| _id | d1b31d1f6 |
| title |  |
| text | ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (United States Dollars in thousands, except per share data and unless otherwise indicated)
Fair value change in FCR liability
The following table reconciles the beginning and ending measurements of our FCR liability and highlights the activity that drove the fair value change in FCR liability included in our cost of revenue.

(1) Includes: (i) incentive payments from Bank Partners, which is the surplus of finance charges billed to borrowers over an agreedupon portfolio yield, a fixed servicing fee and realized net credit losses, (ii) cash received from recoveries on previously charged-off Bank Partner loans, and (iii) the proceeds received from transferring our rights to Charged-Off Receivables (as defined below) attributable to previously charged-off Bank Partner loans. We consider all monthly incentive payments from Bank

consider all monthly incentive payments from Bank Partners during the period to be related to billed finance charges on deferred interest products until monthly incentive payments exceed total billed finance charges on deferred products, which did not occur during any of the periods presented.

(2) Represents the reversal of previously billed finance charges associated with deferred payment loan principal balances that were repaid within the promotional period.
(3) A fair value adjustment is made based on the expected reversal percentage of billed finance charges (expected settlements), which is estimated at each reporting date. The fair value adjustment is recognized in cost of revenue in the Consolidated Statements of Operations.

 |
| table | |           | Year Ended December 31, |
--------------------------------------------------- | --------- | ----------------------- | ---------
                                                    | 2019      | 2018                    | 2017
Beginning balance                                   | $138,589  | $94,148                 | $68,064
Receipts(1)                                         | 159,527   | 129,153                 | 109,818
Settlements(2)                                      | (262,449) | (181,590)               | (127,029)
Fair value changes recognized in cost of revenue(3) | 170,368   | 96,878                  | 43,295
Ending balance                                      | $206,035  | $138,589                | $94,148 |


| _id | d1b3c10ee |
| title |  |
| text | Non-operating Corporate
Selling, general and administrative: Selling, general and administrative expenses from our Non-operating Corporate segment for the year ended December 31, 2019 decreased $8.6 million to $24.9 million from $33.5 million for the year ended December 31, 2018. The decrease was driven by reductions in bonus expense, consulting and professional service fees, and employee wage and benefits expenses.

The HC2 Compensation Committee establishes annual salary, cash and equity-based bonus arrangements for certain HC2 executive employees on an annual basis. In determining the amounts payable pursuant to such cash and equity-based bonus arrangements for these employees, the Company has historically measured the growth in the Company’s NAV in accordance with a formula established by HC2’s Compensation Committee ("Compensation NAV") in 2014.

The Compensation NAV is generally determined by dividing the end of year Compensation NAV per share by the beginning year Compensation NAV per share and subtracting 1 from this amount (the "NAV Return"), and then subtracting the required threshold return rate from the NAV Return. The hurdle rate has consistently been set at 7%, and the plan allows for the share of up to 12% of growth over and above the hurdle rate.

HC2’s accrual for cash and equity-based bonus arrangements of HC2 executive employees as of December 31, 2019 and 2018 resulted in a $4.4 million decrease in expense recognized. These changes reflect the underlying performance in the Compensation NAV in the respective periods. In 2019 the NAV did not meet the hurdle rate, while in 2018 it grew approximately 21%.

For 2019, Compensation NAV did not meet the hurdle rate, and declined by 26.1%, resulting primarily from external events that occurred in the fourth quarter at our Insurance segment, with respect to our views on the future of the management fee agreement, along with our expectations of future dividends, after recent and ongoing discussions with our domestic regulator.

In accordance with the terms of the plan, this decline in Compensation NAV directly reduces the deferred cash compensation awarded in 2017 and 2018. The total reduction recognized in 2019 was $0.8 million, related to the claw back of a portion of the 2017 and 2018 awards which were unpaid as of December 31, 2019. In addition, the plan requires that future NAV growth continues to be determined using the high water mark based on the beginning Compensation NAV established at the beginning of 2019.

 |
| table | |         | Years Ended December 31, |
----------------------------------- | ------- | ------------------------ | ---------------------
                                    | 2019    | 2018                     | Increase / (Decrease)
Selling, general and administrative | $24.9   | $33.5                    | $(8.6)
Depreciation and amortization       | 0.1     | 0.1                      | —
Loss from operations                | $(25.0) | $(33.6)                  | $8.6 |


| _id | d1b2fc7bc |
| title |  |
| text | The table below summarizes our cash flows from continuing operations activities for each of the last two fiscal years (in thousands):
Operating Activities. Operating cash flows increased $64.4 million in 2019 compared with 2018 primarily due to favorable changes in working capital of  $37.0 million, primarily due to lower income tax payments of$41.3 million, and higher net income adjusted for non-cash items of $27.3 million

Pension and Postretirement Contributions — Our policy is to fund our pension plans at or above the minimum required by law. As of January 1, 2019, the date of our last actuarial funding valuation for our qualified pension plan, there was no minimum contribution funding requirement. In 2019 and 2018, we contributed $6.2 million and $5.5 million, respectively, to our pension and postretirement plans. We do not anticipate making any contributions to our qualified defined benefit pension plan in fiscal 2020.

defined benefit pension plan in fiscal 2020. For additional information, refer to Note 12, Retirement Plans, of the notes to the consolidated financial statements.

 |
| table | | 2019     | 2018
---------------------------------------------------------- | -------- | ----------
Total cash provided by (used in) continuing operations:    |          |
Operating activities                                       | $168,405 | $104,055
Investing activities                                       | (13,819) | 65,661
Financing activities                                       | (5,730)  | (445,529)
Net increase (decrease) in cash from continuing operations | $148,856 | $(275,813) |


| _id | d1b37dfd8 |
| title |  |
| text | 18. Trade and other payables  Significant accounting policies that apply to trade and other payables We initially recognise trade and other payables at fair value, which is usually the original invoiced amount. We subsequently carry them at amortised cost using the effective interest method.

a Deferred income recognised in prior periods has substantially been reclassified to contract liabilities on adoption of IFRS 15, see notes 1 and 2. The remaining balance includes £51m (2017/18: £132m, 2016/17: £71m) current and £586m (2017/18: £404m, 2016/17: £375m) non-current liabilities relating to the Broadband Delivery UK programme, for which grants received by the group may be subject to re-investment or repayment depending on the level of take-up.

b Other payables relate to operating lease liabilities and deferred gains on a 2001 sale and finance leaseback transaction.

 |
| table | | 2019  | 2018  | 2017
---------------------------------- | ----- | ----- | -----
At 31 March                        | £m    | £m    | £m
Current                            |       |       |
Trade payables                     | 4,141 | 3,991 | 4,205
Other taxation and social security | 564   | 704   | 704
Other payables                     | 387   | 456   | 672
Accrued expenses                   | 630   | 492   | 382
Deferred income a                  | 68    | 1,525 | 1,474
                                   | 5,790 | 7,168 | 7,437 |


| _id | d1b3b7e86 |
| title |  |
| text | ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the Nasdaq Global Market under the symbol “LWAY.” Trading commenced on March 29, 1988. As of March 16, 2020, there were approximately 147 holders of record of Lifeway’s Common Stock.
Common stock price

Common stock price
The following table shows the high and low sale prices per share of our common stock as reported on the Nasdaq Global Market for each quarter during the two most recent fiscal years:

 |
| table | |        | Common Stock Price Range 2018
-------------- | ------ | -----------------------------
               | Low    | High
First Quarter  | $ 5.99 | $ 8.40
Second Quarter | $ 4.79 | $ 6.48
Third Quarter  | $ 2.66 | $ 4.63
Fourth Quarter | $ 1.88 | $ 3.39 |


| _id | d1b3af6d2 |
| title |  |
| text | TERM DEPOSITS
An analysis of the Group’s term deposits by currencies are as follows:
The effective interest rate for the term deposits of the Group with initial terms of over three months to three years during the year ended 31 December 2019 was 3.57% (2018: 4.08%).
Term deposits with initial terms of over three months were neither past due nor impaired. As at 31 December 2019, the carrying amounts of the term deposits with initial terms of over three months approximated their fair values.

 |
| table | | As at 31 December |
------------------------------- | ----------------- | -----------
                                | 2019              | 2018
                                | RMB’Million       | RMB’Million
Included in non-current assets: |                   |
RMB term deposits               | 19,000            | –
Included in current assets:     |                   |
RMB term deposits               | 28,598            | 55,180
USD term deposits               | 16,325            | 6,349
Other currencies                | 1,988             | 1,389
                                | 46,911            | 62,918
                                | 65,911            | 62,918 |


| _id | d1b39576e |
| title |  |
| text | Note 19—Earnings Per Share ("EPS")

Basic EPS is computed by dividing net income attributable to Leidos common stockholders by the basic weighted average number of shares outstanding. Diluted EPS is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period. The dilutive effect of outstanding equity-based compensation awards is reflected in diluted EPS by application of the treasury stock method, only in periods in which such effect would have been dilutive for the period.

The Company issues unvested stock awards that have forfeitable rights to dividends or dividend equivalents. These stock awards are dilutive common share equivalents subject to the treasury stock method.
The weighted average number of shares used to compute basic and diluted EPS attributable to Leidos stockholders were:

Anti-dilutive stock-based awards are excluded from the weighted average number of shares outstanding used to compute diluted EPS. For fiscal 2019 and 2017, there were no significant anti-diluted equity awards. For fiscal 2018, there was 1 million of outstanding stock options and vesting stock awards that were anti-dilutive.

 |
| table | |                 | Year Ended        |
---------------------------------------------------------------------- | --------------- | ----------------- | -----------------
                                                                       | January 3, 2020 | December 28, 2018 | December 29, 2017
                                                                       |                 | (in millions)     |
Basic weighted average number of shares outstanding                    | 143             | 151               | 152
Dilutive common share equivalents—stock options and other stock awards | 2               | 2                 | 2
Diluted weighted average number of shares outstanding                  | 145             | 153               | 154 |


| _id | d1b3ab7da |
| title |  |
| text | Segment Results
General
Reconciliation of segment revenue to total operating revenue is below:
(1) On May 1, 2017 we sold a portion of our data centers and colocation business. See Note 3—Sale of Data Centers and Colocation Business to our consolidated financial statements in Item 8 of Part II of this report, for additional information.

 |
| table | |         | Year Ended December 31, |
--------------------------------- | ------- | ----------------------- | ------
                                  | 2019    | 2018                    | 2017
                                  |         | (Dollars in millions)   |
Operating revenue                 |         |                         |
International and Global Accounts | $3,596  | 3,653                   | 1,382
Enterprise                        | 6,133   | 6,133                   | 4,186
Small and Medium Business         | 2,956   | 3,144                   | 2,418
Wholesale                         | 4,074   | 4,397                   | 3,026
Consumer                          | 5,642   | 6,116                   | 6,451
Total segment revenue             | $22,401 | 23,443                  | 17,463
Operations and Other(1)           | —       | —                       | 193
Total operating revenue           | $22,401 | 23,443                  | 17,656 |


| _id | d1b351974 |
| title |  |
| text | ITEM 3. KEY INFORMATION
Selected Financial Data

Selected Financial Data
The following table sets forth our selected consolidated financial data as of and for each of the years in the five-year period ended December 31, 2019. The consolidated financial data has been derived from, and should be read in conjunction with, our Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), presented in “Item 18. Financial Statements” of this report.

Our selected financial data and our Consolidated Financial Statements are presented in euros, unless otherwise stated.
(1) See Note (C.6) to our Consolidated Financial Statements for more information on earnings per share.
(2) The balances include primarily bonds, private placements and bank loans. See Note (E.3) to our Consolidated Financial Statements for more information on our financial liabilities.

 |
| table | SELECTED FINANCIAL DATA: IFRS                         |        |        |        |        |
----------------------------------------------------- | ------ | ------ | ------ | ------ | ------
€ millions, unless otherwise stated                   | 2019   | 2018   | 2017   | 2016   | 2015
Income Statement Data: Years ended December 31,       |        |        |        |        |
Cloud revenue                                         | 6,933  | 4,993  | 3,769  | 2,993  | 2,286
Software licenses and support revenue                 | 16,080 | 15,628 | 15,780 | 15,431 | 14,928
Cloud and software revenue                            | 23,012 | 20,622 | 19,549 | 18,424 | 17,214
Total revenue                                         | 27,553 | 24,708 | 23,461 | 22,062 | 20,793
Operating profit                                      | 4,473  | 5,703  | 4,877  | 5,135  | 4,252
Profit after tax                                      | 3,370  | 4,088  | 4,046  | 3,629  | 3,056
Profit attributable to owners of parent               | 3,321  | 4,083  | 4,008  | 3,642  | 3,064
Earnings per share(1)                                 |        |        |        |        |
Basic in €                                            | 2.78   | 3.42   | 3.35   | 3.04   | 2.56
Diluted in €                                          | 2.78   | 3.42   | 3.35   | 3.04   | 2.56
Other Data:                                           |        |        |        |        |
Weighted-average number of shares outstanding         |        |        |        |        |
Basic                                                 | 1,194  | 1,194  | 1,197  | 1,198  | 1,197
Diluted                                               | 1,194  | 1,194  | 1,198  | 1,199  | 1,198
Statement of Financial Position Data: At December 31, |        |        |        |        |
Cash and cash equivalents                             | 5,314  | 8,627  | 4,011  | 3,702  | 3,411
Total assets                                          | 60,215 | 51,502 | 42,484 | 44,262 | 41,390
Current financial liabilities(2)                      | 3,273  | 1,125  | 1,561  | 1,813  | 841
Non-current financial liabilities(2)                  | 12,923 | 10,553 | 5,034  | 6,481  | 8,681
Issued capital                                        | 1,229  | 1,229  | 1,229  | 1,229  | 1,229
Total equity                                          | 30,822 | 28,877 | 25,515 | 26,382 | 23,295 |


| _id | d1b349a4e |
| title |  |
| text | a) Vessels Under Construction and Upgrades
Teekay LNG's share of commitments to fund newbuilding and other construction contract costs as at December 31, 2019 are as follows:
(i) In June 2019, Teekay LNG entered into an agreement with a contractor to supply equipment on certain of its LNG carriers in 2021 and 2022, for an estimated installed cost of approximately $60.6 million. As at December 31, 2019, the estimated remaining cost of this installation is $49.7 million.

(ii) Teekay LNG has a 30% ownership interest in the Bahrain LNG Joint Venture which has an LNG receiving and regasification terminal in Bahrain. The Bahrain LNG Joint Venture has secured undrawn debt financing of $34 million, of which $10 million relates to Teekay LNG's proportionate share of the commitments included in the table above.

 |
| table | | Total  | 2020   | 2021   | 2022
------------------------------ | ------ | ------ | ------ | ------
                               | $      | $      | $      | $
Consolidated LNG carriers (i)  | 49,652 | 11,979 | 22,382 | 15,291
Bahrain LNG Joint Venture (ii) | 11,351 | 11,351 | —      | —
                               | 61,003 | 23,330 | 22,382 | 15,291 |


| _id | d1b31b73e |
| title |  |
| text | Disaggregated revenue
The Group’s revenues by geographic region based on end-users who purchased our products or services are as follows:

Revenues from the United States totaled approximately $529 million, $386 million, and $281 million for the fiscal years ended 2019, 2018, and 2017, respectively. Revenues from our country of domicile, the United Kingdom, totaled approximately $86 million, $63 million, and $46 million for the fiscal years ended 2019, 2018, and 2017, respectively. No one customer has accounted for more than 10% of revenue for the fiscal years ended 2019, 2018, and 2017.

 |
| table | |            | Fiscal Year Ended June 30, |
------------ | ---------- | -------------------------- | ------------
             | 2019       | 2018                       | 2017
             |            | (U.S. $ in thousands)      |
             |            | *As Adjusted               | *As Adjusted
Americas     | $603,959   | $439,363                   | $317,432
EMEA         | 474,712    | 347,509                    | 193,790
Asia Pacific | 131,456    | 94,106                     | 115,462
             | $1,210,127 | $880,978                   | $626,684 |


| _id | d1b379c4e |
| title |  |
| text | (1) Totals may not sum due to rounding.
(2) CEO transition costs include stock-based compensation of $16.4 million related to the acceleration of eligible stock awards in conjunction with the Company's former CEOs' transition agreements for the fiscal year ended January 31, 2018.
Our non-GAAP financial measures may exclude the following:

Stock-based compensation expenses. We exclude stock-based compensation expenses from non-GAAP measures primarily because they are non-cash expenses and management finds it useful to exclude certain non-cash charges to assess the appropriate level of various operating expenses to assist in budgeting, planning and forecasting future periods. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, we

companies can use under FASB ASC Topic 718, we believe excluding stock-based compensation expenses allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies.

Amortization of developed technologies and purchased intangibles. We incur amortization of acquisition-related developed technology and purchased intangibles in connection with acquisitions of certain businesses and technologies. Amortization of developed technologies and purchased intangibles is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Management finds it useful to exclude these variable charges from our cost of revenues to assist in

charges from our cost of revenues to assist in budgeting, planning and forecasting future periods. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of developed technologies and purchased intangible assets will recur in future periods.

CEO transition costs. We exclude amounts paid to the Company's former CEOs upon departure under the terms of their transition agreements, including severance payments, acceleration of restricted stock units, and continued vesting of performance stock units, and legal fees incurred with the transition. Also excluded from our non-GAAP measures are recruiting costs related to the search for a new CEO. These costs represent non-recurring expenses and are not indicative of our ongoing operating expenses. We

indicative of our ongoing operating expenses. We further believe that excluding the CEO transition costs from our non-GAAP results is useful to investors in that it allows for period-over-period comparability

Goodwill impairment. This is a non-cash charge to write-down goodwill to fair value when there was an indication that the asset was impaired. As explained above, management finds it useful to exclude certain non-cash charges to assess the appropriate level of various operating expenses to assist in budgeting, planning and forecasting future periods

Restructuring and other exit costs, net. These expenses are associated with realigning our business strategies based on current economic conditions. In connection with these restructuring actions or other exit actions, we recognize costs related to termination benefits for former employees whose positions were eliminated, the closure of facilities and cancellation of certain contracts. We exclude these charges because these expenses are not reflective of ongoing business and operating results. We believe

business and operating results. We believe it is useful for investors to understand the effects of these items on our total operating expenses.

Acquisition related costs. We exclude certain acquisition related costs, including due diligence costs, professional fees in connection with an acquisition, certain financing costs, and certain integration related expenses. These expenses are unpredictable, and dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired business, or our Company. In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition

which often drives the magnitude of acquisition related costs, may not be indicative of such future costs. We believe excluding acquisition related costs facilitates the comparison of our financial results to the Company's historical operating results and to other companies in our industry.

(Gain) loss on strategic investments and dispositions. We exclude gains and losses related to our strategic investments and dispositions from our non-GAAP measures primarily because management finds it useful to exclude these variable gains and losses on these investments and dispositions in assessing our financial results. Included in these amounts are non-cash unrealized gains and losses on the derivative components, dividends received, realized gains and losses on the sales or losses on the impairment

losses on the sales or losses on the impairment of these investments and dispositions. We believe excluding these items is useful to investors because these excluded items do not correlate to the underlying performance of our business and these losses or gains were incurred in connection with strategic investments and dispositions which do not occur regularly.

Discrete tax items. We exclude the GAAP tax provision, including discrete items, from the non-GAAP measure of net (loss) income, and include a non-GAAP tax provision based upon the projected annual non-GAAP effective tax rate. Discrete tax items include income tax expenses or benefits that do not relate to ordinary income from continuing operations in the current fiscal year, unusual or infrequently occurring items, or the tax impact of certain stock-based compensation. Examples of discrete tax items

compensation. Examples of discrete tax items include, but are not limited to, certain changes in judgment and changes in estimates of tax matters related to prior fiscal years, certain costs related to business combinations, certain changes in the realizability of deferred tax assets or changes in tax law. Management believes this approach assists investors in understanding the tax provision and the effective tax rate related to ongoing operations. We believe the exclusion of these discrete tax items

believe the exclusion of these discrete tax items provides investors with useful supplemental information about our operational performance.

Establishment of a valuation allowance on certain net deferred tax assets. This is a non-cash charge to record a valuation allowance on certain deferred tax assets. As explained above, management finds it useful to exclude certain non-cash charges to assess the appropriate level of various cash expenses to assist in budgeting, planning and forecasting future periods

Income tax effects on the difference between GAAP and non-GAAP costs and expenses. The income tax effects that are excluded from the non-GAAP measures relate to the tax impact on the difference between GAAP and non-GAAP expenses, primarily due to stock-based compensation, amortization of purchased intangibles and restructuring charges and other exit costs (benefits) for GAAP and non-GAAP measures.

 |
| table | |         | Fiscal Year Ended January 31, |
----------------------------------------- | ------- | ----------------------------- | -------
                                          | 2019    | 2018                          | 2017
                                          |         | (Unaudited)                   |
Diluted net (loss) income per share       | $(0.37) | $(2.58)                       | $(2.61)
Stock-based compensation expense          | 1.12    | 1.11                          | 1.00
Amortization of developed technologies    | 0.08    | 0.08                          | 0.18
Amortization of purchased intangibles     | 0.08    | 0.09                          | 0.14
CEO transition costs (2)                  | —       | 0.09                          | —
Acquisition related costs                 | 0.07    | —                             | —
Restructuring and other exit costs, net   | 0.14    | 0.43                          | 0.35
(Gain) loss on strategic investments      | (0.05)  | 0.08                          | —
Discrete tax provision items              | (0.14)  | (0.09)                        | (0.01)
Income tax effect of non-GAAP adjustments | 0.08    | 0.31                          | 0.45
Non-GAAP diluted income (loss) per share  | $1.01   | $(0.48)                       | $(0.50) |


| _id | d1b32e7f8 |
| title |  |
| text | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except for share and per share data)
NOTE 20 — Geographic Data
Financial information relating to our operations by geographic area were as follows:
Sales are attributed to countries based upon the origin of the sale.

 |
| table | |          | Years Ended December 31, |
---------------------- | -------- | ------------------------ | --------
Net Sales              | 2019     | 2018                     | 2017
United States          | $279,904 | $313,489                 | $287,092
Singapore              | 32,957   | 6,724                    | 5,596
Taiwan                 | 19,810   | 20,802                   | 18,586
China                  | 87,342   | 79,380                   | 66,510
Czech Republic         | 33,214   | 36,528                   | 34,476
Other non-U.S.         | 15,772   | 13,560                   | 10,733
Consolidated net sales | $468,999 | $470,483                 | $422,993 |


| _id | d1b35bf96 |
| title |  |
| text | 8. Financing Receivables and Operating Leases
(a) Financing Receivables

Financing receivables primarily consist of lease receivables, loan receivables, and financed service contracts. Lease receivables represent sales-type and direct-financing leases resulting from the sale of Cisco’s and complementary third-party products and are typically collateralized by a security interest in the underlying assets. Lease receivables consist of arrangements with terms of four years on average. Loan receivables represent financing arrangements related to the sale of our hardware, software,

related to the sale of our hardware, software, and services, which may include additional funding for other costs associated with network installation and integration of our products and services. Loan receivables have terms of three years on average. Financed service contracts include financing receivables related to technical support and advanced services. Revenue related to the technical support services is typically deferred and included in deferred service revenue and is recognized ratably over the

revenue and is recognized ratably over the period during which the related services are to be performed, which typically ranges from one to three years.

A summary of our financing receivables is presented as follows (in millions):

 |
| table | July 27, 2019             | Lease Receivables | Loan Receivables | Financed Service Contracts | Total
------------------------- | ----------------- | ---------------- | -------------------------- | -------
Gross                     | $2,367            | $5,438           | $2,369                     | $10,174
Residual value            | 142               | —                | —                          | 142
Unearned income           | (137)             | —                | —                          | (137)
Allowance for credit loss | (46)              | (71)             | (9)                        | (126)
Total, net  .             | $2,326            | $5,367           | $2,360                     | $10,053
Reported as:              |                   |                  |                            |
Current .                 | $1,029            | $2,653           | $1,413                     | $5,095
Noncurrent                | 1,297             | 2,714            | 947                        | 4,958
Total, net  .             | $2,326            | $5,367           | $2,360                     | $10,053 |


| _id | d1b3c7c0a |
| title |  |
| text | Advertising Costs: Advertising costs amounted to $278,057, $365,859, and $378,217, for the years ended September 30, 2019, 2018, and 2017, respectively, and are charged to expense when incurred.
Net Income Per Share: Basic and diluted net income per share is computed by dividing net income by the weighted average number of common shares outstanding and the weighted average number of dilutive shares outstanding, respectively.

There were 268,000 and 108,000 shares for the years ended September 30, 2019 and 2018, respectively, that were excluded from the above calculation as they were considered antidilutive in nature. No shares were considered antidilutive for the year ended September 30, 2017.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related revenues and expenses and disclosure about contingent assets and liabilities at the date of the financial statements. Significant estimates include the rebates related to revenue recognition, stock based compensation and the valuation of

stock based compensation and the valuation of inventory, long-lived assets, finite lived intangible assets and goodwill. Actual results may differ materially from these estimates.

Recently Issued Accounting Pronouncements: In February 2016, the FASB issued ASU 2016-02, Leases. There have been further amendments, including practical expedients, with the issuance of ASU 2018-01 in January 2018, ASU 2018-11 in July 2018 and ASU 2018-20 in December 2018. The amended guidance requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting periods beginning after

for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The guidance will be applied on a modified retrospective basis with the earliest period presented. Based on the effective date, this guidance will apply beginning October 1, 2019. The adoption of ASU 2016-02 will have no impact to retained earnings or net income. Upon adoption of ASU 2016-02 on October 1, 2019, we anticipate recording a right-of-use asset

we anticipate recording a right-of-use asset and an offsetting lease liability of approximately $2.3 to $2.9 million.

In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill, which offers amended guidance to simplify the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. This guidance is to be applied on a prospective basis effective for the Company’s interim and annual periods beginning

Company’s interim and annual periods beginning after January 1, 2020, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company does not believe the adoption of this ASU will have a material impact on our financial statements.

 |
| table | | Year ended September 30, |            |
--------------------------------------------------- | ------------------------ | ---------- | ----------
                                                    | 2019                     | 2018       | 2017
Net income                                          | $4,566,156               | $4,274,547 | $3,847,839
Weighted average common shares                      | 13,442,871               | 13,429,232 | 13,532,375
Dilutive potential common shares                    | 8,343                    | 23,628     | 128,431
Weighted average dilutive common shares outstanding | 13,451,214               | 13,452,860 | 13,660,806
Earnings per share:                                 |                          |            |
Basic                                               | $0.34                    | $0.32      | $0.28
Diluted                                             | $0.34                    | $0.32      | $0.28 |


| _id | d1b3bdf66 |
| title |  |
| text | Restricted Stock Units

The Company grants restricted stock units, or RSUs, to employees with various vesting terms. RSUs entitle the holder to receive, at no cost, one common share for each restricted stock unit on the vesting date as it vests. The Company withholds shares in settlement of employee tax withholding obligations upon the vesting of restricted stock units. Stock-based compensation related to grants of vested RSUs and PSUs was $3.0 million, $1.6, million and $1.0 million in 2019, 2018 and 2017, respectively.

The following table summarizes RSU’s activity under the 2019 Plan and 2009 Plan, and the related weighted average grant date fair value, for 2019, 2018 and 2017:

 |
| table | |                  | RSUs & PRSUs Outstanding
------------------------------ | ---------------- | --------------------------------------
                               | Number of Shares | Weighted Average Grant Date Fair Value
                               | (in thousands)   |
Nonvested at January 1, 2017   | 98               | $23.52
Granted                        | 132              | 19.74
Vested                         | (43)             | 20.44
Forfeited                      | (19)             | —
Nonvested at January 1, 2018   | 168              | 21.56
Granted                        | 110              | 11.90
Vested                         | (77)             | 19.18
Forfeited                      | (18)             | —
Nonvested at December 30, 2018 | 183              | 17.22
Granted                        | 353              | 10.77
Vested                         | (118)            | 14.48
Forfeited                      | (41)             | —
Nonvested at December 29, 2019 | 377              | $12.55 |


| _id | d1a72c798 |
| title |  |
| text | 16. INCOME TAXES (Continued)
The reconciliation of the income tax expense at the U.S. Federal statutory rate (21.0% in fiscal 2019, 24.5% in fiscal 2018 and 35.0% in fiscal 2017) to actual income tax expense is as follows (in thousands):

On December 22, 2017, the Tax Act was enacted. The Tax Act contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21.0%, implementing a territorial tax system with a one-time transition tax assessment on previously tax-deferred foreign earnings and imposing new taxes on certain foreign-sourced income. We elected to pay the one-time transition tax over a period of up to eight years.

In conjunction with the Tax Act, the SEC issued guidance under Staff Accounting Bulletin No. 118 (‘‘SAB 118’’) directing taxpayers to record the impact of the Tax Act as ‘‘provisional’’ when they do not have all the necessary information to complete the accounting under ASC 740. The guidance allowed for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impact. In accordance with SAB 118, we recorded provisional estimates to our

SAB 118, we recorded provisional estimates to our consolidated financial statements in fiscal 2018 based on the Tax Act. During the first quarter of fiscal 2019, we further analyzed the income tax effects of the Tax Act and determined there were no material changes to the provisional amounts disclosed in our fiscal 2018 financial statements. Although our accounting for the effects of the Tax Act is complete under SAB 118, there may be future adjustments based on interpretations by the U.S. federal and

based on interpretations by the U.S. federal and state governments and regulatory organizations, legislative updates or new regulations, or changes in accounting standards for income taxes.

The Tax Act also includes provisions for Global Intangible Low-Taxed Income (‘‘GILTI’’) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. In general, this income will effectively be taxed at a 10.5% tax rate reduced by any available current year foreign tax credits. This provision became effective for taxable years beginning after December 31, 2017, which was our fiscal 2019. We have elected to treat tax generated by the GILTI provisions as

to treat tax generated by the GILTI provisions as a period expense.

The effective tax rate on income from continuing operations before income taxes for fiscal 2019 of 10.4% was lower than the U.S. federal tax rate of 21.0% primarily due to the tax benefit from losses of our German subsidiaries, which are subject to higher tax rates than U.S. tax rates, adjustments related to the Tax Act’s transition tax, the net excess tax benefits from restricted stock unit vesting, the benefit of federal research and development tax credits and our Singapore and South Korea tax

tax credits and our Singapore and South Korea tax exemptions. These amounts are partially offset by an accrual for foreign withholding taxes on certain current year foreign earnings not considered permanently reinvested, stock-based compensation not deductible for tax purposes and limitations on the deductibility of compensation under Internal Revenue Code Section 162(m).

 |
| table | |         | Fiscal   |
---------------------------------------------------------- | ------- | -------- | --------
                                                           | 2019    | 2018     | 2017
Federal statutory tax expense                              | $12,610 | $88,684  | $105,719
Valuation allowance                                        | 7,925   | 4,263    | 4,454
Foreign taxes at rates greater (less) than U.S. rates, net | (8,210) | 8,417    | (12,346)
Stock-based compensation                                   | 556     | (8,536)  | 3,969
State income taxes, net of federal income tax benefit      | 1,131   | (373)    | 398
Research and development credit                            | (3,665) | (6,972)  | (7,884)
Deferred compensation                                      | (206)   | (560)    | (1,022)
Release of unrecognized tax benefits                       | (6,688) | (352)    | (538)
Release of interest accrued for unrecognized tax benefits  | (205)   | (156)    | (78)
U.S. tax reform impact                                     | —       | 26,653   | —
Deferred taxes on foreign earnings                         | 1,215   | —        | —
Write-off of withholding tax credits                       | 1,134   | —        | —
Other, net                                                 | 626     | 3,127    | 739
Provision for income taxes                                 | $6,223  | $114,195 | $93,411
Effective tax rate                                         | 10.4%   | 31.6%    | 30.9% |


| _id | d1a72bce4 |
| title |  |
| text | Cost of Revenues and Gross Margin

Cost of revenues in 2019 decreased by $4.3 million, or 16%, as compared to 2018. The decrease was primarily driven by a reduction in the number of global services and cloud infrastructure personnel, which led to a decrease of $2.2 million in compensation and benefits expense, including stock-based compensation expense, as compared to 2018. This reduction in headcount also contributed to a decrease in allocated facilities and information technology costs of $0.5 million in 2019. We also experienced a

of $0.5 million in 2019. We also experienced a decrease of $0.9 million in hosting costs in 2019, due to a decline in the usage of our hosted platform as compared to 2018. Additionally, depreciation decreased $0.5 million in 2019, due to the nature and timing of capital expenditures and internal projects as compared to 2018.

Our gross margin decreased to 53% during 2019, as compared to 54% during 2018. This was primarily due to our revenues, net declining during the year at a slightly faster rate than the corresponding decrease in costs.

 |
| table | | Years Ended December 31, |                        | Change   |
---------------- | ------------------------ | ---------------------- | -------- | -----
                 | 2019                     | 2018                   | $        | %
                 |                          | (dollars in thousands) |          |
Cost of revenues | $22,843                  | $27,154                | $(4,311) | (16)%
Gross profit     | 26,193                   | 31,477                 | (6,284)  | (17)
Gross margin     | 53%                      | 54%                    |          | |


| _id | d1b383b40 |
| title |  |
| text | 8. Goodwill
The changes in the carrying amount of goodwill by operating segment are as follows (amounts in millions):
At December 31, 2019, 2018, and 2017, there were no accumulated impairment losses.

 |
| table | | Activision | Blizzard | King   | Total
---------------------------- | ---------- | -------- | ------ | ------
Balance at December 31, 2017 | $6,898     | $190     | $2,675 | $9,763
Other                        | (1)        | —        | —      | (1)
Balance at December 31, 2018 | $6,897     | $190     | $2,675 | $9,762
Other                        | 1          | —        | 1      | 2
Balance at December 31, 2019 | $6,898     | $190     | $2,676 | $9,764 |


| _id | d1b3bf118 |
| title |  |
| text | Cubic Mission Solutions

Sales: CMS sales increased 59% to $328.8 million in fiscal 2019 compared to $207.0 million in 2018. The increase in sales resulted from increased product deliveries in all of our CMS product lines, and particularly expeditionary satellite communications products and secure network products. Businesses acquired during fiscal years 2019 and 2018 whose operations are included in our CMS operating segment had sales of $8.9 million and $0.6 million for fiscal years 2019 and 2018, respectively.

Amortization of Purchased Intangibles: Amortization of purchased intangibles included in the CMS results amounted to $19.5 million in 2019 and $20.8 million in 2018.

Operating Income: CMS had operating income of $7.8 million in 2019 compared to an operating loss of $0.1 million in 2018. The improvement in operating results was primarily from higher sales from expeditionary satellite communications products and secure networks products. The improvements in operating profits was partially offset by operating losses incurred by businesses that CMS acquired during fiscal 2019 and 2018. Businesses acquired by CMS in fiscal years 2019 and 2018 incurred operating losses of

years 2019 and 2018 incurred operating losses of $12.8 million in fiscal 2019 compared to $3.5 million in fiscal 2018. Included in the operating loss incurred by acquired businesses are acquisition transaction costs of $1.6 million and $1.0 million incurred in fiscal years 2019 and 2018, respectively. In addition, the increase in operating profits was partially offset by an increase of $4.4 million in R&D expenditures from fiscal 2018 to fiscal 2019 related primarily to the development of secure

related primarily to the development of secure communications and ISR-as-a-service technologies.

Adjusted EBITDA: CMS Adjusted EBITDA increased 31% to $34.4 million in 2019 compared to $26.2 million in 2018. The increase in CMS Adjusted EBITDA was primarily due to the same factors that drove the increase in operating income described above, excluding the changes in amortization expense and acquisition transaction costs as such items are excluded from Adjusted EBITDA. Adjusted EBITDA for CMS increased by $0.5 million in 2019 as a result of the adoption of the new revenue recognition standard. The

of the new revenue recognition standard. The increase in Adjusted EBITDA was partially offset by the increase in R&D expenditures described above.

 |
| table | | Fiscal 2019 | Fiscal 2018   | % Change
----------------------- | ----------- | ------------- | --------
                        |             | (in millions) |
Sales                   | $ 328.8     | $  207.0      | 59 %
Operating income (loss) | 7.8         | (0.1)         | n/a
Adjusted EBITDA         | 34.4        | 26.2          | 31 |


| _id | d1b2ec434 |
| title |  |
| text | SEGMENT RESULTS OF OPERATIONS
Reportable Segments
Fiscal Year 2019 Compared with Fiscal Year 2018
Productivity and Business Processes

Revenue increased $5.3 billion or 15%. • Office Commercial revenue increased $3.2 billion or 13%, driven by Office 365 Commercial, offset in part by lower revenue from products licensed on-premises, reflecting a continued shift to cloud offerings. Office 365 Commercial grew 33%, due to growth in seats and higher average revenue per user. • Office Consumer revenue increased $286 million or 7%, driven by Office 365 Consumer, due to recurring subscription revenue and transactional strength in Japan. •

revenue and transactional strength in Japan. • LinkedIn revenue increased $1.5 billion or 28%, driven by growth across each line of business. • Dynamics revenue increased 15%, driven by Dynamics 365 growth.

Operating income increased $3.3 billion or 25%, including an unfavorable foreign currency impact of 2%.

• Gross margin increased $4.1 billion or 15%, driven by growth in Office Commercial and LinkedIn. Gross margin percentage increased slightly, due to gross margin percentage improvement in LinkedIn and Office 365 Commercial, offset in part by an increased mix of cloud offerings.

• Operating expenses increased $806 million or 6%, driven by investments in LinkedIn and cloud engineering, offset in part by a decrease in marketing.
Intelligent Cloud
Revenue increased $6.8 billion or 21%.

• Server products and cloud services revenue, including GitHub, increased $6.5 billion or 25%, driven by Azure. Azure revenue growth was 72%, due to higher infrastructure-as-a-service and platform-as-a-service consumption-based and per user-based services. Server products revenue increased 6%, due to continued demand for premium versions and hybrid solutions, GitHub, and demand ahead of end-of-support for SQL Server 2008 and Windows Server 2008.

• Enterprise Services revenue increased $278 million or 5%, driven by growth in Premier Support Services and Microsoft Consulting Services.
Operating income increased $2.4 billion or 21%.

• Gross margin increased $4.8 billion or 22%, driven by growth in server products and cloud services revenue and cloud services scale and efficiencies. Gross margin percentage increased slightly, due to gross margin percentage improvement in Azure, offset in part by an increased mix of cloud offerings.

• Operating expenses increased $2.4 billion or 22%, driven by investments in cloud and AI engineering, GitHub, and commercial sales capacity.
More Personal Computing
Revenue increased $3.4 billion or 8%.

• Windows revenue increased $877 million or 4%, driven by growth in Windows Commercial and Windows OEM, offset in part by a decline in patent licensing. Windows Commercial revenue increased 14%, driven by an increased mix of multi-year agreements that carry higher in-quarter revenue recognition. Windows OEM revenue increased 4%. Windows OEM Pro revenue grew 10%, ahead of the commercial PC market, driven by healthy Windows 10 demand. Windows OEM non-Pro revenue declined 7%, below the consumer PC market,

declined 7%, below the consumer PC market, driven by continued pressure in the entry level category.

• Surface revenue increased $1.1 billion or 23%, with strong growth across commercial and consumer.

• Gaming revenue increased $1.0 billion or 10%, driven by Xbox software and services growth of 19%, primarily due to third-party title strength and subscriptions growth, offset in part by a decline in Xbox hardware of 13% primarily due to a decrease in volume of consoles sold.

• Search advertising revenue increased $616 million or 9%. Search advertising revenue, excluding traffic acquisition costs, increased 13%, driven by higher revenue per search.
Operating income increased $2.2 billion or 21%, including an unfavorable foreign currency impact of 2%.

• Gross margin increased $2.0 billion or 9%, driven by growth in Windows, Gaming, and Search. Gross margin percentage increased slightly, due to a sales mix shift to higher gross margin businesses in Windows and Gaming.

• Operating expenses decreased $172 million or 1%.
Fiscal Year 2018 Compared with Fiscal Year 2017
Productivity and Business Processes
Revenue increased $6.0 billion or 20%.

• LinkedIn revenue increased $3.0 billion to $5.3 billion. Fiscal year 2018 included a full period of results, whereas fiscal year 2017 only included results from the date of acquisition on December 8, 2016. LinkedIn revenue primarily consisted of revenue from Talent Solutions.

• Office Commercial revenue increased $2.4 billion or 11%, driven by Office 365 Commercial revenue growth, mainly due to growth in subscribers and average revenue per user, offset in part by lower revenue from products licensed on-premises, reflecting a continued shift to Office 365 Commercial.

• Office Consumer revenue increased $382 million or 11%, driven by Office 365 Consumer revenue growth, mainly due to growth in subscribers.

• Dynamics revenue increased 13%, driven by Dynamics 365 revenue growth.
Operating income increased $1.5 billion or 13%, including a favorable foreign currency impact of 2%.

• Gross margin increased $4.4 billion or 19%, driven by LinkedIn and growth in Office Commercial. Gross margin percentage decreased slightly, due to an increased mix of cloud offerings, offset in part by gross margin percentage improvement in Office 365 Commercial and LinkedIn. LinkedIn cost of revenue increased $818 million to $1.7 billion, including $888 million of amortization for acquired intangible assets.

• Operating expenses increased $2.9 billion or 25%, driven by LinkedIn expenses and investments in commercial sales capacity and cloud engineering. LinkedIn operating expenses increased $2.2 billion to $4.5 billion, including $617 million of amortization of acquired intangible assets.
Intelligent Cloud
Revenue increased $4.8 billion or 18%.

• Server products and cloud services revenue increased $4.5 billion or 21%, driven by Azure and server products licensed on-premises revenue growth. Azure revenue grew 91%, due to higher infrastructure-as-a-service and platform-as-a-service consumption-based and per user-based services. Server products licensed on-premises revenue increased 5%, mainly due to a higher mix of premium licenses for Windows Server and Microsoft SQL Server.

• Enterprise Services revenue increased $304 million or 5%, driven by higher revenue from Premier Support Services and Microsoft Consulting Services, offset in part by a decline in revenue from custom support agreements.
Operating income increased $2.4 billion or 26%.

• Gross margin increased $3.1 billion or 16%, driven by growth in server products and cloud services revenue and cloud services scale and efficiencies. Gross margin percentage decreased, due to an increased mix of cloud offerings, offset in part by gross margin percentage improvement in Azure.

• Operating expenses increased $683 million or 7%, driven by investments in commercial sales capacity and cloud engineering.
More Personal Computing
Revenue increased $3.0 billion or 8%.

• Windows revenue increased $925 million or 5%, driven by growth in Windows Commercial and Windows OEM, offset by a decline in patent licensing revenue. Windows Commercial revenue increased 12%, driven by multi-year agreement revenue growth. Windows OEM revenue increased 5%. Windows OEM Pro revenue grew 11%, ahead of a strengthening commercial PC market. Windows OEM non-Pro revenue declined 4%, below the consumer PC market, driven by continued pressure in the entry-level price category.

• Gaming revenue increased $1.3 billion or 14%, driven by Xbox software and services revenue growth of 20%, mainly from third-party title strength.

• Search advertising revenue increased $793 million or 13%. Search advertising revenue, excluding traffic acquisition costs, increased 16%, driven by growth in Bing, due to higher revenue per search and search volume.

• Surface revenue increased $625 million or 16%, driven by a higher mix of premium devices and an increase in volumes sold, due to the latest editions of Surface.

• Phone revenue decreased $525 million.
Operating income increased $1.8 billion or 20%, including a favorable foreign currency impact of 2%.

• Gross margin increased $2.2 billion or 11%, driven by growth in Windows, Surface, Search, and Gaming. Gross margin percentage increased, primarily due to gross margin percentage improvement in Surface.

• Operating expenses increased $391 million or 3%, driven by investments in Search, AI, and Gaming engineering and commercial sales capacity, offset in part by a decrease in Windows marketing expenses.
Corporate and Other

Corporate and Other includes corporate-level activity not specifically allocated to a segment, including restructuring expenses.

Fiscal Year 2019 Compared with Fiscal Year 2018

We did not incur Corporate and Other activity in fiscal years 2019 or 2018.

Fiscal Year 2018 Compared with Fiscal Year 2017

Corporate and Other operating loss decreased $306 million, due to a reduction in restructuring expenses, driven by employee severance expenses primarily related to our sales and marketing restructuring plan in fiscal year 2017.

 |
| table | (In millions, except percentages)   | 2019                    | 2018       | 2017      | Percentage Change 2019 Versus 2018 | Percentage Change 2018 Versus 2017
----------------------------------- | ----------------------- | ---------- | --------- | ---------------------------------- | ----------------------------------
Revenue                             |                         |            |           |                                    |
Productivity and Business Processes | $ 41,160                | $ 35,865   | $ 29,870  | 15%                                | 20%
Intelligent Cloud                   | 38,985                  | 32,219     | 27,407    | 21%                                | 18%
More Personal Computing             | 45,698                  | 42,276     | 39,294    | 8%                                 | 8%
Total                               | $  125,843              | $  110,360 | $  96,571 | 14%                                | 14%
                                    | Operating Income (Loss) |            |           |                                    |
Productivity and Business Processes | $ 16,219                | $ 12,924   | $ 11,389  | 25%                                | 13%
Intelligent Cloud                   | 13,920                  | 11,524     | 9,127     | 21%                                | 26%
More Personal Computing             | 12,820                  | 10,610     | 8,815     | 21%                                | 20%
Corporate and Other                 | 0                       | 0          | (306)     | *                                  | *
Total                               | $42,959                 | $35,058    | $29,025   | 23%                                | 21%
* not meaningful                    |                         |            |           |                                    | |


| _id | d1b2fd892 |
| title |  |
| text | 2. Other operating income
Gains from the disposal of fixed assets and gains from the reversal of impairment losses includes €354 million of income from the disposal of real estates (2017/18: €137 million) and €5 million of income from reversal of impairment losses (2017/18: €4 million). Project developments and sale-and-leaseback transactions contributed to the real estate transactions.

The income from logistics services provided by METRO LOGISTICS to companies intended for disposal and non-group companies is offset by expenses from logistics services, which are reported under other operating expenses.
The other operating income includes cost allocations and cost shares as well as a great number of insignificant individual items.
Disclosures on companies intended for sale can be found under no. 43 – discontinued business sectors page 266 .

 |
| table | € million                                                                                | 2017/2018 | 2018/2019
---------------------------------------------------------------------------------------- | --------- | ---------
Gains from the disposal of fixed assets and gains from the reversal of impairment losses | 145       | 360
Income from logistics services                                                           | 285       | 257
Services                                                                                | 251       | 250
Rents incl. reimbursements of subsidiary rental costs                                    | 268       | 236
Services rendered to suppliers                                                           | 111       | 103
Miscellaneous                                                                            | 211       | 198
                                                                                | 1,271     | 1,405 |


| _id | d1b3b3ea8 |
| title |  |
| text | Non-GAAP Measures

We define Adjusted EBITDA as our net income before interest expense, interest income, other income, net, provision for / (benefit from) income taxes, amortization and depreciation, stock-based compensation expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation. We do not consider these items to be indicative of our core operating

items to be indicative of our core operating performance. The non-cash items include amortization and depreciation expense, stock-based compensation expense related to stock options and other forms of equity compensation, including, but not limited to, the sale of common stock. We do not adjust for ordinary course legal expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements. Adjusted EBITDA is not a measure calculated in accordance with GAAP. See the

calculated in accordance with GAAP. See the table below for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.

we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our

operating results in the same manner as our management and board of directors.We have included Adjusted EBITDA in this report because it is a key measure that our management uses to understand and evaluate our core operating performance and trends, to generate future operating plans, to make strategic decisions regarding the allocation of capital and to make investments in initiatives that are focused on cultivating new markets for our solutions. We also use certain non-GAAP financial measures, including

certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures under our executive bonus plan. Further, we believe the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related expense and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating performance. Accordingly,

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (a) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its

titled measures differently, which reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider Adjusted EBITDA alongside our other GAAP-based financial performance measures, net income and our other GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):

 |
| table | |          | Year Ended December 31, |
------------------------------------------------------- | -------- | ----------------------- | -------
                                                        | 2019     | 2018                    | 2017
Adjusted EBITDA:                                        |          |                         |
Net income                                              | $53,330  | $21,524                 | $29,251
Adjustments:                                            |          |                         |
Interest expense, interest income and other income, net | (8,483)  | 503                     | 1,133
Provision for / (benefit from) income taxes             | 5,566    | (9,825)                 | 2,990
Amortization and depreciation expense                   | 22,134   | 21,721                  | 17,734
Stock-based compensation expense                        | 20,603   | 13,429                  | 7,413
Acquisition-related expense                             | 2,403    | —                       | 5,895
Litigation expense                                      | 12,754   | 45,729                  | 7,212
Total adjustments                                       | 54,977   | 71,557                  | 42,377
Adjusted EBITDA                                         | $108,307 | $93,081                 | $71,628 |


| _id | d1b38fa3a |
| title |  |
| text | 18. Revenue
Effective September 1, 2018, the Company adopted ASU 2014-09, Revenue Recognition (Topic 606). The new standard is a comprehensive new revenue recognition model that requires the Company to recognize revenue in a manner which depicts the transfer of goods or services to its customers at an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.

Prior to the adoption of the new standard, the Company recognized substantially all of its revenue from contracts with customers at a point in time, which was generally when the goods were shipped to or received by the customer, title and risk of ownership had passed, the price to the buyer was fixed or determinable and collectability was reasonably assured (net of estimated returns). Under the new standard, the Company recognizes revenue over time for the majority of its contracts with customers which

majority of its contracts with customers which results in revenue for those customers being recognized earlier than under the previous guidance. Revenue for all other contracts with customers continues to be recognized at a point in time, similar to recognition prior to the adoption of the standard.

Additionally, the new standard impacts the Company’s accounting for certain fulfillment costs, which include upfront costs to prepare for manufacturing activities that are expected to be recovered. Under the new standard, such upfront costs are recognized as an asset and amortized on a systematic basis consistent with the pattern of the transfer of control of the products or services to which to the asset relates.

The following table presents the effect of the adoption of the new revenue guidance on the Consolidated Balance Sheets as of August 31, 2019 (in thousands):
(1) Differences primarily relate to the timing of revenue recognition for over time customers and certain balance sheet reclassifications.
(2) Differences primarily relate to the timing of recognition and recovery of fulfillment costs and certain balance sheet reclassifications.
(3) Included within accrued expenses on the Consolidated Balance Sheets.

(4) Differences included in contract liabilities as of September 1, 2018.

 |
| table | | August 31, 2019 |
----------------------------------------------- | --------------- | -------------------------------------------
                                                | As reported     | Balance without the adoption of ASU 2014-09
Assets                                          |                 |
Contract assets (1)                             | $911,940        | $—
Inventories, net (1)                            | $3,023,003      | $3,761,591
Prepaid expenses and other current assets(1)(2) | $501,573        | $514,769
Deferred income taxes(1)                        | $198,827        | $202,791
Liabilities                                     |                 |
Contract liabilities(2)(3)                      | $511,329        | $—
Deferred income(2)(3)(4)                        | $—              | $521,035
Other accrued expenses(3)(4)                    | $1,877,908      | $1,868,201
Deferred income taxes(1)                        | $115,818        | $111,304
Equity                                          |                 |
Retained earnings(1)(2)                         | $2,037,037      | $1,885,360 |


| _id | d1b3ab668 |
| title |  |
| text | Medical Segment Results
Below is a table summarizing results for the fiscal years ended:
Net Sales. The Medical segment had $1.1 million of net sales in fiscal 2019, compared to $0.3 million of net sales in fiscal 2018. The increase was due to new business gained in fiscal 2019.
Gross Profit. Medical segment gross profit was a loss of $2.8 million in fiscal 2019, compared to a loss of $3.5 million in fiscal 2018. The improvement primarily relates to an increase in sales volumes during fiscal 2019.

Loss from Operations. Medical segment loss from operations decreased $2.8 million to $8.6 million in fiscal 2019, compared to $11.4 million in fiscal 2018. The decrease was due to an improvement in gross profit and lower selling and administrative expenses. Selling and administrative expenses were reduced by lower marketing and professional fee expenses, partially offset by initiatives to reduce overall costs and improve operational profitability of $0.9 million.

 |
| table | (Dollars in Millions) | April 27, 2019 | April 28, 2018 | Net Change ($) | Net Change (%)
--------------------- | -------------- | -------------- | -------------- | --------------
Net Sales             | $1.1           | $0.3           | $0.8           | 266.7 %
Gross Profit          | $(2.8)         | $(3.5)         | $0.7           | 20.0 %
Loss from Operations  | $(8.6)         | $(11.4)        | $2.8           | 24.6 % |


| _id | d1b396e66 |
| title |  |
| text | NOTE 9 – CONTINGENT PURCHASE PRICE
Our purchase of CareSpeak Communications contains a contingent element that will be paid only if the Company achieves certain patient engagement revenues in 2019 and 2020. The total contingent payment may be up to $3.0 million. The target patient engagement revenues were achieved in 2019 and are expected to be achieved in 2020. The calculated fair value of the contingent payment was $2,365,000 at December 31, 2018 and $3,000,000 at December 31, 2019.

Our purchase of RMDY Health, Inc. also contains a contingent element that will be paid only if the Company achieves certain revenues in 2020 and 2021 related to the RMDY business. The total contingent payment may be up to $30.0 million. The minimum payment is $1.0 million in each of the two years. The calculated fair value of the contingent payment was $3,720,000 at December 31, 2019. We determined the fair value of the Contingent Purchase Price Payable at December 31, 2019 using a Geometric-Brownian

at December 31, 2019 using a Geometric-Brownian motion analysis of the expected revenue and resulting earnout payment using inputs that include the spot price, a risk free rate of return of 1.4%, a term of 2 years, and volatility of 40%. Changes in the inputs could result in a different fair value measurement.

The total fair value of contingent purchase price payable at December 31, 2019 is as follows.

 |
| table | | Current    | Long-Term   | Total
------------------------------- | ---------- | ----------- | ----------
CareSpeak Communications, Inc.  | $1,500,000 | $1,500,000  | $3,000,000
RMDY Health, Inc.               | -          | 3,720,000   | 3,720,000
Total                           | $1,500,000 | $5,220,000  | $6,720,000 |


| _id | d1b3c5be4 |
| title |  |
| text | Recently adopted authoritative guidance

Revenue Recognition — Contracts with Customers. In May 2014, the FASB issued new authoritative guidance for revenue from contracts with customers. The standard’s core principle is that a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services. In addition, companies are required to capitalize certain contract acquisition costs, including commissions paid,

acquisition costs, including commissions paid, when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized on a straight-line basis consistent with the timing of transfer of the products or services to which the asset relates.

As a result of the adoption of the new revenue recognition guidance, our net revenue for fiscal 2019 increased $47 million, and our operating expenses decreased $12 million. See Note 3 for additional information related to the impact of the new guidance on the timing and amounts of revenues recognized in fiscal 2019.
The effects of the adoption of the new revenue recognition guidance on our March 29, 2019 Consolidated Balance Sheets were as follows:

(1) As reported includes short-term deferred commissions of $92 million. The balance without adoption of new standard includes short-term deferred commissions of $81 million.
(2) As reported includes long-term deferred commissions of $93 million. The balance without adoption of new standard includes long-term deferred commissions of $44 million.

 |
| table | |             | As of March 29, 2019                      |
------------------------------------ | ----------- | ----------------------------------------- | ----------------
(In millions)                        | As Reported | Balances Without Adoption of New Standard | Effect of Change
Accounts receivable, net             | $708        | $657                                      | $51
Other current assets (1)             | $435        | $421                                      | $14
Other long-term assets (2)           | $1,262      | $1,213                                    | $49
Total assets                         | $15,938     | $15,824                                   | $114
Short-term contract liabilities      | $2,320      | $2,437                                    | $(117)
Other current liabilities            | $533        | $494                                      | $39
Long-term contract liabilities       | $736        | $837                                      | $(101)
Deferred income tax liabilities      | $577        | $526                                      | $51
Total liabilities                    | $10,200     | $10,328                                   | $(128)
Accumulated other comprehensive loss | $(7)        | $(2)                                      | $(5)
Retained earnings                    | $933        | $686                                      | $247
Total stockholders’ equity           | $5,738      | $5,496                                    | $242 |


| _id | d1b36f1c2 |
| title |  |
| text | 2 Investments in subsidiaries
Investments are stated at cost less provisions for any impairment in value.
Additions in the year relate to investments in Gestra Holdings Limited £1.6m and Spirax Sarco America Investments Limited £212.4m. Spirax Sarco America Investments Limited was incorporated on 24th October 2018 with the purpose of holding Group US$ investments and loans. Gestra Holdings Limited was incorporated on 9th October 2018 with the purpose of holding other Gestra Companies.

Details relating to subsidiary undertakings are given on pages 207 to 211. Except where stated all classes of shares were 100% owned by the Group at 31st December 2019. The country of incorporation of the principal Group companies is the same as the country of operation with the exception of companies operating in the United Kingdom which are incorporated in Great Britain. All operate in steam, electrical thermal energy solutions, fluid path technologies or peristaltic pumping markets except those

or peristaltic pumping markets except those companies identified as a holding company on pages 207 to 211.

 |
| table | | 2019  | 2018
---------------------------------------------------- | ----- | -----
                                                     | £m    | £m
Cost:                                                |       |
At 1st January                                       | 445.8 | 269.4
Share options issued to subsidiary company employees | 2.2   | 2.6
Additions                                            | 214.0 | 173.8
At 31st December                                     | 662.0 | 445.8 |


| _id | d1a715a70 |
| title |  |
| text | Stock-based compensation expense is included in general and administrative expense for each period as follows:
As of December 31, 2019, there was $4,801 of unrecognized stock-based compensation expense related to unvested employee stock options and $1,882 of unrecognized stock-based compensation expense related to unvested RSUs. These costs are expected to be recognized over a weighted-average period of 2.13 and 2.33 years, respectively.

 |
| table | | Year Ended        | Year Ended
----------------------------------------- | ----------------- | -----------------
Stock-Based Compensation by Type of Award | December 31, 2019 | December 31, 2018
Stock options                             | $2,756            | $2,926
RSUs                                      | 955               | 1,129
Total stock-based compensation expense    | $3,711            | $4,055 |


| _id | d1b39d888 |
| title |  |
| text | ITEM 6. SELECTED FINANCIAL DATA
The following tables of selected consolidated financial data should be read in conjunction with, and are qualified by reference to, our consolidated financial statements and notes thereto in Item 8 of Part II and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report.

The tables of selected financial data shown below are derived from our audited consolidated financial statements, which include the operating results, cash flows and financial condition of Level 3 beginning November 1, 2017. These historical results are not necessarily indicative of results that you can expect for any future period.
The following table summarizes selected financial information from our consolidated statements of operations.

(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” in Item 7 of Part II of this report and in our preceding annual reports on Form 10-K for a discussion of unusual items affecting the results for each of the years presented.
(2) During 2019 and 2018, we recorded non-cash, non-tax-deductible goodwill impairment charges of $6.5 billion and $2.7 billion, respectively.

(3) During 2019, 2018, 2017 and 2016, we incurred Level 3 acquisition-related expenses of $234 million, $393 million, $271 million and $52 million, respectively. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisition of Level 3” and Note 2—Acquisition of Level 3 to our consolidated financial statements in Item 8 of Part II of this report.

(4) During 2019, 2018, 2017, 2016 and 2015, we recognized an incremental $157 million, $171 million, $186 million, $201 million and $215 million, respectively, of revenue associated with the Federal Communications Commission (“FCC”) Connect America Fund Phase II support program, as compared to revenue received under the previous interstate USF program.

(5) The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in a re-measurement of our deferred tax assets and liabilities at the new federal corporate tax rate of 21%. The re-measurement resulted in tax expense of $92 million for 2018 and a tax benefit of approximately $1.1 billion for 2017.

 |
| table | |               |                  | Years Ended December 31,(1)                                             |            |
-------------------------------------------------- | ------------- | ---------------- | ----------------------------------------------------------------------- | ---------- | -------
                                                   | 2019(2)(3)(4) | 2018(2)(3)(4)(5) | 2017(3)(4)(5)                                                           | 2016(3)(4) | 2015(4)
                                                   |               |                  | (Dollars in millions, except per share amounts and shares in thousands) |            |
Operating revenue                                  | $22,401       | 23,443           | 17,656                                                                  | 17,470     | 17,900
Operating expenses                                 | 25,127        | 22,873           | 15,647                                                                  | 15,137     | 15,321
Operating (loss) income                            | $(2,726)      | 570              | 2,009                                                                   | 2,333      | 2,579
(Loss) income before income tax expense            | $(4,766)      | (1,563)          | 540                                                                     | 1,020      | 1,316
Net (loss) income                                  | $(5,269)      | (1,733)          | 1,389                                                                   | 626        | 878
Basic loss) earnings per common share              | $(4.92)       | (1.63)           | 2.21                                                                    | 1.16       | 1.58
Diluted (loss) earnings per common share           | $(4.92)       | (1.63)           | 2.21                                                                    | 1.16       | 1.58
Dividends declared per common share                | $1.00         | 2.16             | 2.16                                                                    | 2.16       | 2.16
Weighted average basic common shares outstanding   | 1,071,441     | 1,065,866        | 627,808                                                                 | 539,549    | 554,278
Weighted average diluted common shares outstanding | 1,071,441     | 1,065,866        | 628,693                                                                 | 540,679    | 555,093 |


| _id | d1b3b7238 |
| title |  |
| text | 5. Property and Equipment, Net
Property and equipment at March 31, 2019 and 2018 is as follows:
Total depreciation expense on property and equipment was $2.5 million, $2.6 million, and $2.4 million during fiscal 2019, 2018 and 2017, respectively.

The Company capitalizes internal-use software, including software used exclusively in providing services or that is only made available to customers as a software service, as property and equipment under ASC 350-40, Internal-Use Software. Total amortization expense on capitalized internal-use software was $2.5 million, $1.8 million and $1.4 million during fiscal 2019, 2018, and 2017, respectively.

 |
| table | | Year ended March 31, |
----------------------------------------- | -------------------- | --------
(In thousands)                            | 2019                 | 2018
Furniture and equipment                   | $11,604              | $10,671
Software                                  | 16,427               | 11,885
Leasehold improvements                    | 6,981                | 6,819
Project expenditures not yet in use       | 1,014                | 4,187
                                          | 36,026               | 33,562
Accumulated depreciation and amortization | (20,188)             | (16,050)
Property and equipment, net               | $15,838              | $17,512 |


| _id | d1b384cac |
| title |  |
| text | 14. Earnings per share
1 Adjustment of previous year according to explanation in notes.

Earnings per share are determined by dividing profit or loss for the period attributable to the shareholders of METRO AG by the weighted number of no-par-value shares. In the calculation of earnings per ordinary share, an additional dividend for preference shares is generally deducted from profit or loss for the period attributable to the shareholders of METRO AG. There was no dilution in the reporting period or the year before from so-called potential shares.

Earnings per preference share correspond to earnings per share.

 |
| table | | 2017/2018   | 2018/2019
------------------------------------------------------------------------------------ | ----------- | -----------
Weighted number of no-par-value shares                                               | 363,097,253 | 363,097,253
Profit or loss for the period attributable to the shareholders of METROAG (€million) | 333         | −126
Earnings per share in € (basic = diluted)                                            | 0.92        | −0.35
from continuing operations                                                           | (0.98)      | (1.12)
from discontinued operations                                                         | (−0.06)     | (−1.46) |


| _id | d1b3307f6 |
| title |  |
| text | Business Trends
Selected financial results for the past three fiscal years are summarized below:
(1) See the section “Non-GAAP Financial Measures” below for further discussion of these financial measures.
(2) Includes pounds from Specialty Alloys Operations segment, and certain Performance Engineered Products segment businesses including Dynamet, Carpenter Powder Products and LPW Technology Ltd.

 |
| table | |          | Years Ended June 30, |
---------------------------------------------------- | -------- | -------------------- | --------
($ in millions, except per share data)               | 2019     | 2018                 | 2017
Net sales                                            | $2,380.2 | $2,157.7             | $1,797.6
Net sales excluding surcharge revenue (1)            | $1,942.1 | $1,792.3             | $1,558.4
Operating income                                     | $241.4   | $189.3               | $121.5
Net income                                           | $167.0   | $188.5               | $47.0
Diluted earnings per share                           | $3.43    | $3.92                | $0.99
Purchases of property, plant, equipment and software | $180.3   | $135.0               | $98.5
Free cash flow (1)                                   | $(53.7)  | $34.7                | $(16.8)
Pounds sold (in thousands) (2)                       | 267,536  | 265,620              | 236,346 |


| _id | d1a7322b0 |
| title |  |
| text | 3. EARNINGS PER SHARE

Basic and diluted earnings (loss) per common share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for each class of common stock and participating securities considering dividends declared and participation rights in undistributed earnings. Certain of the Company’s restricted stock awards are considered participating securities because holders are entitled to receive non-forfeitable dividends, if declared, during the vesting term.

The potentially dilutive impact of the Company’s restricted stock awards is determined using the treasury stock method. Under the treasury stock method, if the average market price during the period exceeds the exercise price, these instruments are treated as if they had been exercised with the proceeds of exercise used to repurchase common stock at the average market price during the period. Any incremental difference between the assumed number of shares issued and repurchased is included in the diluted

issued and repurchased is included in the diluted share computation.

Diluted EPS includes securities that could potentially dilute basic EPS during a reporting period. Dilutive securities are not included in the computation of loss per share when a company reports a net loss from continuing operations as the impact would be anti-dilutive.
The computation of basic and diluted EPS attributable to common shareholders computed using the two-class method is as follows:

Diluted EPS attributable to common shareholders for the years ended December 31, 2019, 2018 and 2017 excludes 1.1 million, 0.5 million and 0.3 million potential common shares, respectively, that could be issued under our share-based compensation plan, because the inclusion of the potential common shares would have an antidilutive effect.

 |
| table | (In thousands, except per share amounts)                                                                    | 2019      | 2018      | 2017
----------------------------------------------------------------------------------------------------------- | --------- | --------- | -------
Net income (loss)                                                                                | $(19,931) | $(50,571) | $65,299
Less: net income attributable to noncontrolling interest                                                    | 452       | 263       | 354
Income (loss) attributable to common shareholders before allocation of earnings to participating securities | (20,383)  | (50,834)  | 64,945
Less: earnings allocated to participating securities                                                        | 462       | 810       | 362
Net income (loss) attributable to common shareholders, after earnings allocated to participating securities | $(20,845) | $(51,644) | $64,583
Weighted-average number of common shares outstanding                                                        | 70,837    | 70,613    | 60,373
Net income (loss) per common share attributable to common shareholders - basic and diluted                  | $ (0.29)  | $ (0.73)  | $ 1.07 |


| _id | d1a71a9bc |
| title |  |
| text | NOTE 24. EARNINGS PER SHARE

Basic net earnings per common share is calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding for that period. The dilutive effect is calculated using the treasury stock method. The calculation of diluted net income per share assumes the exercise of options issued under our stock option plans (and the issuance of shares under our share plans) for periods in which exercises (or issuances) would have a dilutive effect.

The calculation of basic and diluted net income per share attributable to common shareholders is based on the following data:

 |
| table | | December 31, |
----------------------------------------------------------------------------------- | ------------ | -------
                                                                                | 2018         | 2019
Net earnings used for purposes of calculating net income per common share           |              |
Net earnings from operations                                                        | 157,133      | 329,013
Basic weighted average number of shares outstanding during the year (thousands)     | 52,432       | 49,418
Effect of dilutive potential common shares from stock options and restricted shares | 678          | 580
Dilutive weighted average number of shares outstanding                              | 53,110       | 49,999
Basic net earnings per share: from operations                                       | 3.00         | 6.66
Diluted net earnings per share:                                                     | 2.96         | 6.58 |


| _id | d1b3991d4 |
| title |  |
| text | Effective Tax Rate
The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:

The decrease from the federal statutory rate in fiscal year 2019 is primarily due to a $2.6 billion net income tax benefit related to intangible property transfers, and earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico. The increase from the federal statutory rate in fiscal year 2018 is primarily due to the net charge related to the enactment of the

to the net charge related to the enactment of the TCJA in the second quarter of fiscal year 2018, offset in part by earnings taxed at lower rates in foreign jurisdictions. The decrease from the federal statutory rate in fiscal year 2017 is primarily due to earnings taxed at lower rates in foreign jurisdictions. Our foreign regional operating centers in Ireland, Singapore and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 82%, 87%, and 76% of our foreign income before tax in

87%, and 76% of our foreign income before tax in fiscal years 2019, 2018, and 2017, respectively. Other reconciling items, net consists primarily of tax credits, GILTI, and U.S. state income taxes. In fiscal years 2019, 2018, and 2017, there were no individually significant other reconciling items.

The decrease in our effective tax rate for fiscal year 2019 compared to fiscal year 2018 was primarily due to the net charge related to the enactment of the TCJA in the second quarter of fiscal year 2018, and a $2.6 billion net income tax benefit in the fourth quarter of fiscal year 2019 related to intangible property transfers. The increase in our effective tax rate for fiscal year 2018 compared to fiscal year 2017 was primarily due to the net charge related to the enactment of the TCJA and the

related to the enactment of the TCJA and the realization of tax benefits attributable to previous Phone business losses in fiscal year 2017.

 |
| table | Year Ended June 30,                                      | 2019   | 2018   | 2017
-------------------------------------------------------- | ------ | ------ | -------
Federal statutory rate                                   | 21.0%  | 28.1%  | 35.0%
Effect of:                                               |        |        |
Foreign earnings taxed at lower rates                    | (4.1)% | (7.8)% | (11.6)%
Impact of the enactment of the TCJA                      | 0.4%   | 37.7%  | 0%
Phone business losses                                    | 0%     | 0%     | (5.7)%
Impact of intangible property transfers                  | (5.9)% | 0%     | 0%
Foreign-derived intangible income deduction              | (1.4)% | 0%     | 0%
Research and development credit                          | (1.1)% | (1.3)% | (0.9)%
Excess tax benefits relating to stock-based compensation | (2.2)% | (2.5)% | (2.1)%
Interest, net                                            | 1.0%   | 1.2%   | 1.4%
Other reconciling items, net                             | 2.5%   | (0.8)% | (1.3)%
Effective rate                                           | 10.2%  | 54.6%  | 14.8% |


| _id | d1b324906 |
| title |  |
| text | Stock-based compensation expense is included in the following captions of the consolidated statements of comprehensive income (loss) (in thousands): Stock-based compensation expense is included in the following captions of the consolidated statements of comprehensive income (loss) (in thousands):

As of February 28, 2019, there was $25.5 million of unrecognized stock-based compensation cost related to non-vested equity awards, which is expected to be recognized over a weighted-average remaining vesting period of 2.8 years.

 |
| table | |         | Year Ended February 28, |
-------------------------- | ------- | ----------------------- | ------
                           | 2019    | 2018                    | 2017
Cost of revenues           | $723    | $653                    | $374
Research and development   | 2,061   | 1,471                   | 1,033
Selling and marketing      | 2,863   | 2,314                   | 1,655
General and administrative | 5,382   | 4,860                   | 4,771
                           | $11,029 | $9,298                  | $7,833 |