our results of operations and comprehensive income and statement of cash flow.

Recent Accounting Pronouncements Not Yet Effective

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” (“ASU 2016-02”), which establishes a new lease accounting model for lessees.

The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which provides for an optional transition method that allows for the application of current legacy guidance, including its disclosure requirements, in the comparative periods presented in the year of adoption.

Otherwise, Topic 842 must be adopted by a modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.

The Company plans to use the optional transition method when adopting the new standard.

The amendments have the same effective date and transition requirements as the new lease standard.

We will adopt this standard on July 1, 2019, the beginning of our fiscal year 2020.

As the Company is finalizing the adoption process of the new standard, including identifying, evaluating and quantifying the impact on its consolidated financial statements, we currently anticipate the adoption of these ASUs will result in an increase in the assets and liabilities of our consolidated balance sheets related to our operating leases disclosed in Note 9 of Notes to Consolidated Financial Statements, in the range of $ 15 million to $ 25 million.

However, we do not believe the adoption will have a material effect on our results of operations or statement of cash flow.

Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses for certain financial instruments and financial assets.

For trade receivables, we will be required to estimate lifetime expected credit losses.

For available-for-sale debt

securities, we will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset.

ASU 2016-13 is effective for the Company’s fiscal year beginning July 1, 2020 on a modified retrospective basis.

Although the Company is finalizing the adoption process of the new standard, including identifying, evaluating and quantifying the impact on the consolidated financial statements, we do not except the adoption of this ASU to result in a material impact to the Company’s consolidated financial position, results of operations, or cash flows.

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740), which amends the existing guidance relating to the accounting for income taxes.

ASU 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance.

ASU 2019-12 is effective for the Company’s fiscal year beginning July 1, 2021.

The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures .

NOTE 3— REVENUES

On July 1, 2018, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (“new revenue standard”) to all contracts not completed as of the date of adoption using the modified retrospective method.

As a result of our adoption of this standard, there was no adjustment recorded to the opening balance of retained earnings as there was no cumulative effect of adoption of the new revenue standard.

As we elected the modified retrospective method of adoption, comparative information from prior periods has not been restated and continues to be reported under the ASC 605, “Revenue Recognition”.

Accordingly, the adoption of the new revenue standard did not have a material impact to our results of operations and comprehensive income or financial position, equity or cash flows as of the adoption date or for the fiscal year end June 30, 2019.

The Company has made the following accounting policy elections and elected to use certain practical expedients, as permitted by the FASB, in applying Topic 606:

(1) the Company accounts for amounts collected from customers for sales and other taxes, net of related amounts remitted to tax authorities;

(2) the Company does not adjust the promised amount of consideration for the effects of a significant financing component because, at contract inception, the Company expects the period between the time when the Company transfers a promised good or service to the customer and the time when the customer pays for that good or service will be one year or less;

(3) the Company expenses costs to obtain a contract as they are incurred if the expected period of benefit, and therefore the amortization period, is one year or less;

(4) the Company accounts for shipping and handling activities that occur after control transfers to the customer as a fulfillment cost rather than an additional promised service and these fulfillment costs fall within cost of revenue;

and (5) the Company does not disclose the transaction price allocated to unsatisfied performance obligations when the original expected contract duration is one year or less.

Revenue is primarily generated from the sale of hardware and management tools (products), as well as the related implied post contract services (“PCS”).

The Company determines revenue recognition through the five step model under ASC 606 which includes i) identification of the contract, or contracts, with a customer, ii) identification of the performance obligation in the contract, iii) determination of the transaction price, iv) allocation of the transaction price to the performance obligation within the contract, v) recognition of revenue when, or as, a performance obligation is satisfied.

Contracts and Performance Obligations

The Company's distinct performance obligations consist mainly of transferring control of its products identified in the contracts, purchase orders or invoices and implied PCS services.

Transaction price and allocation to performance obligations

Transaction prices are typically based on contracted rates.

Although payment terms vary, payment is generally due from customers within 60 days of the invoice date and the contracts do not have significant financing components or include extended payment terms.

The Company is directly responsible for fulfilling its performance obligations in contracts with customers and does not rely on another party to fulfill its promise.

We use observable list prices to determine the stand-alone selling price of our performance obligation related to our products, and we utilize a cost plus margin approach to estimate the stand-alone selling price of our implied PCS obligation.

When our contracts contain multiple performance obligation, we allocate the transaction price based on the estimated standalone selling prices of the promised products or services underlying each performance obligation.

The expected costs associated with our base warranties continue to be recognized as an expense when the products are sold and is not considered a separate performance obligation.

Revenue Recognition

Revenue is primarily generated from the sale of hardware as well as the related implied post contract services (“PCS”).

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

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generally, this occurs with the transfer of control of our products and PCS to our customers.

Transfer of control to the customer for products generally occurs at the point in time when products have been picked up buy our distribution partners at our distributions centers or in the case of web based sales when third party carriers have delivered the products to our customers as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer.

Revenue for PCS is deferred and recognized ratably over time over the estimated period for which implied PCS services will be delivered.

Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered.

Disaggregation of Revenue

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The current portion of deferred revenue is included in other current liabilities and the non-current portion is included in other long-term liabilities in our consolidated balance sheets.

As of June 30, 2019, the Company’s customer deposits were $ 3.0 million.

As of June 30, 2020 and 2019, the Company’s customer deposits were $ 2.1 million and $ 3.0 million, respectively.

As of June 30, 2020, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 16.5 million and $ 6.3 million, respectively.

As of June 30, 2019, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 15.3 million and $ 6.5 million, respectively.

Variable Consideration

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Actual amounts of consideration ultimately received may differ from the Company’s estimates.

If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

If actual results in the future vary

from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known .

NOTE 4— FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables summarize the Company's financial instruments' adjusted cost, gross unrealized gains and losses, and fair value by significant investment category as of June 30, 2019 (in thousands):

The following tables summarize the Company’s financial instruments’ adjusted cost, gross unrealized gains and losses, and fair value by significant investment category as of June 30, 2020 and 2019 (in thousands):

June 30, 2020

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Subtotal $ 1,055 $ — $ — $ 1,055 $ 1,055 $ — $ —

Corporate securities 1,429 9 — 1,438 — 925 513

Subtotal $ 1,429 $ 9 $ — $ 1,438 $ — $ 925 $ 513

Total $ 2,484 $ 9 $ — $ 2,493 $ 1,055 $ 925 $ 513

(1) Cash and cash equivalents on the consolidated balance sheets includes securities that have a maturity of three months or less at the date of purchase.

The carrying amount approximates fair value, primarily due to the short maturity of cash equivalent instruments.

June 30, 2019

Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents (1) Short-Term Investments Long-Term Investments

Money market funds $ 1,328 $ — $ — $ 1,328 $ 1,328 $ — $ —

Subtotal $ 1,328 $ — $ — $ 1,328 $ 1,328 $ — $ —

Commercial paper $ 1,123 $ — $ — $ 1,123 $ 524 $ 599 $ —

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The carrying amount approximates fair value, primarily due to the short maturity of cash equivalent instruments.

During fiscal year end June 30, 2019, the Company reclassified realized net gain of $ 30.5 thousand to earnings from accumulated other comprehensive income.

During fiscal year end June 30, 2019, we had $ 2.7 million of interest income on our investment securities.

During fiscal year end June 30, 2020 and 2019, the Company reclassified realized net gain of $ 371.8 thousand and $ 30.5 thousand, respectively, to earnings from accumulated other comprehensive income.

During fiscal year end June 30, 2020 and 2019, the Company had $ 1.0 million and $ 2.7 million, respectively, of interest income on our investment securities.

The Company had no continuous unrealized loss positions from marketable securities as of June 30, 2020.

The following table represents the Company’s marketable securities that had been in continuous unrealized loss position for less than 12 months and for 12 months or greater as of June 30, 2019 (in thousands):

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Unrealized Loss $ ( 3 ) $ — $ ( 3 )

Based on evaluation of securities that have been in a continuous loss position, we did not recognize any other-than-temporary impairment charges during fiscal year end June 30, 2019.

Based on evaluation of securities that have been in a continuous loss position, we did not recognize any other-than-temporary impairment charges during fiscal year end June 30, 2020 and 2019.

The following table represents the adjusted costs and fair value of cash equivalents and investments by contractual maturity as of June 30, 2020 (in thousands):

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For certain of the Company’s financial instruments, other than those presented in the disclosures above, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate fair value due to their short maturities.

As of June 30, 2019 and June 30, 2018, the Company had debt associated with its Second Amended & Restated Credit Agreement (See Note 8), which is carried at historical cost.

As of June 30, 2020 and 2019 the Company had an outstanding loan associated with its credit facilities, which are carried at historical cost.

The fair value of the Company’s debt disclosed below was estimated based on the current rates offered to the Company for debt with similar terms and remaining maturities and was a Level 2 measurement.

As of June 30, 2019 and June 30, 2018, the fair value of the Company's debt carried at historical cost was $ 497.5 and $ 487.5 million, respectively.

As of June 30, 2020 and 2019, the fair value of the Company’s debt carried at historical cost was $ 655.0 million and $ 497.5 million, respectively.

NOTE 5— EARNINGS PER SHARE

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Testing equipment $ 12,476 $ 10,258

Computer and other equipment 7,264 6,265

Tooling equipment 13,601 10,624

Furniture and fixtures 2,083 1,890

Leasehold improvements 12,944 11,712

Computer and other equipment 7,676 7,264

Software 7,266 6,870

Furniture and fixtures 2,147 2,083

Corporate aircraft 64,659 —

Property and Equipment, Gross 120,769 48,811

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Other long-term assets consisted of the following (in thousands):

Intangible assets, net (1)

$ 3,257 $ 460

Private equity investment (2)

Deposits on aircraft (1)

Hong Kong tax deposit (2)

Deposit on long term asset (4)

35,495 19,960

Intangible assets, net (3)

Other long-term assets (4)

Total $ 43,223 $ 73,941

(1) - Accumulated amortization was $ 1.6 million and $ 1.3 million as of June 30, 2019 and June 30, 2018, respectively.

(2) - During the second quarter of fiscal 2019, the Company entered into a $ 5.0 million strategic cost method investment where the Company acquired preferred stock.

As of June 30, 2019, the shares are recorded at cost in Other Long-Term Assets on our Consolidated Balance Sheet.

We elected to use the measurement alternative, defined as cost, less impairments, as adjusted up or down based on observable price changes in orderly transactions for identical or similar investments of the same issuer.

Adjustments resulting from impairments and/or observable price changes are to be recorded as other income (expense) on a prospective basis.

The carrying amount of our equity investments and any related gain or loss may fluctuate in the future as a result of the re-measurement of such equity investments upon the occurrence of observable price changes and/or impairments.

(3) The Company made a total of $ 20.0 million of deposits with the Hong Kong Inland Revenue Department in connection with extending the statute of limitation for income tax examinations currently under audit for 2010-2012 tax years.

Of that amount, $ 13.4 million was made during fiscal year 2019 and $ 6.6 million made during fiscal year 2018.

The deposits of $ 6.6 million were included within Prepaid expense and other current assets as of June 30, 2018 and are included in Other long-term assets on our Consolidated Balance sheet as of June 30, 2019.

We expect the $ 20 million of deposits made with IRD to be refunded upon completion of the audit.

(1) The Company made $ 42 million and $ 15 million in deposits related to the purchase of an airplane in fiscal 2019 and fiscal 2020.

During the third quarter of fiscal 2020, the Company made its final payment that was due upon transfer of title and receipt of the airplane.

As a result, the Company reclassified the $ 57 million in deposits related to the purchase, to Property and Equipment, net on our Consolidated Balance Sheet.

As a result of an independent security study, the Company’s independent directors approved the purchase of the airplane, which Mr.

Pera will be expected to use for all business and personal air travel.

(2) The Company made a total of $ 35.5 million of deposits with the Hong Kong Inland Revenue Department (“IRD”) in connection with extending the statute of limitation for income tax examinations currently under audit for the 2010-2014 tax years.

Of that amount, $ 15.5 million, $ 13.4 million, and $ 6.6 million were made during fiscal year 2020, 2019 and 2018, respectively.

We expect the $ 35.5 million of deposits made with the IRD to be refunded upon completion of the audit.

See Note 14 to the consolidated financial statements for additional details regarding this ongoing tax audit.

(4) The Company made $ 42.0 million deposit for a purchase commitment on long-term asset.

(3) Accumulated amortization was $ 1.8 million and $ 1.6 million as June 30, 2020 and June 30, 2019, respectively.

(4) During fiscal 2019, the Company entered into a $ 5 million strategic cost method investment where the Company acquired preferred stock.

The shares were recorded at cost in Other Long-Term Assets on our Consolidated Balance Sheet.

During fiscal 2020, the Company recorded an impairment charge of $ 5 million.

This unrealized loss is reflected in Interest expense and other, net on the Consolidated Statement of Operations and Comprehensive Income.

Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

Accrued expense $ 14,203 $ 18,241

Accrued compensation and benefits 3,866 3,091

Deferred revenue — short term revenue $ 16,464 $ 15,338

Accrued expenses 12,148 14,203

Lease Liability — current 7,056 —

Warranty accrual 4,538 4,518

Deferred revenue — short term 15,338 8,509

Accrued compensation and benefits 4,084 3,866

Customer Deposits 2,061 2,982

Reserve for sales returns 783 1,219

Reserves for sales returns 1,275 783

Other payables 6,096 42,543

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Total $ 4,538 $ 4,518

On January 17, 2018, the Company, Ubiquiti International Holding Company Limited (the "Cayman Borrower") and certain subsidiaries entered into an amended and restated credit agreement (the "Second Amended & Restated Credit Agreement") with Wells Fargo, other financial institutions named as lenders therein, and Wells Fargo as administrative agent for the lenders, that provides for a $ 400 million senior secured revolving credit facility (the "Revolving Facility") and a $ 500 million senior secured term loan facility (the "Term Facility", together with the Revolving Facility, the "Facilities"), with an option to request increases in the amounts of such credit facilities by up to an additional $ 300 million in the aggregate (any such increase to be in each lender's sole discretion).

The maturity date of the Facilities is January 17, 2023.

The Term Facility was fully drawn at the closing of the Second Amended & Restated Credit Agreement, of which $ 354.5 million and $ 68.9 million was used to repay the prior revolver facility and term facility, respectively, under the Amended Credit Agreement.

On September 9, 2019, Ubiquiti Inc., as borrower, Ubiquiti International Holding Company Limited (the “Cayman Borrower”), as a released party, and certain subsidiaries entered into the Third Amendment (the “Third Amendment”) to the Second Amended & Restated Credit Agreement, dated January 17, 2018 (as amended by the First Amendment, dated as of June 19, 2018, and the Second Amendment dated as of March 15, 2019, the “Second A&R Credit Agreement”, and as further amended by the Third Amendment, the “Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), the other financial institutions named as lenders therein, and Wells Fargo as administrative agent and collateral agent for the lenders, that provides for a $ 700 million senior secured revolving credit facility (the “Revolving Facility”) and a $ 500 million senior secured term loan facility (the “Term Facility”, together with the Revolving Facility, the “Facilities”), with an option to request increases in the amounts of such credit facilities by up to an additional $ 400 million in the aggregate.

The maturity date for the Facilities remains at January 17, 2023.

In addition, the Third Amendment (a) released the Cayman Borrower from its obligations as a borrower under the Second A&R Credit Agreement, (b) released all of the foreign subsidiaries that were previously party to the Second A&R Credit Agreement as guarantors of the obligations of the released Cayman Borrower and (c) made conforming amendments to the provisions of the Second A&R Credit Agreement and other loan documents to reflect the release from the Second A&R Credit Agreement.

The Third Amendment also modified certain definitions and certain covenants relating to indebtedness and investments.

The Third Amendment replaced the Company’s existing $ 400 million senior secured revolving facility and $ 500 million senior

secured term loan facility under the Second A&R Credit Agreement.

At the closing of the Third Amendment, the Term Facility was fully drawn, of which $ 462.5 million and $ 0.5 million was used to repay the prior term facility under the Second A&R Credit Agreement for principal and interest, respectively.

Additionally, $ 120.0 million was drawn under the Revolving Facility.

The Company incurred $ 3.1 million of debt issuance costs which are capitalized and amortized as interest expense over the life of the Facilities.

On March 15, 2019, the Company, the Cayman Borrower and certain subsidiaries entered into the Second Amendment to the Second Amended & Restated Credit Agreement (the "Second Amendment").

The Second Amendment modified certain definitions and certain covenants relating to indebtedness and investments.

Our Debt consisted of the following (in thousands):

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The Revolving Facility includes a sub-limit of $ 10.0 million for letters of credit and a sub-limit of $ 25.0 million for swingline loans.

The Facilities are available for working capital and general corporate purposes that comply with the terms of the Second Amended & Restated Credit Agreement, including to finance the repurchase of the Company's common stock or to pay dividends to the holders of the Company's common stock.

Under the Second Amended & Restated Credit Agreement, revolving loans and swingline loans may be borrowed, repaid and reborrowed until January 17, 2023, at which time all amounts borrowed must be repaid.

The term loan is payable in quarterly installments of 1.25 % of the original principal amount of the term loan until December 31, 2019, thereafter increasing to 1.875 % until December 31, 2020, and thereafter increasing to 2.50 % of the original principal amount of the term loan.

The Facilities are available for working capital and general corporate purposes that comply with the terms of the Credit Agreement, including to finance the repurchase of the Company’s common stock or to make dividends to the holders of the Company's common stock.

Under the Credit Agreement, revolving loans and swingline loans may be borrowed, repaid and reborrowed until January 17, 2023, at which time all amounts borrowed must be repaid.

The term loan is payable in quarterly installments of 1.25 % of the original principal amount of the term loan, in each case plus accrued and unpaid interest.

Revolving, swingline and term loans may be prepaid at any time without penalty.

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Base rate is defined as the greatest of (A) Wells Fargo’s prime rate, (B) the federal funds rate plus 0.50 % or (C) the applicable LIBOR rate (or replacement rate) for a period of one month plus 1.00 %.

A default interest rate shall apply on all obligations during certain events of default under the Second Amended & Restated Credit Agreement at a rate per annum equal to 2.00 % above the applicable interest rate.

The Company will pay to each lender a facility fee on a quarterly basis based on the unused amount of each lender's commitment to make revolving loans, of between 0.20 % and 0.35 %, depending on the Company's consolidated total leverage ratio

as of the most recently ended fiscal quarter.

A default interest rate shall apply on all obligations during certain events of default under the Credit Agreement at a rate per annum equal to 2.00 % above the applicable interest rate.

The Company will pay to each lender a facility fee on a quarterly basis based on the unused amount of each lender’s commitment to make revolving loans, of between 0.20 % and 0.35 %, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter.

The Company will also pay to the applicable lenders on a quarterly basis certain fees based on the daily amount available to be drawn under each outstanding letter of credit, including aggregate letter of credit commissions of between 1.50 % and 2.25 %, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter, and issuance fees of 0.125 % per annum.

The Company is also obligated to pay Wells Fargo, as agent, fees customary for a credit facility of this size and type.

The Second Amended & Restated Credit Agreement requires the Company to maintain during the term of the Facilities (i) a maximum consolidated total leverage ratio of 3.25 to 1.00 and (ii) minimum liquidity of $ 250.0 million, which can be satisfied with unrestricted cash and cash equivalents and up to $ 50.0 million of availability under the Revolving Facility.

In addition, the Second Amended & Restated Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company and its subsidiaries to, among other things, grant liens or enter into agreements restricting their ability to grant liens on property, enter into mergers, dispose of assets, change their accounting or reporting policies, change their business and incur indebtedness, in each case subject to customary exceptions for a credit facility of this size and type.

The Second Amended & Restated Credit Agreement includes customary events of default that include, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain ERISA events.

The occurrence of an event of default could result in the acceleration of the obligations under the Second Amended & Restated Credit Agreement.

The Credit Agreement requires the Company to maintain during the term of the Facilities (i) a maximum consolidated total leverage ratio of 3.25 to 1.00 and (ii) a minimum consolidated interest coverage of 3.5 to 1.00.

In addition, the Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company and its subsidiaries to, among other things, grant liens or enter into agreements restricting their ability to grant liens on property, enter into mergers, dispose of assets, change their accounting or reporting policies, change their business and incur indebtedness, in each case subject to customary exceptions for a credit facility of this size and type.

The Credit Agreement includes customary events of default that include, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain ERISA events.

The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement.

The obligations of Ubiquiti Inc.

and certain domestic subsidiaries, if any, under the Second Amended & Restated Credit Agreement are required to be guaranteed by such domestic subsidiaries (the "Domestic Guarantors") and are collateralized by substantially all assets (excluding intellectual property) of Ubiquiti Inc.

and certain domestic subsidiaries, if any, under the Credit Agreement are required to be guaranteed by such domestic subsidiaries (the “Domestic Guarantors”) and are collateralized by substantially all assets (excluding intellectual property) of Ubiquiti Inc.

and the Domestic Guarantors.

The obligations of the Cayman Borrower and certain foreign subsidiaries under the Second Amended & Restated Credit Agreement are required to be guaranteed by certain domestic and material foreign subsidiaries (the "Guarantors") and are collateralized by substantially all assets (excluding intellectual property) of Ubiquiti Inc.

and the Guarantors.

Second Amended & Restated Credit Agreement

During the fourth quarter of fiscal 2019, the Company drew $ 35.0 million against the Revolving Facility.

The Facilities

As of June 30, 2020, $ 475.0 million was outstanding on the Term Facility and $ 180.0 million on the Revolving Facility, leaving $ 520.0 million available on the Revolving Facility.

Under the Second Amended & Restated Credit Agreement, during the fiscal 2019, the Company made aggregate payments of $ 48.2 million against the balance under the Term Facility, of which $ 25.0 million was repayment of principal and $ 23.2 million was payment of interest.

During fiscal 2019, the Company made no aggregate payments against the Revolving Facility, however, made $ 0.1 million payment of interest.

As of June 30, 2019, the interest rate on both the Facilities was 4.15 %.

As of July 31, 2019, the most currently available reset date, the Facilities have an interest rate of 3.98 %.

Term Facility:

Under the Credit Agreement, during fiscal year 2020, the Company made aggregate payments of $ 40.9 million under the Term Facility, of which $ 25.0 million was repayment of principal and $ 15.9 million was payment of interest.

Revolving Facility:

Under the Credit Agreement, during fiscal year 2020, the Company made aggregate payments of $ 250.9 million under the Revolving Facility, of which $ 245.0 million was repayment of principal and $ 5.9 million was payment of interest.

As of June 30, 2020, the interest rate on the term loan was 1.93 %.

As of July 31, 2020, the most currently available reset date, the Term Facility has an interest rate of 1.91 %.

The table below shows the respective interest rates as of June 30, 2020, in addition to the interest rate reset dates as available for each revolver draw.

Debt Payment Obligations Interest Rate as of June 30, 2020 Rate Reset Date Reset Rate

$120 Million Revolver 1.93 % August 17, 2020 1.91 %

$50 Million Revolver 1.93 % July 29, 2020 1.92 %

$10 Million Revolver 1.94 % August 20, 2020 1.91 %

The following table summarizes our estimated debt and interest payment obligations as of June 30, 2020, for fiscal 2021 and future fiscal years (in thousands):

Fiscal Year 2021 2022 2023 2024 2025 Thereafter Total

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Interest and other payments on debt payment obligations (1)

13,953 13,465 7,204 — — — 34,622

Total $ 38,953 $ 38,465 $ 612,204 $ — $ — $ — $ 689,622

(1) - Interest payments are calculated based on the applicable rates and payment dates as of June 30, 2020.

Although our interest rates on our debt obligations may vary, we have assumed the most recent available interest rates for all periods presented.

NOTE 9— LEASES

On July 1, 2019, we adopted the new accounting standard ASC 842, Leases, using the modified retrospective method.

We elected this adoption date as our date of initial application.

As a result, we have not updated financial information related to, nor have we provided disclosures required under ASC 842 for, periods prior to July 1, 2019.

The primary changes to our policies relate to recognizing most leases on our consolidated balance sheet as liabilities with corresponding right-of-use (“ROU”) assets.

The Company has entered into agreements under which we lease various real estate spaces in North America, Europe and Asia Pacific, under non-cancellable leases that expire on various dates through fiscal 2029.

Some of our leases include options to extend the term of such leases for a period from 12 months to 60 months, and/or have options to early terminate the lease.

As of June 30, 2020, we included such options in determining the lease terms for certain of our leases as we were reasonably certain that we would exercise those options.

Most of our leases require us to pay certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs.

Practical Expedients

The modified retrospective approach included a package of optional practical expedient that we elected to apply.

Among other things, these expedients permitted us not to reassess prior conclusions regarding lease identification, lease classification and initial direct costs under ASC 842.

The Company does not separate lease and non-lease components in determining ROU assets or lease liabilities for real estate leases.

Additionally, the Company does not recognize ROU assets or lease liabilities for leases with original

terms or renewals of one year or less.

The following table summarizes our lease costs for fiscal year ended June 30, 2020 (in thousands):

June 30, 2020

Operating lease costs:

Financial Statement Classification

Fixed lease costs Operating expenses $ 6,068

Fixed lease costs Cost of revenues 2,062

Variable lease costs Operating expenses 358

Variable lease costs Cost of revenues 380

Total lease costs $ 8,868

The operating lease costs in the table above include costs for long-term and short-term leases.

Total short-term costs for fiscal year June 30, 2020 was $ 0.2 million.

Variable lease costs primarily include maintenance, utilities and operating expenses that are incremental to the fixed base rent payments and are excluded from the calculation of operating lease liabilities and ROU assets.

For fiscal year June 30, 2020, the cash paid for amounts associated with our operating lease liabilities were approximately $ 9.0 million which were classified as operating activities in the consolidated statement of cash flows.

The following table shows our undiscounted future fixed payment obligations under our recognized operating leases and a reconciliation to the operating lease liabilities as of June 30, 2020:

Fiscal 2021 $ 7,856

Fiscal 2022 4,544

Fiscal 2023 3,774

Fiscal 2024 3,602

Fiscal 2025 3,151

Thereafter 5,476

Total future fixed operating lease payments $ 28,403

Imputed interest $ 2,814

Total operating lease liabilities $ 25,589

Weighted-average remaining lease term - operating leases 5.44

Weighted-average discount rate - operating leases 3.8 %

Due to our election to apply the effective date method of adoption for ASC 842, we have included the following additional disclosure under our historical lease accounting under ASC 840.

As of June 30, 2019, future minimum lease payments under non-cancelable operating lease were as follows (in thousands):

FY 2020 $ 7,395

FY 2021 $ 5,509

FY 2022 $ 2,639

FY 2023 $ 2,205

FY 2024 $ 1,982

Thereafter $ 7,116

Total future minimum annual payments $ 26,846

Fiscal 2019 rent expense under operating leases $ 7.8 million

NOTE 10— COMMITMENTS AND CONTINGENCIES

Operating Leases

Certain facilities and equipment are leased under non-cancelable operating leases.

The Company generally pays taxes, insurance and maintenance costs on leased facilities and equipment.

The Company leases its headquarters in New York, New York and other locations under non-cancelable operating leases that expire at various dates through 2026.

At June 30, 2019, future minimum annual payments under operating leases are as follows (in thousands):

Fiscal Year 2020 2021 2022 2023 2024 Thereafter Total

Operating leases $ 7,395 $ 5,509 $ 2,639 $ 2,205 $ 1,982 $ 7,116 $ 26,846

Rent expense under operating leases was $ 7.8 million, $ 6.6 million and $ 6.7 million for fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

See Note 9- Leases for future minimum lease payments under non-cancelable operating leases as of June 30, 2020 and June 30, 2019

Purchase Obligations

We subcontract with third parties to manufacture our products.

During the normal course of business, our contract manufacturers procure components and manufacture product based upon orders placed by us.

We subcontract with third parties to manufacture our products and have purchase commitments with key component suppliers.

During the normal course of business, our contract manufacturers procure components and manufacture products based upon orders placed by us.

If we cancel all or part of the orders, we may still be liable to the contract manufacturers for the cost of the components purchased by the subcontractors to manufacture our pr oducts.

We periodically review the potential liability, and as of June 30, 2019, we have recorded purchase obligation liability of $ 4.9 million related to component purchase commitments.

We periodically review the potential liability, and as of June 30, 2020, we have recorded a purchase obligation liability of $ 3.3 million related to component purchase commitments.

There have been no other significant liabilities for cancellations recorded as of June 30, 2020 .

Our consolidated financial position and results of operations could be negatively impacted if we were required to compensate the contract manufacturers for any unrecorded liabilities incurred.

We may be subject to additional purchase obligations for components ordered by our contract manufacturers based on manufacturing forecasts we provide them each month.

We may be subject to additional purchase obligations for supply agreements and components ordered by our contract manufacturers based on manufacturing forecasts we provide them each month.

We estimate the amount of these additional purchase obligation to rang e from $ 146.3 million to $ 303.3 million as of June 30, 2020, depending upon the timing of orders placed for these components by our manufacturers.

Other Obligations

We had other obligations of $ 10.1 million as of June 30, 2019, which consisted primarily of commitments related to research and development agreements.

As of June 30, 2019, the Company made $ 42.0 million deposit on a long term asset, with an outstanding purchase commitment balance of $ 22.5 million.

As of June 30, 2020, the Company has other obligations of $ 3.9 million which consisted primarily of commitments related to raw materials and research and development projects.

Indemnification Obligations

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However, the Company’s estimates may be incorrect and the Company could ultimately incur more or less than the amounts initially recorded.

The Company may also incur significant legal fees, which are expensed as incurred, in defending against these claims.

The Company may also incur significant legal fees, which are expensed as

incurred, in defending against these claims.

The Company is not currently aware of any pending or threatened litigation that would have a material adverse effect on the Company’s financial statements.

On February 3, 2017, Synopsys, Inc.

(“Synopsys”) filed a complaint against the Company, one of our subsidiaries and an employee in the United States District Court for the Northern District of California, alleging claims under the Digital Millennium Copyright Act.

On January 17, 2019, the Company and Synopsys entered into a settlement pursuant to which the Company paid $ 18 million to Synopsys and agreed to a permanent injunction to prevent any unlicensed use of Synopsys’s software.

As a result of the settlement, the litigation with Synopsys was dismissed.

The settlement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties.

On April 19, 2017, XR Communications, LLC, d/b/a Vivato Technologies (“Vivato”), filed a complaint against the Company in the United States District Court for the Central District of California, alleging that at least one of the Company’s products infringes United States Patent Numbers 7,062,296 (the “’296 Patent”), 7,729,728 (the “’728 Patent”), and 6,611,231 (the “’231 Patent” and, collectively, the “Patents-in-Suit”).

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Vivato has also filed nine other lawsuits asserting the same patents against other defendants in the Central District of California.

On October 2, 2017, the ten

cases were consolidated into a single action for all purposes except trial.

On March 19, 2018, the Company and the remaining defendants in the consolidated action moved to stay the case (the “Motion to Stay”) pending completion of certain inter partes review proceedings before the Patent Trial and Appeal Board.

On October 2, 2017, the ten cases were consolidated into a single action for all purposes except trial.

On April 9, 2018, the Court held a hearing on the Motion to Stay, and, on April 11, 2018, the Court granted the motion.

On February 11, 2019, the Court maintained the stay pending a status conference scheduled for December 2, 2019.

During the status conference on December 2, 2019, the Court rejected a request from Vivato to lift the stay in part.

The Court maintained the stay in full pending a further status conference, which was originally scheduled for March 17, 2020 and subsequently rescheduled for August 31, 2020.

The Company plans to vigorously defend itself against these claims;

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As previously disclosed on the Form 8-K filed by the Company on February 20, 2018, on February 13, 2018, the Securities and Exchange Commission (the “SEC”) issued subpoenas to the Company and certain of the Company’s officers requesting documents and information relating to a range of topics, including metrics relating to the Ubiquiti Community, accounting practices, financial information, auditors, international trade practices, and relationships with distributors and various other third parties.

The Company is in the process of responding to the requests and intends to cooperate fully with the SEC.

The Company has responded to the requests and intends to cooperate fully with the SEC.

As the SEC’s investigation is ongoing, we cannot currently predict the timing or the outcome of such investigation.

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18-cv-01620 (the “ Vanderheiden Action”), was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former officers.

The Vanderheiden Action complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making false and/or misleading statements, including purported overstatements of the Company’s online community user engagement metrics and accounts receivable.

The Vanderheiden Action complaint alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making false and/or misleading statements, including purported overstatements of the Company’s online community user engagement metrics and accounts receivable.

On February 28, 2018 and March 13, 2018, substantially similar purported class actions, captioned Xiya Qian v.

Ubiquiti Networks, Inc.

18-cv-01841 (the “Qian Action”) and John Kho v.

18-cv-01841 (the “ Qian Action”) and J ohn Kho v.

Ubiquiti Networks, Inc.

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On March 21, 2019, Defendants informed the Court that they were prepared to move to dismiss the Consolidated Amended Complaint but that, consistent with the Court’s individual practices, they would refrain from filing that motion pending receipt of further guidance from the Court.

While the Company believes that the Consolidated Class Action is without merit and plans to vigorously defend itself, there can be no assurance that the Company will prevail.

The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with this litigation.

On October 16, 2019, the parties in the Consolidated Class Action reached an agreement in principle to settle the Consolidated Class Action (the “Settlement”).

The Court granted final approval of the Settlement on March 27, 2020, dismissing the Consolidated Class Action with prejudice.

The Settlement, which included an award of attorneys’ fees to Plaintiffs’ counsel, was fully funded by certain of the Company’s insurers.

Shareholder Derivative Actions & Section 220 Demand

On March 13, 2018, Anthony Franchi filed a shareholder derivative complaint in the Superior Court of the State of California, County of San Mateo, against the Company’s directors, and certain of its officers (the “ Franchi Action”).

The Company is named as a nominal defendant.

The complaint asserts claims against all individual defendants for breach of fiduciary duty for disseminating false and misleading information and failure to maintain internal controls and unjust enrichment.

Additional claims are asserted against Robert Pera for breach of fiduciary duty for insider selling and misappropriation of information, as well as the violation of California Corporations Code § 25402.

The allegations in support of these claims are similar to the allegations made in the Consolidated Class Actions.

Plaintiff seeks a judgment on behalf of the Company for all damages incurred or that will be incurred as a result of the alleged breaches of fiduciary duty by the individual defendants, a judgment ordering disgorgement of all profits, benefits, and other compensation obtained by the individual defendants, a judgment directing the Company to reform its governance and internal procedures, and attorneys’ fees and other costs.

The Company was named

as a nominal defendant.

The complaint asserted claims against all individual defendants for breach of fiduciary duty for disseminating false and misleading information, failure to maintain internal controls, and unjust enrichment.

Additional claims were asserted against Robert Pera for breach of fiduciary duty for insider selling and misappropriation of information, as well as for violation of California Corporations Code § 25402.

The allegations in support of these claims were similar to the allegations made in the Consolidated Class Actions.

Plaintiff sought a judgment on behalf of the Company for all damages incurred or that would be incurred as a result of the alleged breaches of fiduciary duty by the individual defendants, a judgment ordering disgorgement of all profits, benefits, and other compensation obtained by the individual defendants, a judgment directing the Company to reform its governance and internal procedures, and attorneys’ fees and other costs.

The Company moved for a stay of the derivative action pending resolution of the Consolidated Class Action.

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Plaintiff filed an omnibus response on October 5, 2018 and defendants filed replies on October 22, 2018.

The demurrers are pending before the Court.

On June 4, 2018, alleged Ubiquiti stockholder Richard Gericke served a demand to inspect the Company’s books and records pursuant to Section 220 of the Delaware General Corporation Law.

The California Superior Court did not render a decision on the demurrers.

On June 4, 2018, Ubiquiti stockholder Richard Gericke served a demand to inspect the Company’s books and records pursuant to Section 220 of the Delaware General Corporation Law.

The Company commenced its production of documents responding to Mr.

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On March 11, 2019, Mr.

Gericke filed a shareholder derivative complaint in the Court of Chancery for the State of Delaware against the Company’s directors and certain of its officers (the “Gericke Action”).

The Company is named as a nominal defendant.

The complaint asserts claims against all defendants for breach of fiduciary duty, waste of corporate assets, and

unjust enrichment.

The allegations in support of these claims are similar to the allegations made in the Franchi Action.

Plaintiff seeks a judgment on behalf of the Company for the damages sustained by the individual defendants’ alleged wrongdoing, an award to the Company of restitution from the individual defendants, an award to Plaintiff of the costs and disbursements of the action, including attorneys’ fees, and an order directing the Company to take action to reform and improve corporate governance and internal procedures.

The Company’s response to the complaint is currently due by September 30, 2019.

Gericke filed a shareholder derivative complaint in the Court of Chancery for the State of Delaware against the Company’s directors and certain of its officers (the “ Gericke Action”, and together with the Franchi Action, the “Derivative Actions”).

The Company was named as a nominal defendant.

The complaint asserted claims against all defendants for breach of fiduciary duty, waste of corporate assets, and unjust enrichment.

The allegations in support of these claims were similar to the allegations made in the Franchi Action.

Plaintiff sought a judgment on behalf of the Company for the damages sustained by the individual defendants’ alleged wrongdoing, an award to the Company of restitution from the individual defendants, an award to Plaintiff of the costs and disbursements of the action, including attorneys’ fees, and an order directing the Company to take action to reform and improve corporate governance and internal procedures.

On October 14, 2019, the parties entered into an agreement in principle to settle the Derivative Actions pursuant to which the Company agreed to adopt certain corporate governance modifications and commitments (the “Derivative Settlement”).

On November 1, 2019, the Court of Chancery entered an order staying the Gericke Action.

On November 8, 2019, the California Superior Court entered an order staying the Franchi Action pending the Court’s review and approval of the Derivative Settlement.

On March 10, 2020, the California Superior Court granted final approval of the Derivative Settlement, dismissing the Franchi Action with prejudice.

On March 17, 2020, the Court of Chancery dismissed the Gericke Action with prejudice.

In connection with the Derivative Settlement, certain of the Company’s insurers fully funded an agreed-upon award of attorneys’ fees to Plaintiffs’ counsel.

NOTE 11— COMMON STOCK AND TREASURY STOCK

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Date of Approved and Publicly Announced Program Amount of Publicly Announced Program Total Number of Shares Purchased as Part of Publicly Announced Programs Average Price Paid per Share Total Aggregate Amount Paid Period of Purchases Estimated Remaining Balance Available for Share Repurchases under the Programs Expiration date of Program

March 13, 2018 $ 200 million 1,172,277 $ 90.63 $ 106.2 August 8, 2018 through September 26, 2018 $ — 6/30/2019

May 8, 2018 $ 200 million 2,221,749 $ 90.02 $ 200.0 September 26, 2018 through December 24, 2018 $ — 6/30/2019

November 6, 2018 $ 200 million 1,339,827 $ 122.56 $ 164.2 December 24, 2018 through June 28, 2019 $ 35.8 12/31/2019

May 8, 2020 $ 500 million — $ — $ — — $ 500.0 million 3/31/2022

November 8, 2019 $ 200 million 1,211,771 $ 133.78 $ 162.1 February 7, 2020 - April 21, 2020 $ 37.9 million 12/31/2021

August 9, 2019 $ 500 million 4,337,320 $ 115.28 $ 500.0 August 12, 2019 - October 28, 2019 $ — 12/31/2020

November 9, 2018 $ 200 million 293,709 $ 121.86 $ 35.8 July 8,2019 - August 12, 2019 $ — 12/31/2019

The following table summarizes total activity related to our stock repurchase programs for the fiscal year end as indicated (in millions, except average price per share):

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Aggregate purchase price $ 697.9 $ 470.4 $ 445.0

Remaining authorization at the end of the period $ 35.8 $ 306.2 $ 1.3

NOTE 12— ACCUMULATED OTHER COMPREHENSIVE INCOME

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Other comprehensive income refers to gains and losses that are recorded as an element of stockholders’ equity but are excluded from net income pursuant to GAAP.

As of June 30, 2019, the Company's accumulated other comprehensive income includes $ 0.4 million of net unrealized gains from our available-for-sale securities.

As of June 30, 2020 and 2019 the Company’s accumulated other comprehensive income includes $ 9.2 thousand and $ 0.4 million respectively, of net unrealized gains from our available-for-sale securities.

NOTE 13— STOCK BASED COMPENSATION

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Exercised ( 1,484,110 ) $ 1.08

Forfeitures and cancellations ( 1,356 ) $ 11.72

Balance, June 30, 2018 137,491 $ 9.15 3.62 $ 10,390

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$ 12.88 - $ 15.00

2,209 2.58 $ 12.90

$ 18.49 - $ 18.49

1,000 1.51 $ 18.49

$ 19.99 - $ 19.99

500 1.42 $ 19.99

During fiscal 2020, 2019 and 2018, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $ 3.9 million, $ 10.8 million, and $ 102.0 million, respectively, as determined as of the date of option exercise.

As of June 30, 2020, the Company had no unrecognized compensation cost related to stock options.

The Company estimates the fair value of employee stock options using the Black-Scholes option pricing model.

The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards.

The Company did not grant any stock options during fiscal 2020, fiscal 2019, or fiscal 2018.

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State 410 624 ( 32 )

Foreign — — —

Deferred tax expense ( 1,192 ) 262 2,027

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Effective tax rate 15.5 % 15.4 % 37.5 %

The Company’s effective tax rate decreased 22.1 % to 15.4 % in fiscal 2019 from 37.5 % in fiscal 2018.

Our effective tax rate and resulting provision for income taxes for the year ended June 30, 2019 reflects the full current year impact of the 2017 Tax Act, which resulted in a reduction in the U.S.

The Company’s effective tax rate increased 0.1 % to 15.5 % in fiscal 2020 from 15.4 % in fiscal 2019.

The Company recorded tax provisions of $ 69.9 million for fiscal 2020 as compared to $ 58.8 million for fiscal 2019.

Our effective tax rate and resulting provision for income taxes for fiscal 2020 and fiscal 2019 years reflect the full impact of the 2017 Tax Act, which resulted in a reduction in the U.S.

statutory rate to 21% which is partially offset by a reduced tax benefit from foreign operations.

In addition, in fiscal year 2018 we realized $ 29.1 million compared to $ 1.4 million in fiscal 2019 related to excess tax benefits from stock-based compensation which are reflected as a reduction of our income tax expense.

On December 22, 2017, the U.S.

government enacted a comprehensive tax legislation, commonly referred to as the U.S.

Tax Cuts and Jobs Act (the “2017 Tax Act”).

The 2017 Tax Act reduced the U.S.

federal corporate income tax rate to 21% from 35%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign-sourced earnings.

In fiscal year 2018 we recorded provisional amounts for certain enactment-date effects of the 2017 Tax Act by applying the guidance in Staff Accounting Bulletin No.

118 ("SAB 118"), because we had not yet completed our enactment-date accounting for these effects.

As a result during fiscal 2018, the Company recorded tax expense related to the enactment-date effects of the 2017 Tax Act that included recording the one-time transition tax liability related to undistributed earnings of certain foreign subsidiaries that were not previously taxed of $ 114.3 million, and $ 2.3 million related to the adjustment of deferred tax assets and liabilities to reflect the new corporate tax rate resulting in a total tax expense related to the 2017 Tax Act in fiscal 2018 of $ 116.6 million.

As of June 30, 2018, we had not completed our accounting for all of the enactment-date income tax effects of the 2017 Tax Act under ASC 740, Income Taxes, for the following aspects:

remeasurement of deferred tax assets and liabilities, one-time transition tax, and determination of a policy election related to recording deferred income taxes related to global intangible low-taxed income ("GILTI").

However as of December 31, 2018, we completed our accounting for all of the enactment-date income tax effects of the 2017 Tax Act.

During the second quarter of fiscal year 2019, we recognized an additional expense of $ 2.8 million to the provisional transition tax liability amount recorded at June 30, 2018 and included this adjustment as a component of income tax expense from continuing operations in fiscal 2019.

There were no additional adjustments to deferred income taxes and the Company has made a policy election to treat GILTI as a period cost.

Significant components of the Company's deferred tax assets and liabilities as of June 30, 2020 are as follows (in thousands):

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State tax 1,621 1,305

Investments 1,325 —

Lease Liabilities 5,622 —

Other 1,126 915

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Basis difference for fixed assets ( 1,509 ) ( 301 )

Right of Use Assets ( 5,622 ) —

Other Liabilities ( 451 ) ( 965 )

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Unrecognized benefit—end of year $ 31,350 $ 30,850 $ 29,144

As of June 30, 2019, the Company had approximately $ 30.9 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense.

As of June 30, 2020, the Company had approximately $ 31.4 million of unrecognized tax benefits, substantially all of which would,

if recognized, affect its tax expense.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statement of Operations and Comprehensive Income.

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The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions and is currently undergoing income tax examinations by the U.S.

Internal Revenue Service and the Hong Kong Inland Revenue Department.

All material consolidated federal income tax matters have been concluded for years through 2014.

All material state and local income tax matters have been concluded through 2014.

The majority of the Company’s foreign jurisdictions have been concluded through 2014, with the exception of Hong Kong which has been reviewed through 2009.

The Company believes that within the next twelve months, it is reasonably possible that a decrease of up to $ 3.7 million in unrecognized tax benefits may occur due to settlements with tax authorities or statute lapse.

In July 2018, the Company received a draft Notice of Proposed Adjustment (“NOPA”) from the Internal Revenue Service (IRS) proposing an adjustment to income for the fiscal 2015 and 2016 tax years based on its interpretation of certain obligations of the non-US entities under the credit facility.

The incremental tax liability associated with the income adjustment proposed in the draft NOPA would be approximately $ 50 million, excluding interest and penalties.

The Company strongly believes the position of the IRS with regard to this matter is inconsistent with the provisions of the credit facility and applicable tax laws.

Internal Revenue Service and the Hong Kong Inland Revenue Department (“IRD”).

All material consolidated federal, state and local income tax matters have been concluded for years through 2014.

The majority of the Company’s foreign jurisdictions have been concluded through 2014, with the exception of Hong Kong which has been reviewed through 2009 and is currently under audit for the 2010-2016 tax years.

During fiscal years 2020, 2019 and 2018, the Company made a total of $ 15.5 million, $ 13.4 million, and $ 6.6 million of deposits with the Hong Kong Inland Revenue Department (“IRD”) in connection with extending the statute of limitation for income tax examinations currently under audit for 2010-2014 tax years.

The refundable deposits are included within other long-term assets on our Consolidated Balance Sheets.

The IRD is examining the Company’s claims that its revenue is generated through activities performed wholly outside of the Hong Kong tax jurisdiction and are therefore exempt from Hong Kong tax.

The Company is fully cooperating with the examination including submitting documentation in support of its position.

The Company continues to believe that its tax positions filed with IRD are more likely than not to be sustained based on their technical merits and therefore no reserve has been provided for this tax uncertainty and we expect the $ 35.5 million of deposits made with IRD to be refunded upon completion of the audit.

However, there can be no assurance that this matter will be resolved in the Company’s favor and therefore it’s possible that an adverse outcome of the matter could have a material effect on the Company’s results of operations and financial condition.

In July 2018, the Company received a draft Notice of Proposed Adjustment (“Draft NOPA”) from the Internal Revenue Service (“IRS”) proposing an adjustment to income for the fiscal 2015 and fiscal 2016 tax years based on its interpretation of certain obligations of the non-US entities under the credit facility.

This Draft NOPA was superseded by an Acknowledgement of Facts (“AOF”) issued to the Company by the IRS on January 17, 2020.

The IRS in its AOF continued to propose an adjustment to the Company’s income for its fiscal 2015 and fiscal 2016 tax years based on the IRS’ interpretation of certain obligations of the Company’s foreign subsidiaries under the Company’s credit facilities.

The incremental tax liability associated with the income adjustment proposed in the AOF would be approximately $ 50 million, excluding potential interest and penalties, after adjusting for the impact of an adjustment on the amount of transition tax payable in future years by the Company.

On May 12, 2020, the IRS issued a final Notice of Proposed Adjustment to the Company with respect to the 2015/2016 tax years.

The Company has formally protested the adjustment and the case is expected to be moved from the Examination Division to the IRS Appeals Division where a formal review of the facts and the applicable law will take place.

The timing of when the case will be scheduled to be reviewed by the Appeals Division is uncertain at this time due in large part to an existing backlog of cases awaiting review by the Division.

The Company strongly believes the position of the IRS with regard to this matter is without merit.

However, there can be no assurance that this matter will be resolved in the Company’s favor.

Regardless of whether the matter is resolved in the Company’s favor, the final resolution of this matter could be expensive and time-consuming to defend and/or settle.

As the Company believes that the tax originally paid in fiscal 2015 and 2016 is correct, it has not provided an additional reserve for this tax uncertainty.

However, there is still a possibility that an adverse outcome of the matter could have a material effect on the Company’s results of operations and financial condition.

The Company is currently under audit by the Hong Kong Inland Revenue Department ("IRD") which covers the fiscal 2010 through 2016 tax years.

As of June 30, 2019, the Company made deposits of approximately $ 20.0 million, of which $ 13.4 million was made during fiscal 2019 and $ 6.6 million was made in fiscal 2018 with the tax authorities in connection with our agreement to extend the statute for the 2010-2012 tax years.

These deposits are included within Other long-term assets on our Consolidated Balance Sheet.

The Company continues to believe that its tax positions filed with IRD are more likely than not to be sustained based on their

technical merits and therefore no reserve has been provided for this tax uncertainty and we expect the $20 million of deposits made with IRD to be refunded upon completion of the audit.

However, there can be no assurance that this matter will be resolved in the Company’s favor and therefore it's possible that an adverse outcome of the matter could have a material effect on the Company’s results of operations and financial condition.

As the Company believes that the tax originally paid in fiscal 2015 and fiscal 2016 is correct, it has not provided a reserve for this tax uncertainty.

However, an adverse outcome may have a material and adverse effect on the Company’s results of operations and financial condition.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES”) was signed into law on March 25, 2020.

The bill was meant to address the economic fallout in response to locally mandated shelter-in-place orders that were executed in an attempt to slow the spread of COVID-19.

Under CARES, several provisions of the tax code were amended to help provide additional relief to businesses that were adversely affected by the pandemic.

The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL”) and allow businesses and individuals to carry back NOLs arising in fiscal 2018, fiscal 2019, and fiscal 2020 to the five prior tax years;

suspend the excess business loss rules under section 461(l);

accelerate refunds of previously generated corporate AMT credits;

generally loosen the business interest limitation under section 163(j) from 30 percent to 50 percent;

and fix the “retail glitch” for qualified improvement property in the 2017 tax code overhaul known informally as the Tax Cuts and Jobs Act (TCJA, P.L.

None of these provisions of CARES are expected to have material impacts to the Company’s fiscal 2020 tax provision.

We will monitor the updates, both to the Company’s business as well as guidance issued with respect to CARES that could impact the current interpretation of the provisions under CARES, to determine whether any additional considerations need to be made with respect to the Company’s tax provision in future periods.

On July 27, 2015, in Altera Corp.

Commissioner, the U.S.

Tax Court issued a decision related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement, holding that the Treasury Regulations under which the compensation was mandatory included as costs were invalid.

Tax Court issued a decision related to the treatment of stock-based compensation (“SBC”) expense in an intercompany cost-sharing arrangement, holding that the Treasury Regulations under which the compensation was mandatory included as costs were invalid.

On June 27, 2016, the Internal Revenue Service (“IRS”) appealed the court’s decision to the Ninth Circuit Court of Appeals.

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On August 8, 2018, the Ninth Circuit Court of Appeals withdrew this decision, and assigned a new panel to consider the appeal.

On June 7, 2019 the Ninth Circuit released their decision on the appeal.

This case focused on the validity of amendments made to the cost sharing regulations in August of 2003 (2003 CSA SBC Regulations) which explicitly required the inclusion of SBC costs in intangible development cost (IDC) pools for CSAs.

While this recent opinion has some differences, the basis and nature of the 2019 opinion has much in common with the withdrawn 2018 opinion.

We will continue to monitor ongoing developments and potential impacts of this case on our consolidated financial statements, and intercompany arrangements.

On June 7, 2019 the Ninth Circuit

released their decision on the appeal.

On June 22, 2020, the United States Supreme Court announced that it was denying the petition for Altera Corp.

Commissioner holding that the Regulations were valid.

We will continue to monitor ongoing developments;

however, there is no impact on the company’s position at this time.

NOTE 15— SEGMENT INFORMATION, REVENUES BY GEOGRAPHY AND SIGNIFICANT CUSTOMERS

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North America (1) $ 571,901 45 % $ 497,218 43 % $ 410,378 40 %

South America 78,723 7 % 92,251 9 % 105,511 12 %

Europe, the Middle East and Africa ("EMEA") 477,332 41 % 411,388 41 % 334,473 39 %

Europe, the Middle East and Africa 517,132 40 % 477,332 41 % 411,388 41 %

Asia Pacific 112,121 9 % 108,460 9 % 102,844 10 %

South America 83,346 6 % 78,723 7 % 92,251 9 %

Total revenues $ 1,284,500 100 % $ 1,161,733 100 % $ 1,016,861 100 %

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NOTE 17 - SUBSEQUENT EVENTS

Stock Repurchases

On August 6, 2019, the Company's Board of Directors approved a new $ 500 million stock repurchase program (the "August Program").

Under the August Program, the Company is authorized to repurchase up to $ 500 million of common stock, in addition to the remaining balance under the November Repurchase Program, announced on November 9, 2018.

The August Program expires on December 31, 2020.

Subsequent to June 30, 2019, the Company repurchased and retired 841,200 shares of common stock at an average price of $ 115.62 for an aggregate amount of $ 97.3 million.

As of August 12, 2019, the Company had no remaining balance available for share repurchase under the November Program.

As of August 19, 2019, the Company had $ 438.5 million available for share repurchase under the August Repurchase Program.

On August 8, 2019, the Company announced that its Board of Directors had approved a quarterly cash dividend of $ 0.30 per share payable on August 26, 2019 to shareholders of record at the close of business on August 19, 2019.

The Company intends to pay regular quarter cash dividends of at least $ 0.30 per share for the remainder of fiscal year 2020.

On August 21, 2020, the Company announced that its Board of Directors had approved a quarterly cash dividend of $ 0.40 per share payable on September 8, 2020 to shareholders of record at the close of business on August 31, 2020.

Any future dividends will be subject to the approval of the Company’s Board of Directors.

Change of Name and Transfer to New York Stock Exchange

On the close of business on Monday, August 19, 2019, the Company changed its name from Ubiquiti Networks Inc.

to Ubiquiti Inc.

In addition, Ubiquiti Inc.'s common stock ceased being registered on the NASDAQ Global Select Market, under its previous trading symbol "UBNT", and began trading on Tuesday, August 20, 2019 on the New York Stock Exchange, under the new trading symbol "UI".

The new CUSIP for the Common Stock is 90353W 103.

NOTE 18— SUPPLEMENTARY DATA (UNAUDITED)

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Exhibit Number Date Filed Filed

Third Amended and Restated Certificate of Incorporation of Ubiquiti Inc ., as am e nded

Amended and Restated Bylaws of Ubiquiti Inc.

Third Amended and Restated Certificate of Incorporation of Ubiquiti Inc., as amended

10-K August 21, 2019

Amended and Restated Bylaws of Ubiquiti Inc., as amended

10-K August 21, 2019

Specimen Common Stock Certificate of Ubiquiti Networks, Inc.

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S-1 4.3 June 17, 2011

Descriptions of the Company ’ s Securitie s

Form of Indemnification Agreement between Ubiquiti Networks, Inc.

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10-Q 10.1 May 10, 2019

Third Amendment, dated as of September 9, 2019, to Second Amended & Restated Credit Agreement, dated as of January 17, 2018, by Ubiquiti Inc., as borrower, Ubiquiti International Holding Company Limited, as a released party, and certain subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent

8-K 10.1 September 12, 2019

Aircraft Lease Agreement between Ubiquiti Networks, Inc.

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101.PRE XBRL Taxonomy Presentation Linkbase Document X

104 Cover Page Interactive Date File - (formatted as Inline XBRL and contained in Exhibit 101)

# Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

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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 9A. Controls and Procedures