| _id | d1b32e136 |
| title |  |
| text | 4. Acquisitions and Divestitures
(a) Acquisition Summary
We completed five acquisitions during fiscal 2019. A summary of the allocation of the total purchase consideration is presented as follows (in millions):
On September 28, 2018, we completed our acquisition of privately held Duo Security, Inc. (“Duo”), a leading provider of unified access security and multi-factor authentication delivered through the cloud. Revenue from the Duo acquisition has been included in our Security product category.

On February 6, 2019, we completed our acquisition of Luxtera, Inc. (“Luxtera”), a privately held semiconductor company. Revenue from the Luxtera acquisition has been included in our Infrastructure Platforms product category.
The total purchase consideration related to our acquisitions completed during fiscal 2019 consisted of cash consideration and vested share-based awards assumed. The total cash and cash equivalents acquired from these acquisitions was approximately $100 million.

 |
| table | Fiscal 2019             | Purchase Consideration | Net Tangible Assets Acquired (Liabilities Assumed) | Purchased Intangible Assets | Goodwill
----------------------- | ---------------------- | -------------------------------------------------- | --------------------------- | --------
Duo                     | $2,025                 | $(57)                                              | $342                        | $1,740
Luxtera                 | 596                    | (19)                                               | 319                         | 296
Others (three in total) | 65                     | 2                                                  | 11                          | 52
Total                   | $2,686                 | $(74)                                              | $672                        | $2,088 |


| _id | d1b347b86 |
| title |  |
| text | Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock is traded on the NASDAQ Stock Market LLC under the symbol SAFM.
The number of stockholders of record as of December 12, 2019, was 2,742. The number of beneficial owners of our stock is greater than the number of holders of record, and the exact number is unknown.

The amount of future common stock dividends will depend on our earnings, financial condition, capital requirements, the effect a dividend would have on the Company's compliance with financial covenants and other factors, which will be considered by the Board of Directors on a quarterly basis.
During its fourth fiscal quarter, the Company repurchased shares of its common stock as follows:

1  All purchases were made pursuant to the Company's Stock Incentive Plan, as amended and restated on February 11, 2016, under which shares were withheld to satisfy tax withholding obligations.

2  On May 31, 2018, the Company’s Board of Directors expanded and extended the share repurchase program originally approved on October 22, 2009, under which the Company was originally authorized to purchase up to one million shares of its common stock and is now authorized to purchase up to two million shares of its common stock in open market transactions or negotiated purchases, subject to market conditions, share price and other considerations. The authorization will expire on May 31, 2021. During the

will expire on May 31, 2021. During the fourth quarter of fiscal 2018, the Company purchased 823,385 shares in open market transactions under this program. The Company’s repurchases of vested restricted stock to satisfy tax withholding obligations of its Stock Incentive Plan participants are not made under the 2018 general repurchase plan.

3  Does not include vested restricted shares that may yet be repurchased under the Stock Incentive Plan as described in Note 1.

 |
| table | Period                  | (a) Total Number of Shares Purchased (1) | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)(3)
----------------------- | ---------------------------------------- | -------------------------------- | ---------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------
Aug. 1 - Aug. 31, 2019  | —                                        | —                                | —                                                                                | 1,176,615
Sep. 1 - Sep. 30, 2019  | 901                                      | $151.33                          | 901                                                                                | 1,176,615
Oct. 1 - Oct. 31, 2019  | 34,344                                   | $154.81                          | 34,344                                                                                | 1,176,615
Total                   | 35,245                                   | $154.72                          | 35,245                                                                                | 1,176,615 |


| _id | d1b32863c |
| title |  |
| text | A summary of the status of the Company’s nonvested options as of December 31, 2019, and changes during the year ended December 31, 2019, is presented below
As of December 31, 2019, the Company had 3,835,366 shares issuable under options outstanding at a weighted average exercise price of $1.34 and an intrinsic value of
$635,536.
As of December 31, 2019, the Company had 3,846,299 shares issuable under options outstanding at a weighted average exercise price of $1.36 and an intrinsic value of
$2,150,912.

$2,150,912.
The total number of options granted during the year ended December, 2019 and 2018 was 126,567 and 280,000, respectively. The exercise price for these options was $1.00 per share, $1.25 per share, or $1.75 per share.
The Company recognized compensation expense related to options issued of $797,761 and $1,130,071 during the year ended December 31, 2019 and 2018, respectively,

which is included in general and administrative expenses and research and development expenses. For the year ended December 31, 2019, $562,734 of the stock compensation
was related to employees and $235,027 was related to non-employees.
On January 24, 2018, the Company entered into a consulting agreement (the “Agreement”) with NeuroAssets Sàrl (“Consultant”), a Swiss company. As part of the

agreement, on February 20, 2018, the Compensation Committee of the Company’s Board of Directors approved a grant of 200,000 options under our 2016 Equity Compensation
Plan. The options vest over 48 months in equal monthly installments with the first monthly vesting event scheduled to occur on March 20, 2018, have a term of ten years and
are exercisable at a price of $1.75 per share. The vesting of the options will accelerate if a corporate partnership results from an introduction made by Consultant.

On January 24, 2018, the Company entered into a consulting agreement (the “Agreement”) with NeuroAssets Sàrl (“Consultant”), a Swiss company. As part of the agreement, on February 20, 2018, the Compensation Committee of the Company’s Board of Directors approved a grant of 200,000 options under our 2016 Equity Compensation Plan. The options vest over 48 months in equal monthly installments with the first monthly vesting event scheduled to occur on March 20, 2018, have a term of ten years and are exercisable

have a term of ten years and are exercisable at a price of $1.75 per share. The vesting of the options will accelerate if a corporate partnership results from an introduction made by Consultant.

During the first quarter of 2018 the Company granted 80,000 stock options to four consultants. 50,000 of these options vest immediately and the remaining 30,000
options vest monthly over 48 months, have an exercise price of $1.75, and have a term of ten years
As of December 31, 2019, the unamortized stock option expense was $287,905 with $144,423 being related to employees and $143,482 being related to non-employees.

As of December 31, 2019, the weighted average period for the unamortized stock compensation to be recognized is 3.98 years
On February 25, 2019, the Company granted 101,567 options with an exercise price of $1.00 and a ten year term. 59,900 of these options vest immediately and 41,667
vest bi-weekly over two months. These options have a Black-Scholes value of $199,807. The Company issued 59,900 options for settlement of accounts payable totaling

$29,850 and recorded a loss of $99,541 on the settlement of the accounts payable
On February 25, 2019, the Company granted 101,567 options with an exercise price of $1.00 and a ten year term. 59,900 of these options vest immediately and 41,667 vest bi-weekly over two months. These options have a Black-Scholes value of $199,807. The Company issued 59,900 options for settlement of accounts payable totaling $29,850 and recorded a loss of $99,541 on the settlement of the accounts payable.

On June 17, 2019, the Company granted 25,000 options with an exercise price of $1.75 and a ten year term. These options vest immediately and have a Black-Scholes
value of $36,374

 |
| table | Nonvested Options           | Option    | Weighted-Average Exercise Price
--------------------------- | --------- | -------------------------------
Nonvested at December, 2017 | 1,492,861 | $1.54
Granted                     | 280,000   | $1.75
Vested                      | (972,651) | $1.29
Forfeited                   |           |
Nonvested at December, 2018 | 800,210   | $1.63
Granted                     | 126,567   | $1.15
Vested                      | (584,895) | $1.46
Forfeited                   | (137,500) | $1.75
Nonvested at December, 2019 | 204,382   | $1.74 |


| _id | d1a72f362 |
| title |  |
| text | Total Restructuring Reserves
Restructuring reserves included on the Consolidated Balance Sheets were as follows:

 |
| table | |        | Fiscal Year End
------------------------------------- | ------ | ---------------
                                      | 2019   | 2018
                                      |        | (in millions)
Accrued and other current liabilities | $  245 | $  141
Other liabilities                     | 19     | 26
Restructuring reserves                | $  264 | $  167 |


| _id | d1b34d766 |
| title |  |
| text | The credit quality and credit concentration of cash equivalents, current asset investments and derivative financial assets are detailed in the tables below. Where the opinion of Moody’s and Standard & Poor’s (S&P) differ, the lower rating is used.
a We hold cash collateral of £638m (2017/18: £492m, 2016/17: £702m) in respect of derivative financial assets with certain counterparties.

The concentration of credit risk for our trading balances is provided in note 17, which analyses outstanding balances by customerfacing unit. Where multiple transactions are undertaken with a single financial counterparty or group of related counterparties, we enter into netting arrangements to reduce our exposure to credit risk by making use of standard International Swaps and Derivatives Association (ISDA) documentation.

We have also entered into credit support agreements with certain swap counterparties whereby, on a daily, weekly and monthly basis, the fair value position on notional £3,289m of long dated cross-currency swaps and interest rate swaps is collateralised. The related net cash inflow during the year was £129m (2017/18: outflow £220m, 2016/17: inflow £100m). The collateral paid and received is recognised within current asset investments and loans and other borrowings, respectively.

 |
| table | | 2019  | 2018  | 2017
------------------------------------------- | ----- | ----- | -----
Moody’s / S&P credit rating of counterparty | £m    | £m    | £m
Aa2/AA and above                            | 2,522 | 2,575 | 1,444
Aa3/AA–                                     | 1,376 | 313   | 208
A1/A+a                                      | 1,145 | 651   | 952
A2/Aa                                       | 649   | 628   | 370
A3/A–a                                      | 50    | 180   | 204
Baa1/BBB+a                                  | 75    | 59    | 561
Baa2/BBB and below a                        | 160   | 207   | 86
                                            | 5,977 | 4,613 | 3,825 |


| _id | d1b32cf84 |
| title |  |
| text | Executive Director Fixed Pay increases

The Committee has approved Fixed Pay increases of 4% for the CEO and 3% for the CFO, effective from 1 January 2020. This is in line with the average increase awarded to the wider Unilever workforce in 2019 of 3.6%. These increases were awarded to recognise the strong leadership of both individuals in 2019, which was Alan Jope’s first year in the CEO role and a year of transformation for Unilever generally. We also wanted to recognise Graeme Pitkethly’s seniority in his role, coming into his 5th year as

in his role, coming into his 5th year as CFO.

When our CEO Alan Jope was appointed on 1 January 2019 he was appointed with Fixed Pay 14% below that of what the Committee proposed for his predecessor and at the lower quartile of our remuneration benchmarking peer group, despite Unilever being one of the largest companies in this peer group. This positioning was intentional, given Alan’s internal promotion on appointment. However, subject to Alan’s continuing good performance the Committee will, over time, continue to review his Fixed Pay positioning

continue to review his Fixed Pay positioning and progress this towards the market median benchmark.

* MCIP at maximum (67%) investment of bonus.

 |
| table | | Alan Jope CEO €'000 p.a. |       | Graeme Pitkethly CFO €'000 p.a. |
---------------------------- | ------------------------ | ----- | ------------------------------- | -----
                             | 2019                     | 2020  | 2019                            | 2020
Fixed Pay                    | 1,450                    | 1,508 | 1,103                           | 1,136
Annual Bonus                 | 2,175                    | 2,262 | 1,323                           | 1,363
MCIP* Match share award      | 2,186                    | 2,273 | 1,330                           | 1,370
Target Total Pay             | 5,811                    | 6,043 | 3,756                           | 3,869
Personal MCIP* Investment in | 67%                      | 67%   | 67%                             | 67%
Unilever shares              | 1,457                    | 1,516 | 886                             | 913 |


| _id | d1b3a6bfe |
| title |  |
| text | ITEM 6. SELECTED FINANCIAL DATA
The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the Consolidated Financial Statements and Notes to Consolidated Financial Statements included elsewhere in this annual report.

We derived the consolidated statement of operations data for fiscal 2019, 2018 and 2017 and the consolidated balance sheet data as of fiscal 2019 and 2018 year-end from our audited consolidated financial statements, and accompanying notes, contained in this annual report. The consolidated statements of operations data for fiscal 2016 and 2015 and the consolidated balance sheet data as of fiscal 2017, 2016 and 2015 year-end are derived from our audited consolidated financial statements which are not

consolidated financial statements which are not included in this annual report.

* In November 2015, the FASB issued amended guidance that clarifies that in a classified statement of financial position, an entity shall classify deferred tax liabilities and assets as noncurrent amounts. This guidance superseded ASC 740-10-45-5 which required the valuation allowance for a particular tax jurisdiction be allocated between current and noncurrent deferred tax assets for that tax jurisdiction on a pro rata basis. We elected to early adopt the standard retrospectively in fiscal 2016, which

standard retrospectively in fiscal 2016, which resulted in the reclassification of current deferred income tax assets to non-current deferred income tax assets and non-current deferred income tax liabilities on our consolidated balance sheets for fiscal 2017, 2016 and 2015.

(1) Includes $16.0 million of after-tax restructuring charges, $0.4 million of after-tax amortization of purchase accounting step-up, $1.1 million of benefit from amounts received on a resolved asset recovery matter, $1.7 million non-recurring income tax net expense and $2.5 million of excess tax benefits for employee stock-based compensation.

(2) Includes $2.9 million of after-tax restructuring charges, $0.8 million impairment and other charges, $0.7 million of after-tax acquisition costs, $0.6 million of after-tax amortization of purchase accounting step-up, $26.7 million of tax charges due to the U.S. Tax Cuts and Jobs Act transition tax and deferred tax remeasurement, $3.3 million tax charge due to an increase in valuation allowances against deferred tax assets and $12.8 million of tax benefit from the adoption of new rules for accounting

from the adoption of new rules for accounting for excess tax benefits and tax deficiencies for employee stock-based compensation.

(3) Includes $19.0 million of after-tax amortization of purchase accounting step-up, $17.4 million of after tax costs related to the acquisition of Rofin, $8.4 million of after-tax restructuring charges, an after-tax charge of $1.9 million for the impairment of net assets of several entities held for sale, $1.8 million after-tax interest expense on the commitment of our term loan to finance the acquisition of Rofin, a $7.1 million after-tax gain on our hedge of our foreign exchange risk related to the

hedge of our foreign exchange risk related to the commitment of our term loan and the issuance of debt to finance the acquisition of Rofin, a $3.4 million after-tax gain on our sale of previously owned Rofin shares and a benefit of $1.4 million from the closure of R&D tax audits.

(4) Includes $6.4 million of after tax costs related to the acquisition of Rofin, a $1.4 million after-tax loss on our hedge of our foreign exchange risk related to the commitment of our term loan to finance the acquisition of Rofin, $0.8 million after-tax interest expense on the commitment of our term loan to finance the acquisition of Rofin and a benefit of $1.2 million from the renewal of the R&D tax credit for fiscal 2015.

(5) Includes a charge of $1.3 million after tax for the impairment of our investment in SiOnyx, a $1.3 million after-tax charge for an accrual related to an ongoing customs audit, a benefit of $1.1 million from the renewal of the R&D tax credit for fiscal 2014 and a $1.3 million gain on our purchase of Tinsley in the fourth quarter of fiscal 2015.

 |
| table | | Fiscal     | Fiscal     | Fiscal                                | Fiscal     | Fiscal
----------------------------------------------- | ---------- | ---------- | ------------------------------------- | ---------- | --------
Consolidated financial data                     | 2019(1)    | 2018(2)    | 2017(3)                               | 2016(4)    | 2015(5)
                                                |            |            | (in thousands, except per share data) |            |
Net sales                                       | $1,430,640 | $1,902,573 | $1,723,311                            | $857,385   | $802,460
Gross profit                                    | $486,465   | $830,691   | $750,269                              | $381,392   | $335,399
Net income from continuing operations           | $53,825    | $247,360   | $208,644                              | $87,502    | $76,409
Net income per share from continuing operations |            |            |                                       |            |
Basic                                           | $2.23      | $10.07     | $8.52                                 | $3.62      | $3.09
Diluted                                         | $2.22      | $9.95      | $8.42                                 | $3.58      | $3.06
Shares used in computation:                     |            |            |                                       |            |
Basic                                           | 24,118     | 24,572     | 24,487                                | 24,142     | 24,754
Diluted                                         | 24,279     | 24,851     | 24,777                                | 24,415     | 24,992
Total assets*                                   | $2,083,169 | $2,259,969 | $2,337,800                            | $1,161,148 | $968,947
Long-term obligations                           | $392,238   | $420,711   | $589,001                              | $—         | $—
Other long-term liabilities*                    | $165,881   | $151,956   | $166,390                              | $48,826    | $49,939
Stockholders’ equity                            | $1,284,736 | $1,314,464 | $1,163,264                            | $910,828   | $796,418 |


| _id | d1a72d184 |
| title |  |
| text | Other Income (Expense), Net
Interest expense decreased $54.7 million during fiscal 2019 as compared to fiscal 2018, primarily due to elimination of the non-recourse residential financing obligations in connection with the sale of the Residential Lease Portfolio in November 2018, as well as the elimination of the sales-leaseback financing obligations in connection with the sale of the commercial sale-leaseback portfolio during the first and second quarters of fiscal 2019.

Interest expense increased $17.7 million in fiscal 2018 as compared to fiscal 2017 primarily due to new debt and new commercial sale-leaseback arrangements.

Other income increased by $119.4 million during fiscal 2019 as compared to fiscal 2018, primarily due to a $158.3 million gain on an equity investment with readily determinable fair value in fiscal 2019, as compared to a loss of $6.4 million in fiscal 2018. Additionally, gain on sale of equity investments during fiscal 2019 was $17.7 million, compared to $54.2 million in fiscal 2018.

Other income increased by $143.0 million in fiscal 2018 as compared to fiscal 2017. The change is primarily due to a $54.2 million gain on the sale of our equity method investments in fiscal 2018, a $73.0 million impairment charge in fiscal 2017 in our 8point3 Energy Partners LP equity investment balance due to the adoption of ASC 606 which materially increased the investment balance and consequently, led to the recognition of an other-than-temporary impairment in the first quarter of fiscal 2017.

 |
| table | |          | Fiscal Year |
---------------------------------- | -------- | ----------- | ----------
(In thousands, except percentages) | 2019     | 2018        | 2017
Interest income                    | $2,702   | $3,057      | $2,100
Interest expense                   | (53,353) | (108,011)   | (90,288)
Other Income (expense):            |          |             |
Other, net                         | 174,734  | 55,314      | (87,645)
Other income (expense), net        | $124,083 | $(49,640)   | $(175,833)
As a percentage of revenue         | 7%       | (3)%        | (10)% |


| _id | d1b38f878 |
| title |  |
| text | Item 6. Selected Financial Data.
SELECTED CONSOLIDATED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes appearing in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K to fully understand the factors that may affect the comparability of the information presented below.

The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

The following selected consolidated statements of operations data for the years ended December 31, 2019, 2018 and 2017, and the consolidated balance sheet data as of December 31, 2019 and 2018, have been derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2016 and 2015 and the consolidated balance sheet data as of December 31, 2017, 2016 and 2015 have been derived

31, 2017, 2016 and 2015 have been derived from our audited consolidated financial statements not included in this Annual Report on Form 10-K. The selected consolidated financial data for the year ended December 31, 2019 and as of December 31, 2019 reflects the adoption of ASU No. 2016-02, Leases (Topic 842). The selected consolidated financial data for the years ended December 31, 2019 and 2018 and as of December 31, 2019 and 2018 reflects the adoption of ASU No. 2014-09, Revenue from Contracts with

of ASU No. 2014-09, Revenue from Contracts with Customers. See Notes 15 and 18 of the notes to consolidated financial statements for a summary of adjustments. The summary consolidated financial data for the years ended December 31, 2018, 2017, 2016 and 2015 and as of December 31, 2018, 2017, 2016 and 2015 does not reflect the adoption of ASU 2016-02. The summary consolidated financial data for the years ended December 31, 2017, 2016 and 2015 and as of December 31, 2017, 2016 and 2015 does not reflect the

31, 2017, 2016 and 2015 does not reflect the adoption of ASU 2014-09.

 |
| table | |            |            | Year Ended December 31,                          |            |
-------------------------------------------------------------------------- | ---------- | ---------- | ------------------------------------------------ | ---------- | ----------
                                                                           | 2019       | 2018       | 2017                                             | 2016       | 2015
                                                                           |            |            | (in thousands, except shares and per share data) |            |
Revenue                                                                    | $200,882   | $147,094   | $104,352                                         | $76,846    | $58,720
Cost of revenue(1)                                                         | 63,535     | 46,810     | 31,503                                           | 23,767     | 19,789
Gross profit                                                               | 137,347    | 100,284    | 72,849                                           | 53,079     | 38,931
Operating expenses:                                                        |            |            |                                                  |            |
Sales and marketing(1)                                                     | 87,731     | 69,608     | 46,998                                           | 34,847     | 25,925
Research and development(1)                                                | 50,024     | 41,305     | 22,241                                           | 14,765     | 11,521
General and administrative(1)                                              | 46,820     | 31,462     | 22,895                                           | 14,293     | 12,272
Total operating expenses                                                   | 184,575    | 142,375    | 92,134                                           | 63,905     | 49,718
Operating loss                                                             | (47,228)   | (42,091)   | (19,285)                                         | (10,826)   | (10,787)
Other expenses, net                                                        | (4,597)    | (4,628)    | (302)                                            | (484)      | (599)
Loss before income taxes                                                   | (51,825)   | (46,719)   | (19,587)                                         | (11,310)   | (11,386)
(Provision for) benefit from income taxes                                  | (425)      | (796)      | (47)                                             | 24         | 562
Net loss                                                                   | $(52,250)  | $(47,515)  | $(19,634)                                        | $(11,286)  | $(10,824)
Net loss per share attributable to common shareholders - basic and diluted | $(1.58)    | $(1.63)    | $(0.70)                                          | $(0.68)    | $(0.88)
Weighted average shares outstanding - basic and diluted                    | 33,161,656 | 29,107,267 | 27,862,375                                       | 16,659,561 | 12,257,413 |


| _id | d1b390570 |
| title |  |
| text | Our 2019 net revenues decreased 1.1% compared to the prior year, primarily due to a decrease in volumes of approximately 8%, partially compensated by an increase in average selling prices of approximately 7%. The increase in the average selling prices was driven by favorable product mix of approximately 10%, partially offset by a negative pricing effect of approximately 3%.

Our 2018 net revenues increased 15.8% compared to the prior year, primarily due to increase in average selling prices of approximately 16%, while volumes remained substantially flat. The increase in the average selling prices was driven by favorable product mix of approximately 18%, partially offset by a negative pricing effect of approximately 2%. Our net revenues registered double-digit growth across all product groups and geographies.

In 2019, 2018 and 2017, our largest customer, Apple, accounted for 17.6%, 13.1% and 10.5% of our net revenues, respectively, reported within our three product groups.

 |
| table | | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | % Variation  | % Variation
-------------- | ----------------------- | ----------------------- | ----------------------- | ------------ | ------------
               | 2019                    | 2018                    | 2017                    | 2019 vs 2018 | 2018 vs 2017
               | (in millions)           | (in millions)           | (in millions)           |              |
Net sales      | $9,529                  | $9,612                  | $8,308                  | (0.9)%       | 15.7%
Other revenues | 27                      | 52                      | 39                      | (49.0)       | 36.1
Net revenues   | $9,556                  | $9,664                  | $8,347                  | (1.1)%       | 15.8% |


| _id | d1b3895d6 |
| title |  |
| text | Unaudited Pro Forma Financial Information

The pro forma financial information in the table below presents the combined results of operations for ACI and Speedpay as if the acquisition had occurred January 1, 2018. The pro forma information is shown for illustrative purposes only and is not necessarily indicative of future results of operations of the Company or results of operations of the Company that would have actually occurred had the transaction been in effect for the periods presented. This pro forma information is not intended to represent

forma information is not intended to represent or be indicative of actual results had the acquisition occurred as of the beginning of each period, and does not reflect potential synergies, integration costs, or other such costs or savings.

Certain pro forma adjustments have been made to net income (loss) for the year ended December 31, 2019 and 2018, to give effect to estimated adjustments that remove the amortization expense on eliminated Speedpay historical identifiable intangible assets, add amortization expense for the value of acquired identified intangible assets (primarily acquired software, customer relationships, and trademarks), and add estimated interest expense on the Company’s additional Delayed Draw Term Loan and Revolving

additional Delayed Draw Term Loan and Revolving Credit Facility borrowings. Additionally, certain transaction expenses that are a direct result of the acquisition have been excluded from the year ended December 31, 2019.

The following is the unaudited summarized pro forma financial information for the periods presented (in thousands, except per share data):
Walletron
On May 9, 2019, the Company also completed the acquisition of Walletron, which delivers patented mobile wallet technology. The Company has included the financial results of Walletron in the consolidated financial statements from the date of acquisition, which were not material.
RevChip and TranSend

RevChip and TranSend
On October 1, 2019, the Company acquired certain technology assets of RevChip, LLC ("RevChip") and TranSend Integrated Technologies Inc. ("TranSend") for a combined $7.0 million. As substantially all of the value was in the developed technology, the purchase was recognized as an asset acquisition. The Company has included the financial results of RevChip and TranSend in the consolidated financial statements from the date of acquisition, which were not material.

 |
| table | | Years Ended December 31, |
--------------------------- | ------------------------ | ----------
                            | 2019                     | 2018
Pro forma revenue           | $1,382,957               | $1,361,729
Pro forma net income        | $82,003                  | $88,428
Pro forma income per share: |                          |
Basic                       | $ 0.71                   | $ 0.76
Diluted                     | $ 0.69                   | $ 0.75 |


| _id | d1b338d98 |
| title |  |
| text | Note 11. Share-Based Compensation
A summary of share-based compensation expense recognized in the Company’s Consolidated Statements of Operations is as follows (in thousands):

 |
| table | |          | Year ended December 31, |
-------------------------------------- | -------- | ----------------------- | ------
                                       | 2019     | 2018                    | 2017
Cost of revenues                       | $8,741   | $4,982                  | $3,735
Research and development               | 23,132   | 14,975                  | 9,550
Sales and marketing                    | 38,325   | 27,324                  | 16,015
General and administrative             | 31,156   | 20,807                  | 12,760
Total share-based compensation expense | $101,354 | 68,088                  | 42,060 |


| _id | d1b38224a |
| title |  |
| text | The 2019 operating expenses increased 3.9% compared to 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.
The 2018 operating expenses increased 9.5% compared to the prior year, mainly due to unfavorable currency effects, net of hedging, salary dynamic, increased R&D activities and higher costs of the share-based compensation plans.

The R&D expenses were net of research tax credits in France and Italy, which amounted to $126 million in 2019, $138 million in 2018 and $124 million in 2017.

 |
| table | | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | Variation    | Variation
-------------------------------------------- | ----------------------- | ----------------------- | ----------------------- | ------------ | ------------
                                             | 2019                    | 2018                    | 2017                    | 2019 vs 2018 | 2018 vs 2017
                                             | (In millions)           | (In millions)           | (In millions)           |              |
Selling, general and administrative expenses | $(1,093)                | $(1,095)                | $(981)                  | 0.3%         | (11.7)%
Research and development expenses            | (1,498)                 | (1,398)                 | (1,296)                 | (7.1)        | (7.9)
Total operating expenses                     | $(2,591)                | $(2,493)                | $(2,277)                | (3.9)%       | (9.5)%
As percentage of net revenues                | (27.1)%                 | (25.8)%                 | (27.3)%                 | -130 bps     | +150 bps |


| _id | d1b34fb10 |
| title |  |
| text | GasLog Ltd. and its Subsidiaries
Notes to the consolidated financial statements (Continued)
For the years ended December 31, 2017, 2018 and 2019
(All amounts expressed in thousands of U.S. Dollars, except share and per share data)
7. Leases (Continued)

On February 24, 2016, GasLog’s subsidiary, GAS-twenty six Ltd., completed the sale and leaseback of the Methane Julia Louise with a subsidiary of Mitsui. Mitsui has the right to on-sell and lease back the vessel. The vessel was sold to Mitsui for a cash consideration of $217,000. GasLog leased back the vessel under a bareboat charter from Mitsui for a period of up to 20 years. GasLog has the option to repurchase the vessel on pre-agreed terms no earlier than the end of year ten and no later than the end of

the end of year ten and no later than the end of year 17 of the bareboat charter. The bareboat hire is fixed and GasLog had a holiday period for the first 210 days, which expired on September 21, 2016. This leaseback meets the definition of a finance lease under IAS 17 Leases.

The movements in right-of use assets are reported in the following table:
*The balance as of December 31, 2018 represented the vessel held under finance lease and was included in the financial statement line ‘‘Vessel held under finance lease’’, which was renamed to ‘‘Right-of-use assets’’ as of January 1, 2019.

 |
| table | Right-of-Use Assets     | Vessel     | Vessel Equipment | Properties | Other | Total
----------------------- | ---------- | ---------------- | ---------- | ----- | --------
As of January 1, 2019   | 206,753(*) | 2,630            | 4,969      | 19    | 214,371
Additions               | 1,001      | 336              | 1,080      | 47    | 2,464
Depreciation expense    | (7,722)    | (1,109)          | (1,499)    | (10)  | (10,340)
As of December 31, 2019 | 200,032    | 1,857            | 4,550      | 56    | 206,495 |


| _id | d1b35f90c |
| title |  |
| text | A discussion of net sales by reportable segment is presented below for the indicated fiscal years (in millions):

AMER. Net sales for fiscal 2019 in the AMER segment increased $210.4 million, or 17.3%, as compared to fiscal 2018. The increase in net sales was driven by a $181.7 million increase in production ramps of new products for existing customers, a $13.5 million increase in production ramps for new customers and overall net increased customer end-market demand. The increase was partially offset by a $16.4 million decrease for end-of-life products and a $6.0 million reduction due to disengagements with

$6.0 million reduction due to disengagements with customers.

APAC. Net sales for fiscal 2019 in the APAC segment increased $59.2 million, or 4.0%, as compared to fiscal 2018. The increase in net sales was driven by an $87.3 million increase in production ramps of new products for existing customers and a $58.1 million increase in production ramps for new customers. The increase was partially offset by a $28.4 million reduction due to a disengagement with a customer, a $7.3 million decrease for end-of-life products and overall net decreased customer end-market

and overall net decreased customer end-market demand.

EMEA. Net sales for fiscal 2019 in the EMEA segment increased $28.4 million, or 10.1%, as compared to fiscal 2018. The increase in net sales was the result of a $20.2 million increase in production ramps of new products for existing customers, a $4.2 million increase in production ramps for new customers and overall net increased customer end-market demand. The increase was partially offset by a $6.2 million reduction due to a disengagement with a customer.

 |
| table | | 2019     | 2018
---------------------------------- | -------- | --------
Net sales:                         |          |
AMER                               | $1,429.3 | $1,218.9
APAC                               | 1,557.2  | 1,498.0
EMEA                               | 309.9    | 281.5
Elimination of inter-segment sales | (132.0)  | (124.9)
Total net sales                    | 3,164.4  | 2,873.5 |


| _id | d1b39cb0e |
| title |  |
| text | Definite-Lived Intangible Assets, Net
The following table summarizes the changes in the carrying amount of definite-lived intangible assets during the periods presented (table in millions):

Upon adoption of Topic 842 on February 2, 2019, leasehold interest of $116 million related to favorable terms of certain ground lease agreements was derecognized and adjusted to the carrying amount of the operating lease ROU assets and classified as other assets on the consolidated balance sheets. Prior to adoption, these assets were classified as intangible assets, net on the consolidated balance sheets.

 |
| table | | January 31, 2020 | February 1, 2019
--------------------------------------------------------------- | ---------------- | ----------------
Balance, beginning of the year                                  | $966             | $1,059
Additions to intangible assets related to business combinations | 622              | 154
Amortization expense                                            | (300)            | (247)
Derecognized leasehold interest                                 | (116)            | —
Balance, end of the year                                        | $1,172           | $966 |


| _id | d1b38897e |
| title |  |
| text | Stock Option Activity - The weighted-average fair value of options granted during the years ended December 31, 2019, 2018 and 2017, as determined under the Black-Scholes-Merton valuation model, was $12.07, $10.42 and $6.75, respectively. Option grants that vested during the years ended December 31, 2019, 2018 and 2017 had a combined fair value of $2.5 million, $1.5 million and $1.7 million, respectively.

The following table summarizes stock option activity for the years ended December 31, 2019, 2018 and 2017:

 |
| table | | Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value (in thousands) | Weighted Average Remaining Contractual Life
---------------------------------------------- | ---------------- | ------------------------------- | ---------------------------------------- | -------------------------------------------
Stock options outstanding at December 31, 2016 | 1,160,419        | $29.93                          | $14,299                                  |
Granted                                        | 534,030          | $42.90                          |                                          |
Exercised                                      | (463,800)        | $29.34                          | $7,203                                   |
Cancelled and expired                          | (61,241)         | $33.80                          |                                          |
Stock options outstanding at December 31, 2017 | 1,169,408        | $35.88                          | $16,731                                  |
Granted                                        | 466,828          | $54.87                          |                                          |
Exercised                                      | (420,524)        | $30.05                          | $12,411                                  |
Cancelled and expired                          | (122,312)        | $43.85                          |                                          |
Stock options outstanding at December 31, 2018 | 1,093,400        | $45.34                          | $8,776                                   |
Granted                                        | 489,947          | $63.87                          |                                          |
Exercised                                      | (338,748)        | $37.94                          | $9,641                                   |
Cancelled and expired                          | (108,504)        | $51.21                          |                                          |
Stock options outstanding at December 31, 2019 | 1,136,095        | $54.98                          | $28,291                                  | 4 years
Stock options exercisable at December 31, 2019 | 290,540          | $44.90                          | $10,163                                  | 3 years |


| _id | d1b38dc80 |
| title |  |
| text | PSUs – Total Shareholder Return (TSR)

The PSUs granted based on TSR are contingently awarded and will be payable in shares of the Company’s common stock subject to the condition that the number of PSUs, if any, earned by the employees upon the expiration of a three-year award performance period is dependent on the Company’s TSR ranking relative to a peer group of companies. The fair value of the PSUs based on TSR was estimated on the grant date using a Monte Carlo Simulation. Other assumptions include the expected volatility of all companies

include the expected volatility of all companies included in the TSR, the historical share price returns analysis of all companies included in the TSR and assumes dividends are reinvested. The expected volatility was based on the historical volatility for a period of time that approximates the duration between the valuation date and the end of the performance period. The risk-free interest rate is based on the Zero-Coupon Treasury STRIP yield curve matching the term from the valuation date to the end of

the term from the valuation date to the end of the performance period. Compensation expense for the PSUs based on TSR (which is considered a market condition) is a fixed amount determined at the grant date fair value and is recognized 100% over the three-year award performance period regardless of whether PSUs are awarded at the end of the award performance period.

The number of PSUs granted based on TSR and the assumptions used to calculate the grant date fair value of the PSUs based on TSR are shown in the following table:
(1) For 2019, this represents the weighted average fair value for PSU awards approved during the first and third quarter.
(2) For 2019, values represent weighted average assumptions for PSU awards approved during the first and third quarter.

(3) On May 18, 2017, the O&C Committee approved a change in the vesting policy regarding the existing 2017 Three year PSU Awards for Ilham Kadri. The modified vesting terms resulted in award modification accounting treatment. The weighted average fair value on grant date reflects the impact of the fair value on date of modification for these awards.

 |
| table | | 2019    | 2018    | 2017
------------------------------------------------ | ------- | ------- | -------
Number of units granted                          | 70,543  | 56,829  | 100,958
Weighted average fair value on grant date(1) (3) | $ 57.53 | $ 43.40 | $ 44.24
Expected Price volatility(2)                     | 22.86%  | 22.00%  | 25.31 %
Risk-free interest rate(2)                       | 2.36%   | 2.00%   | 1.56 % |


| _id | d1b349b3e |
| title |  |
| text | Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue increased $4.9 million, or 3%, in 2019 as compared to 2018. The increase in cost of revenue was primarily due to $12.1 million in increased personnel expenses, stock-based compensation, and overhead costs, $3.9 million in increased content costs, $3.6 million in increased amortization of acquired intangible assets, and $1.6 million in increased capitalized software amortization. These increased costs were partially offset by $16.4 million in decreased external implementation professional

in decreased external implementation professional service costs. These costs were incurred to service our existing customers and support our continued growth. The improvement in gross margin was primarily due to a higher mix of subscription revenue, which carries a higher gross margin.

Cost of revenue increased $1.5 million, or 1%, in 2018 as compared to 2017. The increase in cost of revenue was primarily due to $6.0 million in increased capitalized software amortization and $4.5 million in increased content costs. These increased costs were partially offset by $6.6 million in decreased amortization of acquired intangible assets and $2.9 million in external implementation service costs. These costs were incurred to service our existing customers and support our continued growth. The

customers and support our continued growth. The improvement in gross margin was primarily due to a higher mix of subscription revenue, which carries a higher gross margin.

 |
| table | |          | Year Ended December 31, |
--------------- | -------- | ----------------------- | --------
                | 2019     | 2018                    | 2017
                |          | (dollars in thousands)  |
Cost of revenue | $149,215 | $144,349                | $142,867
Gross profit    | $427,308 | $393,542                | $339,118
Gross margin    | 74.1%    | 73.2%                   | 70.4% |


| _id | d1b32136e |
| title |  |
| text | Revenue from external customers, classified by significant product and service offerings, was as follows:

Our commercial cloud revenue, which includes Office 365 Commercial, Azure, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties, was $38.1 billion, $26.6 billion and $16.2 billion in fiscal years 2019, 2018, and 2017, respectively. These amounts are primarily included in Office products and cloud services, Server products and cloud services, and LinkedIn in the table above.

 |
| table | |            | (In millions) |
---------------------------------- | ---------- | ------------- | ----------
Year Ended June 30,                | 2019       | 2018          | 2017
Server products and cloud services | $ 32,622   | $ 26,129      | $ 21,649
Office products and cloud services | 31,769     | 28,316        | 25,573
Windows                            | 20,395     | 19,518        | 18,593
Gaming                             | 11,386     | 10,353        | 9,051
Search advertising                 | 7,628      | 7,012         | 6,219
LinkedIn                           | 6,754      | 5,259         | 2,271
Enterprise Services                | 6,124      | 5,846         | 5,542
Devices                            | 6,095      | 5,134         | 5,062
Other                              | 3,070      | 2,793         | 2,611
Total                              | $  125,843 | $  110,360    | $   96,571 |


| _id | d1b2f2a1e |
| title |  |
| text | Segments
We operate through three reportable segments: Transportation Solutions, Industrial Solutions, and Communications Solutions. We believe our segments serve a combined market of approximately $190 billion.
Our net sales by segment as a percentage of our total net sales were as follows:
Below is a description of our reportable segments and the primary products, markets, and competitors of each segment.

Transportation Solutions The Transportation Solutions segment is a leader in connectivity and sensor technologies. The primary products sold by the Transportation Solutions segment include terminals and connector systems and components, sensors, antennas, relays, application tooling, and wire and heat shrink tubing. The Transportation Solutions segment’s products, which must withstand harsh conditions, are used in the following end markets:

• Automotive (73% of segment’s net sales)—We are one of the leading providers of advanced automobile connectivity solutions. The automotive industry uses our products in automotive technologies for body and chassis systems, convenience applications, driver information, infotainment solutions, miniaturization solutions, motor and powertrain applications, and safety and security systems. Hybrid and electronic mobility solutions include in-vehicle technologies, battery technologies, and charging solutions.

• Commercial transportation (15% of segment’s net sales)—We deliver reliable connectivity products designed to withstand harsh environmental conditions for on- and off-highway vehicles and recreational transportation, including heavy trucks, construction, agriculture, buses, and other vehicles.

• Sensors (12% of segment’s net sales)—We offer a portfolio of intelligent, efficient, and high-performing sensor solutions that are used by customers across multiple industries, including automotive, industrial equipment, commercial transportation, medical solutions, aerospace and defense, and consumer applications.
The Transportation Solutions segment’s major competitors include Yazaki, Aptiv, Sumitomo, Sensata, Honeywell, Molex, and Amphenol.

Industrial Solutions The Industrial Solutions segment is a leading supplier of products that connect and distribute power, data, and signals. The primary products sold by the Industrial Solutions segment include terminals and connector systems and components, heat shrink tubing, relays, and wire and cable. The Industrial Solutions segment’s products are used in the following end markets:

• Industrial equipment (49% of segment’s net sales)—Our products are used in factory automation and process control systems such as industrial controls, robotics, human machine interface, industrial communication, and power distribution. Our intelligent building products are used to connect lighting, HVAC, elevators/escalators, and security. Our rail products are used in high-speed trains, metros, light rail vehicles, locomotives, and signaling switching equipment. Our products are also used by the solar

Our products are also used by the solar industry. The medical industry uses our products in imaging, diagnostic, surgical, and minimally invasive interventional applications.

• Aerospace, defense, oil, and gas (33% of segment’s net sales)—We design, develop, and manufacture a comprehensive portfolio of critical electronic components and systems for the harsh operating conditions of the aerospace, defense, and marine industries. Our products and systems are designed and manufactured to operate effectively in harsh conditions ranging from the depths of the ocean to the far reaches of space.

• Energy (18% of segment’s net sales)—Our products are used by OEMs and utility companies in the electrical power industry and include a wide range of solutions for the electrical power generation, transmission, distribution, and industrial markets.
The Industrial Solutions segment competes primarily against Amphenol, Belden, Hubbell, Carlisle Companies, 3M, Integer Holdings, Esterline, Molex, and Phoenix Contact.

Communications Solutions The Communications Solutions segment is a leading supplier of electronic components for the data and devices and the appliances markets. The primary products sold by the Communications Solutions segment include terminals and connector systems and components, relays, heat shrink tubing, and antennas. The Communications Solutions segment’s products are used in the following end markets:

• Data and devices (59% of segment’s net sales)—We deliver products and solutions that are used in a variety of equipment architectures within the networking equipment, data center equipment, and wireless infrastructure industries. Additionally, we deliver a range of connectivity solutions for the Internet of Things, smartphones, tablet computers, notebooks, and virtual reality applications to help our customers meet their current challenges and future innovations.

• Appliances (41% of segment’s net sales)—We provide solutions to meet the daily demands of home appliances. Our products are used in many household appliances, including washers, dryers, refrigerators, air conditioners, dishwashers, cooking appliances, water heaters, air purifiers, floor care devices, and microwaves. Our expansive range of standard products is supplemented by an array of custom-designed solutions.

The Communications Solutions segment’s major competitors include Amphenol, Molex, JST, and Korea Electric Terminal (KET).

 |
| table | |       | Fiscal |
------------------------ | ----- | ------ | -----
                         | 2019  | 2018   | 2017
Transportation Solutions | 58 %  | 59 %   | 58 %
Industrial Solutions     | 30    | 28     | 29
Communications Solutions | 12    | 13     | 13
Total                    | 100 % | 100 %  | 100 % |


| _id | d1b2e4efa |
| title |  |
| text | The fair value of our foreign exchange forward contracts is presented on a gross basis in our Condensed Consolidated Balance Sheets. To mitigate losses in the event of nonperformance by counterparties, we have entered into master netting arrangements with our counterparties that allow us to settle payments on a net basis. The effect of netting on our derivative assets and liabilities was not material as of March 29, 2019 and March 30, 2018.

The notional amount of our outstanding foreign exchange forward contracts in U.S. dollar equivalent was as follows:

 |
| table | (In millions)                                | March 29, 2019 | March 30, 2018
-------------------------------------------- | -------------- | --------------
Net investment hedges                        |                |
Foreign exchange forward contracts sold      | $116           | $—
Balance sheet contracts                      |                |
Foreign exchange forward contracts purchased | $963           | $697
Foreign exchange forward contracts sold      | $122           | $151 |


| _id | d1b370068 |
| title |  |
| text | Openreach has a UK-wide presence which is overlapped by our competitors in around half the country. This overlap is expected to grow as alternative network providers build-out new fibre footprint. Our volume discount deal, signed with the majority of our major communications provider customers, has led to another record quarter for fibre sales. We are also rapidly expanding our fibre-to-the-premises network to provide the next generation of services for our customers. We have experienced strong demand from

customers. We have experienced strong demand from businesses for Ethernet circuits for the second consecutive quarter.

Adjusteda revenue decline of 4% for the year was driven by regulated price reductions predominantly on FTTC and Ethernet products, non-regulated price reductions (mainly driven by communications providers signing up for fibre volume discounts), a small decline in our physical line base and a reclassification of costs to revenue. This was partly offset by 25% growth in our fibre rental base, a 9% increase in our Ethernet rental base and the impact of adopting IFRS 15.

Adjusteda operating costs were broadly flat, with higher costs from recruiting and training engineers to support our ‘Fibre First’ programme and help improve customer experience, as well as pay inflation and business rates, offset by efficiency savings and a reclassification of costs to revenue. Adjusteda EBITDA was down 7% for the year.

Capital expenditure was £2.1bn, up 22%, driven by investment in our FTTP and Gfast network build and higher year-on-year BDUK net grant funding deferrals, partly offset by efficiency savings.
Normalised free cash flowb was down 38% due to the EBITDA decline, higher underlying capital expenditure (excluding BDUK grant funding deferrals) and timing of customer receipts.

a Adjusted measures exclude specific items, as explained in the Additional Information on page 185. b Free cash flow after net interest paid, before pension deficit payments (including the cash tax benefit of pension deficit payments) and specific items. c Openreach comparatives have been re-presented to reflect the transfer of Northern Ireland Networks from Enterprise to Openreach.

 |
| table | Openreachc                  |                |               |                                  |
--------------------------- | -------------- | ------------- | -------------------------------- | ----
Adjusteda revenue £5,075m   |                |               | Adjusteda operating profit £955m |
                            | 2019 (IFRS 15) | 2018 (IAS 18) | Change                           |
Year to 31 March            | £m             | £m            | £m                               | %
Adjusted a revenue          | 5,075          | 5,278         | (203)                            | (4)
Adjusted a operating costs  | 2,652          | 2,663         | (11)                             | –
Adjusted a EBITDA           | 2,423          | 2,615         | (192)                            | (7)
Depreciation & amortisation | 1,468          | 1,401         | 67                               | 5
Adjusted a operating profit | 955            | 1,214         | (259)                            | (21)
Capital expenditure         | 2,081          | 1,699         | 382                              | 22
Normalised free cash flowb  | 685            | 1,100         | (415)                            | (38) |


| _id | d1b3c77f0 |
| title |  |
| text | As of December 31, 2019, maturities of lease liabilities were as follows:
As of December 31, 2019, we had no material operating or finance leases that had not yet commenced.

 |
| table | | Operating Leases      | Finance Leases
--------------------- | --------------------- | --------------
                      | (Dollars in millions) |
2020                  | $460                  | 47
2021                  | 361                   | 28
2022                  | 308                   | 22
2023                  | 265                   | 22
2024                  | 194                   | 21
Thereafter            | 686                   | 170
Total lease payments  | 2,274                 | 310
Less: interest        | (516)                 | (90)
Total                 | $1,758                | 220
Less: current portion | (416)                 | (35)
Long-term portion     | $1,342                | 185 |


| _id | d1b30f236 |
| title |  |
| text | Revenues. Revenues increased by 9% to RMB105.8 billion for the fourth quarter of 2019 on a quarter-on-quarter basis.

Revenues from VAS increased by 3% to RMB52,308 million for the fourth quarter of 2019. Online games revenues grew by 6% to RMB30,286 million. The increase was primarily due to revenue contributions from domestic smart phone titles such as Peacekeeper Elite, as well as revenues contributed from Supercell commencing in the fourth quarter of 2019, partly offset by the decrease in revenues from PC client games. Social networks revenues were RMB22,022 million, broadly stable compared to the third quarter of

broadly stable compared to the third quarter of 2019.

Revenues from FinTech and Business Services increased by 12% to RMB29,920 million for the fourth quarter of 2019. The increase mainly reflected the growth of commercial payment, social payment and cloud services.

Revenues from Online Advertising increased by 10% to RMB20,225 million for the fourth quarter of 2019. Social and others advertising revenues grew by 11% to RMB16,274 million. The increase was primarily driven by greater revenues from our mobile advertising network and Weixin Moments, benefitting from the positive seasonality of eCommerce promotional activities in the fourth quarter. Media advertising revenues increased by 8% to RMB3,951 million. The increase mainly reflected greater advertising revenues

mainly reflected greater advertising revenues from our media platforms including Tencent Video, Tencent News and TME.

Cost of revenues. Cost of revenues increased by 9% to RMB59,659 million for the fourth quarter of 2019 on a quarter-onquarter basis. The increase was primarily driven by greater channel costs, costs of FinTech services and content costs. As a percentage of revenues, cost of revenues was 56% for the fourth quarter of 2019, broadly stable compared to the third quarter of 2019.

Cost of revenues for VAS increased by 7% to RMB26,120 million for the fourth quarter of 2019. The increase was primarily due to greater content costs for live broadcast services and major eSport events, as well as higher channel and content costs for smart phone games, including the channel costs attributable to Supercell.

Cost of revenues for FinTech and Business Services increased by 11% to RMB21,520 million for the fourth quarter of 2019. The increase mainly reflected greater costs from increased volume of payment activities and greater scale of cloud services.

Cost of revenues for Online Advertising decreased by 2% to RMB9,241 million for the fourth quarter of 2019. The decrease was primarily driven by lower content costs for our advertising-funded long form video service, partly offset by traffic acquisition costs due to revenue growth from our advertising network.

Selling and marketing expenses. Selling and marketing expenses increased by 17% to RMB6,712 million for the fourth quarter of 2019 on a quarter-on-quarter basis. The increase mainly reflected seasonally greater marketing spending on smart phone games and digital content services, as well as expenses attributable to Supercell.

General and administrative expenses. General and administrative expenses increased by 18% to RMB16,002 million for the fourth quarter of 2019 on a quarter-on-quarter basis. The increase was mainly due to greater R&D expenses and staff costs, including expenses attributable to Supercell.

Share of (loss)/profit of associates and joint ventures. We recorded share of losses of associates and joint ventures of RMB1,328 million for the fourth quarter of 2019, compared to share of profit of RMB234 million for the third quarter of 2019. The movement mainly reflected certain associates booking non-cash fair value changes to their investment portfolios.

Profit attributable to equity holders of the Company. Profit attributable to equity holders of the Company increased by 6% to RMB21,582 million for the fourth quarter of 2019 on a quarter-on-quarter basis. Non-IFRS profit attributable to equity holders of the Company increased by 4% to RMB25,484 million.

 |
| table | | Unaudited          |
------------------------------------------------------------- | ------------------ | ------------
                                                              | Three months ended |
                                                              | 31 December        | 30 September
                                                              | 2019               | 2019
                                                              | (RMB in millions)  |
Revenues                                                      | 105,767            | 97,236
Cost of revenues                                              | (59,659)           | (54,757)
Gross profit                                                  | 46,108             | 42,479
Interest income                                               | 1,580              | 1,674
Other gains, net                                              | 3,630              | 932
Selling and marketing expenses                                | (6,712)            | (5,722)
General and administrative expenses                           | (16,002)           | (13,536)
Operating profit                                              | 28,604             | 25,827
Finance costs, net                                            | (2,767)            | (1,747)
Share of (loss)/profit of associates and joint ventures       | (1,328)            | 234
Profit before income tax                                      | 24,509             | 24,314
Income tax expense                                            | (2,137)            | (3,338)
Profit for the period                                         | 22,372             | 20,976
Attributable to:                                              |                    |
Equity holders of the Company                                 | 21,582             | 20,382
Non-controlling interests                                     | 790                | 594
                                                              | 22,372             | 20,976
Non-IFRS profit attributable to equity holders of the Company | 25,484             | 24,412 |


| _id | d1b32e3fc |
| title |  |
| text | Note 4 – Stock-Based Compensation
Stock Incentive Program Descriptions

In January 2006, the Board of Directors adopted the ADTRAN, Inc. 2006 Employee Stock Incentive Plan (the “2006 Plan”), which authorized 13.0 million shares of common stock for issuance to certain employees and officers through incentive stock options and non-qualified stock options, stock appreciation rights, RSUs and restricted stock. The 2006 Plan was adopted by stockholder approval at our annual meeting of stockholders held in May 2006. Options granted under the 2006 Plan typically become exercisable

under the 2006 Plan typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and had a ten-year contractual term. The 2006 Plan was replaced in May 2015 by the ADTRAN, Inc. 2015 Employee Stock Incentive Plan (the “2015 Plan”). Expiration dates of options outstanding as of December 31, 2019 under the 2006 Plan range from 2020 to 2024.

In January 2015, the Board of Directors adopted the 2015 Plan, which authorized 7.7 million shares of common stock for issuance to certain employees and officers through incentive stock options and non-qualified stock options, stock appreciation rights, PSUs, RSUs and restricted stock. The 2015 Plan was adopted by stockholder approval at our annual meeting of stockholders held in May 2015. PSUs, RSUs and restricted stock granted under the 2015 Plan reduce the shares authorized for issuance under the 2015

the shares authorized for issuance under the 2015 Plan by 2.5 shares of common stock for each share underlying the award. Options granted under the 2015 Plan typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and have a ten-year contractual term. Expiration dates of options outstanding as of December 31, 2019 under the 2015 Plan range from 2025 to 2026.

Our stockholders approved the 2010 Directors Stock Plan (the “2010 Directors Plan”) in May 2010, under which 0.5 million shares of common stock have been reserved for issuance. This plan replaced the 2005 Directors Stock Option Plan. Under the 2010 Directors Plan, the Company may issue stock options, restricted stock and RSUs to our non-employee directors. Stock awards issued under the 2010 Directors Plan become vested in full on the first anniversary of the grant date. Options issued under the 2010

of the grant date. Options issued under the 2010 Directors Plan had a ten-year contractual term. All remaining options under the 2010 Directors Plan expired in 2019.

The following table summarizes stock-based compensation expense related to stock options, PSUs, RSUs and restricted stock for the years ended December 31, 2019, 2018 and 2017, which was recognized as follows:

 |
| table | (In thousands)                                                                                | 2019    | 2018    | 2017
---------------------------------------------------------------------------------------------- | ------- | ------- | -------
Stock-based compensation expense included in cost of sales                                     | $369    | $418    | $379
Selling, general and administrative expense                                                    | 3,889   | 3,989   | 4,063
Research and development expense                                                               | 2,704   | 2,748   | 2,991
Stock-based compensation expense included in operating expenses                                | 6,593   | 6,737   | 7,054
Total stock-based compensation expense                                                         | 6,962   | 7,155   | 7,433
Tax benefit for expense associated with non-qualified options, PSUs, RSUs and restricted stock | (1,659) | (1,432) | (1,699)
Total stock-based compensation expense, net of tax                                             | $5,303  | $5,723  | $5,734 |


| _id | d1b3a079a |
| title |  |
| text | The net deferred tax asset is classified on the consolidated balance sheets as follows (in thousands):
We have various tax attribute carryforwards which include the following:

• Foreign federal and local gross net operating loss carryforwards are $61.6 million, of which $47.0 million have no expiration date and $14.6 million have various expiration dates beginning in fiscal 2020. Among the total of $61.6 million foreign net operating loss carryforwards, a valuation allowance of $31.7 million has been provided for certain jurisdictions since the recovery of the carryforwards is uncertain. U.S. federal and certain state gross net operating loss carryforwards are $14.0 million and

loss carryforwards are $14.0 million and $30.7 million, respectively, which were acquired from our acquisitions. A full valuation allowance against certain other state net operating losses of $30.7 million has been recorded. California gross net operating loss carryforwards are $2.8 million and are scheduled to expire beginning in fiscal 2032.

• U.S. federal R&D credit carryforwards of $35.4 million are scheduled to expire beginning in fiscal 2025. California R&D credit carryforwards of $32.2 million have no expiration date. A total of $27.1 million valuation allowance, before U.S. federal benefit, has been recorded against California R&D credit carryforwards of $32.2 million since the recovery of the carryforwards is uncertain. Other states R&D credit carryforwards of $3.9 million are scheduled to expire beginning in fiscal 2020. A valuation

to expire beginning in fiscal 2020. A valuation allowance totaling $2.7 million, before U.S. federal benefit, has been recorded against certain state R&D credit carryforwards of $3.9 million since the recovery of the carryforwards is uncertain.

• U.S. federal foreign tax credit carryforwards of $51.9 million are scheduled to expire beginning in fiscal 2022.

 |
| table | | Fiscal year-end |
------------------------------------------- | --------------- | --------
                                            | 2019            | 2018
Non-current deferred income tax assets      | $87,011         | $64,858
Non-current deferred income tax liabilities | (27,785)        | (26,339)
Net deferred tax assets                     | $59,226         | $38,519 |


| _id | d1b30e5d4 |
| title |  |
| text | Dividend Policy
Our policy is to declare quarterly dividends to shareholders as decided by the Board of Directors. The dividend to shareholders could be higher than the operating cash flow or the dividend to shareholders could be lower than the operating cash flow after reserves as the Board of Directors may from time to time determine are required, taking into account contingent liabilities, the terms of our borrowing agreements, our other cash needs and the requirements of Bermuda law.

Total dividends distributed in 2019 totaled $14.3 million or $0.10 per share. The quarterly dividend payments per share over the last 5 years have been as follows:
* Includes $0.05 per share distributed as dividend-in-kind.
The Company declared a dividend of $0.07 per share in respect of the fourth quarter of 2019, which was paid to shareholders on March 16, 2020.

 |
| table | Period       | 2019  | 2018  | 2017    | 2016  | 2015
------------ | ----- | ----- | ------- | ----- | -----
1st Quarter  | $0.04 | $0.03 | $0.20   | $0.43 | $0.22
2nd Quarter  | $0.03 | $0.01 | $0.20   | $0.43 | $0.38
3rd Quarter  | $0.01 | $0.02 | $0.15*  | $0.25 | $0.40
4th Quarter  | $0.02 | $0.01 | $0.03   | $0.26 | $0.38
Total        | $0.10 | $0.07 | $0.58   | $1.37 | $1.38 |


| _id | d1a73e024 |
| title |  |
| text | Item 6: Selected Financial Data
The following selected consolidated financial data is derived from our consolidated financial statements. This data should be read in conjunction with our consolidated financial statements and the related notes, and Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this Annual Report on Form 10-K.

(1) Fiscal 2018 net income includes an income tax benefit of $75.8 million from a valuation allowance release against certain U.S. deferred tax assets. See Note 13 of Notes to Consolidated Financial Statements. (2) Fiscal 2019, 2018, 2017, 2016, and 2015 net income (loss) includes restructuring charges, net, of $0.5 million, $0.2 million, $0.8 million, $7.3 million and $0.6 million, respectively.

(3) Fiscal 2016 net loss includes impairment charges of $12.4 million. (4) Fiscal 2015 net loss includes the following: i) a $1.5 million gain from a business interruption insurance claim relating to a factory fire at a customer's facility; and ii) a $1.0 million net gain from the sale of intellectual property.

(5) Fiscal 2016 includes the following as a result of the Cascade Microtech acquisition: i) $82.6 million in revenue; ii) $27.8 million of intangible amortization expense; and iii) a $7.6 million charge for inventory-related step-up amortization.

 |
| table | | Fiscal 2019 (2) | Fiscal 2018(1)(2) | Fiscal 2017(2)                                | Fiscal 2016 (2)(3)(5) | Fiscal 2015(2)(4)
------------------------------------------------ | --------------- | ----------------- | --------------------------------------------- | --------------------- | -----------------
                                                 |                 |                   | (Dollars in thousands, except per share data) |                       |
Consolidated Statements of Operations Data:      |                 |                   |                                               |                       |
Revenues                                         | $589,464        | $529,675          | $548,441                                      | $383,881              | $282,358
Gross profit                                     | 237,496         | 210,339           | 215,597                                       | 102,682               | 85,738
Net income (loss)                                | 39,346          | 104,036           | 40,913                                        | (6,557)               | (1,523)
Basic net income (loss) per share                | 0.52            | 1.42              | 0.57                                          | (0.10)                | (0.03)
Diluted net income (loss) per share              | 0.51            | 1.38              | 0.55                                          | (0.10)                | (0.03)
Consolidated Balance Sheets Data:                |                 |                   |                                               |                       |
Cash, cash equivalents and marketable securities | $220,872        | $149,003          | $140,172                                      | $108,905              | $187,589
Working capital                                  | 282,483         | 235,302           | 213,693                                       | 172,002               | 214,437
Total assets                                     | 839,882         | 728,222           | 646,574                                       | 618,982               | 342,723
Term loan, net of current portion                | 15,639          | 34,971            | 87,228                                        | 125,475               | —
Total stockholders' equity                       | 640,997         | 580,164           | 458,637                                       | 401,056               | 294,681
Number of employees                              | 1,836           | 1,676             | 1,685                                         | 1,571                 | 958 |


| _id | d1b3797e4 |
| title |  |
| text | Gross Profit
Gross profit in fiscal year 2018 increased to $382.3 million, or 17.7 percent of net sales from $300.8 million, or 16.7 percent of net sales for fiscal year 2017. Excluding the impact of the surcharge revenue, our gross margin in fiscal year 2018 was 21.3 percent compared to 19.3 percent in fiscal year 2017. The results reflect the impact of stronger demand and improved product mix coupled with operating cost improvements compared to fiscal year 2017.

Our surcharge mechanism is structured to recover increases in raw material costs, although in certain cases with a lag effect as discussed above. While the surcharge generally protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. The following represents a summary of the dilutive impact of the surcharge on gross margin. We present and discuss these financial measures because management believes removing the impact of surcharge provides a more

removing the impact of surcharge provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section “Non-GAAP Financial Measures” below for further discussion of these financial measures.

 |
| table | | Fiscal Year |
---------------------------------------- | ----------- | --------
($ in millions)                          | 2018        | 2017
Net sales                                | $2,157.7    | $1,797.6
Less: surcharge revenue                  | 365.4       | 239.2
Net sales excluding surcharge revenue    | $1,792.3    | $1,558.4
Gross profit                             | $382.3      | $300.8
Gross margin                             | 17.7%       | 16.7%
Gross margin excluding surcharge revenue | 21.3%       | 19.3% |


| _id | d1b3bff82 |
| title |  |
| text | As of April 30, 2019, the Company has U.S. federal net operating losses of $23 million of which $4 million begins to expire in Fiscal 2023 through 2031 and which are subject to annual limitation under Internal Revenue Code Section 382. The remaining U.S. federal net operating losses of $18.9 million have an indefinite carry-forward period. The U.S. federal capital loss carry-forward of $9.9 million expires in 2023. The Company also has state net operating loss carry-forwards, R&D tax credits, and state tax

carry-forwards, R&D tax credits, and state tax credits that expire in various years and amounts.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, is as follows (in thousands):

The entire amount reflected in the table above at April 30, 2019, if recognized, would reduce our effective tax rate. As of April 30, 2019, and 2018, the Company had $64,000 and $10,000, respectively, accrued for the payment of interest and penalties. For the fiscal years ended April 30, 2019 and 2018, the Company recognized interest and penalties of $54,000 and $3,000, respectively. Although it is difficult to predict or estimate the change in the Company’s unrecognized tax benefits over the next twelve

unrecognized tax benefits over the next twelve months, the Company believes that it is reasonably possible that decreases in unrecognized tax benefits of up to $40,000 may be recognized during the next twelve months.

The Company is subject to taxation in the U.S. federal, various state and local jurisdictions, and foreign jurisdictions. The Company is no longer subject to examination of its federal income tax returns by the Internal Revenue Service for fiscal years 2016 and prior. During Fiscal 2018, the Company closed an Internal Revenue Service examination of its Fiscal 2016 tax return with no change to the tax liability reported. The Company is no longer subject to examination by the taxing authorities in its

to examination by the taxing authorities in its foreign jurisdictions for Fiscal 2015 and prior. Net operating losses and tax attributes generated by domestic and foreign entities in closed years and utilized in open years are subject to adjustment by the tax authorities.

 |
| table | | 2019   | 2018
------------------------------------------------------ | ------ | ------
Balance at the beginning of the fiscal year            | $1,264 | $1,626
Additions based on positions taken in the current year | -      | -
Additions based on positions taken in prior years      | 142    | -
Decreases based on positions taken in prior years      | (119 ) | (304)
Lapse in statute of limitations                        | (29 )  | (58)
Balance at the end of the fiscal year                  | $1,258 | $1,264 |


| _id | d1b3127ec |
| title |  |
| text | GreenSky, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(United States Dollars in thousands, except per share data, unless otherwise stated)
The following table reconciles the beginning and ending fair value measurements of our servicing liabilities associated with transferring our rights to Charged-Off Receivables during the periods presented.
(1) Recognized in other gains (losses), net in the Consolidated Statements of Operations.

(2) Represents the reduction of our servicing liabilities due to the passage of time and collection of loan payments.

 |
| table | |         | Year Ended December 31, |
-------------------------------------------------------------- | ------- | ----------------------- | ------
                                                               | 2019    | 2018                    | 2017
Beginning balance                                              | $3,016  | $2,071                  | $—
Initial obligation from transfer of Charged-Off Receivables(1) | 2,705   | 2,461                   | 2,379
Fair value changes recognized in other gains (losses), net(2)  | (1,925) | (1,516)                 | (308)
Ending balance                                                 | $3,796  | $3,016                  | $2,071 |


| _id | d1b389392 |
| title |  |
| text | Obligations and Commitments
As of August 31, 2019, we had the following obligations and commitments to make future payments under contracts, contractual obligations and commercial commitments:
Amounts in table may not total due to rounding.

Amounts in table may not total due to rounding.
The liability related to unrecognized tax benefits has been excluded from the contractual obligations table because a reasonable estimate of the timing and amount of cash outflows from future tax settlements cannot be determined. For additional information, see Note 10 (Income Taxes) to our Consolidated Financial Statements under Item 8, “Financial Statements and Supplementary Data.”

Amounts represent projected payments under certain unfunded retirement plans for former pre-incorporation partners. Given these plans are unfunded, we pay these benefits directly. These plans were eliminated for active partners after May 15, 2001

Other commitments include, among other things, information technology, software support and maintenance obligations, as well as other obligations in the ordinary course of business that we cannot cancel or where we would be required to pay a termination fee in the event of cancellation. Amounts shown do not include recourse that we may have to recover termination fees or penalties from clients.

 |
| table | |        |                  | Payments due by period        |           |
---------------------------------------------- | ------ | ---------------- | ----------------------------- | --------- | -----------------
Contractual Cash Obligations (1)               | Total  | Less than 1 year | 1-3 years                     | 3-5 years | More than 5 years
                                               |        |                  | (in millions of U.S. dollars) |           |
Long-term debt                                 | $23    | $6               | $11                           | $6        |
Operating leases                               | 3,840  | 688              | 1,114                         | 792       | 1,246
Retirement obligations (2)                     | 95     | 10               | 20                            | 20        | 44
Purchase obligations and other commitments (3) | 286    | 206              | 61                            | 12        | 6
Total                                          | $4,244 | $910             | $1,206                        | $830      | $1,296 |


| _id | d1b32c020 |
| title |  |
| text | Gross Profit

Gross profit increased $269.4 million, or 45.2%, for the year ended December 31, 2019 compared to the same period in 2018. As a percentage of total revenues, gross profit decreased from 55.6% in the year ended December 31, 2018 to 54.9% in the year ended December 31, 2019, due to Shopify Payments representing a larger percentage of total revenue and an increase in amortization of technology related to the 6RS acquisition as well as other platform enhancements. This was partly offset by lower third-party

This was partly offset by lower third-party infrastructure and hosting costs and employee-related costs as a percentage of revenues as well as the relative growth of higher-margin merchant solutions products, namely Shopify Capital and referral fees from partners.

Gross profit increased $216.0 million, or 56.8%, for the year ended December 31, 2018 compared to the same period in 2017. As a percentage of total revenues, gross profit decreased from 56.5% in the year ended December 31, 2017 to 55.6% in the year ended December 31, 2018, due to Shopify Payments representing a larger percentage of total revenue, increasing the functionality and flexibility of our hosting infrastructure, and higher product costs associated with expanding our product offerings. This was

with expanding our product offerings. This was partly offset by the relative growth of higher-margin merchant solutions products, namely referral fees from partners, Shopify Capital, and Shopify Shipping.

 |
| table | | Years ended December 31            |           |           | 2019 vs 2018 | 2018 vs 2017
---------------------------- | ---------------------------------- | --------- | --------- | ------------ | ------------
                             | 2019                               | 2018      | 2017      | % Change     | % Change
                             | (in thousands, except percentages) |           |           |              |
Gross profit                 | $ 865,643                          | $ 596,267 | $ 380,253 | 45.2 %       | 56.8 %
Percentage of total revenues | 54.9 %                             | 55.6 %    | 56.5 %    |              | |


| _id | d1a73ccc4 |
| title |  |
| text | COMMITMENTS AND CONTINGENCIES
Warranties

The Company’s standard warranty obligation to its customers provides for repair or replacement of a defective product at the Company’s discretion for a period of time following purchase, generally between 12 and 24 months. Factors that affect the warranty obligation include product failure rates, material usage and service delivery costs incurred in correcting product failures. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise. The estimated cost

technical problems arise. The estimated cost associated with fulfilling the Company’s warranty obligation to customers is recorded in cost of revenue.

Changes in the Company’s warranty liability, which is included as a component of accrued liabilities on the consolidated balance sheets, are set forth in the table below (in thousands):

 |
| table | |          | Year Ended December 31, |
----------------------------------------------------- | -------- | ----------------------- | --------
                                                      | 2019     | 2018                    | 2017
Warranty reserve, beginning of period                 | $8,220   | $8,306                  | $2,158
Provisions made to warranty reserve during the period | 13,708   | 11,775                  | 16,597
Charges against warranty reserve during the period    | (11,574) | (11,861)                | (10,449)
Warranty reserve end of period                        | $10,354  | 8,220                   | 8,306 |


| _id | d1b2e9cc0 |
| title |  |
| text | CUSTOMER STATISTICS
INTERNET Fiscal 2019 fourth-quarter Internet service customers net additions stood at 2,441 compared to 4,693 for the same period of the prior year as a result of: • additional connects related to the Florida expansion initiatives and in the MetroCast footprint; • our customers' ongoing interest in high speed offerings; and • growth in both the residential and business sectors.

VIDEO Fiscal 2019 fourth-quarter video service customers net additions stood at 5,294 compared to net losses of 3,046 for the same period of the prior year mainly from: • the activation of bulk properties in Florida during the fourth quarter of fiscal 2019; and • our customers' ongoing interest in TiVo's digital advanced video services; partly offset by • competitive offers in the industry; and • a changing video consumption environment.

TELEPHONY Fiscal 2019 fourth-quarter telephony service customers net losses stood at 304 compared to net additions of 1,150 for the same period of the prior year mainly as a result of a decline in the residential sector, partly offset by growth in the business sector. TELEPHONY Fiscal 2019 fourth-quarter telephony service customers net losses stood at 304 compared to net additions of 1,150 for the same period of the prior year mainly as a result of a decline in the residential sector, partly offset by

in the residential sector, partly offset by growth in the business sector.

 |
| table | |            | Net additions (losses)        |
--------------------------- | ---------- | ----------------------------- | -------
                            |            | Three months ended August 31, |
                            | August 31, |                               |
                            | 2019       | 2019                          | 2018
Primary service units       | 901,446    | 7,431                         | 2,797
Internet service customers  | 446,137    | 2,441                         | 4,693
Video service customers     | 312,555    | 5,294                         | (3,046)
Telephony service customers | 142,754    | (304)                         | 1,150 |


| _id | d1b3302a6 |
| title |  |
| text | If not presented separately in our income statement, restructuring expenses would have been classified in the different expense items in our income statement as follows:
Restructuring Expenses by Functional Area

 |
| table | € millions                 | 2019   | 2018 | 2017
-------------------------- | ------ | ---- | ----
Cost of cloud and software | –138   | –3   | –55
Cost of services           | –154   | –3   | –118
Research and development   | –467   | –3   | –9
Sales and marketing        | –299   | –11  | –2
General and administration | –71    | 0    | 2
Restructuring expenses     | –1,130 | –19  | –182 |


| _id | d1b3a277a |
| title |  |
| text | Note 7. Prepaid Expenses and Other Current Assets and Accrued and Other Current Liabilities
Prepaid expenses and other current assets as of December 31, 2019 and 2018 consisted of the following:

 |
| table | December 31,                               |         |
------------------------------------------ | ------- | ------
                                           | 2019    | 2018
Prepaid expenses                           | $1,948  | $1,179
Securities litigation insurance receivable | 16,627  | 306
Other current assets                       | 1,556   | 2,865
Prepaid expenses and other current assets  | $20,131 | $4,350 |


| _id | d1b372930 |
| title |  |
| text | GasLog Ltd. and its Subsidiaries Notes to the consolidated financial statements (Continued) For the years ended December 31, 2017, 2018 and 2019 (All amounts expressed in thousands of U.S. Dollars, except share and per share data)      Investment in associates and joint venture consist of the following:

The additions of $158 relate to the investment in Gastrade (December 31, 2018: $136). On February 9, 2017, GasLog acquired a 20% shareholding in Gastrade, a private limited company licensed to develop an independent natural gas system offshore Alexandroupolis in Northern Greece utilizing an FSRU along with other fixed infrastructure. GasLog, as well as being a shareholder, will provide operations and maintenance (‘‘O&M’’) services for the FSRU through an O&M agreement which was signed on February 23, 2018.

 |
| table | | Associates |
----------------------------- | ---------- | ------
                              | 2018       | 2019
As of January 1,              | 20,800     | 20,713
Additions                     | 136        | 158
Share of profit of associates | 1,800      | 1,627
Dividend declared             | (2,023)    | (878)
As of December 31,            | 20,713     | 21,620 |


| _id | d1b3324de |
| title |  |
| text | 2020 Incentive Plan Enhancements.
For 2020, we have transitioned into the operation phase of our long-term strategy. As discussed further in this
CD&A, following an internal review process, extensive discussions with our shareholders and consultation with our executive compensation consultants, we revised the design for our 2020 incentive programs to support our strategic priorities as described below:

• added Revenue as metric to our STI plan to encourage and reward top-line performance • changed the metric and performance period for our LTI plan to three-year cumulative Adjusted EBITDA target • added three-year Relative TSR Modifier, as a positive or negative adjustment +/- 20%, for our LTI plan.

 |
| table | | Short-Term Incentive Plan |
----------------------------------- | ------------------------- | --------------
Strategy                            | Integrate and Transform   | Operate
Metrics                             | 2018 & 2019 Weighting     | 2020 Weighting
Adjusted EBITDA                     | 65%                       | 50%
Free Cash Flow                      | 25%                       | 25%
Revenue                             | —                         | 15%
Customer Experience                 | 10%                       | 10%
                                    | Long-Term Incentive Plan  |
Strategy                            | Integrate and Transform   | Operate
Metrics                             | 2018 & 2019 Weighting     | 2020 Weighting
Adjusted EBITDA Run Rate (2 year)   | 100%                      | —
Cumulative Adjusted EBITDA (3 year) | —                         | 100%
Relative TSR Modifier (3 year)      | —                         | +/-20% |