Liquidity and Capital Resources
We fund our operations primarily through cash generated from operations. As of December 31, 2019, we had cash and cash equivalents totalling $36.6 million, marketable securities of $434.8 million and accounts receivable of $97.9 million.
We believe our existing cash balances and anticipated cash flow from future operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and the foreseeable future. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, purchases of capital equipment to support our growth, the expansion of sales and marketing activities, any expansion of our business through acquisitions of or investments in complementary products, technologies or businesses, the use of working capital to purchase additional inventory, the timing of new product introductions, market acceptance of our products and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. In the event additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. We believe our existing cash balances and anticipated cash flow from future operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and the foreseeable future. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, purchases of capital equipment to support our growth, the expansion of sales and marketing activities, any expansion of our business through acquisitions of or investments in complementary products, technologies or businesses, the use of working capital to purchase additional inventory, the timing of new product introductions, market acceptance of our products and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. In the event additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. We believe our existing cash balances and anticipated cash flow from future operations will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months and the foreseeable future. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on research and development efforts and other business initiatives, purchases of capital equipment to support our growth, the expansion of sales and marketing activities, any expansion of our business through acquisitions of or investments in complementary products, technologies or businesses, the use of working capital to purchase additional inventory, the timing of new product introductions, market acceptance of our products and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. In the event additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.
On April 30, 2018, our Board of Directors authorized a stock repurchase program for the repurchase of up to $60.0 million of our common stock, of which $39.7 million was used to repurchase shares in 2018 prior to the program’s expiration on December 31, 2018.

                                                    |           | Year Ended December 31, |
--------------------------------------------------- | --------- | ----------------------- | ---------
                                                    | 2019      | 2018                    | 2017
                                                    |           | (in thousands)          |
Cash and cash equivalents                           | $36,617   | $60,444                 | $67,495
Marketable securities                               | 434,761   | 339,424                 | 297,115
Working capital                                     | 368,912   | 370,445                 | 361,621
Net cash provided by operating activities           | 72,819    | 83,085                  | 61,893
Net cash used in investing activities               | (103,579) | (56,237)                | (207,907)
Net cash provided by (used in) financing activities | 6,933     | (33,899)                | 5,477


Cash Flow
Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows on page 71 are summarized in the table below. These amounts include the cash flows associated with the Global Financing business.
Net cash provided by operating activities decreased $477 million in 2019 driven by the following key factors: • An increase in cash income tax payments of $346 million; • An increase in interest payments on debt of approximately $300 million, driven by incremental debt used to fund the acquisition of Red Hat; and • Performance-related declines within net income, including lower operating cash flows due to businesses divested in 2019; partially offset by • An increase of $836 million in cash provided by financing receivables.
Net cash used in investing activities increased $22,023 million driven by: • An increase in net cash used for acquisitions of $32,491 million, primarily driven by the acquisition of Red Hat; offset by • An increase of $7,223 million in cash provided by net non-operating finance receivables primarily driven by the wind down of OEM IT commercial financing operations; • A decrease in cash used for net capital expenditures of $1,346 million; and • An increase in cash provided by divestitures of $1,076 million.
Financing activities were a net source of cash of $9,042 million in 2019 compared to a net use of cash of $10,469 million in 2018. The year-to-year increase in cash flow of $19,512 million was driven by: • An increase in net cash sourced from debt transactions of $16,584 million primarily driven by net issuances to fund the Red Hat acquisition; and • A decrease in cash used for gross common share repurchases of $3,082 million.

($ in millions)                                                               |          |
----------------------------------------------------------------------------- | -------- | --------
For the year ended December 31:                                               | 2019     | 2018
Net cash provided by/(used in) continuing operations                          |          |
Operating activities                                                          | $14,770  | $15,247
Investing activities                                                          | (26,936) | (4,913)
Financing activities                                                          | 9,042    | (10,469)
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (167)    | (495)
Net change in cash, cash equivalents and restricted cash                      | $(3,290) | $(630)


The defined benefit pension plan utilizes various investment securities. Generally, investment securities are exposed to various risks, such as interest rate risks, credit risk, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur and that such changes could materially affect the amounts reported.
The following table presents the Company’s target for the allocation of invested defined benefit pension plan assets at June 30, 2019 and June 30, 2018:

             | As of June 30 |
------------ | ------------- | ----
             | 2019          | 2018
Fixed income | 40%           | 40%
Equities     | 55%           | 55%
Other        | 5%            | 5%
Total        | 100%          | 100%


NOTE 15. ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consist of the following:
Personnel-related items comprise accrued management bonuses, accrued vacation days, accrued wage tax, social securities and pension premiums. Deferred revenue consists of the revenue relating to the undelivered elements of the arrangements, see Note 21 for more information. This part of revenue is deferred at their relative selling prices until delivery of these elements. Other includes accruals for VAT, other taxes and invoices to be received for goods and services.

                                          | December 31, |
----------------------------------------- | ------------ | -------
                                          | 2018         | 2019
Personnel-related items                   | 32,636       | 45,318
Deferred revenue                          | 28,255       | 32,146
Financing related items                   | –            | 3,912
Current portion of lease liabilities      | –            | 7,002
Advanced payments from customers          | 25,382       | 47,601
Supplier related items                    | 1,828        | 2,175
Marketing related items                   | 1,049        | 1,365
R&D projects                              | 1,209        | 1,109
Other                                     | 8,634        | 9,215
Total accrued expenses and other payables | 98,993       | 149,843


Note 3: Debt
A summary of debt is as follows (amounts in thousands):
(1) Amount shown is net of discount, bank issuance costs and other indirect issuance costs of $13.3 million as of March 31, 2018.
(2) Amount shown is net of discount, bank issuance costs and other indirect issuance costs of $8.7 million as of March 31, 2019.
(3) Amount shown is net of discount of $2.1 million as of March 31, 2019.
(4) Amounts shown are net of discounts of $0.6 million and $0.5 million as of March 31, 2019 and 2018, respectively.

                               | March 31, |
------------------------------ | --------- | --------
                               | 2019      | 2018
Term Loan Credit Agreement (1) | $—        | $318,782
TOKIN Term Loan Facility (2)   | 276,808   | —
Customer Advances (3)          | 11,270    | —
Other, net (4)                 | 6,393     | 5,841
Total debt                     | 294,471   | 324,623
Current maturities             | (28,430)  | (20,540)
Total long-term debt           | $266,041  | $304,083


Financial Highlights
International Business Machines Corporation and Subsidiary Companies
* Includes charges of $0.1 billion in 2019 and $2.0 billion in 2018 associated with U.S. tax reform.
** See page 46 for a reconciliation of net income to operating earnings.

($ in millions except per share amounts)                          |          |
----------------------------------------------------------------- | -------- | --------
For the year ended December 31:                                   | 2019     | 2018
Revenue                                                           | $ 77,147 | $ 79,591
Net Income                                                        | 9,431*   | 8,728*
Income from continuing operations                                 | 9,435*   | 8,723*
Operating (non-GAAP) earnings**                                   | $ 11,436 | $ 12,657
Earnings per share of common stock—continuing operations          |          |
Assuming dilution                                                 | 10.57*   | 9.51*
Basic                                                             | 10.63    | 9.56*
Diluted operating (non-GAAP)**                                    | $  12.81 | $  13.81
Net cash provided by operating activities                         | $ 14,770 | $ 15,247
Capital expenditures, net                                         | $  2,370 | $  3,716
Share repurchases                                                 | $  1,361 | $  4,443
Cash dividends paid on common stock                               | $  5,707 | $  5,666
Per share of common stock                                         | $   6.43 | $   6.21
At December 31:                                                   | 2019     | 2018
Cash, cash equivalents, restricted cash and marketable securities | $  9,009 | $ 12,222
Total assets                                                      | $152,186 | $123,382
Working capital                                                   | $    718 | $ 10,918
Total debt                                                        | $ 62,899 | $ 45,812
Total equity                                                      | $ 20,985 | $ 16,929
Common shares outstanding (in millions)                           | 887      | 892
Stock price per common share                                      | $ 134.04 | $ 113.67


Note 3: Debt
The line item “Interest expense” on the Consolidated Statements of Operations for the fiscal years 2019, 2018 and 2017, respectively, is as follows (amounts in thousands):

                                                    |         | Fiscal Years Ended March 31, |
--------------------------------------------------- | ------- | ---------------------------- | -------
                                                    | 2019    | 2018                         | 2017
Contractual interest expense                        | $19,471 | $30,323                      | $38,825
Capitalized interest                                | (232)   | (141)                        | (154)
Amortization of debt issuance costs                 | 334     | 511                          | 1,390
Amortization of debt (premium) discount             | 1,481   | 1,843                        | (788)
Imputed interest on acquisition related obligations | 57      | 113                          | 159
Interest expense on capital leases                  | 128     | 233                          | 323
Total interest expense                              | $21,239 | $32,882                      | $39,755


Property and Equipment
Property and equipment are carried at cost. The following is a summary of property and equipment as of September 30, 2019 and 2018(amounts shown in thousands):
Depreciation and amortization of property and equipment are provided using the straight-line method over estimated useful lives ranging from three to ten
years. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the assets. Depreciation and amortization of property and equipment totaled $1.4 million, $0.6 million, and $0.3 million for the fiscal years ended September 30, 2019, 2018, and 2017, respectively. Expenditures for repairs and maintenance are charged to operations. Total repairs and maintenance expenses were $0.1 million, $0.1 million and $0.2 million for the fiscal years ended September 30, 2019, 2018, and 2017, respectively.

                                                    | 2019    | 2018
--------------------------------------------------- | ------- | -------
Property and equipment—at cost:                     |         |
Leasehold improvements                              | $3,575  | $3,825
Equipment                                           | 3,041   | 2,604
Capitalized internal-use software development costs | 1,088   | 916
Furniture and fixtures                              | 526     | 425
                                                    | 8,230   | 7,770
Less: accumulated depreciation and amortization     | (3,999) | (3,105)
Total property and equipment, net                   | $4,231  | $4,665


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except for share and per share data)
NOTE 16 — Stock-Based Compensation
At December 31, 2019, we had five stock-based compensation plans: the Non-Employee Directors' Stock Retirement Plan
("Directors' Plan"), the 2004 Omnibus Long-Term Incentive Plan ("2004 Plan"), the 2009 Omnibus Equity and Performance
Incentive Plan ("2009 Plan"), the 2014 Performance & Incentive Plan ("2014 Plan"), and the 2018 Equity and Incentive
Compensation Plan ("2018 Plan"). Future grants can only be made under the 2018 Plan.
These plans allow for grants of stock options, stock appreciation rights, restricted stock, restricted stock units ("RSUs"), performance
shares, performance units, and other stock awards subject to the terms of the specific plans under which the awards are granted.
The following table summarizes the compensation expense included in selling, general and administrative expenses in the Consolidated Statements of Earnings related to stock-based compensation plans:
The fair value of all equity awards that vested during the periods ended December 31, 2019, 2018, and 2017 were $6,589, $5,805, and $5,471, respectively. We recorded a tax deduction related to equity awards that vested during the year ended December 31, 2019, in the amount of $1,489.

                       |        | Years Ended December 31, |
---------------------- | ------ | ------------------------ | ------
                       | 2019   | 2018                     | 2017
Service-Based RSUs     | $2,207 | $2,036                   | $1,762
Performance-Based RSUs | 2,553  | 3,089                    | 2,350
Cash-settled awards    | 255    | 131                      | 72
Total                  | $5,015 | $5,256                   | $4,184
Income tax benefit     | 1,133  | 1,188                    | 1,573
Net                    | $3,882 | $4,068                   | $2,611


Notes to Consolidated Financial Statements
Operating Leases
The Company leases certain of its corporate, manufacturing and other facilities from multiple third- party real estate developers. The operating leases expire at various dates through 2034, and some of these leases have renewal options, with the longest ranging up to two, ten-year periods. Several of these leases also include market rate rent escalations, rent holidays, and leasehold improvement incentives, all of which are recognized to expense on a straight-line basis. Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the lesser of the remaining life of the lease term (including renewals that are reasonably assured) or the useful life of the asset. The Company also leases various machinery and equipment and office equipment under non-cancelable operating leases. The remaining terms of these operating leases range from less than one year to approximately 15 years.
Rent expense under operating leases, covering facilities and equipment, was approximately $19.3 million, $16.3 million, and $14.8 million for fiscal years 2019, 2018 and 2017, respectively.
Capital Leases
In fiscal 2018, the Company entered into a capital lease for a facility in Beijing, China that will allow the Company to consolidate several leased facilities as well as provide additional manufacturing space. The lease term is expected to commence in fiscal 2021 and therefore is not recorded on the Consolidated Balance Sheet as of March 30, 2019. The lease has an initial term of five years and includes multiple renewal options, with the maximum lease term not to exceed 30 years. The minimum future payments for this lease are included in the table below.
Purchase commitments
The Company’s other purchase commitments include payments due for materials and manufacturing services. The Company also has commitments for the purchase of property and equipment, a substantial majority of which will be due within the next 12 months.
The Company’s minimum payments under non-cancelable leases and purchase commitments as of March 30, 2019, are as follows (in thousands):

Fiscal Year            | Operating Leases | Capital Leases | Purchase Commitments
---------------------- | ---------------- | -------------- | --------------------
2020                   | $22,207          | $241           | $328,435
2021                   | 13,382           | 1,220          | 24,005
2022                   | 10,331           | 1,220          | 5,654
2023                   | 8,224            | 1,220          | 3,596
2024                   | 7,139            | 1,220          | —
Thereafter             | 31,598           | 47,258         | —
Total minimum payments | $92,881          | $52,379        | $361,690


Option Exercises and Stock Vested in Fiscal 2019
The following table sets forth certain details with respect to each of the Named Executive Officers concerning the exercise of stock options and vesting of stock in Fiscal 2019:
(1) “Value realized on exercise” is the excess of the market price, at date of exercise, of the shares underlying the options over the exercise price of the options.
(2) “Value realized on vesting” is the market price of the underlying Common Shares on the vesting date.
(3) Relates to the vesting of PSUs and RSUs under our Fiscal 2018 LTIP.

                    | Option Awards                             |                                   | Stock Awards (3)                         |
------------------- | ----------------------------------------- | --------------------------------- | ---------------------------------------- | --------------------------------
Name                | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise(1) ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting(2) ($)
Mark J. Barrenechea | 135,208                                   | $2,801,023                        | 65,820                                   | $7,625,905
Madhu Ranganathan   | —                                         | $—                                | —                                        | $—
Muhi Majzoub        | 100,000                                   | $2,592,411                        | 10,900                                   | $1,263,646
Gordon A. Davies    | —                                         | $—                                | 12,840                                   | $1,486,870
Simon Harrison      | 26,504                                    | $714,495                          | 8,980                                    | $346,808


Sales-Type Leases
We are the lessor in sales-type lease arrangements for network equipment, which have initial terms of up to five years. Our sales-type lease arrangements contain either a provision whereby the network equipment reverts back to us upon the expiration of the lease or a provision that allows the lessee to purchase the network equipment at a bargain purchase amount at the end of the lease. In addition, our sales-type lease arrangements do not contain any residual value guarantees or material restrictive covenants. The allocation of the consideration between lease and nonlease components is determined by stand-alone selling price by component. The net investment in sales-type leases consists of lease receivables less unearned income. Collectability of sales-type leases is evaluated periodically at an individual customer level. The Company has elected to exclude taxes related to sales-type leases from revenue and the associated expense of such taxes. As of December 31, 2019 and 2018, we did not have an allowance for credit losses for our net investment in sales-type leases. As of December 31, 2019 and 2018, the components of the net investment in sales-type leases were as follows:
(1) Included in other receivables on the Consolidated Balance Sheet.
(2) Included in other assets on the Consolidated Balance Sheet.

(In thousands)                                   | December 31, 2019 | December 31, 2018
------------------------------------------------ | ----------------- | -----------------
Current minimum lease payments receivable(1)     | $1,201            | $11,339
Non-current minimum lease payments receivable(2) | 889               | 1,670
Total minimum lease payments receivable          | 2,090             | 13,009
Less: Current unearned revenue(1)                | 365               | 631
Less: Non-current unearned revenue(2)            | 163               | 473
Net investment in sales-type leases              | $1,562            | $11,905


The following table presents a reconciliation of revenue to constant currency revenue (in thousands, except for revenue growth):
Total revenue growth declined to 7% in 2019 from 12% in 2018. Our growth rate can depend on a variety of factors, such as new customers, the size, volume, and complexity of our agreements with our customers, foreign currency movements, our ability to work with our customers to implement and deliver our products, our ability to upsell and renew our existing customers, the success of our alliance and partnership arrangements, and the expansion of our business through emerging markets. The decline in the growth rate of total revenue was driven by our strategic plan to transition away from one-time professional services and recommit our efforts to grow recurring revenue and free cash flows.

                                                                         |          | Year Ended December 31, |
------------------------------------------------------------------------ | -------- | ----------------------- | --------
                                                                         | 2019     | 2018                    | 2017
Revenue                                                                  | $576,523 | $537,891                | $481,985
Foreign exchange effect on current period revenue using prior year rates | 7,077    | (5,291)                 | 5,865
Constant currency revenue                                                | $583,600 | $532,600                | $487,850
Revenue growth                                                           | 7.2%     | 11.6%                   | 13.9%
Constant currency revenue growth                                         | 8.5%     | 10.5%                   | 15.3%


28. FINANCIAL INSTRUMENTS (cont.)
(1) Other current and long-term financial assets classified as fair value through profit or loss were calculated using level 2 of the fair value hierarchy. All other balances were calculated using level 1 of the fair value hierarchy. (1) Other current and long-term financial assets classified as fair value through profit or loss were calculated using level 2 of the fair value hierarchy. All other balances were calculated using level 1 of the fair value hierarchy.
(2) Indebtedness excludes deferred financing costs and prepayment options (December 31, 2018 – deferred financing costs, interest rate floor, prepayment option and net gain on repricing/repayment). (2) Indebtedness excludes deferred financing costs and prepayment options (December 31, 2018 – deferred financing costs, interest rate floor, prepayment option and net gain on repricing/repayment).
(3) Trade and other receivables and trade and other payables approximate fair value due to the short-term maturity of these instruments.

As at December 31, 2018               | FVTPL   | Amortised cost | Total        | Fair Value   | Fair Value hierarchy
------------------------------------- | ------- | -------------- | ------------ | ------------ | --------------------
Cash and cash equivalents             | $ -     | $768,433       | $768,433     | $768,433     | Level 1
Trade and other receivables           | -       | 45,631         | 45,631       | 45,631       | (3)
Other current financial assets (1)    | 18,632  | 147            | 18,779       | 18,779       | Level 1, Level 2
Other long-term financial assets (1)  | 33,796  | 21,959         | 55,755       | 55,755       | Level 1, Level 2
Trade and other payables              | -       | (30,659)       | (30,659)     | (30,659)     | (3)
Other current financial liabilities   | (6)     | (26,380)       | (26,386)     | (29,131)     | Level 2
Other long-term financial liabilities | (5,627) | (48,894)       | (54,521)     | (54,733)     | Level 2
Indebtedness (2)                      | -       | (3,853,883)    | (3,853,883)  | (3,709,695)  | Level 2
                                      | $46,795 | $(3,123,646)   | $(3,076,851) | $(2,935,620) |


The components of the net deferred income tax assets as of September 28, 2019 and September 29, 2018, were as follows (in thousands):
During fiscal 2019, the Company’s valuation allowance increased by $0.8 million. This increase is the result of increases to the valuation allowances against the net deferred tax assets in the AMER region of $1.7 million, partially offset by a decrease in net deferred tax assets in the EMEA region of $0.9 million.
As of September 28, 2019, the Company had approximately $189.2 million of pre-tax state net operating loss carryforwards that expire between fiscal 2020 and 2040. Certain state net operating losses have a full valuation allowance against them. The Company also had approximately $79.6 million of pre-tax foreign net operating loss carryforwards that expire between fiscal 2019 and 2025 or are indefinitely carried forward. These foreign net operating losses have a full valuation allowance against them.
During fiscal 2019, proposed and final regulations were issued and tax legislation was adopted in various jurisdictions. The impacts of these regulations and legislation on the Company’s consolidated financial condition, results of operations and cash flows are included above.
The Company has been granted a tax holiday for a foreign subsidiary in the APAC segment. This tax holiday will expire onD ecember 31, 2024, and is subject to certain conditions with which the Company expects to continue to comply. During fiscal 2019, 2018 and 2017, the tax holiday resulted in tax reductions of approximately $23.9 million net of the impact of the GILTI provisions of Tax Reform ($0.79 per basic share, $0.77 per diluted share), $39.1 million ($1.19 per basic share, $1.15 per diluted share) and $37.5 million ($1.11 per basic share, $1.08 per diluted share), respectively.
The Company does not provide for taxes that would be payable if certain undistributed earnings of foreign subsidiaries were remitted because the Company considers these earnings to be permanently reinvested. The deferred tax liability that has not been recorded for these earnings was approximately $10.5 million as of September 28, 2019.
The Company has approximately $2.3 million of uncertain tax benefits as of September 28, 2019. The Company has classified these amounts in the Consolidated Balance Sheets as "Other liabilities" (noncurrent) in the amount of $1.5 million and an offset to "Deferred income taxes" (noncurrent asset) in the amount of $0.8 million. The Company has classified these amounts as "Other liabilities" (noncurrent) and "Deferred income taxes" (noncurrent asset) to the extent that payment is not anticipated within one year.

                                              | 2019     | 2018
--------------------------------------------- | -------- | --------
Deferred income tax assets:                   |          |
Loss/credit carryforwards                     | $28,391  | $27,915
Inventories                                   | 16,809   | 6,459
Accrued benefits                              | 15,834   | 14,459
Other                                         | 3,353    | 3,450
Total gross deferred income tax assets        | 64,387   | 52,283
Less valuation allowances                     | (29,170) | (28,369)
Deferred income tax assets                    | 35,217   | 23,914
Deferred income tax liabilities:              |          |
Property, plant and equipment                 | 15,621   | 12,530
Tax on unremitted earnings                    | 5,192    | 14,935
Acceleration of revenue under Topic 606       | 6,055    | —
Deferred income tax liabilities               | 26,868   | 27,465
 Net deferred income tax assets/(liabilities) | 8,349    | (3,551)


Systems revenue of $8,034 million decreased 2.0 percent year to year as reported (2 percent adjusted for currency) driven by strong IBM Z performance in 2017 and continued price pressures impacting Storage Systems in a competitive environment.
Both hardware platforms were down year to year for the full year, as reported and adjusted for currency. This performance was partially offset by strong growth in Power Systems (which grew as reported and adjusted for currency in 2018) with strong performance in POWER9-based systems and Linux throughout the year. Within Systems, cloud revenue of $3.1 billion decreased 10 percent as reported and adjusted for currency compared to the prior year reflecting IBM Z product cycle dynamics.

($ in millions)                 |        |        |                           |
------------------------------- | ------ | ------ | ------------------------- | -----------------------------------------------
For the year ended December 31: | 2018   |        | Yr.-to-Yr. Percent Change | Yr.-to-Yr. Percent Change Adjusted for Currency
Systems external revenue        | $8,034 | $8,194 | (2.0)%                    | (2.3)%
Systems Hardware                | $6,363 | $6,494 | (2.0)%                    | (2.3)%
IBM Z                           |        |        | (5.4)                     | (5.6)
Power Systems                   |        |        | 8.8                       | 8.7
Storage Systems                 |        |        | (5.5)                     | (5.9)
Operating Systems Software      | 1,671  | 1,701  | (1.7)                     | (2.4)


(4) Property and Equipment
Property and equipment consist of the following (in thousands):
Depreciation and amortization expense related to property and equipment was $22,538,000, $21,721,000 and $25,787,000 in 2019, 2018 and 2017, respectively.
On November 1, 2019, we completed the purchase of real estate in Chandler, Arizona for approximately $48,000,000 that we intend to use as our global corporate headquarters. The property contains a building and some infrastructure in place that we will complete readying for our use over the next year. We intend to sell our current properties in Tempe, Arizona.
Included within the software, buildings and land values presented above are assets in the process of being readied for use in the amounts of approximately $12,138,000, $27,658,000 and $11,700,000, respectively. Depreciation on these assets will commence, as appropriate, when they are ready for use and placed in service.

                                          | December 31, |
----------------------------------------- | ------------ | ---------
                                          | 2019         | 2018
Software                                  | $114,674     | $170,327
Buildings                                 | 92,092       | 64,263
Equipment                                 | 60,661       | 100,421
Furniture and fixtures                    | 34,768       | 38,200
Lease hold improvements                   | 33,668       | 26,319
Land                                      | 31,374       | 5,124
                                          | 367,237      | 404,654
Accumulated depreciation and amortization | (236,330)    | (331,700)
Property and equipment, net               | $130,907     | $72,954


22. JOINT VENTURES (Cont’d)
‘‘NA’’ denotes Not Applicable.
Notes:
(1) Based on the Group’s direct equity interest in AIS.
(2) Others include adjustments to align the respective local accounting standards to SFRS(I).

                                                                                | Airtel     | Telkomsel | Globe     | AIS
------------------------------------------------------------------------------------------------------------------- | ---------- | --------- | --------- | ---------
Group - 2017                                                                                | S$ Mil     | S$ Mil    | S$ Mil    | S$ Mil
Statement of financial position                                                                                |            |           |           |
Current assets                                                                                | 4,378.4    | 3,546.3   | 1,481.6   | 1,368.4
Non-current assets                                                                                | 45,611.2   | 6,169.6   | 5,548.1   | 10,027.2
Current liabilities                                                                                | (13,568.3) | (2,547.9) | (2,344.3) | (2,994.1)
Non-current liabilities                                                                                | (20,676.7) | (886.5)   | (2,909.5) | (6,816.6)
Net assets                                                                                | 15,744.6   | 6,281.5   | 1,775.9   | 1,584.9
Less: Non-controlling interests                                                                                | (1,399.0)  | -         | 0.4       | (5.7)
Net assets attributable to equity holders                                                                           | 14,345.6   | 6,281.5   | 1,776.3   | 1,579.2
Proportion of the Group’s ownership                                                                                | 36.5%      | 35.0%     | 47.1%     | 23.3% (1)
Group’s share of net assets                                                                                | 5,230.4    | 2,198.5   | 837.4     | 368.2
Goodwill capitalised                                                                                | 1,229.0    | 1,403.6   | 381.7     | 293.3
Others (2)                                                                                | 387.6      | -         | (139.9)   | (2.4)
Carrying amount of the investment                                                                                | 6,847.0    | 3,602.1   | 1,079.2   | 659.1
Other items                                                                                |            |           |           |
Cash and cash equivalents                                                                                | 348.7      | 2,371.9   | 229.1     | 522.0
Non-current financial liabilities excluding trade  Current financial liabilities excluding trade and other payables | (19,774.0) | (570.2)   | (2,658.7) | (3,690.1)
Current financial liabilities excluding trade and other payables                                                    | (3,884.7)  | (76.6)    | (353.6)   | (187.4)
Group's share of market value                                                                                | 10,995.3   | NA        | 3,544.1   | 5,013.9


General and Administrative Expense
General and administrative expense increased by $15.4 million in 2019 compared to 2018. The increase was primarily due to a $9.8 million increase in employee-related costs, which includes stock-based compensation, associated with our increased headcount from 89 employees as of December 31, 2018 to 113 employees as of December 31, 2019. There was an additional increase of $3.7 million in depreciation and amortization, $0.8 million to support compliance as a public company, a $0.6 million increase in office related expenses to support the administrative team, and an increase of $0.2 million in software subscription costs.

                           | Year Ended December 31, |                        | Change   |
-------------------------- | ----------------------- | ---------------------- | -------- | -----
                           | 2019                    | 2018                   | $        | %
                           |                         | (dollars in thousands) |          |
General and administrative | $ 46,820                | $ 31,462               | $ 15,358 | 48.8%
% of revenue               | 23%                     | 21%                    |          |


The following table presents the contractual maturities of our debt investments as of April 26, 2019 (in millions):
Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.

                                       | Amortized Cost | Fair Value
-------------------------------------- | -------------- | ----------
Due in one year or less                | $ 591          | $ 589
Due after one year through five years  | 644            | 642
Due after five years through ten years | 455            | 452
                                       | $ 1,690        | $ 1,683


28 SHARE BASED COMPENSATION PLANS
The compensation cost recognised with respect to all outstanding plans and by grant of shares, which are all equity settled instruments, is as follows:
(*) includes of 1,305,399 options granted towards Share Plan 2015 during twelve months ended March 31, 2019 at an average exercise price of $14.86 per share and average grant date fair value $2.6 per share.
(**) includes Restricted Share Unit (RSU) and Other share option plans. In respect of 211,567 units/options granted towards RSU during twelve months ended March 31, 2019, grant date fair value approximates intrinsic value $10.48 per share. (**) includes Restricted Share Unit (RSU) and Other share option plans. In respect of 211,567 units/options granted towards RSU during twelve months ended March 31, 2019, grant date fair value approximates intrinsic value $10.48 per share.
(***) includes 1,400,000 shares granted twelve months ended March 31, 2019 to management personnel at grant date fair value $10.08 per share.
Joint Stock Ownership Plan (JSOP)
In April 2012, the Company established a controlled trust called the Eros International Plc Employee Benefit Trust (“JSOP Trust”). The JSOP Trust purchased 2,000,164 shares of the Company out of funds borrowed from the Company and repayable on demand. The Company’s Board, Nomination and Remuneration Committee recommends to the JSOP Trust certain employees, officers and key management personnel, to whom the JSOP Trust will be required to grant shares from its holdings at nominal price. Such shares are then held by the JSOP Trust and the scheme is referred to as the “JSOP Plan.” The shares held by the JSOP Trust are reported as a reduction in stockholders’ equity and termed as ‘JSOP reserves’.

                                            |         | Year ended March 31 |
------------------------------------------- | ------- | ------------------- | -------
                                            | 2019    | 2018                | 2017
                                            |         | (in thousands)      |
IPO India Plan                              | $1,198  | $1,572              | $2,140
JSOP Plan                                   | —       | 615                 | 3,622
Option award scheme 2012                    | —       | 197                 | 699
2014 Share Plan                             | 47      | (22)                | 1,427
2015 Share Plan(*)                          | 3,059   | 100                 | 328
Other share option awards(**)               | 5,346   | 7,283               | 4,405
Management scheme (staff share grant) (***) | 11,911  | 8,173               | 10,850
                                            | $21,561 | $17,918             | $23,471


(B.2) Employee Benefits Expenses
Components of Employee Benefits Expenses

€ millions                                          | 2019   | 2018   | 2017
--------------------------------------------------- | ------ | ------ | ------
Salaries                                            | 10,031 | 9,025  | 8,693
Social security expenses                            | 1,477  | 1,339  | 1,281
Share-based payment expenses                        | 1,835  | 830    | 1,120
Pension expenses                                    | 369    | 330    | 312
Employee-related restructuring expenses             | 1,111  | 19     | 180
Termination benefits outside of restructuring plans | 47     | 52     | 57
Employee benefits expenses                          | 14,870 | 11,595 | 11,643


18. Other taxes
The other taxes (for example property tax, motor vehicle tax, excise tax and transaction tax) have the following effects on the income statement:

€ million                                    | 2017/2018 | 2018/2019
-------------------------------------------- | --------- | ---------
Other taxes                                  | 79        | 79
thereof from cost of sales                   | (1)       | (1)
thereof from selling expenses                | (65)      | (62)
thereof from general administrative expenses | (13)      | (16)


4. SEPARATELY DISCLOSED ITEMS
The Group has disclosed underlying EBITDA1 and underlying profit after tax, referring to the Group’s trading results adjusted for certain transactions during the year that are not representative of the Group’s regular business activities. The Group considers that these transactions are of such significance to understanding the ongoing results of the Group that the Group has elected to separately identify these transactions to determine an ongoing result to enable a 'like-for-like' comparison. These items are described as 'separately disclosed items' throughout this Financial Report.
Transaction costs related to the acquisition of Sigma Systems (2018: acquisition of Enoro)
Transaction costs of $2,063,000 were incurred in relation to the acquisition of the Sigma Systems group of entities (Sigma). These include costs associated with vendor due diligence, legal and other administrative matters, as well as related travel costs incurred to meet representatives of Sigma’s management. These costs are included with 'Travel Expenses' and 'Other Expenses' in the Group’s consolidated statement of comprehensive income.
Further details of the acquisition of Sigma are described in Note 24.
In the prior year, transaction costs of $677,000 were incurred in relation to the acquisition of Enoro Holdings AS (subsequently renamed to Hansen Technologies Holdings AS during FY19) and its controlled subsidiaries. These costs were included with 'Other Expenses' in the Group’s consolidated statement of comprehensive income in the prior year.
Onerous lease provision
The Group recognised a provision on future lease payments for one of our offices in the Americas, as the non-cancellable future payments in the lease contract are expected to exceed the benefits from keeping the office over the remainder of the lease term. The Group has separately identified these costs because it is not in the normal course of business activities. These costs are included with 'Property and Operating Rental Expenses' in the Group’s consolidated statement of comprehensive income.
Restructuring costs incurred in Sigma Systems
Included in Sigma’s results for June are $72,000 of restructuring costs related to certain redundancy payments post-acquisition. These costs are included with 'Employee Benefit Expenses' in the Group’s consolidated statement of comprehensive income.

                                                                                |      | 2019    | 2018
------------------------------------------------------------------------------------------ | ---- | ------- | -----
                                                                                | Note | $’000   | $’000
Decrease to profit before tax                                                              |      |         |
Transaction costs related to the acquisition of Sigma Systems (2018: acquisition of Enoro) | 24   | (2,063) | (677)
Onerous lease provision                                                                    | 14   | (659)   | -
Restructuring costs incurred in Sigma Systems                                              |      | (72)    | -
Total separately disclosed items                                                           |      | (2,794) | (677)


The components of our deferred tax assets and liabilities were as follows:
We provide for taxes on the undistributed earnings of foreign subsidiaries. We do not provide for taxes on other outside basis temporary differences of foreign subsidiaries as they are considered indefinitely reinvested outside the U.S. At May 31, 2019, the amount of temporary differences related to other outside basis temporary differences of investments in foreign subsidiaries upon which U.S. income taxes have not been provided was approximately $7.9 billion. If the other outside basis differences were recognized in a taxable transaction, they would generate foreign tax credits that would reduce the federal tax liability associated with the foreign dividend or the otherwise taxable transaction. At May 31, 2019, assuming a full utilization of the foreign tax credits, the potential net deferred tax liability associated with these other outside basis temporary differences would be approximately $1.5 billion.
Our net deferred tax assets were $2.4 billion and $1.3 billion as of May 31, 2019 and 2018, respectively. We believe that it is more likely than not that the net deferred tax assets will be realized in the foreseeable future. realization of our net deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credit carryforwards. The amount of net deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.
The valuation allowance was $1.3 billion at each of May 31, 2019 and 2018. Substantially all of the valuation allowances as of May 31, 2019 and 2018 related to tax assets established in purchase accounting and other tax credits. Any subsequent reduction of that portion of the valuation allowance and the recognition of the associated tax benefits associated with our acquisitions will be recorded to our provision for income taxes subsequent to our final determination of the valuation allowance or the conclusion of the measurement period (as defined above), whichever comes first.

                                                                        |         | May 31,
----------------------------------------------------------------------- | ------- | -------
(in millions)                                                           | 2019    | 2018
Deferred tax assets:                                                    |         |
Accruals and allowances                                                 | $541    | $567
Employee compensation and benefits                                      | 646     | 664
Differences in timing of revenue recognition                            | 322     | 338
Basis of property, plant and equipment and intangible assets            | 1,238   | —
Tax credit and net operating loss carryforwards                         | 3,717   | 2,614
Total deferred tax assets                                               | 6,464   | 4,183
Valuation allowance                                                     | (1,266) | (1,308)
Total deferred tax assets, net                                          | 5,198   | 2,875
Deferred tax liabilities:                                               |         |
Unrealized gain on stock                                                | (78)    | (78)
Acquired intangible assets                                              | (973)   | (1,254)
GILTI deferred                                                          | (1,515) | —
Basis of property, plant and equipment and intangible assets            | —       | (158)
Other                                                                   | (200)   | (48)
Total deferred tax liabilities                                          | (2,766) | (1,538)
Net deferred tax assets                                                 | $2,432  | $1,337
recorded as:                                                            |         |
Non-current deferred tax assets                                         | $2,696  | $1,395
Non-current deferred tax liabilities (in other non-current liabilities) | (264)   | (58)
Net deferred tax assets                                                 | $2,432  | $1,337


The following tables summarize the unrealized gains and losses related to our restricted investments, by major security type, as of December 31, 2019 and 2018 (in thousands):
As of December 31, 2019, we had no restricted investments in a loss position for a period of time greater than 12 months. As of December 31, 2018, we identified six restricted investments totaling $87.4 million that had been in a loss position for a period of time greater than 12 months with unrealized losses of $6.4 million. The unrealized losses were primarily due to increases in interest rates relative to rates at the time of purchase. Based on the underlying credit quality of the investments, we generally hold such securities until we recover our cost basis. Therefore, we did not consider these securities to be other-than-temporarily impaired.

                               |           | As of December 31, 2019 |            |
------------------------------ | --------- | ----------------------- | ---------- | --------
                               | Amortized | Unrealized              | Unrealized | Fair
                               | Cost      | Gains                   | Losses     | Value
Foreign government obligations | $129,499  | $—                      | $3,433     | $126,066
U.S. government obligations    | 99,700    | —                       | 1,981      | 97,719
Total .                        | $229,199  | $—                      | $5,414     | $223,785
                               |           | As of December 31, 2018 |            |
                               | Amortized | Unrealized              | Unrealized | Fair
                               | Cost      | Gains                   | Losses     | Value
Foreign government obligations | $73,798   | $14,234                 | $235       | $87,797
U.S. government obligations    | 97,223    | 416                     | 6,436      | 91,203
Total                          | $171,021  | $14,650                 | $6,671     | $179,000


AMERICAN TOWER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular amounts in millions, unless otherwise disclosed)
At December 31, 2019 and 2018, the Company has provided a valuation allowance of $194.2 million and $151.9 million, respectively, which primarily relates to foreign items. The increase in the valuation allowance for the year ending December 31, 2019 is due to uncertainty as to the timing of, and the Company’s ability to recover, net deferred tax assets in certain foreign operations in the foreseeable future, offset by fluctuations in foreign currency exchange rates. The amount of deferred tax assets considered realizable, however, could be adjusted if objective evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth.
A summary of the activity in the valuation allowance is as follows:
(1) Includes net charges to expense and allowances established due to acquisition.
The recoverability of the Company’s deferred tax assets has been assessed utilizing projections based on its current operations. Accordingly, the recoverability of the deferred tax assets is not dependent on material asset sales or other non-routine transactions. Based on its current outlook of future taxable income during the carryforward period, the Company believes that deferred tax assets, other than those for which a valuation allowance has been recorded, will be realized.

                             | 2019   | 2018   | 2017
---------------------------- | ------ | ------ | ------
Balance as of January 1,     | $151.9 | $142.0 | $144.4
Additions (1)                | 42.5   | 15.7   | 11.6
Reversals                    | —      | —      | (9.1)
Foreign currency translation | (0.2)  | (5.8)  | (4.9)
Balance as of December 31,   | $194.2 | $151.9 | $142.0


9. Derivative Financial Instruments
As a global company, we are exposed in the normal course of business to interest rate and foreign currency risks that could affect our financial position, results of operations, and cash flows. We use derivative instruments to hedge against these risks and only hold such instruments for hedging purposes, not for speculative or trading purposes.
Depending on the terms of the specific derivative instruments and market conditions, some of our derivative instruments may be assets and others liabilities at any particular balance sheet date. We report all of our derivative instruments at fair value and account for changes in the fair value of derivative instruments within “Accumulated other comprehensive loss” if the derivative instruments qualify for hedge accounting. For those derivative instruments that do not qualify for hedge accounting (i.e., “economic hedges”), we record the changes in fair value directly to earnings. See Note 11. “Fair Value Measurements” to our consolidated financial statements for information about the techniques we use to measure the fair value of our derivative instruments.
The following tables present the fair values of derivative instruments included in our consolidated balance sheets as of December 31, 2019 and 2018 (in thousands):

                                                          |                                           | December 31, 2019 |                           |
--------------------------------------------------------- | ----------------------------------------- | ----------------- | ------------------------- | -----------------
                                                          | Prepaid Expenses and Other Current Assets | Other Assets      | Other Current Liabilities | Other Liabilities
Derivatives designated as hedging instruments:            |                                           |                   |                           |
Foreign exchange forward contracts                        | $226                                      | $139              | $369                      | $230
Total derivatives designated as hedging instruments       | $226                                      | $139              | $369                      | $230
Derivatives not designated as hedging instruments:        |                                           |                   |                           |
Foreign exchange forward contracts                        | $973                                      | $—                | $1,807                    | $—
Interest rate swap contracts .                            | —                                         | —                 | 406                       | 7,209
Total derivatives not designated as hedging instruments . | $973                                      | $—                | $2,213                    | $7,209
Total derivative instruments .                            | $1,199                                    | $139              | $2,582                    | $7,439


Derivative Instruments
Derivative Instruments with Hedge Accounting Designation
We utilize currency forward contracts that generally mature within 12 months to hedge our exposure to changes in currency exchange rates. Currency forward contracts are measured at fair value based on market-based observable inputs including currency exchange spot and forward rates, interest rates, and credit-risk spreads (Level 2). We do not use derivative instruments for speculative purposes.
Cash Flow Hedges: We utilize cash flow hedges for our exposure from changes in currency exchange rates for certain capital expenditures. We recognized losses of $3 million and $17 million and gains of $15 million for 2019, 2018, and 2017, respectively, in accumulated other comprehensive income from the effective portion of cash flow hedges. Neither the amount excluded from hedge effectiveness nor the reclassifications from accumulated other comprehensive income to earnings were material in 2019, 2018, or 2017. The amounts from cash flow hedges included in accumulated other comprehensive income that are expected to be reclassified into earnings in the next 12 months were also not material.
(1) Included in receivables – other.
(2) Included in accounts payable and accrued expenses – other for forward contracts and in current debt for convertible notes settlement obligations.
(3) Notional amounts of convertible notes settlement obligations as of August 29, 2019 and August 30, 2018 were 4 million and 3 million shares of our common stock, respectively.

                                                            |                       | Fair Value of     |
----------------------------------------------------------- | --------------------- | ----------------- | ----------------------
                                                            | Gross National Amount | Current Assets(1) | Current Liabilities(2)
As of August 29, 2019                                       |                       |                   |
Derivative instruments with hedge accounting designation    |                       |                   |
Cash flow currency hedges                                   | $146                  | $1                | $—
Derivative instruments without hedge accounting designation |                       |                   |
Non-designated currency hedges                              | 1,871                 | 1                 | (9)
Convertible notes settlement obligation(3)                  |                       | —                 | (179)
                                                            |                       | 1                 | (188)
                                                            |                       | $2                | $(188)
As of August 30, 2018                                       |                       |                   |
Derivative instruments with hedge accounting designation    |                       |                   |
Cash flow currency hedges                                   | $538                  | $—                | $(13)
Derivative instruments without hedge accounting designation |                       |                   |
Non-designated currency hedges                              | 1,919                 | 14                | (10)
Convertible notes settlement obligation(3)                  |                       | —                 | (167)
                                                            |                       | 14                | (177)
                                                            |                       | $14               | $(190)


Performance Share Plan
The relevant disclosures in respect of the Performance Share Plan grants are set out below.

                                     | 2015 Grant | 2016 Grant | 2017 Grant | 2018 Grant | 2019 Grant
------------------------------------ | ---------- | ---------- | ---------- | ---------- | ----------
Grant date                           | 11th June  | 5th April  | 26th May   | 4th April  | 15th May
Mid market share price at grant date | 3,460.0p   | 3,550.0p   | 5,256.0p   | 5,560.0p   | 8,161.0p
Number of employees                  | 15         | 13         | 12         | 12         | 12
Shares under scheme                  | 70,290     | 69,890     | 62,356     | 60,899     | 60,626
Vesting period                       | 3 years    | 3 years    | 3 years    | 3 years    | 3 years
Probability of vesting               | 71.5%      | 70.8%      | 73.1%      | 73.5%      | 74.1%
Fair value                           | 2,473.9p   | 2,513.4p   | 3,842.1p   | 4,084.4p   | 6,048.9p


18. Geographic Information
Property and equipment, net by geography was as follows:
No individual international country represented more than 10% of property and equipment, net in any period presented.

              | Year Ended December31, |
------------- | ---------------------- | ------
              | 2019                   | 2018
U.S.          | 200.4                  | 231.0
International | 58.2                   | 68.0
              | $258.6                 | $299.0


Restricted Share Units
During the year ended December 31, 2019, pursuant to the 2016 Incentive Plan, the Company granted restricted share unit awards (“RSUs”). RSUs generally have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates. RSUs granted to our board vest one year from grant or as of the next annual shareholders meeting, whichever is earlier. Under each arrangement, RSUs are issued without direct cost to the employee on the vesting date. The Company estimates the fair value of the RSUs based upon the market price of the Company’s stock at the date of grant. The Company recognizes compensation expense for RSUs on a straight-line basis over the requisite service period.
A summary of nonvested RSUs is as follows:
During the year ended December 31, 2019, a total of 259,634 RSUs vested. The Company withheld 57,802 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.
As of December 31, 2019, there was unrecognized compensation expense of $20.5 million related to RSUs, $15.0 million related to TSRs, $0.5 million related to LTIP performance shares, $0.3 million related to nonvested RSAs, and $0.2 million related to nonvested stock options, which the Company expects to recognize over weighted average periods of 1.9 years, 1.9 years, 0.1 years, 0.2 years, and 0.3 years, respectively.
The Company recorded stock-based compensation expense recognized under ASC 718 during the years ended December 31, 2019, 2018, and 2017, of $36.8 million, $20.4 million, and $13.7 million, respectively, with corresponding tax benefits of $5.9 million, $3.9 million, and $1.7 million, respectively. The Company recognizes compensation expense for stock option awards that vest with only service conditions on a straight-line basis over the requisite service period. The Company recognizes compensation expense for stock option awards that vest with service and market-based conditions on a straight-line basis over the longer of the requisite service period or the estimated period to meet the defined market-based condition.

                                  | Number of Shares | Weighted Average Grant Date Fair Value
--------------------------------- | ---------------- | --------------------------------------
Nonvested as of December 31, 2018 | 651,045          | $23.82
Granted                           | 742,579          | 33.28
Vested                            | -259,634         | 24.16
Forfeited                         | -124,586         | 29.79
Nonvested as of December 31, 2019 | 1,009,404        | $ 29.96


The following table presents the components of the deferred tax assets and liabilities (in millions):
As of July 27, 2019, our federal, state, and foreign net operating loss carryforwards for income tax purposes were $676 million, $1 billion, and $756 million, respectively. A significant amount of the net operating loss carryforwards relates to acquisitions and, as a result, is limited in the amount that can be recognized in any one year. If not utilized, the federal, state and foreign net operating loss carryforwards will begin to expire in fiscal 2020. We have provided a valuation allowance of $111 million for deferred tax assets related to foreign net operating losses that are not expected to be realized.
As of July 27, 2019, our federal, state, and foreign tax credit carryforwards for income tax purposes were approximately $25 million, $1.1 billion, and $5 million, respectively. The federal tax credit carryforwards will begin to expire in fiscal 2020. The majority of state and foreign tax credits can be carried forward indefinitely. We have provided a valuation allowance of $346 million for deferred tax assets related to state and foreign tax credits that are not expected to be realized.

                                                 | July 27, 2019 | July 28, 2018
------------------------------------------------ | ------------- | -------------
ASSETS                                           |               |
Allowance for doubtful accounts and returns .    | $ 127         | $ 285
Sales-type and direct-financing leases           | 176           | 171
Inventory write-downs and capitalization         | 409           | 289
Investment provisions .                          | —             | 54
IPR&D, goodwill, and purchased intangible assets | 1,427         | 63
Deferred revenue .                               | 1,150         | 1,584
Credits and net operating loss carryforwards .   | 1,241         | 1,087
Share-based compensation expense                 | 164           | 190
Accrued compensation                             | 342           | 370
Other                                            | 419           | 408
Gross deferred tax assets                        | 5,455         | 4,501
Valuation allowance                              | (457)         | (374)
Total deferred tax assets .                      | 4,998         | 4,127
LIABILITIES                                      |               |
Purchased intangible assets .                    | (705)         | (753)
Depreciation .                                   | (141)         | (118)
Unrealized gains on investments .                | (70)          | (33)
Other                                            | (112)         | (145)
Total deferred tax liabilities                   | (1,028)       | (1,049)
Total net deferred tax assets                    | $3,970        | $3,078


xvii. Transfer of unclaimed/unpaid amounts to the Investor Education and Protection Fund:
Pursuant to Sections 124 and 125 of the Act read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (“IEPF Rules”), dividend, if not claimed for a consecutive period of 7 years from the date of transfer to Unpaid Dividend Account of the Company, are liable to be transferred to the Investor Education and Protection Fund (“IEPF”).
Further, all the shares in respect of which dividend has remained unclaimed for seven consecutive years or
more from the date of transfer to unpaid dividend account shall also be transferred to IEPF Authority. The said
requirement does not apply to shares in respect of which there is a specific order of Court, Tribunal or Statutory
Authority, restraining any transfer of the shares.
In the interest of the shareholders, the Company sends periodical reminders to the shareholders to claim
their dividends in order to avoid transfer of dividends/shares to IEPF Authority. Notices in this regard are also
published in the newspapers and the details of unclaimed dividends and shareholders whose shares are liable
to be transferred to the IEPF Authority, are uploaded on the Company’s website (https://www.tcs.com/detailsunclaimed-
dividend-transfer-IEPF-account-2017).
In light of the aforesaid provisions, the Company has during the year under review, transferred to IEPF the
unclaimed dividends, outstanding for 7 consecutive years, of the Company, erstwhile TCS e-Serve Limited and
CMC Limited (since amalgamated with the Company). Further, shares of the Company, in respect of which
dividend has not been claimed for 7 consecutive years or more from the date of transfer to unpaid dividend
account, have also been transferred to the demat account of IEPF Authority.
The details of unclaimed dividends and shares transferred to IEPF during FY 2019 are as follows:
* Includes final dividend of erstwhile TCS e-Serve Limited and erstwhile CMC Limited
The members who have a claim on above dividends and shares may claim the same from IEPF Authority by
submitting an online application in the prescribed Form No. IEPF-5 available on the website www.iepf.gov.
in and sending a physical copy of the same, duly signed to the Company, along with requisite documents
enumerated in the Form No. IEPF-5. No claims shall lie against the Company in respect of the dividend/shares
so transferred. The Members/Claimants can file only one consolidated claim in a financial year as per the IEPF
Rules.

Financial year | Amount of unclaimed dividend transferred (` lakh) | Number of shares transferred
-------------- | ------------------------------------------------- | ----------------------------
2011           | 102.6*                                            | 3,028
2012           | 86.5                                              | 29,672
TOTAL          | 189.1                                             | 32,000


Comparison of the years ended December 31, 2019 and 2018
Revenue
Total revenue increased $6.5 million, or 7.3%, from $89.5 million for the year ended December 31, 2018 to $96.0 million for the year ended December 31, 2019. Our total revenue growth was driven primarily by growth in our SaaS, software and hardware, and maintenance categories partially offset by decreases in our home health care services and sequencing and molecular analysis revenue categories.
SaaS revenue was $72.8 million for the year ended December 31, 2019, an increase of $7.2 million, or 10.9%, from $65.6 million for the year ended December 31, 2018. This growth was due to a $4.0 million increase from Eviti platform solutions related to the combination of new customers and increased covered lives on existing customers and a $3.2 million increase in NaviNet SaaS revenue, largely from the higher value of professional services projects being completed in 2019.
Software and hardware revenue increased $3.5 million, or 76.8% from $4.5 million in the year ended December 31, 2018 to $8.0 million in the year ended December 31, 2019. The main contributing factor for this increase was the timing of a large DCX customer contract completed and recognized in the current year. Our software and hardware related revenue results experience fluctuations due to the timing of implementation completions for our DCX customers and our revenue recognition for those arrangements.
Maintenance revenue increased $0.7 million, or 7.0%, from $9.8 million in the year ended December 31, 2018 to $10.5 million for the year ended December 31, 2019. This increase was due to the timing of DCX customer contracts and post contract support maintenance services completed and recognized in the current year period.
Sequencing and molecular analysis revenue decreased $1.4 million, or 44.6% from $3.1 million for the year ended December 31, 2018 to $1.7 million for the year ended December 31, 2019. This decrease reflected lower volume of GPS samples sequenced and recognized as revenue in the current year resulting from deliveries for patients covered by contract and non-contracted payers. Currently, we recognize revenue from clients with executed contracts, and from clients without a contractual agreement where we recognize revenue on a cash basis given the uncertainty over reimbursement. As we gain additional insurance coverage, including coverage under government insurance programs, we expect to be able to reduce the portion of sequencing and molecular analysis revenue which is recognized on a cash basis.
We continue to focus efforts to enhance reimbursement from plans when profiles are ordered and there is no payer contract in place. We are actively engaging plans with detail which supports a physician’s reason for ordering. Our utilization of pre-authorizations and supporting documentation assists in the overall billing and appeal process, optimizing payment with payers, who do not have a formal agreement with us.
In parallel with the private payer activities described above, we are also making extensive efforts to explore approval pathways for our test capabilities (including the FDA in-vitro medical device clearance we received in November 2019), which we believe will facilitate coverage from governmental programs such as Medicare. Those activities are ongoing but have uncertainty on the timelines as to formal approval. Lastly, we have implemented an increase in the patient financial responsibility which is collected prior to testing to ensure that at least a partial payment is received for every test performed, we expect unpaid and partial paid orders to decline, which will likely result in a decline in total GPS orders and revenue in the short-term.
Home health care services revenue decreased $3.5 million, or 54.7%, from $6.3 million in 2018 to $2.9 million for the year ended December 31, 2019. This decrease was due to the sale of our home health care services business in June 2019.
We believe that significant opportunities exist for expanded cross-selling across our products and across our existing customer base, including Eviti and NaviNet customer bases. We also believe that our customer base and our product solutions provide unique opportunities to expand the volume of GPS Cancer analysis reporting to our customer base. Maintaining our current customer base will be important to our future SaaS recurring revenue streams.

(Dollars in thousands)            | Year Ended December 31, |          | Period-To-Period Change |
--------------------------------- | ----------------------- | -------- | ----------------------- | ----------
                                  | 2019                    | 2018     | 2019 vs. 2018           |
                                  | Amount                  | Amount   | Amount                  | Percentage
Software-as-a-service related     | $ 72,831                | $ 65,646 | 7,185                   | 10.9 %
Software and hardware related     | 8,015                   | 4,534    | 3,481                   | 76.8 %
Maintenance                       | 10,519                  | 9,834    | 685                     | 7.0 %
Total software-related revenues   | 91,365                  | 80,014   | 11,351                  | 14.2 %
Sequencing and molecular analysis | 1,733                   | 3,129    | (1,396)                 | (44.6)%
Home health care services         | 2,863                   | 6,321    | (3,458)                 | (54.7)%
Total net revenue                 | $ 95,961                | $ 89,464 | $ 6,497                 | 7.3 %


Note 18 Other non-current assets
(1) These amounts have been pledged as security related to obligations for certain employee benefits and are not available for general use.

FOR THE YEAR ENDED DECEMBER 31                 | NOTE | 2019  | 2018
---------------------------------------------- | ---- | ----- | ----
Net assets of post-employment benefit plans    | 24   | 558   | 331
Long-term notes and other receivables          |      | 142   | 89
Derivative assets                              | 26   | 200   | 68
Publicly-traded and privately-held investments | 26   | 129   | 110
Investments (1)                                |      | 128   | 114
Other                                          |      | 117   | 135
Total other non-current assets                 |      | 1,274 | 847


ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information regarding beneficial ownership of our common shares for (i) owners of more than five percent of our common shares and (ii) our directors and officers, of which we are aware of the date of this annual report.
(1) Based on 147,230,634 common shares outstanding as of the date of this annual report.
(2) The holdings of High Seas AS, which are for the economic interest of members of the Hansson family, as well as the personal holdings of our Chief Executive Officer and Chairman, Mr. Herbjorn Hansson, and our director, Alexander Hansson, are included in the amount reported herein.
* Less than 1% of our common outstanding shares.
As of April 14, 2020, we had 575 holders of record in the United States, including Cede & Co., which is the Depositary Trust Company’s nominee for holding shares on behalf of brokerage firms, as a single holder of record. We had a total of 147,230,634 Common Shares outstanding as of the date of this annual report.

Title  | Identity of Person | No. of Shares | Percent of Class(1)
------ | ------------------ | ------------- | -------------------
Common | Hansson family(2)  | 4,380,659     | 2.98%
       | Jim Kelly          |               | *
       | Richard Vietor     |               | *
       | David Workman      |               | *
       | Bjørn Giæver       |               | *


FREE CASH FLOW AND DIVIDEND PAYOUT RATIO
The terms free cash flow and dividend payout ratio do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.
We define free cash flow as cash flows from operating activities, excluding acquisition and other costs paid (which include significant litigation costs) and voluntary pension funding, less capital expenditures, preferred share dividends and dividends paid by subsidiaries to NCI. We exclude acquisition and other costs paid and voluntary pension funding because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. Excluding these items does not imply they are non-recurring.
We consider free cash flow to be an important indicator of the financial strength and performance of our businesses because it shows how much cash is available to pay dividends on common shares, repay debt and reinvest in our company. We believe that certain investors and analysts use free cash flow to value a business and its underlying assets and to evaluate the financial strength and performance of our businesses. The most comparable IFRS financial measure is cash flows from operating activities.
We define dividend payout ratio as dividends paid on common shares divided by free cash flow. We consider dividend payout ratio to be an important indicator of the financial strength and performance of our businesses because it shows the sustainability of the company’s dividend payments.
The following table is a reconciliation of cash flows from operating activities to free cash flow on a consolidated basis.

                                           | 2019    | 2018
------------------------------------------ | ------- | -------
Cash flows from operating activities       | 7,958   | 7,384
Capital expenditures                       | (3,988) | (3,971)
Cash dividends paid on preferred shares    | (147)   | (149)
Cash dividends paid by subsidiaries to NCI | (65)    | (16)
Acquisition and other costs paid           | 60      | 79
Voluntary DB pension plan contribution     | –       | 240
Free cash flow                             | 3,818   | 3,567


Our property business includes the operation of communications sites and managed networks, the leasing of property interests, and, in select markets, the operation of fiber and the provision of backup power through shared generators. Our presence in a number of markets at different relative stages of wireless development provides us with significant diversification and long-term growth potential. Our property segments accounted for the following percentage of consolidated total revenue for the years ended December 31,:
Communications Sites. Approximately 95%, 96% and 97% of revenue in our property segments was attributable to our communications sites, excluding DAS networks, for the years ended December 31, 2019, 2018 and 2017, respectively.
We lease space on our communications sites to tenants providing a diverse range of communications services, including cellular voice and data, broadcasting, mobile video and a number of other applications. In addition, in many of our international markets, we receive pass-through revenue from our tenants to cover certain costs, including power and fuel costs and ground rent. Our top tenants by revenue for each region are as follows for the year ended December 31, 2019: • U.S.: AT&T Inc. (“AT&T”); Verizon Wireless; T-Mobile US, Inc. (“T-Mobile”); and Sprint Corporation (“Sprint”) accounted for an aggregate of 89% of U.S. property segment revenue. T-Mobile and Sprint have announced plans to merge in 2020. • Asia: Vodafone Idea Limited; Bharti Airtel Limited (“Airtel”); and Reliance Jio accounted for an aggregate of 83% of Asia property segment revenue. • Africa: MTN Group Limited (“MTN”); and Airtel accounted for an aggregate of 74% of Africa property segment revenue. • Europe: Telefónica S.A (“Telefónica”); Bouygues; and Free accounted for an aggregate of 70% of Europe property segment revenue. • Latin America: Telefónica; AT&T; and América Móvil accounted for an aggregate of 58% of Latin America property segment revenue.

              | 2019 | 2018 | 2017
------------- | ---- | ---- | ----
U.S.          | 55%  | 51%  | 55%
Asia          | 16%  | 21%  | 17%
Africa        | 8%   | 7%   | 7%
Europe        | 2%   | 2%   | 2%
Latin America | 18%  | 17%  | 18%


Periodic Benefit Costs The aggregate net pension cost recognized in the consolidated statements of operations were costs of $6.5 million and $4.6 million for the years ended December 31, 2019 and 2018, respectively.
The following table presents the components of net periodic benefit cost are as follows (in millions):
Of the amounts presented above, income of $1.4 million has been included in cost of revenue and loss of $7.9 million included in other comprehensive income for the year ended December 31, 2019, and income of $2.1 million has been included in cost of revenue and loss of $6.7 million included in other comprehensive income for the year ended December 31, 2018.

                                                | Years Ended December 31, |
----------------------------------------------- | ------------------------ | -----
                                                | 2019                     | 2018
Service cost—benefits earning during the period | $-                       | $-
Interest cost on projected benefit obligation   | 5.3                      | 5.3
Expected return on assets                       | (6.7)                    | (7.5)
Actuarial (gain) loss                           | 7.9                      | 6.7
Foreign currency gain (loss)                    | -                        | 0.1
Net pension (benefit) cost                      | $ 6.5                    | $ 4.6


(6) INTANGIBLE ASSETS
Identifiable intangible assets as of June 30, 2019 and 2018 were as follows:
The weighted average remaining amortization period for the Company’s customer relationships asset is 14.3 years. The Company has determined that certain underlying rights (including easements) and the certifications have indefinite lives. The amortization period for underlying rights (including easements) is 13.0 years. The amortization of intangible assets for the years ended June 30, 2019, 2018 and 2017 was $95.1 million, $97.2 million, and $80.0 million, respectively.

                                   | Gross Carrying Amount | Accumulated Amortization | Net
---------------------------------- | --------------------- | ------------------------ | --------
                                   |                       | (in millions)            |
June 30, 2019                      |                       |                          |
Finite-Lived Intangible Assets     |                       |                          |
Customer relationships             | $1,597.6              | $(498.7)                 | $1,098.9
Underlying rights and other        | 3.4                   | (1.5)                    | 1.9
Total                              | 1,601.0               | (500.2)                  | 1,100.8
Indefinite-Lived Intangible Assets |                       |                          |
Certifications                     | 3.5                   | —                        | 3.5
Underlying rights and other        | 14.5                  | —                        | 14.5
Total                              | 1,619.0               | (500.2)                  | 1,118.8
June 30, 2018                      |                       |                          |
Finite-Lived Intangible Assets     |                       |                          |
Customer relationships             | $1,597.0              | $(405.6)                 | $1,191.4
Underlying rights and other        | 2.7                   | (0.6)                    | 2.1
Total                              | 1,599.7               | (406.2)                  | 1,193.5
Indefinite-Lived Intangible Assets |                       |                          |
Certifications                     | 3.5                   | —                        | 3.5
Underlying rights and other        | 15.1                  | —                        | 15.1
Total                              | $1,618.3              | $(406.2)                 | $1,212.1


Note 5: Equity-based Compensation Plans
The Company has stock plans that provide for grants of equity-based awards to eligible participants, including stock options and restricted stock units, of the Company’s Common Stock. An option is a right to purchase Common Stock at a set price. An RSU award is an agreement to issue a set number of shares of Common Stock at the time of vesting. The Company’s options and RSU awards typically vest over a period of three years or less. The Company also has an employee stock purchase plan that allows employees to purchase its Common Stock at a discount through payroll deductions.
The Lam Research Corporation 2007 Stock Incentive Plan, as amended and restated, 2011 Stock Incentive Plan, as amended and restated, and the 2015 Stock Incentive Plan (collectively the “Stock Plans”), provide for the grant of non-qualified equity-based awards to eligible employees, consultants and advisors, and non-employee directors of the Company and its subsidiaries. The 2015 Stock Incentive Plan was approved by shareholders authorizing up to 18,000,000 shares available for issuance under the plan. Additionally, 1,232,068 shares that remained available for grants under the Company’s 2007 Stock Incentive Plan were added to the shares available for issuance under the 2015 Stock Incentive Plan. As of June 30, 2019, there were a total of 9,379,904 shares available for future issuance under the Stock Plans. New shares are issued from the Company’s balance of authorized Common Stock from the 2015 Stock Incentive Plan to satisfy stock option exercises and vesting of awards.
The Company recognized the following equity-based compensation expense and benefits in the Consolidated Statements of Operations:
The estimated fair value of the Company’s equity-based awards, less expected forfeitures, is amortized over the awards’ vesting terms on a straight-line basis.

                                                                              |               | YearEnded      |
----------------------------------------------------------------------------- | ------------- | -------------- | -------------
                                                                              | June 30, 2019 | June 24, 2018  | June 25, 2017
                                                                              |               | (in thousands) |
Equity-based compensation expense                                             | $187,234      | $172,216       | $149,975
Income tax benefit recognized related to equity-based compensation            | $47,396       | $87,505        | $38,381
Income tax benefit realized from the exercise and vesting of options and RSUs | $49,242       | $90,297        | $92,749


Asset Retirement Obligations
At December 31, 2019, our asset retirement obligations balance was primarily related to estimated future costs of removing equipment from leased properties and estimated future costs of properly disposing of asbestos and other hazardous materials upon remodeling or demolishing buildings. Asset retirement obligations are included in other long-term liabilities on our consolidated balance sheets.
As of the Level 3 acquisition date, we recorded liabilities to reflect our fair values of Level 3’s asset retirement obligations. Our fair value estimates were determined using the discounted cash flow method.
The following table provides asset retirement obligation activity:
(1) The liabilities assumed during 2018 relate to purchase price adjustments during the year.
The 2019, 2018 and 2017 change in estimates are offset against gross property, plant and equipment.

                                                 | Years Ended December 31, |      |
------------------------------------------------ | ------------------------ | ---- | ----
                                                 | 2019                     | 2018 | 2017
                                                 | (Dollars in millions)    |      |
Balance at beginning of year                     | $190                     | 115  | 95
Accretion expense                                | 11                       | 10   | 6
Liabilities assumed in acquisition of Level 3(1) | —                        | 58   | 45
Liabilities settled                              | (14)                     | (14) | (3)
Liabilities transferred to Cyxtera               | —                        | —    | (20)
Change in estimate                               | 10                       | 21   | (8)
Balance at end of year                           | $197                     | 190  | 115


Note 18 – Restructuring
During the second half of 2019, the Company implemented a restructuring plan to realign its expense structure with the reduction in revenue experienced in recent years and overall Company objectives. Management assessed the efficiency of our operations and consolidated locations and personnel, among other things, where possible. As part of this restructuring plan, the Company announced plans to reduce its overall operating expenses, both in the U.S and internationally.
In February 2019, the Company announced the restructuring of certain of our workforce predominantly in Germany, which included the closure of our office location in Munich, Germany accompanied by relocation or severance benefits for the affected employees. We also offered voluntary early retirement to certain other employees, which was announced in March 2019.
In January 2018, the Company announced an early retirement incentive program for employees that met certain defined requirements. The cumulative amount incurred during the year ended December 31, 2018 related to this restructuring program was $7.3 million. We did not incur any additional expenses related to this restructuring program during the year ended December 31, 2019.
A reconciliation of the beginning and ending restructuring liability, which is included in accrued wages and benefits in the Consolidated Balance Sheets as of December 31, 2019 and 2018, is as follows:

(In thousands)                            | 2019    | 2018
----------------------------------------- | ------- | -------
Balance at beginning of period            | $185    | $205
Plus: Amounts charged to cost and expense | 6,014   | 7,261
Less: Amounts paid                        | (4,631) | (7,281)
Balance at end of period                  | $1,568  | $185


BUSINESS COMBINATION IN FISCAL 2019
Purchase of a fibre network and corresponding assets
On October 3, 2018, the Corporation's subsidiary, Atlantic Broadband, completed the acquisition of the south Florida fibre network previously owned by FiberLight, LLC. The transaction, combined with the dark fibers acquired from FiberLight in the second quarter of fiscal 2018, added 350 route miles to Atlantic Broadband’s existing south Florida footprint.
The acquisition was accounted for using the purchase method and was subject to post closing adjustments. The final allocation of the purchase price of this acquisition is as follows:

                                                   | Final           | Preliminary
-------------------------------------------------- | --------------- | -----------------
                                                   | August 31, 2019 | November 30, 2018
(In thousands of Canadian dollars)                 | $               | $
Purchase price                                     |                 |
Consideration paid at closing                      | 38,876          | 38,876
Balance due on business combinations               | 5,005           | 5,005
                                                   | 43,881          | 43,881
Net assets acquired                                |                 |
Trade and other receivables                        | 1,308           | 1,743
Prepaid expenses and other                         | 335             | 335
Property, plant and equipment                      | 28,785          | 45,769
Intangible assets                                  | 3,978           | —
Goodwill                                           | 11,093          | —
Trade and other payables assumed                   | (644)           | (644)
Contract liabilities and other liabilities assumed | (974)           | (3,322)
                                                   | 43,881          | 43,881


Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Independent Registered Public Accounting Firm
Principal Accountant Fees and Services
The following table presents fees for professional audit services rendered by Brightman Almagor Zohar & Co., a Firm in the Deloitte Global Network (“Deloitte”) for the audit of our financial statements for the fiscal years ended December 31, 2019 and 2018 and fees billed for other services rendered by Deloitte during those periods.
(1) Audit fees are comprised of fees for professional services performed by Deloitte for the audit of our annual financial statements and the review of our quarterly financial statements, as well as other services provided by Deloitte in connection with statutory and regulatory filings or engagements.
(2) Tax fees are comprised of fees for preparation of tax returns to the Company and the services performed by Deloitte in connection with Inter-Company matters.
We did not use Deloitte for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the financial statements and generates information that is significant to our financial statements, are provided internally or by other service providers. We did not engage Deloitte to provide compliance outsourcing services.

                   |         | December 31,
------------------ | ------- | ------------
                   | 2018    | 2019
Audit Fees (1)     | $58,000 | $55,000
Audit-Related Fees | $-      | $-
Tax Fees (2)       | $28,000 | $11,000
All Other Fees     | $-      | $-
Total Fees         | $86,000 | $66,000