16. INCOME TAXES (Continued)
The reconciliation of the income tax expense at the U.S. Federal statutory rate (21.0% in fiscal 2019, 24.5% in fiscal 2018 and 35.0% in fiscal 2017) to actual income tax expense is as follows (in thousands):
On December 22, 2017, the Tax Act was enacted. The Tax Act contains significant changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21.0%, implementing a territorial tax system with a one-time transition tax assessment on previously tax-deferred foreign earnings and imposing new taxes on certain foreign-sourced income. We elected to pay the one-time transition tax over a period of up to eight years.
In conjunction with the Tax Act, the SEC issued guidance under Staff Accounting Bulletin No. 118 (‘‘SAB 118’’) directing taxpayers to record the impact of the Tax Act as ‘‘provisional’’ when they do not have all the necessary information to complete the accounting under ASC 740. The guidance allowed for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impact. In accordance with SAB 118, we recorded provisional estimates to our consolidated financial statements in fiscal 2018 based on the Tax Act. During the first quarter of fiscal 2019, we further analyzed the income tax effects of the Tax Act and determined there were no material changes to the provisional amounts disclosed in our fiscal 2018 financial statements. Although our accounting for the effects of the Tax Act is complete under SAB 118, there may be future adjustments based on interpretations by the U.S. federal and state governments and regulatory organizations, legislative updates or new regulations, or changes in accounting standards for income taxes.
The Tax Act also includes provisions for Global Intangible Low-Taxed Income (‘‘GILTI’’) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. In general, this income will effectively be taxed at a 10.5% tax rate reduced by any available current year foreign tax credits. This provision became effective for taxable years beginning after December 31, 2017, which was our fiscal 2019. We have elected to treat tax generated by the GILTI provisions as a period expense.
The effective tax rate on income from continuing operations before income taxes for fiscal 2019 of 10.4% was lower than the U.S. federal tax rate of 21.0% primarily due to the tax benefit from losses of our German subsidiaries, which are subject to higher tax rates than U.S. tax rates, adjustments related to the Tax Act’s transition tax, the net excess tax benefits from restricted stock unit vesting, the benefit of federal research and development tax credits and our Singapore and South Korea tax exemptions. These amounts are partially offset by an accrual for foreign withholding taxes on certain current year foreign earnings not considered permanently reinvested, stock-based compensation not deductible for tax purposes and limitations on the deductibility of compensation under Internal Revenue Code Section 162(m).

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

. INCOME TAXES
 reconciliation income tax expense. S Federal rate (21. 0% 2019 24. 5% 2018 35. 0% 2017) expense
 December 22, 2017 Tax Act enacted. changes U. S. tax law lowering. corporate income tax rate to 21. 0% territorial tax system one-time transition tax tax-deferred foreign earnings imposing new taxes foreign-sourced income. one-time transition tax eight years.
 SEC issued guidance. 118 record impact Tax Act. measurement period one year after enactment Act tax impact. recorded provisional estimates financial statements 2018. quarter 2019 analyzed income tax effects no material changes provisional amounts. accounting Act complete future adjustments interpretations. state legislative updates regulations changes accounting standards.
 Tax Act includes provisions Global Intangible Low-Taxed Income) taxes foreign income return assets foreign corporations. income taxed 10. 5% tax rate reduced foreign tax credits.provision effective years December 31, 2017 fiscal 2019. tax GILTI provisions period expense.
 tax rate income operations 2019 10. 4% lower. federal tax rate 21. 0% due losses German subsidiaries. Tax transition tax excess tax benefits restricted stock unit vesting federal research development tax credits Singapore South Korea tax exemptions. offset foreign withholding taxes earnings stock-based compensation not deductible limitations Internal Revenue Code Section 162.
 Federal statutory tax expense $12,610 $88,684 $105,719
 Valuation allowance 4,263
 Foreign taxes. rates (8,210
 Stock-based compensation 3
 State income taxes federal income tax benefit 1,131
 Research development credit (3,665
 Deferred compensation (206)
 Release unrecognized tax benefits (6,688)
 interest
. tax reform impact 26,653
Deferred taxes 1,215
 Write credits 1,134
 626 3,127
 taxes $6,223 $114,195 $93,411
 tax. 4%. 6%.


Cost of Revenues and Gross Margin
Cost of revenues in 2019 decreased by $4.3 million, or 16%, as compared to 2018. The decrease was primarily driven by a reduction in the number of global services and cloud infrastructure personnel, which led to a decrease of $2.2 million in compensation and benefits expense, including stock-based compensation expense, as compared to 2018. This reduction in headcount also contributed to a decrease in allocated facilities and information technology costs of $0.5 million in 2019. We also experienced a decrease of $0.9 million in hosting costs in 2019, due to a decline in the usage of our hosted platform as compared to 2018. Additionally, depreciation decreased $0.5 million in 2019, due to the nature and timing of capital expenditures and internal projects as compared to 2018.
Our gross margin decreased to 53% during 2019, as compared to 54% during 2018. This was primarily due to our revenues, net declining during the year at a slightly faster rate than the corresponding decrease in costs.

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

Revenues Gross Margin
 revenues 2019 decreased $4. 3 million 16% 2018. driven reduction global services cloud infrastructure personnel $2. 2 million compensation benefits expense. reduction allocated facilities information technology costs $0. 5 million. $0. 9 million hosting costs decline usage hosted platform. depreciation decreased $0. 5 million due capital expenditures internal projects.
 gross margin decreased 53% 2019 54% 2018. due revenues declining faster.
 Years Ended December 31,
 2019 2018
 revenues $22,843 $27,154 $(4,311)
 Gross profit 26,193 31,477 (6,284)
 Gross margin 53%


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

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

.
 changes segment
 December 31, 2019 2018 2017 no accumulated impairment losses.
 Blizzard
 Balance December 31, 2017 $6,898 $190 $2,675 $9,763
 December 2018 $6,897 $190 $2,675 $9,762
 December 31, 2019 $6,898 $190 $2,676 $9,764


Cubic Mission Solutions
Sales: CMS sales increased 59% to $328.8 million in fiscal 2019 compared to $207.0 million in 2018. The increase in sales resulted from increased product deliveries in all of our CMS product lines, and particularly expeditionary satellite communications products and secure network products. Businesses acquired during fiscal years 2019 and 2018 whose operations are included in our CMS operating segment had sales of $8.9 million and $0.6 million for fiscal years 2019 and 2018, respectively.
Amortization of Purchased Intangibles: Amortization of purchased intangibles included in the CMS results amounted to $19.5 million in 2019 and $20.8 million in 2018.
Operating Income: CMS had operating income of $7.8 million in 2019 compared to an operating loss of $0.1 million in 2018. The improvement in operating results was primarily from higher sales from expeditionary satellite communications products and secure networks products. The improvements in operating profits was partially offset by operating losses incurred by businesses that CMS acquired during fiscal 2019 and 2018. Businesses acquired by CMS in fiscal years 2019 and 2018 incurred operating losses of $12.8 million in fiscal 2019 compared to $3.5 million in fiscal 2018. Included in the operating loss incurred by acquired businesses are acquisition transaction costs of $1.6 million and $1.0 million incurred in fiscal years 2019 and 2018, respectively. In addition, the increase in operating profits was partially offset by an increase of $4.4 million in R&D expenditures from fiscal 2018 to fiscal 2019 related primarily to the development of secure communications and ISR-as-a-service technologies.
Adjusted EBITDA: CMS Adjusted EBITDA increased 31% to $34.4 million in 2019 compared to $26.2 million in 2018. The increase in CMS Adjusted EBITDA was primarily due to the same factors that drove the increase in operating income described above, excluding the changes in amortization expense and acquisition transaction costs as such items are excluded from Adjusted EBITDA. Adjusted EBITDA for CMS increased by $0.5 million in 2019 as a result of the adoption of the new revenue recognition standard. The increase in Adjusted EBITDA was partially offset by the increase in R&D expenditures described above.

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

Solutions
 Sales CMS sales increased 59% to $328. 8 million 2019 $207. 0 million 2018. increased product deliveries expeditionary satellite communications secure network products. Businesses acquired 2019 2018 sales $8. 9 million $0. 6 million.
 Amortization Purchased Intangibles $19. 5 million 2019 $20. 8 million 2018.
 Income CMS income $7. 8 million 2019 $0. 1 million 2018. higher sales expeditionary satellite communications secure networks. offset by losses businesses acquired. losses $12. 8 million $3. 5 million 2018. acquisition transaction costs $1. 6 million $1. 0 million. profits offset increase $4. 4 million R&D expenditures secure communications ISR-as-a-service technologies.
 Adjusted EBITDA increased 31% to $34. 4 million 2019 $26. 2 million 2018. due amortization expense acquisition transaction costs. increased $0. 5 million 2019 new revenue recognition standard.increase Adjusted EBITDA offset R&D expenditures.
 2019 2018
 millions
 Sales $ 328. $ 207. 59 %
 Operating income (loss 7.
 Adjusted EBITDA 34. 26.


SEGMENT RESULTS OF OPERATIONS
Reportable Segments
Fiscal Year 2019 Compared with Fiscal Year 2018
Productivity and Business Processes
Revenue increased $5.3 billion or 15%. • Office Commercial revenue increased $3.2 billion or 13%, driven by Office 365 Commercial, offset in part by lower revenue from products licensed on-premises, reflecting a continued shift to cloud offerings. Office 365 Commercial grew 33%, due to growth in seats and higher average revenue per user. • Office Consumer revenue increased $286 million or 7%, driven by Office 365 Consumer, due to recurring subscription revenue and transactional strength in Japan. • LinkedIn revenue increased $1.5 billion or 28%, driven by growth across each line of business. • Dynamics revenue increased 15%, driven by Dynamics 365 growth.
Operating income increased $3.3 billion or 25%, including an unfavorable foreign currency impact of 2%.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fiscal Year 2019 Compared with Fiscal Year 2018

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

Fiscal Year 2018 Compared with Fiscal Year 2017

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

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

 2019
 Revenue increased $5. 3 billion 15%. Office Commercial revenue increased $3. 2 billion 13%. 33% revenue. Office Consumer revenue increased $286 million 7%. LinkedIn revenue increased $1. 5 billion. Dynamics revenue increased 15%.
 Operating income increased $3. 3 billion 25% foreign currency impact 2%.
 Gross margin increased $4. billion 15% Office Commercial LinkedIn. Gross margin percentage cloud.
 Operating expenses increased $806 million 6% LinkedIn marketing.
 Cloud
 Revenue increased $6. billion 21%.
 products cloud services revenue increased $6. 5 billion 25%. 72%. Server products revenue 6% premium solutions GitHub SQL Server.
 Enterprise Services revenue increased $278 million 5% Premier Support Services Microsoft Consulting Services.
 Operating income increased $2. 4 billion 21%.
 Gross margin increased $4. billion 22% server cloud services.margin increased Azure cloud offerings.
 Operating expenses increased $2. 4 billion 22% investments cloud AI engineering GitHub commercial sales capacity.
 Revenue increased $3. 4 billion 8%.
 Windows revenue increased $877 million 4% Commercial OEM patent licensing. Commercial 14% multi agreements. OEM 4%. Pro 10% 10 demand. non-Pro revenue declined 7% entry level category.
 Surface revenue increased $1. 1 billion 23% growth consumer.
 Gaming revenue increased $1. billion 10% Xbox software services growth 19%-party decline Xbox hardware 13%.
 Search advertising revenue increased $616 million. 13%
 Operating income increased $2. 2 billion 21% foreign currency impact 2%.
 Gross margin increased $2. billion growth Windows Gaming Search. Windows
 Operating expenses decreased $172 million 1%.
 Revenue increased $6. billion 20%.
 LinkedIn revenue increased $3. billion $5. 3 billion. Talent Solutions.
 Office Commercial revenue increased $2.11% Office 365 Commercial-premises.
 Consumer revenue increased $382 million 11%.
 Dynamics revenue increased 13%.
 Operating income increased $1. billion 13% foreign currency impact 2%.
 Gross margin increased. billion 19% LinkedIn Office Commercial. decreased cloud. cost revenue increased $818 million $1. 7 billion $888 million amortization intangible assets.
 Operating expenses increased $2. billion 25% LinkedIn sales cloud engineering. $4. billion $617 million amortization.
 Cloud
 Revenue increased $4. billion 18%.
 Server products cloud services revenue increased $4. billion 21% Azure. revenue 91%. revenue 5% premium licenses Windows Server SQL Server.
 Enterprise Services revenue increased $304 million 5% Premier Support Services Microsoft Consulting Services custom support agreements.
 Operating income increased $2. billion 26%.
 Gross margin increased $3. billion 16% server cloud services.margin percentage decreased cloud Azure.
 Operating expenses increased $683 million 7% commercial sales cloud engineering.
 Revenue increased $3. billion 8%.
 Windows revenue increased $925 million 5% Windows Commercial OEM patent licensing. Commercial increased 12% multi-year agreement. OEM 5%. Pro 11%. non-Pro declined 4% entry-level price.
 Gaming revenue increased $1. 3 billion 14% Xbox software services revenue growth 20% third-party title.
 Search advertising revenue increased $793 million 13%. 16% growth Bing.
 Surface revenue increased $625 million 16% premium devices.
 Phone revenue decreased $525 million.
 Operating income increased $1. 8 billion 20% foreign currency impact 2%.
 Gross margin increased $2. 2 billion 11% growth Windows Surface Search Gaming. percentage increased Surface.
 Operating expenses increased $391 million 3% Search AI Gaming commercial sales Windows marketing expenses.
 restructuring expenses.
.
operating loss decreased $306 million restructuring expenses employee severance sales marketing restructuring plan 2017.
 Revenue
 Productivity Business Processes $ 41,160 35,865  29,870
 Intelligent Cloud  38,985 32,219  27,407 21%
 Personal Computing 45,698  42,276  39,294  8%
 $ 125,843  110,360  96,571 14%
 Operating Income
 Productivity Business Processes $ 16,219 12,924 11,389 25%
 Cloud 13,920 11,524  9,127 21%
 Personal Computing 12,820 10,610
 $42,959  $35,058  $29,025  23%


2. Other operating income
Gains from the disposal of fixed assets and gains from the reversal of impairment losses includes €354 million of income from the disposal of real estates (2017/18: €137 million) and €5 million of income from reversal of impairment losses (2017/18: €4 million). Project developments and sale-and-leaseback transactions contributed to the real estate transactions.
The income from logistics services provided by METRO LOGISTICS to companies intended for disposal and non-group companies is offset by expenses from logistics services, which are reported under other operating expenses.
The other operating income includes cost allocations and cost shares as well as a great number of insignificant individual items.
Disclosures on companies intended for sale can be found under no. 43 – discontinued business sectors page 266 .

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

. operating
 disposal reversal impairment losses €354 million €137 million €5 million reversal impairment losses €4 million. Project developments sale-leaseback transactions real estate.
 logistics services METRO offset expenses expenses.
 income cost allocations shares insignificant items.
 Disclosures companies sale. 43 discontinued business sectors page 266.
 million 2017/2018 2018/2019
 Gains disposal reversal impairment losses 145 360
 Income logistics services 257
 251
 Rents. rental costs 268 236
 suppliers 111
 Miscellaneous 211


Non-GAAP Measures
We define Adjusted EBITDA as our net income before interest expense, interest income, other income, net, provision for / (benefit from) income taxes, amortization and depreciation, stock-based compensation expense, acquisition-related expense and legal costs and settlement fees incurred in connection with non-ordinary course litigation and other disputes, particularly costs involved in ongoing intellectual property litigation. We do not consider these items to be indicative of our core operating performance. The non-cash items include amortization and depreciation expense, stock-based compensation expense related to stock options and other forms of equity compensation, including, but not limited to, the sale of common stock. We do not adjust for ordinary course legal expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements. Adjusted EBITDA is not a measure calculated in accordance with GAAP. See the table below for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP.
we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our
operating results in the same manner as our management and board of directors.We have included Adjusted EBITDA in this report because it is a key measure that our management uses to understand and evaluate our core operating performance and trends, to generate future operating plans, to make strategic decisions regarding the allocation of capital and to make investments in initiatives that are focused on cultivating new markets for our solutions. We also use certain non-GAAP financial measures, including Adjusted EBITDA, as performance measures under our executive bonus plan. Further, we believe the exclusion of certain expenses in calculating Adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis and, in the case of exclusion of acquisition-related expense and certain historical legal expenses, excludes items that we do not consider to be indicative of our core operating performance. Accordingly,
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are: (a) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.
Because of these and other limitations, you should consider Adjusted EBITDA alongside our other GAAP-based financial performance measures, net income and our other GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):

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

Non-GAAP Measures
 define Adjusted EBITDA as net income before interest expense provision taxes amortization depreciation stock-based compensation acquisition-related expense legal costs settlement fees non-ordinary intellectual property. indicative of core operating performance. non-cash items include amortization depreciation stock-based compensation stock options equity compensation sale of common stock. adjust for legal expenses intellectual property portfolio license agreements. Adjusted EBITDA not calculated GAAP. table reconciliation Adjusted EBITDA to net income.
 Adjusted EBITDA provides information investors
 operating results. included key measure operating performance future plans strategic decisions allocation capital investments new markets. use non-GAAP financial measures EBITDA as performance measures under executive bonus plan. exclusion of expenses Adjusted EBITDA facilitates comparisons operating performance legal excludes items indicative core operating performance.
Adjusted EBITDA has limitations for financial results GAAP. limitations depreciation amortization non-cash assets may reflect cash capital requirements new reflect changes cash requirements working capital needs dilutive impact equity compensation reflect tax payments reduction cash companies calculate EBITDA differently reduces usefulness.
 consider EBITDA alongside GAAP financial performance measures net income results. table reconciliation Adjusted EBITDA to net income for
 December
 2019 2018 2017
 Adjusted EBITDA
 Net income $53,330  $21,524  $29,251
 Adjustments
 Interest expense income other income (8,483)  503  1,133
 Provision for income taxes 5,566  (9,825) 2,990
 Amortization depreciation expense 22,134  21,721 17,734
 Stock-based compensation expense 20,603  13,429  7,413
2,403 5,895
 Litigation 12,754 7
 54,977 71,557 42,377
 EBITDA $108,307


18. Revenue
Effective September 1, 2018, the Company adopted ASU 2014-09, Revenue Recognition (Topic 606). The new standard is a comprehensive new revenue recognition model that requires the Company to recognize revenue in a manner which depicts the transfer of goods or services to its customers at an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.
Prior to the adoption of the new standard, the Company recognized substantially all of its revenue from contracts with customers at a point in time, which was generally when the goods were shipped to or received by the customer, title and risk of ownership had passed, the price to the buyer was fixed or determinable and collectability was reasonably assured (net of estimated returns). Under the new standard, the Company recognizes revenue over time for the majority of its contracts with customers which results in revenue for those customers being recognized earlier than under the previous guidance. Revenue for all other contracts with customers continues to be recognized at a point in time, similar to recognition prior to the adoption of the standard.
Additionally, the new standard impacts the Company’s accounting for certain fulfillment costs, which include upfront costs to prepare for manufacturing activities that are expected to be recovered. Under the new standard, such upfront costs are recognized as an asset and amortized on a systematic basis consistent with the pattern of the transfer of control of the products or services to which to the asset relates.
The following table presents the effect of the adoption of the new revenue guidance on the Consolidated Balance Sheets as of August 31, 2019 (in thousands):
(1) Differences primarily relate to the timing of revenue recognition for over time customers and certain balance sheet reclassifications.
(2) Differences primarily relate to the timing of recognition and recovery of fulfillment costs and certain balance sheet reclassifications.
(3) Included within accrued expenses on the Consolidated Balance Sheets.
(4) Differences included in contract liabilities as of September 1, 2018.

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

. Revenue
 September 1, 2018 Company adopted ASU 2014-09 Revenue Recognition (Topic 606). new standard revenue recognition model requires revenue transfer goods services customers consideration.
 recognized revenue from contracts time goods shipped received title risk ownership passed price buyer fixed collectability assured estimated returns. new standard recognizes revenue over time majority contracts recognized earlier previous. Revenue other contracts recognized point time similar.
 new standard impacts accounting fulfillment costs manufacturing activities. costs recognized as asset amortized transfer control products services.
 table effect adoption new revenue guidance on Consolidated Balance Sheets as August 31, 2019
 Differences relate timing revenue recognition over time customers balance sheet reclassifications.
 Differences timing recognition recovery fulfillment costs balance sheet reclassifications.
 Included accrued expenses.
 Differences contract liabilities as September 1, 2018.
 August 31, 2019
 Balance without adoption ASU 2014-09

 Contract $911,940
 Inventories $3,023,003,761,591
 Prepaid $501,573 $514,769
 Deferred income $198,827 $202,791
 $511,329
 $521,035
 accrued $1,877,908,868,201
 $115,818,304
 Equity
 Retained $2,037,037 $1,885,360


Medical Segment Results
Below is a table summarizing results for the fiscal years ended:
Net Sales. The Medical segment had $1.1 million of net sales in fiscal 2019, compared to $0.3 million of net sales in fiscal 2018. The increase was due to new business gained in fiscal 2019.
Gross Profit. Medical segment gross profit was a loss of $2.8 million in fiscal 2019, compared to a loss of $3.5 million in fiscal 2018. The improvement primarily relates to an increase in sales volumes during fiscal 2019.
Loss from Operations. Medical segment loss from operations decreased $2.8 million to $8.6 million in fiscal 2019, compared to $11.4 million in fiscal 2018. The decrease was due to an improvement in gross profit and lower selling and administrative expenses. Selling and administrative expenses were reduced by lower marketing and professional fee expenses, partially offset by initiatives to reduce overall costs and improve operational profitability of $0.9 million.

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

Medical Segment Results
 table fiscal years
 Net Sales. $1. 1 million 2019 $0. 3 million 2018. increase new business.
 Gross Profit. loss $2. 8 million 2019 $3. 5 million 2018. improvement increase sales volumes.
 Loss Operations. decreased $2. 8 million $8. 6 million 2019 $11. 4 million 2018. decrease due improvement gross profit lower selling administrative expenses. reduced marketing professional fee expenses offset costs operational profitability $0. 9 million.
 April 27, 2019 28, 2018 Net Change$ (%)
 Net Sales $1. 7 %
 Gross Profit.
 Loss Operations.


NOTE 9 – CONTINGENT PURCHASE PRICE
Our purchase of CareSpeak Communications contains a contingent element that will be paid only if the Company achieves certain patient engagement revenues in 2019 and 2020. The total contingent payment may be up to $3.0 million. The target patient engagement revenues were achieved in 2019 and are expected to be achieved in 2020. The calculated fair value of the contingent payment was $2,365,000 at December 31, 2018 and $3,000,000 at December 31, 2019.
Our purchase of RMDY Health, Inc. also contains a contingent element that will be paid only if the Company achieves certain revenues in 2020 and 2021 related to the RMDY business. The total contingent payment may be up to $30.0 million. The minimum payment is $1.0 million in each of the two years. The calculated fair value of the contingent payment was $3,720,000 at December 31, 2019. We determined the fair value of the Contingent Purchase Price Payable at December 31, 2019 using a Geometric-Brownian motion analysis of the expected revenue and resulting earnout payment using inputs that include the spot price, a risk free rate of return of 1.4%, a term of 2 years, and volatility of 40%. Changes in the inputs could result in a different fair value measurement.
The total fair value of contingent purchase price payable at December 31, 2019 is as follows.

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

CONTINGENT PRICE
 purchase CareSpeak Communications contingent element paid patient engagement revenues 2019 2020. total payment up $3. 0 million. target revenues achieved 2019 expected 2020. fair value $2,365,000 December 31, 2018 $3,000,000 December 31, 2019.
 purchase RMDY Health. contingent element paid revenues 2020 2021. total payment up $30. 0 million. minimum payment $1. 0 million. fair value $3,720,000 December 31, 2019. determined fair value Geometric-Brownian motion analysis spot price risk free return 1. 4% term 2 years volatility 40%. Changes.
 total fair value 2019.
 Long-Term
 CareSpeak Communications. $1,500,000 $3,000,000
 RMDY Health,. 3
 $5


Recently adopted authoritative guidance
Revenue Recognition — Contracts with Customers. In May 2014, the FASB issued new authoritative guidance for revenue from contracts with customers. The standard’s core principle is that a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration that the company expects to receive in exchange for those goods or services. In addition, companies are required to capitalize certain contract acquisition costs, including commissions paid, when contracts are signed. The asset recognized from capitalized incremental and recoverable acquisition costs is amortized on a straight-line basis consistent with the timing of transfer of the products or services to which the asset relates.
As a result of the adoption of the new revenue recognition guidance, our net revenue for fiscal 2019 increased $47 million, and our operating expenses decreased $12 million. See Note 3 for additional information related to the impact of the new guidance on the timing and amounts of revenues recognized in fiscal 2019.
The effects of the adoption of the new revenue recognition guidance on our March 29, 2019 Consolidated Balance Sheets were as follows:
(1) As reported includes short-term deferred commissions of $92 million. The balance without adoption of new standard includes short-term deferred commissions of $81 million.
(2) As reported includes long-term deferred commissions of $93 million. The balance without adoption of new standard includes long-term deferred commissions of $44 million.

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

adopted guidance
 Revenue Recognition Contracts Customers. May 2014, FASB issued guidance revenue contracts. company recognizes revenue transfers goods services. companies capitalize contract acquisition costs commissions contracts signed. asset from acquisition costs amortized timing transfer.
 net revenue 2019 increased $47 million operating expenses decreased $12 million. See Note 3 impact.
 effects March 29, 2019 Consolidated Balance Sheets
 short-term deferred commissions $92 million. $81 million.
 long-term deferred commissions $93 million. $44 million.
 March 29, 2019
 Balances Without Effect Change
 Accounts receivable $708  $657  $51
 current assets $435  $421  $14
 long-term assets $1,262  $1,213  $49
 Total assets $15,938  $15,824  $114
 Short-term contract liabilities $2,320  $2,437  $(117)
$533 $494
 Long-term $736 $837
 Deferred tax $577 $526
 $10,200 $10,328
 loss $(7)
 Retained earnings $933 $686
 equity $5,738 $5,496


2 Investments in subsidiaries
Investments are stated at cost less provisions for any impairment in value.
Additions in the year relate to investments in Gestra Holdings Limited £1.6m and Spirax Sarco America Investments Limited £212.4m. Spirax Sarco America Investments Limited was incorporated on 24th October 2018 with the purpose of holding Group US$ investments and loans. Gestra Holdings Limited was incorporated on 9th October 2018 with the purpose of holding other Gestra Companies.
Details relating to subsidiary undertakings are given on pages 207 to 211. Except where stated all classes of shares were 100% owned by the Group at 31st December 2019. The country of incorporation of the principal Group companies is the same as the country of operation with the exception of companies operating in the United Kingdom which are incorporated in Great Britain. All operate in steam, electrical thermal energy solutions, fluid path technologies or peristaltic pumping markets except those companies identified as a holding company on pages 207 to 211.

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

Investments subsidiaries
 cost less provisions value.
 Additions Gestra Holdings Limited £1. 6m Spirax Sarco America Investments Limited £212. 4m. incorporated 24th October 2018 holding Group US investments loans. Gestra Holdings 9th October 2018 Gestra Companies.
 Details subsidiary undertakings pages 207 to 211. shares 100% owned Group 31st December 2019. country incorporation same operation. operate steam electrical thermal energy fluid path technologies peristaltic pumping markets pages 207 211.
 1st January.
 Share options subsidiary employees.
 Additions.
 31st December.


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

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

Stock-based compensation expense expense
 December 31, 2019 $4,801 unrecognized employee stock options $1,882 RSUs. costs. 13. 33 years.
 Stock-Based Compensation Award December 31, 2019 2018
 Stock options $2,756 $2,926
 RSUs
 Total stock-based compensation expense $3,711 $4,055


ITEM 6. SELECTED FINANCIAL DATA
The following tables of selected consolidated financial data should be read in conjunction with, and are qualified by reference to, our consolidated financial statements and notes thereto in Item 8 of Part II and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report.
The tables of selected financial data shown below are derived from our audited consolidated financial statements, which include the operating results, cash flows and financial condition of Level 3 beginning November 1, 2017. These historical results are not necessarily indicative of results that you can expect for any future period.
The following table summarizes selected financial information from our consolidated statements of operations.
(1) See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” in Item 7 of Part II of this report and in our preceding annual reports on Form 10-K for a discussion of unusual items affecting the results for each of the years presented.
(2) During 2019 and 2018, we recorded non-cash, non-tax-deductible goodwill impairment charges of $6.5 billion and $2.7 billion, respectively.
(3) During 2019, 2018, 2017 and 2016, we incurred Level 3 acquisition-related expenses of $234 million, $393 million, $271 million and $52 million, respectively. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisition of Level 3” and Note 2—Acquisition of Level 3 to our consolidated financial statements in Item 8 of Part II of this report.
(4) During 2019, 2018, 2017, 2016 and 2015, we recognized an incremental $157 million, $171 million, $186 million, $201 million and $215 million, respectively, of revenue associated with the Federal Communications Commission (“FCC”) Connect America Fund Phase II support program, as compared to revenue received under the previous interstate USF program.
(5) The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in a re-measurement of our deferred tax assets and liabilities at the new federal corporate tax rate of 21%. The re-measurement resulted in tax expense of $92 million for 2018 and a tax benefit of approximately $1.1 billion for 2017.

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

6. SELECTED FINANCIAL DATA
 tables consolidated financial data financial statements 8 Discussion Analysis Financial Condition Results 7.
 tables audited financial statements operating results cash flows financial condition Level 3 November 1, 2017. historical results not indicative future.
 table summarizes financial information statements.
 See Discussion Analysis Financial Condition 7 annual reports 10-K unusual items results.
 2019 2018 recorded non-cash goodwill impairment charges $6. 5 billion $2. 7 billion.
 2019 2017 2016, incurred Level 3 expenses $234 million $393 million $271 million $52 million. Analysis Note 8.
 2019 2018 2017 2016 2015, recognized incremental $157 million $171 million $186 million $201 million $215 million revenue Federal Communications Commission Connect America Fund Phase II program.
 Tax Cuts Jobs Act 2017 deferred tax assets liabilities new federal corporate tax rate 21%.re-measurement tax expense $92 million 2018 benefit $1. 1 billion 2017.
 Years Ended December
 2015(4)
 millions share thousands
 Operating revenue $22,401 23,443 17,656
 Operating expenses 25,127 22,873 15,647
 (loss income $(2,726) 570 2,009 2,333 2,579
 income before tax expense $(4,766) (1,563) 1,020
 Net (loss income $(5,269) (1,733) 1,389
 Basic earnings per common share $(4.
 Diluted (loss earnings common share $(4.
 Dividends common share $1.
 Weighted average common shares 1,071,441 1,065,866 627,808 539,549 554,278
 diluted shares 628,693 540,679 555


5. Property and Equipment, Net
Property and equipment at March 31, 2019 and 2018 is as follows:
Total depreciation expense on property and equipment was $2.5 million, $2.6 million, and $2.4 million during fiscal 2019, 2018 and 2017, respectively.
The Company capitalizes internal-use software, including software used exclusively in providing services or that is only made available to customers as a software service, as property and equipment under ASC 350-40, Internal-Use Software. Total amortization expense on capitalized internal-use software was $2.5 million, $1.8 million and $1.4 million during fiscal 2019, 2018, and 2017, respectively.

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

. Property Equipment
 March 31, 2019 2018
 depreciation expense $2. 5 million. 6 million. 4 million 2019 2018 2017.
 capitalizes internal-use software. amortization $2. 5 million $1. 8 million. 4 million 2019 2018 2017.
 March 31,
 Furniture equipment $11,604 $10,671
 Software 16,427 11
 Leasehold improvements 6,981
 Project expenditures 1,014
 Accumulated depreciation amortization (20,188
 Property equipment $15,838 $17,512


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

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

. Earnings per share
 Adjustment previous year.
 determined dividing profit loss METRO AG weighted no-par-value shares. additional dividend preference shares deducted profit loss. no dilution reporting period potential shares.
 Earnings preference share correspond earnings share.
 2017/2018 2018/2019
 Weighted no-value shares 363,097,253
 Profit loss period METROAG (€million)
 Earnings per share € diluted. 92. 35
 continuing operations.
 discontinued operations.


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

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

 financial results three years
-GAAP Financial.
 Specialty Alloys Operations Performance Engineered Products Dynamet Carpenter Powder Products LPW Technology.
 Years Ended June 30
 Net sales $2,380. $2,157. $1,797.
 surcharge $1,942. $1,792. $1,558.
 Operating income $241. $189. $121.
 Net income $167. $188. $47.
 earnings share $3. $3.
 Purchases property equipment software $180. $135. $98.
 Free cash flow $(53. $34.
 Pounds sold 267,536 236,346


3. EARNINGS PER SHARE
Basic and diluted earnings (loss) per common share (“EPS”) are computed using the two-class method, which is an earnings allocation method that determines EPS for each class of common stock and participating securities considering dividends declared and participation rights in undistributed earnings. Certain of the Company’s restricted stock awards are considered participating securities because holders are entitled to receive non-forfeitable dividends, if declared, during the vesting term.
The potentially dilutive impact of the Company’s restricted stock awards is determined using the treasury stock method. Under the treasury stock method, if the average market price during the period exceeds the exercise price, these instruments are treated as if they had been exercised with the proceeds of exercise used to repurchase common stock at the average market price during the period. Any incremental difference between the assumed number of shares issued and repurchased is included in the diluted share computation.
Diluted EPS includes securities that could potentially dilute basic EPS during a reporting period. Dilutive securities are not included in the computation of loss per share when a company reports a net loss from continuing operations as the impact would be anti-dilutive.
The computation of basic and diluted EPS attributable to common shareholders computed using the two-class method is as follows:
Diluted EPS attributable to common shareholders for the years ended December 31, 2019, 2018 and 2017 excludes 1.1 million, 0.5 million and 0.3 million potential common shares, respectively, that could be issued under our share-based compensation plan, because the inclusion of the potential common shares would have an antidilutive effect.

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

. EARNINGS PER SHARE
 Basic diluted earnings per common share computed two-class method common stock participating securities dividends rights undistributed earnings. restricted stock awards participating securities non-forfeitable dividends vesting term.
 dilutive impact treasury stock method. average market price exceeds exercise price instruments treated as exercised proceeds stock. difference shares issued repurchased included diluted share computation.
 Diluted EPS includes securities dilute EPS. Dilutive securities not included loss per share net loss.
 computation basic diluted EPS common shareholders
 Diluted EPS December 2019 2018 2017 excludes. million. 5 million. 3 million potential common shares compensation plan.
 2019 2018 2017
 Net income (loss $(19,931) $(50,571)  $65,299
 net income noncontrolling interest 452 263 354
Income before (20,383 (50,834) 64,945
 Less earnings allocated 810 362
 Net income after earnings(20,845) $(51,644) $64,583
-average shares 70,837 70,613  60,373
 Net income (loss share basic diluted. 29). 73).


NOTE 24. EARNINGS PER SHARE
Basic net earnings per common share is calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding for that period. The dilutive effect is calculated using the treasury stock method. The calculation of diluted net income per share assumes the exercise of options issued under our stock option plans (and the issuance of shares under our share plans) for periods in which exercises (or issuances) would have a dilutive effect.
The calculation of basic and diluted net income per share attributable to common shareholders is based on the following data:

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

. EARNINGS PER SHARE
 earnings share calculated dividing income average shares. dilutive effect calculated treasury stock method. diluted income assumes options.
 calculation diluted income based data
 December 31,
 2018 2019
 Net earnings
 operations 157,133 329,013
 average shares outstanding 52,432 49,418
 dilutive potential shares stock options restricted shares  580
 Dilutive average shares 53,110 49,999
 net earnings per share operations 3. 00 6. 66
 Diluted net earnings per share 2. 96 6. 58


Effective Tax Rate
The items accounting for the difference between income taxes computed at the U.S. federal statutory rate and our effective rate were as follows:
The decrease from the federal statutory rate in fiscal year 2019 is primarily due to a $2.6 billion net income tax benefit related to intangible property transfers, and earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico. The increase from the federal statutory rate in fiscal year 2018 is primarily due to the net charge related to the enactment of the TCJA in the second quarter of fiscal year 2018, offset in part by earnings taxed at lower rates in foreign jurisdictions. The decrease from the federal statutory rate in fiscal year 2017 is primarily due to earnings taxed at lower rates in foreign jurisdictions. Our foreign regional operating centers in Ireland, Singapore and Puerto Rico, which are taxed at rates lower than the U.S. rate, generated 82%, 87%, and 76% of our foreign income before tax in fiscal years 2019, 2018, and 2017, respectively. Other reconciling items, net consists primarily of tax credits, GILTI, and U.S. state income taxes. In fiscal years 2019, 2018, and 2017, there were no individually significant other reconciling items.
The decrease in our effective tax rate for fiscal year 2019 compared to fiscal year 2018 was primarily due to the net charge related to the enactment of the TCJA in the second quarter of fiscal year 2018, and a $2.6 billion net income tax benefit in the fourth quarter of fiscal year 2019 related to intangible property transfers. The increase in our effective tax rate for fiscal year 2018 compared to fiscal year 2017 was primarily due to the net charge related to the enactment of the TCJA and the realization of tax benefits attributable to previous Phone business losses in fiscal year 2017.

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

Tax Rate
 between taxes U. S. federal
 decrease 2019 due to $2. 6 billion net income tax benefit intangible property transfers earnings taxed lower rates foreign jurisdictions Ireland Singapore Puerto Rico. increase 2018 due to net charge TCJA offset by earnings taxed lower rates foreign. decrease 2017 due to earnings taxed lower rates foreign jurisdictions. centers Ireland Singapore Puerto Rico taxed lower. generated 82% 87% 76% foreign income before tax 2019 2018 2017. items tax credits GILTI U. state income taxes. no significant other reconciling items.
 decrease effective tax rate 2019 due to net charge TCJA $2. 6 billion net income tax benefit fourth quarter intangible property transfers. increase 2018 due to net charge TCJA tax benefits previous business losses.
 Year Ended June 30 2019 2018 2017
 Federal statutory rate 21. 0% 28. 1% 35. 0%
Foreign earnings lower rates (4. (7. (11.
 TCJA. 37. 7%
 business losses (5.
 intangible property transfers (5.
 Foreign-derived intangible income deduction (1. 4)
 Research development credit (1.
 Excess tax benefits stock-based compensation (2. (2.
 1.
 reconciling items 2. (1.
 10. 2% 54. 6% 14.


Stock-based compensation expense is included in the following captions of the consolidated statements of comprehensive income (loss) (in thousands): Stock-based compensation expense is included in the following captions of the consolidated statements of comprehensive income (loss) (in thousands):
As of February 28, 2019, there was $25.5 million of unrecognized stock-based compensation cost related to non-vested equity awards, which is expected to be recognized over a weighted-average remaining vesting period of 2.8 years.

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

Stock compensation expense
 February 28, 2019 $25. 5 million unrecognized stock-based compensation cost non-vested equity awards 2. 8 years.
 Ended February 28,
 2018 2017
 revenues $723 $653 $374
 Research development 2,061 1,471 1,033
 Selling marketing 2,863 2,314 1,655
 General administrative 5,382 4,771
 $11,029 $9,298 $7,833


We utilized a comprehensive approach to evaluate and document the impact of the guidance on our current accounting policies and practices in order to identify material differences, if any, that would result from applying the new requirements to our revenue contracts. We did not identify any material differences resulting from applying the new requirements to our revenue contracts. In addition, we did not identify any significant changes to our business processes, systems, and controls to support recognition and disclosure requirements under the new guidance. We adopted the provisions of Topic 606 in fiscal 2019 utilizing the modified retrospective method. We recorded a $0.5 million cumulative effect adjustment, net of tax, to the opening balance of fiscal 2019 retained earnings, a decrease to receivables of $7.6 million, an increase to inventories of $2.8 million, an increase to prepaid expenses and other current assets of $6.9 million, an increase to other accrued liabilities of $1.4 million, and an increase to other noncurrent liabilities of $0.2 million. The adjustments primarily related to the timing of recognition of certain customer charges, trade promotional expenditures, and volume discounts.
The effect of the changes made to our Consolidated Balance Sheet as of May 26, 2019 for the adoption of Topic 606 was as follows:
Notes to Consolidated Financial Statements - (Continued) Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017 (columnar dollars in millions except per share amounts)

Current assets                                    | As Reported | Adjustments | Balances without Adoption of Topic 606
------------------------------------------------- | ----------- | ----------- | --------------------------------------
Receivables, less allowance for doubtful accounts | $831.7      | $8.7        | $840.4
Inventories .                                     | 1,571.7     | (3.1)       | 1,568.6
Prepaid expenses and other current assets         | 93.8        | (16.6)      | 77.2
Current liabilities                               |             |             |
Other accrued liabilities                         | 691.6       | (1.1)       | 690.5
Other noncurrent liabilities .                    | 1,951.8     | (2.5)       | 1,949.3

utilized approach impact guidance accounting policies differences new requirements. differences. significant changes business processes systems controls recognition disclosure. adopted Topic 606 fiscal 2019 retrospective method. recorded $0. 5 million adjustment opening earnings decrease receivables $7. 6 million increase inventories $2. 8 million prepaid expenses current assets $6. 9 million accrued liabilities $1. 4 million noncurrent liabilities $0. 2 million. adjustments related timing customer charges trade promotional expenditures volume discounts.
 effect changes Consolidated Balance Sheet May 26, 2019 Topic 606
 Financial Statements Fiscal Years May 2019 2018 2017
 Current assets Adjustments Balances without Adoption Topic 606
 Receivables less allowance doubtful accounts $831.
 Inventories. 1,571.
 Prepaid expenses current assets.
 Current liabilities
 accrued liabilities 691. 690.
 noncurrent liabilities.1,951. 1,949.


The deferred income tax balance sheet accounts arise from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.
Components of the deferred tax assets and liabilities at December 31 were as follows:
[1] Upon adoption of ASC 842, deferred taxes associated with previously recognized deferred rent liabilities were reclassified into deferred taxes for ROU asset and lease liability.
As of December 31, 2019, the Company had approximately $19.0 of tax-effected U.S. federal net operating loss carryforwards. Some of these net operating loss carryforwards have an indefinite carryforward period, and those that do not will begin to expire in 2021 if not utilized. The majority of the U.S. federal net operating loss carryforwards are subject to limitation under the Internal Revenue Code of 1986, as amended (“IRC”) Section 382; however, the Company expects to utilize such losses in their entirety prior to expiration. The U.S. federal net operating loss carryforwards decreased from 2018 to 2019 primarily due to current year tilization. The Company has approximately $33.7 of tax-effected state net operating loss carryforwards (without regard to federal benefit of state). Some of these net operating loss carryforwards have an indefinite carryforward period, and those that do not will begin to expire in 2020 if not utilized. The state net operating loss carryforwards are primarily related to Florida and New Jersey, but the Company has smaller net operating losses in various other states. The Company has approximately $65.6 of tax-effected foreign net operating loss carryforwards. Some of these net operating loss carryforwards have an indefinite carryforward period, and those that do not will begin to expire in 2020 if not utilized. The foreign net operating loss carryforwards increased from 2018 to 2019 primarily due to the recognition of a discrete tax benefit of $41.0 in connection with a foreign restructuring plan allowing the future realization of net operating losses. Additionally, the Company has $5.0 of U.S. federal and state research and develop- ment tax credit carryforwards (without regard to federal benefit of state). Some of these research and development credit carry- forwards have an indefinite carryforward period, and those that do not will begin to expire in 2020 if not utilized.
As of December 31, 2019, the Company determined that a total valuation allowance of $36.3 was necessary to reduce U.S. fed- eral and state deferred tax assets by $15.4 and foreign deferred tax assets by $20.9, where it was more likely than not that all of such deferred tax assets will not be realized. As of December 31, 2019, the Company believes it is more likely than not that the remaining net deferred tax assets will be realized based on the Company’s estimates of future taxable income and any applicable tax-planning strategies within various tax jurisdictions.

                                                      | 2019        | 2018
----------------------------------------------------- | ----------- | -----------
Deferred tax assets:                                  |             |
Reserves and accrued expenses                         | $    175.2  | $    156.5
Inventories                                           | 4.3         | 4.5
Net operating loss carryforwards                      | 111.2       | 67.9
R&D credits                                           | 4.1         | 6.1
Valuation allowance                                   | (36.3)      | (26.4)
Outside basis difference on investments held for sale | —           | 2.7
Lease liability1                                      | 64.0        | —
Total deferred tax assets                             | $    322.5  | $    211.3
Deferred tax liabilities:                             |             |
Reserves and accrued expenses                         | $      15.5 | $      14.3
Amortizable intangible assets                         | 1,229.9     | 1,043.0
Plant and equipment                                   | 10.8        | 6.6
Accrued tax on unremitted foreign earnings            | 17.1        | 16.3
Outside basis difference on investments held for sale | —           | 10.0
ROU asset1                                            | 61.7        | —
Total deferred tax liabilities                        | $ 1,335.0   | $ 1,090.2

deferred income tax accounts differences assets liabilities financial tax.
 deferred tax assets liabilities at December 31
 adoption ASC 842 deferred taxes rent reclassified ROU lease liability.
 December 31, 2019 Company had $19. 0 tax-effected U. S. federal net operating loss carryforwards. indefinite expire 2021 if not. majority. subject Internal Revenue Code of 1986 382 Company expects losses prior expiration. carryforwards decreased 2018 to 2019 due current year tilization. $33. 7 tax-effected state net operating loss carryforwards. indefinite expire 2020 if. related Florida New Jersey smaller losses other states. $65. 6 tax-effected foreign net operating loss carryforwards. indefinite expire 2020 if not. carryforwards increased 2018 to 2019 due tax benefit $41. 0 foreign restructuring plan. has $5. 0 of U. S.federal state research develop tax credit carryforwards. indefinite period expire 2020.
 December 2019 Company determined valuation allowance $36. reduce. fed state deferred tax assets $15. foreign deferred tax $20. realized. remaining deferred tax assets realized future taxable income tax-planning strategies.
 Deferred tax assets
 Reserves accrued expenses $ 175. $ 156.
 Inventories 4.
 Net operating loss carryforwards 111. 67.
 R&D credits.
 Valuation allowance (36. (26.
 difference investments sale 2.
.
 Total deferred tax assets $ 322. 5 $ 211.
 Deferred tax liabilities
 Reserves accrued expenses $ 15. $ 14.
 Amortizable intangible assets 1,229. 1,043.
 Plant equipment.
 Accrued tax unremitted foreign earnings 17. 16.
 difference investments.
 61.
tax 1,335. 1,090.


Consolidated Financial Results
Operating Expenses
The following table sets forth operating expenses by segment for the periods presented (in millions):
The increase in Operating Expenses was primarily driven by higher net personnel costs, technology-related costs and acquisition-related costs in our Software Solutions segment. The increase in our Data and Analytics segment primarily related to higher net personnel costs and higher data costs related to revenue growth. The decrease in Corporate and Other was primarily driven by lower incentive bonus expense.

                    | Year ended December 31, |        | Variance |
------------------- | ----------------------- | ------ | -------- | ----
                    | 2019                    | 2018   | $        | %
Software Solutions  | $412.7                  | $394.8 | $17.9    | 5%
Data and Analytics  | 123.4                   | 115.0  | 8.4      | 7%
Corporate and Other | 109.9                   | 115.6  | (5.7)    | (5)%
Total               | $646.0                  | $625.4 | $20.6    | 3%

Financial Results
 Operating Expenses
 table operating expenses segment
 increase Operating Expenses driven higher personnel technology Software Solutions. increase Data Analytics personnel data costs revenue growth. decrease Corporate Other driven lower incentive bonus expense.
 December 31,
 Software Solutions $412. $394. $17. 5%
 Data Analytics 123. 115. 7%
 Corporate Other 109. 115. (5.
 Total $646. $625. $20. 3%


Equity Method We own 20.51%of GTE Mobilnet of Texas RSA #17 Limited Partnership (“RSA #17”), 16.67% of Pennsylvania RSA 6(I) Limited Partnership (“RSA 6(I)”) and 23.67% of Pennsylvania RSA 6(II) Limited Partnership (“RSA 6(II)”). RSA #17 provides cellular service to a limited rural area in Texas.
RSA 6(I) and RSA 6(II) provide cellular service in and around our Pennsylvania service territory. Because we have significant influence over the operating and financial policies of these three entities, we account for the investments using the equity method. In connection with the adoption of ASC 606 by our equity method partnerships, the value of our combined partnership interests increased $1.8 million, which is reflected in the cumulative effect adjustment to retained earnings during the year ended December 31, 2018.
In 2019, 2018 and 2017, we received cash distributions from these partnerships totaling $19.0 million, $21.8 million and $17.2 million, respectively. The carrying value of the investments exceeds the underlying equity in net assets of the partnerships by $32.8 million as of December 31, 2019 and 2018.
The combined results of operations and financial position of our three equity investments in the cellular limited partnerships are summarized below:

(In thousands)          | 2019      | 2018      | 2017
----------------------- | --------- | --------- | ---------
Total revenues          | $ 349,640 | $ 346,251 | $ 350,611
Income from operations  | 100,182   | 100,571   | 104,973
Net income before taxes | 99,146    | 99,408    | 103,497
Net income              | 99,146    | 99,408    | 103,497
Current assets          | $ 80,655  | $ 75,040  | $ 78,782
Non-current assets      | 156,672   | 103,996   | 95,959
Current liabilities     | 33,292    | 24,719    | 22,472
Non-current liabilities | 92,477    | 51,840    | 51,463
Partnership equity      | 111,558   | 102,478   | 100,806

own. GTE Mobilnet Texas RSA #17. 67% Pennsylvania RSA 6 23. 67% 6. #17 cellular service rural Texas.
 6 Pennsylvania. influence financial policies account investments equity method. adoption ASC 606 interests increased $1. 8 million reflected cumulative earnings December 31, 2018.
 2019 2017 cash distributions $19. million $21. 8 million $17. 2 million. value exceeds equity $32. 8 million December 31, 2019 2018.
 combined results three equity investments
 Total revenues $ 349,640 $ 346,251 350,611
 Income operations 100,182 100,571 104,973
 Net income taxes 99,146
 Current assets $ 80,655 $ 75,040 78,782
 Non-current assets 156,672 103,996 95,959
 Current liabilities 33,292 24,719
92,477
 Partnership 111,558 102,478 100


At December 31, 2019, the Company’s net operating losses and credit carryforwards are:
(1) Excludes federal and state net operating losses of $60.2 million and $0.8 million, respectively, from prior acquisitions that the Company expects will expire unutilized
(2) Excludes federal and state tax credits of $0.1 million and $8.3 million, respectively, that the Company expects will expire unutilized
Carryforward losses and credits expire between 2020 and 2038, except for the 2019 federal net operating loss of $43.9 million and $1 million of state credits, which both have unlimited carryforward periods.
The Company’s India subsidiary is primarily located in Special Economic Zones (“SEZs”) and is entitled to a tax holiday in India. The tax holiday reduces or eliminates income tax in India. The tax holiday in the Hyderabad SEZ is scheduled to expire in 2024. The tax holiday in the Bangalore SEZ is scheduled to expire in 2022. For 2019, 2018 and 2017, the income tax holiday reduced the Company’s provision for income taxes by $1.9 million, $1.3 million, and $1 million, respectively.

(in thousands)                               | Federal  | State
-------------------------------------------- | -------- | ------
Net operating losses (1)                     | $120,722 | $3,337
Net operating losses due to acquisitions (1) | $76,827  | $778
Credit carryforwards (2)                     | $8,202   | $1,958
Credit carryforwards due to acquisitions     | $640     | $227

December 31, 2019 losses carryforwards
 Excludes federal state losses $60. 2 million $0. 8 million acquisitions
 Excludes tax credits $0. 1 million $8. 3 million
 losses credits expire 2020 2038 2019 federal loss $43. 9 million $1 million state credits unlimited carryforward periods.
 India subsidiary Special Economic Zones tax holiday. reduces income tax. Hyderabad 2024. Bangalore 2022. 2019 2017 tax reduced taxes $1. 9 million $1. 3 million $1 million.
 operating losses $120,722 $3,337
 acquisitions $76,827 $778
 carryforwards $8,202 $1,958


Uncertain Tax Positions
As of December 31, 2019, 2018 and 2017, we had gross unrecognized tax benefits of $4.4 million, $4.2 million
and $3.8 million, respectively. Accrued interest expense related to unrecognized tax benefits is recognized as part of
our income tax provision in our consolidated statements of operations and is immaterial for the years ended
December 31, 2019 and 2018. Our policy for classifying interest and penalties associated with unrecognized income
tax benefits is to include such items in income tax expense.
The activity related to the unrecognized tax benefits is as follows (in thousands):
These amounts are related to certain deferred tax assets with a corresponding valuation allowance. As ofDecember 31, 2019, the total amount of unrecognized tax benefits, if recognized, that would affect the effective taxrate is $1.0 million. We do not anticipate a material change to our unrecognized tax benefits over the next twelvemonths. Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinarycourse of business.
We are subject to taxation in the United States, various states, and several foreign jurisdictions. Because we havenet operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreigntaxing authorities may examine our tax returns for all years from 2005 through the current period. We are notcurrently under examination by any taxing authorities.

                                                                 | Years Ended December 31, |        |
---------------------------------------------------------------- | ------------------------ | ------ | ------
                                                                 | 2019                     | 2018   | 2017
Gross unrecognized tax benefits —beginning balance               | $4,191                   | $3,782 | $3,360
Increases (decrease) related to tax positions from prior years   | (280)                    | (266)  | (151)
Increases related to tax positions taken during current year     | 530                      | 675    | 573
Decreases related to tax positions taken during the current year | —                        | —      | —
Gross unrecognized tax benefits —ending balance                  | $4,441                   | $4,191 | $3,782

Uncertain Tax Positions
 December 31, 2019 2018 2017 unrecognized tax benefits $4. 4 million $4. 2 million
 $3. 8 million. Accrued interest expense recognized
 income tax immaterial years
 December 2019 2018. policy interest penalties unrecognized
 benefits tax expense.
 activity unrecognized tax benefits
 deferred tax assets valuation allowance. 31, 2019 total tax benefits effective taxrate $1. 0 million. change tax benefits next twelvemonths. may change.
 subject taxation United States states foreign jurisdictions. open statutes of limitations federal authorities examine tax returns 2005. under examination.
 Years Ended December 31,
 2019 2018 2017
 unrecognized tax benefits balance $4,191  $3,782 $3,360
 Increases tax positions prior years (280) (151)
 Increases 530 675 573
 Decreases
$4,441 $4,191 $3,782


On a worldwide basis, the Company's defined benefit pension plans were 88% funded as of January 31, 2019.
As of January 31, 2019, the aggregate accumulated benefit obligation was $85.1 million for the defined benefit pension plans compared to $139.5 million as of January 31, 2018. Included in the aggregate data in the following tables are the amounts applicable to the Company's defined benefit pension plans, with accumulated benefit obligations in excess of plan assets, as well as plans with projected benefit obligations in excess of plan assets. Amounts related to such plans at the end of each period were as follows: because their exercise prices are higher than the average market value of Autodesk’s stock during the fiscal year.

                                                                     | Fiscal Year Ended January 31, |
-------------------------------------------------------------------- | ----------------------------- | ------
                                                                     | 2019                          | 2018
Plans with accumulated benefit obligations in excess of plan assets: |                               |
Accumulated benefit obligations                                      | $75.6                         | $130.7
Plan assets                                                          | 70.0                          | 112.1
Plans with projected benefit obligations in excess of plan assets:   |                               |
Projected benefit obligations                                        | $91.6                         | $158.1
Plan assets                                                          | 80.8                          | 121.1

worldwide Company's defined benefit pension plans 88% funded January 31, 2019.
 aggregate accumulated benefit obligation $85. 1 million compared $139. 5 million January 31, 2018. amounts Company's defined benefit pension plans accumulated obligations projected benefit obligations. Amounts exercise prices higher than average market value Autodesk’s stock fiscal year.
 Fiscal Year Ended January 31,
 Plans accumulated benefit obligations excess
 $75. $130.
.
 projected benefit obligations
 $91. $158.
. 121.