| _id | d1a72ad94 |
| title |  |
| text | 17. SEGMENT AND GEOGRAPHIC INFORMATION (Continued)
Sales to unaffiliated customers are as follows (in thousands):

 |
| table | |            | Fiscal     |
----------------------------- | ---------- | ---------- | ----------
SALES                         | 2019       | 2018       | 2017
United States                 | $339,585   | $309,495   | $297,699
Foreign countries:            |            |            |
South Korea                   | 313,461    | 652,313    | 628,369
China                         | 194,653    | 235,568    | 162,316
Japan                         | 138,028    | 180,223    | 154,985
Asia-Pacific, other           | 93,389     | 124,733    | 107,713
Germany                       | 145,285    | 166,926    | 145,835
Europe, other                 | 148,680    | 171,936    | 162,162
Rest of World                 | 57,559     | 61,379     | 64,232
Total foreign countries sales | 1,091,055  | 1,593,078  | 1,425,612
Total sales                   | $1,430,640 | $1,902,573 | $1,723,311 |


| _id | d1b30c658 |
| title |  |
| text | 17. Earnings Per Share
Basic earnings per share is computed by dividing the net income attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share is computed by giving effect to all potential weighted-average dilutive shares. The dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method.

A reconciliation of the calculation of basic and diluted loss per share is as follows:
* As adjusted to reflect the impact of the full retrospective adoption of IFRS 15. See Note 2 for further details.
For fiscal years ended June 30, 2019, 2018 and 2017 , 9.6 million, 12.8 million and 13.8 million, respectively of potentially anti-dilutive shares were excluded from the computation of net loss per share.

 |
| table | | Fiscal Year Ended June 30, |                                              |
--------------------------------------------------------- | -------------------------- | -------------------------------------------- | ------------
                                                          | 2019                       | 2018                                         | 2017
                                                          |                            | (U.S. $ in thousands, except per share data) |
                                                          |                            | *As Adjusted                                 | *As Adjusted
Numerator:                                                |                            |                                              |
Net loss attributable to ordinary shareholders            | $(637,621)                 | $(113,432)                                   | $(37,449)
Denominator:                                              |                            |                                              |
Weighted-average ordinary shares outstanding—basic        | 238,611                    | 231,184                                      | 222,224
Weighted-average ordinary shares outstanding—diluted      | 238,611                    | 231,184                                      | 222,224
Net loss per share attributable to ordinary shareholders: |                            |                                              |
Basic net loss per share                                  | $(2.67)                    | $(0.49)                                      | $(0.17)
Diluted net loss per share                                | $(2.67)                    | $(0.49)                                      | $(0.17) |


| _id | d1b379906 |
| title |  |
| text | Gross Profit and Gross Margin (exclusive of amortization of acquisition-related intangible assets described below)
Our gross profit by reportable segment was as follows (dollars in millions):
(1) Certain of the amounts may not total due to rounding of individual amounts. (2) Unallocated manufacturing costs are presented as a percentage of total revenue (includes expensing of the fair market value step-up of inventory of $19.6 million during 2019 and $1.0 million during 2018).

The decrease in gross profit of $265.1 million, or approximately 12%, was primarily due to the impact of the decrease in sales volume, higher fixed costs due to the expansion in our manufacturing capacity as well as the expensing of $19.6 million excess over book value of inventory, commonly referred to as the fair market value step-up, from the Quantenna acquisition.

Gross margin decreased to 35.8% during 2019 compared to 38.1% during 2018. The decrease was due to a competitive pricing environment resulting in a decline in average selling prices, higher demand for lower margin products, increased manufacturing costs due to a higher mix of external manufacturing and decreased demand for our products, as explained in the revenue section.

 |
| table | | 2019      | As a % of Segment Revenue (1) | 2018      | As a % of Segment Revenue (1)
----------------------------------- | --------- | ----------------------------- | --------- | -----------------------------
PSG                                 | $976.0    | 35.0 %                        | $ 1,110.1 | 36.5 %
ASG                                 | 794.8     | 40.3 %                        | 878.3     | 42.4 %
ISG                                 | 275.4     | 36.4 %                        | 317.1     | 41.2 %
Gross profit for all segments       | $ 2,046.2 |                               | $ 2,305.5 |
Unallocated manufacturing costs (2) | (72.6)    | (1.3) %                       | (66.8)    | (1.1) %
Total gross profit                  | $ 1,973.6 | 35.8 %                        | $ 2,238.7 | 38.1 % |


| _id | d1b3188ea |
| title |  |
| text | 14. Share-based Compensation

We may grant non-qualified stock options, incentive stock options, SSARs, restricted shares, and restricted share units under our shareholder-approved 2016 Stock Incentive Plan (the 2016 Plan) for up to 2.0 million common shares, plus 957,575 common shares, the number of shares that were remaining for grant under the 2011 Stock Incentive Plan (the 2011 Plan) as of the effective date of the 2016 Plan, plus the number of shares remaining for grant under the 2011 Plan that are forfeited, settled in cash,

2011 Plan that are forfeited, settled in cash, canceled or expired.

The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2016 Plan is 1.25 million. We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards.

For stock options and SSARs, the exercise price must be set at least equal to the closing market price of our common shares on the date of grant. For stock options and SSARs, the exercise price must be stock options and SSARs. The maximum term of stock option and SSAR awards is seven years from the date of grant. Stock option and SSARs awards vest over a period established by the Compensation Committee of the Board of Directors.

SSARs may be granted in conjunction with, or independently from, stock option grants. SSARs granted in connection with a stock option are exercisable only to the extent that the stock option to which it relates is exercisable and the SSARs terminate upon the termination or exercise of the related stock option grants.

Restricted shares and restricted share units, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer. Performance-based awards may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies.

Restricted shares and restricted share units have the right to receive dividends, or dividend equivalents in the case of restricted share units, if any, upon vesting, subject to the same forfeiture provisions that apply to the underlying awards. Subject to certain exceptions set forth in the 2016 Plan, for awards to employees, no performance-based restricted shares or restricted share units shall be based on a restriction period of less than one year, and any time-based restricted shares or restricted

any time-based restricted shares or restricted share units shall have a minimum restriction period of three years.

We record compensation expense related to stock options, stock-settled stock appreciation rights, restricted shares, and performance shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share and performance share awards is based on the closing price of our common shares on the grant date.

The fair value of stock option and stock-settled appreciation right awards is estimated on the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares.
The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the Consolidated Statements of Operations for fiscal 2019, 2018 and 2017:

 |
| table | |        | Year ended March 31, |
-------------------------------------- | ------ | -------------------- | ------
(In thousands)                         | 2019   | 2018                 | 2017
Product development                    | $1,478 | $1,306               | $1,545
Sales and marketing                    | 469    | 371                  | 360
General and administrative             | 2,429  | 3,011                | 522
Total share-based compensation expense | $4,376 | $4,688               | $2,427 |


| _id | d1b375dd8 |
| title |  |
| text | Note 4 – Property, Plant and Equipment, net
Property, plant and equipment consisted of the following:

 |
| table | |           | December 31,
---------------------------------------- | --------- | ------------
                                         | 2019      | 2018
Land                                     | $ 1,565   | $ 1,747
Buildings and improvements               | 17,332    | 17,520
Machinery and equipment                  | 30,670    | 29,692
Vehicles                                 | 778       | 937
Office equipment                         | 851       | 838
Construction in process                  | 362       | 546
                                         | 51,558    | 51,280
Less accumulated depreciation            | (29,284 ) | (26,707 )
Total property, plant and equipment, net | $ 22,274  | $ 24,573 |


| _id | d1b36f398 |
| title |  |
| text | Retirement-Related Plans
The following table provides the total pre-tax cost for all retirement-related plans. Total operating costs/(income) are included in the Consolidated Income Statement within the caption (e.g., Cost, SG&A, RD&E) relating to the job function of the plan participants.

Total pre-tax retirement-related plan cost decreased by $994 million compared to 2018, primarily driven by a decrease in recognized actuarial losses ($1,123 million), primarily due to the change in the amortization period in the U.S. Qualified Personal Pension Plan and higher expected return on plan assets ($143 million), partially offset by higher interest costs ($203 million).

As discussed in the “Operating (non-GAAP) Earnings” section, we characterize certain retirement-related costs as operating and others as non-operating. Utilizing this characterization, operating retirement-related costs in 2019 were $1,457 million, a decrease of $37 million compared to 2018. Non-operating costs of $615 million in 2019 decreased $957 million year to year, driven primarily by the same factors as above.

 |
| table | ($ in millions)                               |         |         |
--------------------------------------------- | ------- | ------- | -------------------------
For the year ended December 31:               | 2019    | 2018    | Yr.-to-Yr. Percent Change
Retirement-related plans—cost                 |         |         |
Service cost                                  | $385    | $431    | (10.7)%
Multi-employer plans                          | 32      | 38      | (16.9)
Cost of defined contribution plans            | 1,040   | 1,024   | 1.5
Total operating costs/ (income)               | $1,457  | $1,494  | (2.5)%
Interest cost                                 | $2,929  | $2,726  | 7.4%
Expected return on plan assets                | (4,192) | (4,049) | 3.5
Recognized actuarial losses                   | 1,819   | 2,941   | (38.2)
Amortization of prior service costs/(credits) | (9)     | (73)    | (87.6)
Curtailments/settlements                      | 41      | 11      | 262.2
Other costs                                   | 28      | 16      | 76.2
Total non-operating costs/(income)            | $615    | $1,572  | (60.9)%
Total retirement-related plans—cost           | $2,072  | $3,066  | (32.4)% |


| _id | d1b39f8d6 |
| title |  |
| text | Uncertain Tax Positions

As of fiscal year end 2019, we had total unrecognized income tax benefits of $542 million. If recognized in future years, $397 million of these currently unrecognized income tax benefits would impact income tax expense (benefit) and the effective tax rate. As of fiscal year end 2018, we had total unrecognized income tax benefits of $566 million. If recognized in future years, $467 million of these currently unrecognized income tax benefits would impact income tax expense (benefit) and the effective tax

tax expense (benefit) and the effective tax rate. The following table summarizes the activity related to unrecognized income tax benefits:

We record accrued interest and penalties related to uncertain tax positions as part of income tax expense (benefit). As of fiscal year end 2019 and 2018, we had $42 million and $60 million, respectively, of accrued interest and penalties related to uncertain tax positions on the Consolidated Balance Sheets, recorded primarily in income taxes. During fiscal 2019, 2018, and 2017, we recognized income tax benefits of $14 million, expense of $5 million, and benefits of $5 million, respectively, related to

benefits of $5 million, respectively, related to interest and penalties on the Consolidated Statements of Operations.

We file income tax returns on a unitary, consolidated, or stand-alone basis in multiple state and local jurisdictions, which generally have statutes of limitations ranging from 3 to 4 years. Various state and local income tax returns are currently in the process of examination or administrative appeal.

Our non-U.S. subsidiaries file income tax returns in the countries in which they have operations. Generally, these countries have statutes of limitations ranging from 3 to 10 years. Various non-U.S. subsidiary income tax returns are currently in the process of examination by taxing authorities.

 |
| table | |       | Fiscal        |
------------------------------------------------------------ | ----- | ------------- | -----
                                                             | 2019  | 2018          | 2017
                                                             |       | (in millions) |
Balance at beginning of fiscal year                          | $ 566 | $  501        | $ 490
Additions related to prior years tax positions               | 13    | 14            | 40
Reductions related to prior years tax positions              | (101) | (11)          | (9)
Additions related to current year tax positions              | 98    | 105           | 70
Settlements                                                  | (2)   | (7)           | (4)
Reductions due to lapse of applicable statute of limitations | (32)  | (36)          | (86)
Balance at end of fiscal year                                | $ 542 | $  566        | $ 501 |


| _id | d1b348f40 |
| title |  |
| text | Financial Statement Impact of Adoption on Previously Reported Results

We adopted Topic 606 using the modified retrospective method. The cumulative impact of applying the new guidance to all contracts with customers that were not completed as of April 1, 2018 was recorded as an adjustment to retained earnings as of the adoption date. As a result of applying the modified retrospective method to adopt the new standard, the following adjustments were made to noted accounts on the Consolidated Balance Sheet as of April 1, 2018:

The acceleration of revenue that was deferred under prior guidance as of the adoption date was primarily attributable to the requirement of Topic 606 to allocate the transaction price to the performance obligations in the contract on a relative basis using SSP rather than allocating under the residual method, which allocates the entire arrangement discount to the delivered performance obligations.

Due to the Company's full valuation allowance as of the adoption date, there is no tax impact associated with the adoption of Topic 606.
We made certain presentation changes to our Consolidated Balance Sheet on April 1, 2018 to comply with Topic 606. Prior to adoption of the new standard, we offset accounts receivable and contract liabilities (previously presented as deferred revenue on our Consolidated Balance Sheet) for unpaid deferred performance obligations included in contract liabilities.

Under the new standard, we record accounts receivable and related contract liabilities for non-cancelable contracts with customers when the right to consideration is unconditional. Upon adoption, the right to consideration in exchange for goods or services that have been transferred to a customer when that right is conditional on something other than the passage of time were reclassified from accounts receivable to contract assets.

 |
| table | (In thousands)                            | March 31, 2018 | Adjustment from Topic 606 | April 1, 2018
----------------------------------------- | -------------- | ------------------------- | -------------
Assets:                                   |                |                           |
Accounts receivable, net                  | 16,389         | 3,124                     | 19,513
Contract assets                           | —              | 4,583                     | 4,583
Prepaid expenses and other current assets | 5,593          | (496)                     | 5,097
Other non-current assets                  | 2,484          | 2,409                     | 4,893
Liabilities:                              |                |                           |
Contract liabilities                      | 26,820         | 7,006                     | 33,826
Shareholders' equity:                     |                |                           |
Retained earnings                         | 103,601        | 2,614                     | 106,215 |


| _id | d1b36cf58 |
| title |  |
| text | OPERATING COSTS AND ADJUSTED EBITDA
Bell Wireline operating costs were essentially stable year over year, decreasing by 0.1% in 2019, compared to 2018, resulting from: • The favourable impact from the adoption of IFRS 16 in 2019 • Continued effective cost containment • Lower pension expenses reflecting reduced DB costs

These factors were partly offset by: • Higher cost of goods sold related to the growth in product sales • Increased costs from the acquisition of Axia • Greater payments to other carriers from increased sales of international wholesale long distance minutes

Bell Wireline adjusted EBITDA grew by 1.7% in 2019, compared to last year, reflecting the growth in revenues as operating expenses were relatively stable year over year. Adjusted EBITDA margin increased to 43.8% in 2019, compared to the 43.4% achieved last year, resulting from the favourable impact of the adoption of IFRS 16 in 2019 and the flow-through of the service revenue growth, offset in part by higher low-margin product sales in our total revenue base.

 |
| table | | 2019    | 2018    | $ CHANGE | % CHANGE
---------------------- | ------- | ------- | -------- | --------
Operating costs        | (6,942) | (6,946) | 4        | 0.1%
Adjusted EBITDA        | 5,414   | 5,321   | 93       | 1.7%
Adjusted EBITDA margin | 43.8%   | 43.4%   |          | 0.4 pts |


| _id | d1b3487ac |
| title |  |
| text | The total available market is defined as the “TAM”, while the serviceable available market, the “SAM”, is defined as the market for products sold by us (which consists of the TAM and excludes major devices such as Microprocessors (“MPUs”), Dynamic random-access memories (“DRAMs”), optoelectronics devices, Flash Memories and the Wireless Application Specific market products such as Baseband and Application Processor).

Based on industry data published by WSTS, semiconductor industry revenues in 2019 decreased on a year-over-year basis by approximately 12% for the TAM, while it remains substantially flat for the SAM, to reach approximately $412 billion and $194 billion, respectively. In the fourth quarter of 2019, on a year-overyear basis, the TAM decreased by approximately 6%, while the SAM increased by approximately 2%. Sequentially, the TAM increased by approximately 1%, while the SAM decreased by approximately 3%.

Our 2019 financial performance, with net revenues of $9.56 billion, gross margin of 38.7% and operating margin of 12.6% is aligned with the full year expectations we provided in April 2019.

We closed 2019 with a solid fourth quarter sales and financial performance. In the fourth quarter, net revenues were up 4.0% year-over-year, gross margin reached 39.3%, and operating margin was 16.7%. On a sequential basis, fourth quarter revenues grew by 7.9%, with all product group contributing to the growth, and 290 basis points above the mid-point of our guidance. Our quarterly performance was above the SAM both sequentially and on a year-over-year basis.

Our effective average exchange rate was $1.14 for €1.00 for the full year 2019, as compared to $1.18 for €1.00 for the full year 2018. Our effective average exchange rate for the fourth quarter of 2019 was $1.12 for €1.00, compared to $1.14 for €1.00 for the third quarter of 2019 and $1.17 for €1.00 in the fourth quarter of 2018. For a more detailed discussion of our hedging arrangements and the impact of fluctuations in exchange rates, see “Impact of Changes in Exchange Rates”.

Our 2019 gross margin decreased 130 basis points to 38.7% from 40.0% in 2018 mainly due to normal price pressure and increased unsaturation charges, partially offset by improved manufacturing efficiencies, better product mix, and favorable currency effects, net of hedging.

Our fourth quarter 2019 gross margin was 39.3%, 110 basis points above the mid-point of our guidance, improving sequentially by 140 basis points, mainly driven by improved product mix and better manufacturing efficiencies. Our gross margin decreased 70 basis points year-over-year, mainly impacted by price pressure and unsaturation charges, partially offset by improved manufacturing efficiencies, better product mix and favorable currency effects, net of hedging.

Our operating expenses, comprised of SG&A and R&D expenses, amounted to $2,591 million in 2019, increasing by about 3.9% from $2,493 million in the prior year, mainly due to salary dynamic, increased spending in certain R&D programs and higher share-based compensation cost, partially offset by favorable currency effects, net of hedging. Combined R&D and SG&A expenses were $672 million for the fourth quarter of 2019, compared to $629 million and $630 million in the prior and year-ago quarters, respectively.

in the prior and year-ago quarters, respectively. The sequential increase was mainly due to seasonality and salary dynamic. The year-over-year increase of operating expenses was mainly due to salary dynamic and increased activity on certain R&D programs, and was partially offset by favorable currency effects, net of hedging.

Other income and expenses, net, was $103 million in 2019 compared to $53 million in 2018, mainly due to a higher level of R&D grants, mainly benefitting from the grants associated with the programs part of the European Commission IPCEI in Italy and in France. Fourth quarter other income and expenses, net, was $54 million compared to negative $2 million in the prior quarter and $16 million in the year-ago quarter, reflecting higher R&D grants in Italy associated with the IPCEI program.

In 2019, impairment and restructuring charges were $5 million compared to $21 million in 2018. Impairment and restructuring charges in the fourth quarter were $3 million compared to nil in the prior quarter and $2 million in the year-ago quarters.

Operating income in 2019 was $1,203 million, decreasing by $197 million compared to 2018, mainly driven by normal price pressure, increased unsaturation charges and higher R&D spending, partially offset by higher level of grants and favorable currency effects, net of hedging. Operating income in the fourth quarter grew on a sequential and year-over-year basis to $460 million compared to $336 million and $443 million in the prior quarter and year-ago quarters, respectively, mainly driven by higher revenues,

respectively, mainly driven by higher revenues, improved product mix and a higher level of grants.

 |
| table | | Year ended December 31,                 |        | Three Months Ended |                                                    |
------------------------------------------- | --------------------------------------- | ------ | ------------------ | -------------------------------------------------- | -----------------
                                            | 2019                                    | 2018   | December 31, 2019  | September 29, 2019                                 | December 31, 2018
                                            | (In millions, except per share amounts) |        |                    | (Unaudited, in millions, except per share amounts) |
Net revenues                                | $9,556                                  | $9,664 | $2,754             | $2,553                                             | $2,648
Gross profit                                | 3,696                                   | 3,861  | 1,081              | 967                                                | 1,059
Gross margin as percentage of net revenues. | 38.7%                                   | 40.0%  | 39.3%              | 37.9%                                              | 40.0%
Operating income                            | 1,203                                   | 1,400  | 460                | 336                                                | 443
Net income attributable to parent company   | 1,032                                   | 1,287  | 392                | 302                                                | 418
Diluted earnings per share                  | $1.14                                   | $1.41  | $0.43              | $0.34                                              | $0.46 |


| _id | d1a7369d2 |
| title |  |
| text | Other non-current assets (in millions):

During fiscal 2019, we formed a joint venture with Lenovo (Beijing) Information Technology Ltd. (“Lenovo”) in China and, in February 2019, contributed assets to the newly formed entity, Lenovo NetApp Technology Limited (“LNTL”), in exchange for a non-controlling 49% equity interest. The group of assets we contributed and derecognized met the definition of a business and included cash, fixed assets, customer relationships and an allocation of goodwill, with an aggregate book value of $7 million. The fair

an aggregate book value of $7 million. The fair value of our equity interest in LNTL was determined using discounted cash flow techniques to be $80 million, resulting in a non-cash gain of $73 million. We accounted for our ownership interest as an equity method investment and have presented it in Other non-current assets on our consolidated balance sheet as of April 26, 2019. LNTL will be integral to our sales channels strategy in China, acting as a distributor of our offerings to customers headquartered

of our offerings to customers headquartered there, and involved in certain OEM sales to Lenovo. It will also endeavor to localize our products and services, and to develop new joint offerings for the China market by leveraging NetApp and Lenovo technologies.

 |
| table | | April 26, 2019 | April 26, 2018
------------------------ | -------------- | --------------
Deferred tax assets      | $201           | $229
Other assets             | 389            | 221
Other non-current assets | $ 590          | $ 450 |


| _id | d1b3a7ef0 |
| title |  |
| text | Services Business
We offer services to customers and partners to help to maximize the performance of their investments in Oracle applications and infrastructure technologies. Services revenues are generally recognized as the services are performed. The cost of providing our services consists primarily of personnel related expenses, technology infrastructure expenditures, facilities expenses and external contractor expenses.

(1) Excludes stock-based compensation and certain expense allocations. Also excludes amortization of intangible assets and certain other GAAP-based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under “Presentation of Operating Segments and Other Financial Information” above.

Excluding the effects of currency rate fluctuations, our total services revenues decreased in fiscal 2019 relative to fiscal 2018 primarily due to revenue declines in our education services and, to a lesser extent, our consulting services. During fiscal 2019, constant currency increases in our EMEA-based services revenues were offset by constant currency services revenue decreases in the Americas and the Asia Pacific regions.

In constant currency, total services expenses increased in fiscal 2019 compared to fiscal 2018 primarily due to an increase in employee related expenses and external contractor expenses associated with investments in our consulting services that support our cloud offerings. In constant currency, total margin and total margin as a percentage of total services revenues decreased during fiscal 2019 relative to fiscal 2018 due to decreased revenues and increased expenses for this business.

 |
| table | |        |        | Percent Change |
------------------------ | ------ | ------ | -------------- | ------
(Dollars in millions)    | 2019   | Actual | Constant       | 2018
Services Revenues:       |        |        |                |
Americas                 | $1,576 | -5%    | -3%            | $1,654
EMEA                     | 1,021  | -2%    | 2%             | 1,046
Asia Pacific             | 643    | -7%    | -4%            | 695
Total revenues           | 3,240  | -5%    | -2%            | 3,395
Total Expenses (1)       | 2,703  | -1%    | 2%             | 2,729
Total Margin             | $537   | -19%   | -18%           | $666
Total Margin %           | 17%    |        |                | 20%
% Revenues by Geography: |        |        |                |
Americas                 | 49%    |        |                | 49%
EMEA                     | 31%    |        |                | 31%
Asia Pacific             | 20%    |        |                | 20% |


| _id | d1b33be94 |
| title |  |
| text | OUTSTANDING COMMON SHARES

1 Holders of our Class B Non-Voting Shares are entitled to receive notice of and to attend shareholder meetings; however, they are not entitled to vote at these meetings except as required by law or stipulated by stock exchanges. If an offer is made to purchase outstanding Class A Shares, there is no requirement under applicable law or our constating documents that an offer be made for the outstanding Class B Non-Voting Shares, and there is no other protection available to shareholders under our constating

available to shareholders under our constating documents. If an offer is made to purchase both classes of shares, the offer for the Class A Shares may be made on different terms than the offer to the holders of Class B Non-Voting Shares.

As at February 29, 2020, 111,154,811 Class A Shares, 393,770,507
Class B Non-Voting Shares, and 3,145,274 options to purchase
Class B Non-Voting Shares were outstanding.

 |
| table | | As at December 31 |
------------------------------- | ----------------- | -----------
                                | 2019              | 2018
Common shares outstanding 1     |                   |
Class A Voting                  | 111,154,811       | 111,155,637
Class B Non-Voting              | 393,770,507       | 403,657,038
Total common shares             | 504,925,318       | 514,812,675
Options to purchase Class B     |                   |
Non-Voting Shares               |                   |
Outstanding options             | 3,154,795         | 2,719,612
Outstanding options exercisable | 993,645           | 1,059,590 |


| _id | d1b35c4dc |
| title |  |
| text | GAAP Results of Operations
Key Performance Indicators* (in millions):
* excludes discontinued operations (See Note 5 of Notes to Consolidated Financial Statements).
** excludes special charges, net (See Note 5 of Notes to Consolidated Financial Statements).
1 Includes $20.0 million of income tax benefits primarily related to the reversal of valuation allowances against the Company's deferred tax assets and the
impacts of U.S. tax reform enacted in Q4 of 2017.

 |
| table | |        | Years Ended December 31, |          | Change       |
-------------------------------------------------------- | ------ | ------------------------ | -------- | ------------ | ------------
                                                         | 2019   | 2018                     | 2017     | 2019 vs 2018 | 2018 vs 2017
Net sales of continuing operations                       |        |                          |          |              |
Consolidated net sales                                   | $946.9 | $896.9                   | $791.8   | 5.6%         | 13.3%
Consolidated gross profits                               | $325.7 | $307.7                   | $273.2   | 5.8%         | 12.6%
Consolidated gross margin                                | 34.4%  | 34.3%                    | 34.5%    | 0.1%         | (0.2)%
Consolidated SD&A costs **                               | $260.4 | $245.2                   | $227.2   | 6.2%         | 7.9%
Consolidated SD&A costs ** as % of sales                 | 27.5%  | 27.3%                    | 28.7%    | 0.2%         | (1.4)%
Consolidated operating income                            | $66.1  | $61.7                    | $45.7    | 7.1%         | 35.0%
Consolidated operating margin from continuing operations | 7.0%   | 6.9%                     | 5.8%     | 0.1%         | 1.1%
Effective income tax rate                                | 24.4%  | 21.3%                    | (44.0)%  | 3.1%         | 65.3%
Net income from continuing operations                    | $50.0  | $49.5                    | 65.5 (1) | 1.0%         | (24.4)%
Net margin from continuing operations                    | 5.3%   | 5.5%                     | 8.3%     | (0.2)%       | (2.8)%
Income (loss) from discontinued operations, net of tax $ | $(1.5) | $175.2                   | $(25.1)  | (100.9)%     | 798.0% |


| _id | d1b31a0d2 |
| title |  |
| text | Industry Overview
According to WSTS (an industry research firm), worldwide semiconductor industry sales were $412.1 billion in 2019, a decrease of approximately 12.1% from $468.8 billion in 2018. We participate in unit and revenue surveys and use data summarized by WSTS to evaluate overall semiconductor market trends and to track our progress against the market in the areas we provide semiconductor components. The following table sets forth total worldwide semiconductor industry revenue since 2015:

(1) Based on shipment information published by WSTS. We believe the data provided by WSTS is reliable, but we have not independently verified it. WSTS periodically revises its information. We assume no obligation to update such information.

As indicated above, worldwide semiconductor sales increased from $335.2 billion in 2015 to $412.1 billion in 2019. The decrease of 12.1% from 2018 to 2019 was the result of decreased demand for semiconductor products. Our revenue decreased by $360.4 million, or 6.1%, from 2018 to 2019.

 |
| table | Year Ended December 31, | Worldwide Semiconductor Industry Sales (1) | Percentage Change
----------------------- | ------------------------------------------ | -----------------
                        | (in billions)                              |
2019                    | $412.1                                     | (12.1)%
2018                    | $468.8                                     | 13.7%
2017                    | $412.2                                     | 21.6%
2016                    | $338.9                                     | 1.1%
2015                    | $335.2                                     | (0.2)% |


| _id | d1b303102 |
| title |  |
| text | Note 9 – Leases

We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations. We also reviewed other contracts, such as manufacturing agreements and service agreements, for potential embedded leases. We specifically reviewed these other contracts to determine whether we have the right to substantially all of the economic benefit from the use of any specified assets or the right to direct the use of any specified assets, either of which would indicate

specified assets, either of which would indicate the existence of a lease.

As of December 31, 2019, our operating leases had remaining lease terms of one month to six years, some of which included options to extend the leases for up to nine years, and some of which included options to terminate the leases within three months. For those leases that are reasonably assured to be renewed, we have included the option to extend as part of our right of use asset and lease liability. Leases with an initial term of 12 months or less were not recorded on the balance sheet and lease expense

recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. Lease expense related to these short-term leases was $0.4 million for the twelve months ended December 31, 2019, and is included in cost of sales, selling, general and administrative expenses and research and development expenses in the Consolidated Statements of Income. Lease expense related to variable lease payments that do not depend on an index or rate, such as real estate taxes

on an index or rate, such as real estate taxes and insurance reimbursements, was $0.9 million for the twelve months ended December 31, 2019. For lease agreements entered into or reassessed after the adoption of Topic 842, we elected to not separate lease and nonlease components. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information related to operating leases is as follows:
(1) Reflects the adoption of the new lease accounting standard on January 1, 2019.

 |
| table | (In thousands)              | Classification                | December 31, 2019 | January 1, 2019 (1)
--------------------------- | ----------------------------- | ----------------- | -------------------
Assets                      |                               |                   |
Right of use lease assets   | Other Assets                  | $8,452            | $10,322
Total lease asset           |                               | $8,452            | $10,322
Liabilities                 |                               |                   |
Current lease liability     | Accrued expenses              | $2,676            | $2,948
Non-current lease liability | Other non-current liabilities | 5,818             | 7,374
Total lease liability       |                               | $8,494            | $10,322 |


| _id | d1a74070c |
| title |  |
| text | Significant Suppliers

We purchase a significant amount of our inventory from certain manufacturers or suppliers including components, assemblies and electronic manufacturing parts. The inventory is purchased under standard supply agreements that outline the terms of the product delivery. The title and risk of loss of the product generally pass to us upon shipment from the manufacturers’ plant or warehouse. Some of these manufacturers accounted for more than 10% of our purchases and accounts payable as follows:

We are currently reliant upon these suppliers for products. Although we believe that we can obtain products from other sources, the loss of a significant supplier could have a material impact on our financial condition and results of operations as the products that are being purchased may not be available on the same terms from another supplier.

 |
| table | |      | Year Ended February 28, |
-------------------- | ---- | ----------------------- | ----
                     | 2019 | 2018                    | 2017
Inventory purchases: |      |                         |
Supplier A           | 31%  | 33%                     | 34%
Supplier B           | 20%  | 16%                     | 14%
Supplier C           | 6%   | 9%                      | 11%
                     |      | As of February 28,      |
2017                 | 2019 | 2018                    |
Accounts Payable:    |      |                         |
Supplier A           | 30%  | 40%                     | 33%
Supplier B           | 18%  | 16%                     | 18% |


| _id | d1b3b14a0 |
| title |  |
| text | Net profit/(loss) after tax was $(9.8) million (2018: $6.6 million). Non-statutory underlying earnings before interest, tax, depreciation and amortisation (EBITDA) improved from $62.6 million in FY18 to $85.1 million in FY19.
Reconciliation of statutory profit to EBITDA and underlying EBITDA is as follows:

 |
| table | | 30 June 2019 | 30 June 2018 | Change
------------------------------------------------------ | ------------ | ------------ | ------
                                                       | $’000        | $’000        | %
Net profit/(loss) after tax                            | (9,819)      | 6,639        | (248%)
Add: finance costs                                     | 54,897       | 25,803       | 113%
Less: interest income                                  | (8,220)      | (5,778)      | 42%
Add/(less): income tax expense/(benefit)               | (6,254)      | 4,252        | (247%)
Add: depreciation and amortisation                     | 48,442       | 33,038       | 47%
EBITDA                                                 | 79,046       | 63,954       | 24%
Less: gain on extinguishment of B1 lease               | (1,068)      | -            |
Less: gain on extinguishment of APDC leases            | (1,291)      | -            |
Less: distribution income                              | (1,344)      | (3,191)      | (58%)
Add: APDC transaction costs                            | 5,459        | 1,812        | 201%
Add: landholder duty on acquisition of APDC properties | 3,498        | -            |
Add: Singapore and Japan costs                         | 823          | -            |
Underlying EBITDA                                      | 85,123       | 62,575       | 36% |


| _id | d1b31a1cc |
| title |  |
| text | Key Balance Sheet Information

Total assets increased $1,234.7 million as at December 31, 2019 compared to December 31, 2018, principally due to a $485.5 million increase in cash, cash equivalents and marketable securities mainly as a result of the public offering in September 2019, which resulted in net proceeds of $688.0 million. Business acquisitions during the year, largely due to the acquisition of 6RS, further impacted total assets through an increase in goodwill of $273.8 million, a $141.2 million increase in intangible assets

a $141.2 million increase in intangible assets and a resulting decrease in cash due to the consideration paid. The remainder of the increase is due to: the adoption of the new lease accounting standard, further discussed in the "Critical Accounting Policies and Estimates" section below, which resulted in the addition of right-of-use assets totaling $134.8 million as at December 31, 2019; a $58.3 million increase in merchant cash advances and loans receivable; a $49.8 million increase in property and

a $49.8 million increase in property and equipment, largely related to leaseholds for our offices; a $49.2 million increase in trade and other receivables largely due to an increase in indirect taxes receivable, unbilled revenue related to subscription fees for Plus merchants, transaction fees and shipping charges; and a $19.4 million increase in deferred tax assets. Total liabilities increased by $309.7 million, principally as a result of the adoption of the new leasing standard, which resulted in $126.8

new leasing standard, which resulted in $126.8 million of additional lease liabilities related to obtaining right-of-use assets. Accounts payable and accrued liabilities increased by $84.2 million, which was due to an increase in indirect taxes payable, payroll liabilities, and payment processing and interchange fees, partly offset by a decrease in foreign exchange forward contract liabilities. The increase was also due to income taxes payable of $69.4 million driven largely by the one-time capital gain

driven largely by the one-time capital gain recognized in the period. Deferred tax liabilities increased by $7.6 million, due to the acquisition of 6RS. The growth in sales of our subscription solutions offering, along with the acquisition of 6RS, resulted in an increase of deferred revenue of $21.6 million.

 |
| table | | December 31, 2019 | December 31, 2018
------------------------------------------------ | ----------------- | -----------------
                                                 | (in thousands)    |
Cash, cash equivalents and marketable securities | $2,455,194        | $1,969,670
Total assets                                     | 3,489,479         | 2,254,785
Total liabilities                                | 473,745           | 164,017
Total non-current liabilities                    | 157,363           | 25,329 |


| _id | d1a713c66 |
| title |  |
| text | Non-GAAP Results

Management uses non-GAAP operating income and non-GAAP EPS to evaluate business performance without the impacts of certain non-cash charges and other charges which are not part of our usual operations. We use these non- GAAP measures to assess performance against business objectives, make business decisions, including developing budgets and forecasting future periods. In addition, management’s incentive plans include these non-GAAP measures as criteria for achievements. These non-GAAP measures are not in

achievements. These non-GAAP measures are not in accordance with U.S. GAAP and may differ from non- GAAP methods of accounting and reporting used by other companies. However, we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management. The presentation of this additional information should not be considered a substitute for results prepared in accordance with U.S. GAAP.

The non-GAAP results presented below exclude the impact of non-cash related charges, such as stock-based compensation and amortization of intangible assets. In addition, they exclude discontinued operations and other nonrecurring items such as acquisition-related costs and restructuring expenses, as they are not indicative of future performance. The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective

after consideration of their respective book and tax treatments and effect of adoption of the Tax Act.

 |
| table | Reconciliation of Non-GAAP measure - operating expenses and operating income from continuing operations, excluding certain items (in thousands) | Years Ended December 31, |
----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----------
                                                                                | 2019                     | 2018
Gross profit from continuing operations, as reported                                                                                | $ 315,652                | $365,607
Adjustments to gross profit:                                                                                |                          |
Stock-based compensation                                                                                | 525                      | 742
Facility expansion and relocation costs                                                                                | 3,891                    | 1,328
Acquisition-related costs                                                                                | 8,290                    | 569
Non-GAAP gross profit                                                                                | 328,358                  | 368,246
Non-GAAP gross margin                                                                                | 41.6%                    | 51.2%
Operating expenses from continuing operations, as reported                                                                                | 261,264                  | 194,054
Adjustments:                                                                                |                          |
Amortization of intangible assets                                                                                | (12,168)                 | (5,774)
Stock-based compensation                                                                                | (6,803)                  | (8,961)
Acquisition-related costs                                                                                | (12,002)                 | (1,726)
Facility expansion and relocation costs                                                                                | (948)                    | (518)
Restructuring charges                                                                                | (5,038)                  | (4,239)
Non-GAAP operating expenses                                                                                | 224,305                  | 172,836
Non-GAAP operating income                                                                                | $  104,053               | $  195,410 |


| _id | d1b345eb2 |
| title |  |
| text | 15. Revenue from Contracts with Customers
Impact of Adopting Topic 606
The effects of the adoption on the Company's Consolidated Financial Statements for the fiscal year ended September 28, 2019 was as follows (in thousands):

 |
| table | | September 28, 2019
As Reported | Adjustments due to Topic 606 | September 28, 2019
As Adjusted - Without
Adoption of Topic 606
------------------------------------ | ------------------------------ | ---------------------------- | --------------------------------------------------------------
ASSETS                               |                                |                              |
   Contract assets                   | $90,841                        | $90,841                      | $—
Inventories                          | 700,938                        | (81,895)                     | 782,833
LIABILITIES AND SHAREHOLDERS' EQUITY |                                |                              |
Other accrued liabilities            | $106,461                       | $(375)                       | $106,836
Retained earnings                    | 1,178,677                      | 9,321                        | 1,169,356 |


| _id | d1a7131e4 |
| title |  |
| text | Quarterly Results (Unaudited)

The following table sets forth certain unaudited quarterly financial information for the 2019 and 2018 fiscal years. In the opinion of management, this information has been presented on the same basis as the audited consolidated financial statements appearing elsewhere, and all necessary adjustments (consisting primarily of normal recurring accruals) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated

read in conjunction with the audited consolidated financial statements and related notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period.

(1) Includes acquisition and integration charges related to our strategic collaboration with JJMD of $17.6 million, $13.4 million, $12.8 million, $8.9 million and $8.1 million for the three months ended August 31, 2019, May 31, 2019, February 28, 2019, November 30, 2018 and August 31, 2018, respectively.

(2) Includes ($13.3 million), $111.4 million and $30.9 million of income tax (benefit) expense for the three months ended November 30, 2018, August 31, 2018 and February 28, 2018, respectively, related to the Tax Act.
(3) Includes a restructuring of securities loss of $29.6 million for the three months ended August 31, 2019.

(4) Includes a distressed customer charge of $6.2 million, $18.0 million and $14.7 million during the three months ended August 31, 2019, August 31, 2018 and February 28, 2018, respectively.

 |
| table | Fiscal Year 2019                                                  |                |             |                    |
----------------------------------------------------------------- | -------------- | ----------- | ------------------ | ----------------
                                                                  |                |             | Three Months Ended |
(in thousands, except for per share data)                         | August 31,2019 | May 31,2019 | February 28,2019   | November 30,2018
Net revenue                                                       | $6,573,453     | $6,135,602  | $6,066,990         | $6,506,275
Gross profit(4)                                                   | 495,078        | 443,799     | 454,874            | 519,650
Operating income(1)(4)                                            | 189,745        | 140,918     | 153,983            | 216,710
Net income(2)(3)(4)                                               | 53,761         | 44,032      | 67,607             | 124,074
Net income attributable to Jabil Inc.(2)(3)(4)                    | $52,675        | $43,482     | $67,354            | $123,600
Earnings per share attributable to the stockholders of Jabil Inc. |                |             |                    |
Basic                                                             | $0.34          | $0.28       | $0.44              | $0.77
Diluted                                                           | $0.34          | $0.28       | $0.43              | $0.76 |


| _id | d1a73bfc2 |
| title |  |
| text | In 2019 and 2018, we had pre-tax losses of $19,573 and $25,403 respectively, which are available for carry forward to offset future taxable income. We made determinations to provide full valuation allowances for our net deferred tax assets at the end of 2019 and 2018, including NOL carryforwards generated during the years, based on our evaluation of positive and negative evidence, including our history of operating losses and the uncertainty of generating future taxable income that would enable us to

future taxable income that would enable us to realize our deferred tax assets.

Deferred tax assets (liabilities) consist of the following:

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that a portion of the net deferred assets will not be realized. The ultimate realization of the net deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets at December 31, 2019 will

net deferred tax assets at December 31, 2019 will not be realizable. Accordingly, management has maintained a full valuation allowance against its net deferred tax assets at December 31, 2019. The net change in the total valuation allowance for the 12 months ended December 31, 2019 was an increase of $1,816.

 |
| table | | As of             | As of
-------------------------------------------------- | ----------------- | -----------------
                                                   | December 31, 2019 | December 31, 2018
Deferred tax assets:                               |                   |
Reserves and accruals                              | $62               | $45
Research and development credits and other credits | 1,730             | 1,635
Net operating loss carry forward                   | 27,907            | 25,733
Stock based compensation                           | 8,402             | 8,857
Other                                              | 11                | 26
Total deferred tax assets                          | 38,112            | 36,296
Valuation allowance                                | (38,112)          | (36,296)
Deferred tax assets after valuation allowance      | —                 | —
Total deferred tax liability                       | —                 | —
Net deferred tax assets (liabilities)              | $—                | $— |


| _id | d1b2ecc5e |
| title |  |
| text | Segment Results of Operations
In the Company's Consolidated Financial Statements, other operating (income) expense includes (i) (gain) loss on sale or disposal of assets, (ii) lease termination costs, (iii)
asset impairment expense, (iv) accretion of asset retirement obligations, and (v) FCC reimbursements. Each table summarizes the results of operations of our operating

segments and compares the amount of the change between the periods presented (in millions).                                Marine Services Segment

Net revenue: Net revenue from our Marine Services segment for the year ended December 31, 2019 decreased $21.8 million to $172.5 million from $194.3 million for the year ended December 31, 2018. The decrease was primarily driven by a decline in the volume of projects under execution across multiple reporting lines, including power cable repair in offshore renewables, telecom installation work, and a reduction in CWind Group revenue due to focusing on a mix of more profitable projects.

Cost of revenue: Cost of revenue from our Marine Services segment for the year ended December 31, 2019 decreased $35.9 million to $127.1 million from $163.0 million for the year ended December 31, 2018. The decrease was driven by the reduction in revenue, improved vessel utilization, and higher than expected costs on a certain power construction project in the comparable period that were not repeated.

Selling, general and administrative: Selling, general and administrative expenses from our Marine Services segment for the year ended December 31, 2019 increased $5.6 million to $25.8 million from $20.2 million for the year ended December 31, 2018. The increase was primarily due to higher disposition costs in the fourth quarter of 2019 related to the sale of the Marine Services segment. This was partially offset by a reversal of an accrual of bad debt expense in the current period due to a favorable

expense in the current period due to a favorable receivable settlement during the quarter. See Note 24. Subsequent Events for the summary of the subsequent events.

Depreciation and amortization: Depreciation and amortization from our Marine Services segment for the year ended December 31, 2019 decreased $1.5 million to $25.7 million from $27.2 million for the year ended December 31, 2018. The decrease was largely attributable to the disposal of assets during the year.

Other operating income: Other operating income decreased $0.7 million from $0.7 million of income for the year ended December 31, 2018, as a result of an impairment expense recorded in 2019 due to the under-utilization of assets on one of the segment's barges.

 |
| table | |        | Years Ended December 31, |
----------------------------------- | ------ | ------------------------ | ---------------------
                                    | 2019   | 2018                     | Increase / (Decrease)
Net revenue                         | $172.5 | $194.3                   | $(21.8)
Cost of revenue                     | 127.1  | 163.0                    | (35.9)
Selling, general and administrative | 25.8   | 20.2                     | 5.6
Depreciation and amortization       | 25.7   | 27.2                     | (1.5)
Other operating income              | —      | (0.7)                    | 0.7
Income (loss) from operations       | $(6.1) | $(15.4)                  | $9.3 |


| _id | d1b3402dc |
| title |  |
| text | The provision for income taxes differs from the amount computed by applying the statutory federal tax rate to income before income taxes. The sources and tax effects of the differences in the total income tax provision are as follows (amounts in millions):

(1) The release of prior year tax positions during fiscal 2019 increased the basic and diluted net income per common share by $0.32 and $0.30, respectively. The release of prior year tax positions during fiscal 2018 increased the basic and diluted net income per common share by $0.05. The release of prior year tax positions during fiscal 2017 increased the basic and diluted net income per common share by $0.17 and $0.15, respectively.

The foreign tax rate differential benefit primarily relates to the Company's operations in Thailand, Malta and Ireland. The Company's Thailand manufacturing operations are currently subject to numerous tax holidays granted to the Company based on its investment in property, plant and equipment in Thailand. The Company's tax holiday periods in Thailand expire between fiscal 2022 and 2026, however, the Company actively seeks to obtain new tax holidays. The Company does not expect the future expiration of any

does not expect the future expiration of any of its tax holiday periods in Thailand to have a material impact on its effective tax rate. The Company’s Microsemi operations in Malaysia are subject to a tax holiday that effectively reduces the income tax rate in that jurisdiction. Microsemi’s tax holiday in Malaysia was granted in 2009 and is effective through December 2019, subject to continued compliance with the tax holiday’s requirements. The aggregate dollar expense derived from these tax holidays

dollar expense derived from these tax holidays approximated $0.1 million in fiscal 2019. The aggregate dollar benefit derived from these tax holidays approximated $6.2 million and $13.2 million in fiscal 2018 and 2017, respectively. The impact of the tax holidays during fiscal 2019 did not impact basic and diluted net income per common share. The impact of the tax holidays during fiscal 2018 increased the basic and diluted net income per common share by $0.03 and $0.02, respectively. The impact of the tax

and $0.02, respectively. The impact of the tax holidays during fiscal 2017 increased the basic and diluted net income per common share by $0.06.

 |
| table | |          | Year Ended March 31, |
----------------------------------------------------------------------- | -------- | -------------------- | -------
                                                                        | 2019     | 2018                 | 2017
Computed expected income tax provision                                  | $43.0    | $232.6               | $31.4
State income taxes, net of federal benefit                              | (8.7)    | (1.3)                | (4.6)
Foreign income taxed at lower than the federal rate                     | (94.0)   | (208.8)              | (105.0)
Impact of the Act - one-time transition tax, net of foreign tax credits | 13.1     | 653.7                | —
Impact of the Act - deferred tax effects, net of valuation allowance    | —        | (136.7)              | —
Global intangible low-taxed income                                      | 95.4     | —                    | —
Business realignment                                                    | (90.6)   | —                    | —
Increases related to current year tax positions                         | 9.0      | 32.0                 | 53.7
Decreases related to prior year tax positions (1)                       | (75.1)   | (11.3)               | (36.3)
Share-based compensation                                                | (13.3)   | (27.2)               | (25.0)
Research and development tax credits                                    | (27.5)   | (17.0)               | (12.8)
Intercompany prepaid tax asset amortization                             | 5.2      | 7.4                  | 7.9
Foreign exchange                                                        | 4.6      | (20.5)               | (1.7)
Other                                                                   | (2.6)    | (0.5)                | 9.8
Change in valuation allowance                                           | (9.9)    | (20.5)               | 1.8
Total income tax provision (benefit)                                    | $(151.4) | $481.9               | $(80.8) |


| _id | d1b3bbd7e |
| title |  |
| text | Cash Flows
Fiscal Year 2019 Cash Flows

Net cash provided by operations was $45.0 million for fiscal 2019 consisting of $24.2 million of net income and $47.6 million of non-cash charges, partially offset by an increase in working capital of $26.8 million. The increase in non-cash charges of $9.4 million is primarily driven by changes in the fair value of earn-out liabilities of $4.4 million and higher depreciation and amortization expense. The increase in working capital of $26.8 million is a result of organic growth and acquisitions and

a result of organic growth and acquisitions and includes $1.8 million of earn-out liability payments classified as operating activities.

Net cash used in investing activities was $44.2 million in fiscal 2019 driven by $16.1 million in capital expenditures which included implementations of our Enterprise Resource Planning system and the buildouts of our headquarters in Ridgefield, CT and distribution center in Dallas, Texas. The Company used $28.1 million in cash to fund acquisitions, the most significant of which was Bassian.

Net cash provided by financing activities was $96.9 million for fiscal 2019 driven by $145.0 million of net proceeds received from the issuance of our Senior Notes, partially offset by $44.2 million to settle all borrowings outstanding on our ABL and $2.4 million of earn-out liability payments classified as financing activities.
Fiscal Year 2018 Cash Flows

Fiscal Year 2018 Cash Flows
Net cash provided by operations was $45.1 million for fiscal 2018 consisting of $20.4 million of net income and $38.2 million of non-cash charges, partially offset by a $13.5 million increase in working capital as a result of organic growth and acquisitions.

Net cash used in investing activities was $33.7 million for fiscal 2018 driven by $19.8 million in capital expenditures which included implementations of our Enterprise Resource Planning system and the buildout of our distribution centers in Portland, OR, Dallas, TX and Toronto, Canada. The remaining cash used in investing activities of $13.9 million was mainly used to fund small strategic acquisitions.

Net cash used in financing activities was $10.4 million for fiscal 2018 . During fiscal 2018, we entered into a new ABL which effectively doubled our borrowing capacity. We drew $47.1 million from the ABL to make an equivalent prepayment on our term loan which lowered the effective interest rates charged on our outstanding indebtedness. We also made additional principal payments of $5.2 million on our indebtedness, paid a $3.0 million earn-out related to our Fells Point acquisition, and made a $1.5 million

Fells Point acquisition, and made a $1.5 million payment for financing fees related to our new ABL.

 |
| table | |                    | Fiscal Year Ended  |
----------------------------------------------- | ------------------ | ------------------ | -----------------
                                                | December 27, 2019  | December 28, 2018  | December 29, 2017
Net income                                      | $24,193            | $20,402            | $14,366
Non-cash charges                                | $47,625            | $38,186            | $28,725
Changes in working capital                      | $(26,811)          | $(13,506)          | $(11,594)
Cash provided by operating activities           | $45,007            | $45,082            | $31,497
Cash used in investing activities               | $(44,154)          | $(33,688)          | $(42,406)
Cash provided by (used in) financing activities | $96,947            | $(10,442)          | $19,429 |


| _id | d1b3c743a |
| title |  |
| text | 6. Property, Plant and Equipment
Property, plant and equipment is comprised of the following:

Depreciation expense on property, plant and equipment, including assets accounted for as finance leases, totaled $290.2 million in 2019, $239.6 million in 2018 and $190.4 million in 2017. The portion of depreciation expense associated with cost of providing services was 87%, 85% and 84% in 2019, 2018 and 2017, respectively. There are numerous assets included within network equipment resulting in a range of depreciable lives between 2 and 50 years, the majority of which fall within the range of 7 to 25

of which fall within the range of 7 to 25 years

No asset impairment losses were recognized in 2019, 2018 or 2017 on property, plant and equipment.

 |
| table | |           | December 31, | Depreciable
------------------------------------------------- | --------- | ------------ | ---------------
(dollars in millions)                             | 2019      | 2018         | Lives (Years)
Land and rights-of-way                            | $117.2    | $117.2       | 20 - Indefinite
Buildings and leasehold improvements              | 315.4     | 305.2        | 5 - 40
Network equipment                                 | 4,044.6   | 3,913.3      | 2 - 50
Office software, furniture, fixtures and vehicles | 229.3     | 216.3        | 2-14
Construction in process                           | 38.9      | 47.1         | n/a
Gross value                                       | 4,745.4   | 4,599.1      |
Accumulated depreciation                          | (2,964.6) | (2,755.1)    |
Property, plant and equipment, net                | $1,780.8  | $1,844.0     | |


| _id | d1b31d8ae |
| title |  |
| text | Intangible Assets
The following table presents the company’s intangible asset balances by major asset class.
* Amounts as of December 31, 2019 include a decrease of $42 million in net intangible asset balances due to foreign currency translation. There was no foreign currency impact on net intangible assets for the year ended December 31, 2018.
** Other intangibles are primarily acquired proprietary and nonproprietary business processes, methodologies and systems.

 |
| table | |          |              |
---------------------- | -------- | ------------ | --------
($ in millions)        |          |              |
                       | Gross    |              | Net
                       | Carrying | Accumulated  | Carrying
At December 31, 2019:* | Amount   | Amortization | Amount
Intangible asset class |          |              |
Capitalized software   | $ 1,749  | $  (743)     | $ 1,006
Client relationships   | 8,921    | (1,433)      | 7,488
Completed technology   | 6,261    | (1,400)      | 4,861
Patents/trademarks     | 2,301    | (445)        | 1,856
Other**                | 56       | (31)         | 24
Total                  | $19,287  | $(4,052)     | $15,235
($ in millions)        |          |              |
                       | Gross    |              | Net
                       | Carrying | Accumulated  | Carrying
At December 31, 2018:  | Amount   | Amortization | Amount
Intangible asset class |          |              |
Capitalized software   | $1,568   | $  (629)     | $  939
Client relationships   | 2,068    | (1,123)      | 945
Completed technology   | 2,156    | (1,296)      | 860
Patents/trademarks     | 641      | (330)        | 311
Other**                | 56       | (23)         | 32
Total                  | $6,489   | $(3,402)     | $3,087 |


| _id | d1b39ee90 |
| title |  |
| text | NOTE E – PROPERTY AND EQUIPMENT
The Company’s property and equipment as of December 31, 2019 and 2018 consists of the following:
Depreciation and amortization expense included as a charge to income was $66,082 and $67,107 for the years ended December 31, 2019 and 2018, respectively.

 |
| table | | 2019      | 2018
----------------------------------------- | --------- | ---------
Development test equipment                | $16,461   | $19,110
Computer software                         | 76,134    | 76,134
Office equipment                          | 66,685    | 61,367
Office fixtures and furniture             | 330,568   | 330,568
Leasehold improvements                    | 18,016    | 18,016
Total                                     | 507,864   | 505,195
Accumulated depreciation and amortization | (321,339) | (257,906)
Total property and equipment              | 186,525   | $247,289 |


| _id | d1b38ffda |
| title |  |
| text | Operating Expenses
Cost of Services Cost of services increased $549 million, or 3.6%, during 2019 compared to 2018, primarily due to increases in rent expense as a result of adding capacity to the networks to support demand as well as an increase due to the adoption of the new lease accounting standard in 2019, increases in costs related to the device protection package offered to our wireless retail postpaid customers, as well as regulatory fees.

These increases were partially offset by decreases in employee-related costs primarily due to the Voluntary Separation Program, as well as decreases in access costs and roaming.

Cost of Wireless Equipment Cost of wireless equipment decreased $544 million, or 2.9%, during 2019 compared to 2018, primarily as a result of declines in the number of wireless devices sold as a result of an elongation of the handset upgrade cycle. These decrease were partially offset by a shift to higher priced devices in the mix of wireless devices sold.

Selling, General and Administrative Expense Selling, general and administrative expense increased $938 million, or 6.0%, during 2019 compared to 2018, primarily due to increases in sales commission and bad debt expense, and an increase in advertising costs. The increase in sales commission expense during 2019 compared to 2018 was primarily due to a lower net deferral of commission costs as a result of the adoption of Topic 606 on January 1, 2018 using a modified retrospective approach.

These increases were partially offset by decreases in employee-related costs primarily due to the Voluntary Separation Program.
Depreciation and Amortization Expense Depreciation and amortization expense decreased $599 million, or 5.0%, during 2019 compared to 2018, driven by the change in the mix of total Verizon depreciable assets and Consumer’s usage of those assets.

 |
| table | |          |          | (dollars in millions) Increase/ (Decrease) |
-------------------------------------------- | -------- | -------- | ------------------------------------------ | -----
Years Ended December 31,                     | 2019     | 2018     | 2019 vs. 2018                              |
Cost of services                             | $15,884  | $15,335  | $ 549                                      | 3.6%
Cost of wireless equipment                   | 18,219   | 18,763   | (544)                                      | (2.9)
Selling, general and administrative expense  | 16,639   | 15,701   | 938                                        | 6.0
Depreciation and amortization expense        | 11,353   | 11,952   | (599)                                      | (5.0)
Total Operating Expenses                     | $ 62,095 | $ 61,751 | $ 344                                      | 0.6 |


| _id | d1b37866e |
| title |  |
| text | Remaining performance obligations
Remaining performance obligations represent contracted revenue that has not been recognized, which include contract liabilities and amounts that will be billed and recognized as revenue in future periods. As of March 29, 2019, we had $2,608 million of remaining performance obligations, which does not include customer deposit liabilities of approximately $505 million, and the approximate percentages expected to be recognized as revenue in the future are as follows:

Percentages may not add to 100% due to rounding.

 |
| table | |                                         | Percent Expected to be Recognized as Revenue |              |              |
--------------------------------- | --------------------------------------- | -------------------------------------------- | ------------ | ------------ | --------------
(in millions, except percentages) | Total Remaining Performance Obligations | 0-12 Months                                  | 13-24 Months | 25-36 Months | Over 36 Months
Enterprise Security               | $2,059                                  | 65%                                          | 24%          | 10%          | 2%
Consumer Cyber Safety             | 549                                     | 95%                                          | 4%           | 1%           | -%
Total                             | $2,608                                  | 71%                                          | 19%          | 8%           | 1% |


| _id | d1b3920a0 |
| title |  |
| text | Note 8. Goodwill and Intangible Assets, Net
The following table reflects changes in the net carrying amount of the components of intangible assets (in thousands):

 |
| table | | Customer Relationships | Developed Technology | Trade Name | Total
------------------------------- | ---------------------- | -------------------- | ---------- | --------
Balance as of January 1, 2018   | $88,526                | $5,532               | $228       | $94,286
Amortization                    | (11,262)               | (3,854)              | (103)      | (15,219)
Balance as of December 31, 2018 | 77,264                 | 1,678                | 125        | 79,067
Intangible assets acquired      | 19,805                 | 16,583               | 2,219      | 38,607
Amortization                    | (12,673)               | (1,441)              | (122)      | (14,236)
Balance as of December 31, 2019 | $84,396                | $16,820              | $2,222     | $103,438 |


| _id | d1b380d82 |
| title |  |
| text | Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to be reversed.
Significant deferred tax assets and liabilities consisted of the following (in thousands):

We are required to evaluate the realizability of our deferred tax assets in both our U.S. and non-U.S. jurisdictions on an ongoing basis to determine whether there is a need for a valuation allowance with respect to such deferred tax assets. From the fourth quarter of fiscal 2009 to the third quarter of fiscal 2018, we maintained a 100% valuation allowance against most of our U.S. deferred tax assets because there was insufficient positive evidence to overcome the existing negative evidence such that it

the existing negative evidence such that it was not more likely than not that the U.S. deferred tax assets were realizable.

While we reported U.S. pre-tax income in fiscal 2015 and fiscal 2017, because we reported U.S. pre-tax losses during the previous seven fiscal years, we continued to maintain the 100% valuation allowance through the third quarter of fiscal 2018.

As of December 29, 2018, we had reported positive operating performance in the U.S. for two consecutive fiscal years and had also reported a cumulative threeyear U.S. pre-tax profit. In addition, during the fourth quarter of fiscal 2018, we completed our financial plan for fiscal 2019 and expected continued positive operating performance in the U.S. We also considered forecasts of future taxable income and evaluated the utilization of net operating losses and tax credit carryforwards prior to their

and tax credit carryforwards prior to their expiration.

After considering these factors, we determined that the positive evidence overcame any negative evidence and concluded that it was more likely than not that the U.S. deferred tax assets were realizable. As a result, we released the valuation allowance against a significant portion of the U.S. federal deferred tax assets and a portion of the U.S. state deferred tax assets during the fourth quarter of fiscal 2018.

The valuation allowance decreased by $75.8 million in fiscal 2018, primarily due to the release of the valuation allowance on U.S. deferred tax assets. As of December 28, 2019, we maintained a valuation allowance of $36.6 million, primarily related to California deferred tax assets and foreign tax credit carryovers, due to uncertainty about the future realization of these assets.

 |
| table | | As of             |
------------------------------------- | ----------------- | -----------------
                                      | December 28, 2019 | December 29, 2018
Tax credits                           | $44,696           | $39,586
Inventory reserve                     | 12,350            | 10,850
Other reserves and accruals           | 5,852             | 5,398
Non-statutory stock options           | 2,982             | 2,722
Depreciation and amortization         | 27,758            | 1,979
Net operating loss carryforwards      | 21,410            | 61,275
Gross deferred tax assets             | 115,048           | 121,810
Valuation allowance                   | (36,604)          | (34,037)
Total deferred tax assets             | 78,444            | 87,773
Acquired intangibles and fixed assets | (13,997)          | (12,667)
Unrealized investment gains           | (106)             | (107)
Tax on undistributed earnings         | (75)              | (53)
Total deferred tax liabilities        | (14,178)          | (12,827)
Net deferred tax assets               | $64,266           | $74,946 |


| _id | d1b3a455c |
| title |  |
| text | The following table presents cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2017, items recognized as a component of net periodic benefits expense in 2018, additional items deferred during 2018 and cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2017. The items not recognized as a component of net periodic benefits expense have been recorded on our consolidated balance sheets in accumulated other

consolidated balance sheets in accumulated other comprehensive loss:

(1) Amounts currently recognized in net periodic benefits expense include $375 million of benefit arising from the adoption of ASU 2018-02. See Note 1— Background and Summary of Significant Accounting Policies for further detail.
(2) Amounts currently recognized in net periodic benefits expense include $32 million arising from the adoption of ASU 2018-02. See Note 1— Background and Summary of Significant Accounting Policies for further detail.

 |
| table | |          |                                              | As of and for the Years Ended December 31, |                    |
------------------------------------------ | -------- | -------------------------------------------- | ------------------------------------------ | ------------------ | -------
                                           | 2017     | Recognition of Net Periodic Benefits Expense | Deferrals                                  | Net Change in AOCL | 2018
                                           |          |                                              | (Dollars in millions)                      |                    |
Accumulated other comprehensive loss:      |          |                                              |                                            |                    |
Pension plans:                             |          |                                              |                                            |                    |
Net actuarial (loss) gain                  | $(2,892) | 179                                          | (260)                                      | (81)               | (2,973)
Prior service benefit (cost)               | 54       | (8)                                          | —                                          | (8)                | 46
Deferred income tax benefit (expense)(1)   | 1,107    | (418)                                        | 65                                         | (353)              | 754
Total pension plans                        | (1,731)  | (247)                                        | (195)                                      | (442)              | (2,173)
Post-retirement benefit plans:             |          |                                              |                                            |                    |
Net actuarial (loss) gain                  | (250)    | —                                            | 257                                        | 257                | 7
Prior service (cost) benefit               | (107)    | 20                                           | —                                          | 20                 | (87)
Deferred income tax benefit (expense)(2)   | 122      | (37)                                         | (63)                                       | (100)              | 22
Total post-retirement benefit plans        | (235)    | (17)                                         | 194                                        | 177                | (58)
Total accumulated other comprehensive loss | $(1,966) | (264)                                        | (1)                                        | (265)              | (2,231) |


| _id | d1b38b71e |
| title |  |
| text | 9. Debtors
The Directors consider that the carrying amount of trade and other debtors approximates their fair value.
The Company has no significant concentration of credit risk attributable to its trade debtors as the exposure is spread over a large number of customers.

Assets recognised from costs to obtain a contract relate to capitalised incremental costs to obtain a contract, being sales commissions arising on contracts with customers of more than one year in length. No assets were impaired or derecognised during the current year or prior year.

 |
| table | |       | 2019      | 2018
------------------------------------------------- | ----- | --------- | ---------
                                                  | Notes | £ million | £ million
Due within one year                               |       |           |
Trade debtors                                     |       | 5.2       | 7.0
Owed by subsidiaries                              |       | 13.7      | 9.6
Other debtors                                     |       | 0.2       | 0.7
Prepayments                                       |       | 0.4       | 0.6
Current tax asset                                 |       | 1.0       | 0.6
Deferred tax                                      | 13    | –         | 1.3
Assets recognised from costs to obtain a contract |       | 0.1       | 0.1
                                                  |       | 20.6      | 19.9
Due after one year                                |       |           |
Defined benefit pension plan surplus              | 3     | 8.8       | 2.0 |


| _id | d1b3bb072 |
| title |  |
| text | The Company’s consolidated net revenues disaggregated by product group are presented in Note 19. The following tables present the Company’s consolidated net revenues disaggregated by geographical region of
shipment and nature.

shipment and nature.
(1) Net revenues by geographical region of shipment are classified by location of customer invoiced or reclassified by shipment destination in line with customer demand. For example, products ordered by U.S.-based companies to be invoiced to Asia Pacific affiliates are classified as Asia Pacific revenues.

(2) Original Equipment Manufacturers (“OEM”) are the end-customers to which the Company provides direct marketing application engineering support, while Distribution customers refers to the distributors and representatives that the Company engages to distribute its products around the world.

As of January 1, 2018, the Company adopted the converged guidance on revenue from contract with customers with no material impact on the Company’s recognition practices as substantially similar performance conditions exist under the new guidance and past practice.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.

 |
| table | |                   | Year ended        |
-------------------------------------------------- | ----------------- | ----------------- | -----------------
                                                   | December 31, 2019 | December 31, 2018 | December 31, 2017
Net revenues by geographical region of shipment(1) |                   |                   |
EMEA                                               | 2,265             | 2,478             | 2,142
Americas                                           | 1,351             | 1,264             | 1,085
Asia Pacific                                       | 5,940             | 5,922             | 5,120
Total revenues                                     | 9,556             | 9,664             | 8,347
Net revenues by nature                             |                   |                   |
Revenues from sale of products                     | 9,381             | 9,461             | 8,175
Revenues from sale of services                     | 148               | 151               | 133
Other revenues                                     | 27                | 52                | 39
Total revenues                                     | 9,556             | 9,664             | 8,347
Net revenues by market channel(2)                  |                   |                   |
Original Equipment Manufacturers (“OEM”)           | 6,720             | 6,325             | 5,549
Distribution                                       | 2,836             | 3,339             | 2,798
Total revenues                                     | 9,556             | 9,664             | 8,347 |


| _id | d1b3495da |
| title |  |
| text | Operating Cash Flow Activities
Year Ended December 31, 2019 Compared with the Year Ended December 31, 2018
Net cash provided by operating activities – continuing operations decreased during the year ended December 31, 2019 compared with prior year. The decrease in income from operations and the increase in non-cash adjustments to net income in 2019 partially related to the absence in the gains on sale of divestitures, such as OneContent in 2018.

The increase in non-cash adjustments to net loss in 2019 also related to higher depreciation and the amortization of right-to-use assets. The net loss and the cash impact of changes in operating assets and liabilities during 2019 reflects the $145 million settlement with the DOJ in connection with the Practice Fusion investigations.

Net cash used in operating activities – discontinued operations during the year ended December 31, 2019 reflects an advance income tax payment related to the gain realized on the sale of our investment in Netsmart on December 31, 2018.
Year Ended December 31, 2018 Compared with the Year Ended December 31, 2017

Net cash provided by operating activities – continuing operations decreased during the year ended December 31, 2018 compared with the prior year primarily due to working capital changes and higher costs during the year ended December 31, 2018 compared with the prior year, which primarily included higher interest expense, transaction-related and legal expenses, and incentive-based compensation payments.

The decrease in non-cash adjustments to net loss was primarily driven by lower non-cash impairment charges associated with long-term investments, intangibles and goodwill during the year ended December 31, 2018 compared with the prior year.

Net cash provided by operating activities – discontinued operations decreased during the year ended December 31, 2018 compared with the prior year primarily driven by the additional tax provision relating to the gain from the sale of our investment in Netsmart on December 31, 2018. Netsmart generated cash from operations during both 2018 and 2017. During 2018, Netsmart’s cash provided by operations decreased by approximately $16 million primarily driven by higher interest expenses paid attributable to

by higher interest expenses paid attributable to Netsmart’s credit facilities.

 |
| table | |             | Year Ended December 31, |             |                         |
----------------------------------------------------------------------------- | ----------- | ----------------------- | ----------- | ----------------------- | -----------------------
(In thousands)                                                                | 2019        | 2018                    | 2017        | 2019 $ Change from 2018 | 2018 $ Change from 2017
Net (loss) income                                                             | $ (182,602) | $ 407,807               | $ (154,175) | $ (590,409)             | $ 561,982
Less: Loss from discontinued operations                                       | 0           | 395,138                 | 30,348      | (395,138)               | 364,790
(Loss) income from continuing operations                                      | (182,602)   | 12,669                  | (184,523)   | (195,271)               | 197,192
Non-cash adjustments to net (loss) income                                     | 277,217     | 136,651                 | 351,835     | 140,566                 | (215,184)
Cash impact of changes in operating assets and liabilities                    | (18,361)    | (60,086)                | 57,746      | 41,725                  | (117,832)
Net cash provided by operating activities - continuing operations             | 76,254      | 89,234                  | 225,058     | (12,980)                | (135,824)
Net cash (used in) provided by operating activities - discontinued operations | (30,000)    | (21,343)                | 54,357      | (8,657)                 | (75,700)
Net cash provided by operating activities                                     | $ 46,254    | $ 67,891                | $ 279,415   | $ (21,637)              | $ (211,524) |


| _id | d1b3a7c2a |
| title |  |
| text | NOTE 19—SEGMENT INFORMATION

ASC Topic 280, “Segment Reporting” (Topic 280), establishes standards for reporting, by public business enterprises, information about operating segments, products and services, geographic areas, and major customers. The method of determining what information, under Topic 280, to report is based on the way that an entity organizes operating segments for making operational decisions and how the entity’s management and chief operating decision maker (CODM) assess an entity’s financial performance. Our

assess an entity’s financial performance. Our operations are analyzed by management and our CODM as being part of a single industry segment: the design, development, marketing and sales of Enterprise Information Management software and solutions.

The following table sets forth the distribution of revenues, by significant geographic area, for the periods indicated:

 |
| table | |            | Year Ended June 30, |
------------------- | ---------- | ------------------- | ----------
                    | 2019       | 2018                | 2017
Revenues:           |            |                     |
Canada              | $153,890   | $149,812            | $227,115
United States       | 1,490,863  | 1,425,244           | 1,090,049
United Kingdom      | 182,815    | 201,821             | 159,817
Germany             | 203,403    | 198,253             | 166,611
Rest of Europe      | 534,204    | 517,693             | 394,132
All other countries | 303,580    | 322,418             | 253,333
Total revenues      | $2,868,755 | $2,815,241          | $2,291,057 |