Cash, Cash Equivalents and Marketable Securities
Cash, cash equivalents, and marketable securities increased by $485.5 million to $2,455.2 million as at December 31, 2019 from $ 1,969.7 million as at December 31, 2018, primarily as a result of proceeds from the public offering in September 2019, cash provided by our operating activities, and proceeds from the exercise of stock options.
Cash equivalents and marketable securities include money market funds, repurchase agreements, term deposits, U.S. and Canadian federal bonds, corporate bonds, and commercial paper, all maturing within the 12 months from December 31, 2019.
The following table summarizes our total cash, cash equivalents and marketable securities as at December 31, 2019 and 2018 as well as our operating, investing and financing activities for the years ended December 31, 2019 and 2018:
Cash Flows From Operating Activities
Our largest source of operating cash is from subscription solutions. These payments are typically paid to us at the beginning of the applicable subscription period, except for our Shopify Plus merchants who typically pay us at the end of their monthly billing cycle. We also generate significant cash flows from our Shopify Payments processing fee arrangements, which are received on a daily basis as transactions are processed. Our primary uses of cash from operating activities are for third-party payment processing fees, employee-related expenditures, advancing funds to merchants through Shopify Capital, marketing programs, third-party shipping and fulfillment partners, outsourced hosting costs, and leased facilities.
For the year ended December 31, 2019, cash provided by operating activities was $70.6 million. This was primarily as a result of our net loss of $124.8 million, which once adjusted for $158.5 million of stock-based compensation expense, $35.7 million of amortization and depreciation, a $37.9 million increase in deferred income taxes, a $15.9 million increase of our provision for uncollectible merchant cash advances and loans, and an unrealized foreign exchange loss of $3.2 million, contributed $50.4 million of positive cash flows. Additional cash of $162.9 million resulted from the following increases in operating liabilities: $84.6 million in accounts payable and accrued liabilities due to indirect taxes payable, payroll liabilities, and payment processing and interchange fees; $64.6 million in income tax assets and liabilities; $12.3 million in deferred revenue due to the growth in sales of our subscription solutions along with the acquisition of 6RS; and $1.5 million increase in net lease liabilities. These were offset by $142.8 million of cash used resulting from the following increases in operating assets: $74.2 million in merchant cash advances and loans as we continued to grow Shopify Capital; $56.2 million in trade and other receivables; and $12.4 million in other current assets driven primarily by an increase in prepaid expenses, forward contract assets designated for hedge accounting, and deposits.
For the year ended December 31, 2018, cash provided by operating activities was $9.3 million. This was primarily as a result of our net loss of $64.6 million, which once adjusted for $95.7 million of stock-based compensation expense, $27.1 million of amortization and depreciation, a $5.9 million increase of our provision for uncollectible merchant cash advances, and an unrealized foreign exchange loss of $1.3 million, contributed $65.4 million of positive cash flows. Additional cash of $38.1 million resulted from the following increases in operating liabilities: $20.6 million in accounts payable and accrued liabilities; $9.0 million in deferred revenue; and $8.4 million in lease liabilities. These were offset by $94.2 million of cash used resulting from the following increases in operating assets: $50.7 million in merchant cash advances and loans; $32.6 million in trade and other receivables; and $10.8 million in other current assets.
Cash Flows From Investing Activities
Cash flows used in investing activities are primarily related to the purchase and sale of marketable securities, business acquisitions, purchases of leasehold improvements and furniture and fixtures to support our expanding infrastructure and workforce, purchases of computer equipment, and software development costs eligible for capitalization.
Net cash used in investing activities in the year ended December 31, 2019 was $ 569.5 million, which was driven by $265.5 million used to make business acquisitions, most of which was for the 6RS acquisition on October 17, 2019, net purchases of $241.6 million in marketable securities, $ 56.8 million used to purchase property and equipment, which primarily consisted of expenditures on leasehold improvements, and $5.6 million used for purchasing and developing software to add functionality to our platform and support our expanding merchant base.
Net cash used in investing activities in the year ended December 31, 2018 was $810.6 million, reflecting net purchases of $749.7 million in marketable securities. Cash used in investing activities also included $28.0 million used to purchase property and equipment, which primarily consisted of expenditures on leasehold improvements, $19.4 million used to make business acquisitions, and $13.6 million used for purchasing and developing software.
Cash Flows From Financing Activities
To date, cash flows from financing activities have related to proceeds from private placements, public offerings, and exercises of stock options.
Net cash provided by financing activities in the year ended December 31, 2019 was $736.4 million driven mainly by the $688.0 million raised by our September 2019 public offering, and $48.3 million in proceeds from the issuance of Class A subordinate voting shares and Class B multiple voting shares as a result of stock option exercises. This compares to $1,072.2 million for the same period in 2018 of which $1,041.7 million was raised by our February and December 2018 public offerings while the remaining $30.5 million related to stock option exercises.

                                                                 | Years ended December 31, |
---------------------------------------------------------------- | ------------------------ | ----------
                                                                 | 2019                     | 2018
                                                                 | (in thousands)           |
Cash, cash equivalents and marketable securities (end of period) | $2,455,194               | 1,969,670
Net cash provided by (used in):                                  |                          |
Operating activities                                             | $70,615                  | $9,324
Investing activities                                             | (569,475)                | (810,633)
Financing activities                                             | 736,351                  | 1,072,182
Effect of foreign exchange on cash and cash equivalents          | 1,742                    | (1,867)
Net increase in cash and cash equivalents                        | 239,233                  | 269,006
Change in marketable securities                                  | 246,291                  | 762,625
Net increase in cash, cash equivalents and marketable securities | $485,524                 | $1,031,631

Cash Equivalents Marketable Securities
 securities increased $485. 5 million to $2,455. 2 million December 31, 2019 1,969. 7 million 2018 public offering operating activities stock options.
 include money market funds repurchase agreements term deposits. bonds corporate bonds commercial paper maturing 12 months December 31, 2019.
 summarizes cash equivalents securities operating investing financing activities
 Cash Flows Activities
 largest subscription solutions. Shopify Payments processing fee.-party fees employee expenditures marketing shipping outsourced hosting costs leased facilities.
 December 2019 cash $70. 6 million. net loss $124. 8 million $158. million stock-based compensation expense $35. million amortization depreciation $37. million deferred income taxes $15. million uncollectible merchant cash advances loans unrealized foreign exchange loss $3. 2 million $50. 4 million positive cash flows. Additional cash $162.$84. 6 million $64. 6 million income tax $12. 3 million deferred revenue $1. 5 million lease. offset $142. million $74. 2 million merchant cash advances loans $56. 2 million trade receivables $12. 4 million assets prepaid expenses deposits.
 $9. 3 million. net loss $64. 6 million $95. 7 million stock compensation $27. 1 million amortization depreciation $5. million cash advances foreign exchange loss $1. 3 million $65. 4 million positive cash flows. Additional $38. 1 million $20. 6 million accounts payable $9. million deferred revenue $8. 4 million lease liabilities. offset $94. 2 million $50. 7 million merchant cash advances loans $32. 6 million trade receivables $10. 8 million current assets.
Cash flows investing related purchase sale securities business leasehold improvements furniture computer equipment software development.
 Net cash December 31, 2019 $ 569. 5 million driven $265. 5 million business acquisitions 6RS acquisition October 2019 $241. 6 million securities $ 56. 8 million property equipment $5. 6 million software.
 Net cash December 31, 2018 $810. 6 million purchases $749. 7 million securities. $28. 0 million property equipment $19. 4 million business $13. 6 million software.
 Cash Flows Financing
 private placements public offerings stock options.
 Net cash December 31, 2019 $736. 4 million $688. 0 million September 2019 public offering $48. 3 million Class A stock option exercises. compares $1,072. 2 million 2018 $1,041. 7 million February December 2018 public offerings remaining $30. 5 million stock option exercises.
 Years December

 Cash equivalents securities $2,455,194 1,969,670
 Operating $70,615 $9,324
 Investing (569,475),633
 Financing 736,351 1,072,182
 foreign exchange 1,742
 increase 239,233 269,006
 securities 246,291 762,625
 securities $485,524 $1,031,631


Free Cash Flow. Free cash flow represents net cash provided by operating activities minus capital expenditures and capitalized software development costs. Free cash flow is a measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans.
The exclusion of capital expenditures and amounts capitalized for internally-developed software facilitates comparisons of our operating performance on a period-to-period basis and excludes items that we do not consider to be indicative of our core operating performance. Free cash flow is not a measure calculated in accordance with GAAP. We believe that free cash flow 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.
Nevertheless, our use of free cash flow 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. You should consider free cash flow alongside our other GAAP-based financial performance measures, net cash provided by operating activities, and our other GAAP financial results. The following table presents a reconciliation of free cash flow to net cash for operating activities, the most directly comparable GAAP measure, for each of the periods indicated (in thousands):

                                          |          | Year Ended December 31, |
----------------------------------------- | -------- | ----------------------- | --------
                                          | 2019     | 2018                    | 2017
Net cash provided by operating activities | $10,317  | $3,295                  | $4,863
Capital expenditures                      | (5,269)  | (1,721)                 | (1,667)
Capitalized software development costs    | (7,819)  | (8,499)                 | (6,160)
Free cash flow                            | $(2,771) | $(6,925)                | $(2,964)

Free Cash Flow. represents net cash operating activities minus capital expenditures software development costs. management operating performance generate future plans.
 exclusion capital expenditures-developed software facilitates comparisons excludes items. not calculated GAAP. provides information investors results.
 flow has limitations substitute for analysis financial results GAAP. consider alongside GAAP financial performance measures net cash results. table reconciliation free cash flow net cash activities
 Year December 31,
 2019 2018 2017
 Net cash operating activities $10,317  $3,295  $4,863
 Capital expenditures (5,269) (1,721) (1,667)
 Capitalized software development costs (7,819) (8,499) (6,160)
 Free cash flow $(2,771) $(6,925) $(2,964)


8 EXPENSES BY NATURE
Note: (a) Transaction costs primarily consist of bank handling fees, channel and distribution costs.
(b) During the year ended 31 December 2019, the Group incurred expenses for the purpose of research and development of approximately RMB30,387 million (2018: RMB22,936 million), which comprised employee benefits expenses of approximately RMB24,478 million (2018: RMB19,088 million).
During the year ended 31 December 2019, employee benefits expenses included the share-based compensation expenses of approximately RMB10,500 million (2018: RMB7,900 million).
No significant development expenses had been capitalised for the years ended 31 December 2019 and 2018.
(c) Included the amortisation charges of intangible assets mainly in respect of media contents.
During the year ended 31 December 2019, amortisation of intangible assets included the amortisation of intangible assets resulting from business combinations of approximately RMB1,051 million (2018: RMB524 million).

                                                                                | 2019        | 2018
------------------------------------------------------------------------------------------------------------------ | ----------- | -----------
                                                                                | RMB’Million | RMB’Million
Transaction costs (Note (a))                                                                                | 85,702      | 69,976
Employee benefits expenses (Note (b) and Note 13)                                                                  | 53,123      | 42,153
Content costs (excluding amortisation of intangible assets)                                                        | 48,321      | 39,061
Amortisation of intangible assets (Note (c) and Note 20)                                                           | 28,954      | 25,616
Bandwidth and server custody fees (excluding depreciation of right-of-use assets)                                  | 16,284      | 15,818
Depreciation of property, plant and equipment, investment properties and right-of-use assets (Note 16 and Note 18) | 15,623      | 8,423
Promotion and advertising expenses                                                                                | 16,405      | 19,806
Travelling and entertainment expenses                                                                              | 1,773       | 1,450
Auditor’s remuneration                                                                                |             |
– Audit and audit-related services                                                                                | 105         | 110
– Non-audit services                                                                                | 43          | 26

EXPENSES
 Transaction costs bank handling channel distribution costs.
 31 December 2019 Group incurred expenses research development RMB30,387 million (2018 RMB22,936 employee benefits RMB24,478 million (2018 RMB19,088 million.
 2019 share-based compensation RMB10,500 million (2018 RMB7,900 million.
 No development expenses 2019 2018.
 amortisation intangible assets media contents.
 RMB1,051 million (2018 RMB524 million.
 Transaction costs 85,702 69,976
 Employee benefits,123
 Content costs amortisation 48,321 39,061
 Amortisation 28,954
 Bandwidth server custody fees depreciation-use 16,284 15,818
 Depreciation property 15,623 8
 Promotion advertising expenses 16,405
 Travelling entertainment expenses 1,773
 Auditor’s remuneration
 Audit-related services
Non-audit services


The following table provides detail of amounts reclassified from AOCL:
(1) These accumulated other comprehensive components are included in our derivative and hedging activities. See Note 15, “Derivatives and Hedging Activities,” of the Notes to Consolidated Financial Statements for additional details.

(In millions)                                                     | 2019   | 2018   | 2017   | Location of Amount Reclassified from AOCL
----------------------------------------------------------------- | ------ | ------ | ------ | -----------------------------------------
Defined benefit pension plans and other post-employment benefits: |        |        |        |
Prior service credits                                             | $ 0.1  | $0.3   | $ 1.3  |
Actuarial losses                                                  | (4.9)  | (3.1)  | (10.0) |
Total pre-tax amount                                              | (4.8)  | (2.8)  | (8.7)  | Other (expense) income, net
Tax benefit                                                       | 1.2    | 0.7    | 2.5    |
Net of tax                                                        | (3.6)  | (2.1)  | (6.2)  |
Net gains (losses) on cash flow hedging derivatives:(1)           |        |        |        |
Foreign currency forward contracts                                | 1.6    | 0.2    | 0.9    | Cost of sales
Interest rate and currency swaps                                  | —      | —      | (3.4)  |
Treasury locks                                                    | 0.1    | 0.1    | 0.1    | Interest expense, net
Total pre-tax amount                                              | 1.7    | 0.3    | (2.4)  |
Tax (expense) benefit                                             | (0.6)  | (0.1)  | 0.8    |
Net of tax                                                        | 1.1    | 0.2    | (1.6)  |
Total reclassifications for the period                            | (2.5 ) | (1.9 ) | (7.8 ) |

table provides detail amounts reclassified AOCL
 components derivative hedging activities. See Note 15 “Derivatives Hedging Activities Consolidated Financial Statements details.
 millions 2019 2018 2017 Location Amount Reclassified AOCL
 benefit pension plans post benefits
 Prior service credits. 1. 3.
 Actuarial losses (4. (10.
 pre-tax amount (4. 8) (2. (expense income
 Tax benefit.
 Net tax (3. (6.
 gains (losses cash flow hedging derivatives
 Foreign currency forward contracts. Cost sales
 Interest rate currency swaps.
 Treasury locks. Interest expense
 pre-tax amount. 7.
 Tax (expense benefit.
 Net tax.
 Total reclassifications period (2. 5. 9 (7.


Deferred Compensation Plan
The Company has a non-qualified, unfunded deferred compensation plan, which provides certain key employees, including executive officers, with the ability to defer the receipt of compensation in order to accumulate funds for retirement on a tax deferred basis. The Company does not make contributions to the plan or guarantee returns on the investments. The Company is responsible for the plan’s administrative expenses. Participants’ deferrals and investment gains and losses remain as the Company’s liabilities and the underlying assets are subject to claims of general creditors.
The liabilities for compensation deferred under the plan are recorded at fair value in each reporting period. Changes in the fair value of the liabilities are included in operating expense on the Consolidated Statements of Operations. The Company manages the risk of changes in the fair value of the liabilities by electing to match the liabilities with investments in corporate-owned life insurance policies, mutual funds and money market funds that offset a substantial portion of the exposure. The investments are recorded at the cash surrender value of the corporate-owned life insurance policies, and at the fair value of the mutual funds and money market funds, which are classified as trading securities. Changes in the cash surrender value of the corporate-owned life insurance policies and the fair value of mutual fund and money market fund investments are included in interest and other income, net on the Consolidated Statements of Operations. The following table summarizes the deferred compensation plan balances on the Consolidated Balance Sheets (in thousands):

                                                                | December 31, |
--------------------------------------------------------------- | ------------ | -------
                                                                | 2019         | 2018
Deferred compensation plan asset components:                    |              |
Cash surrender value of corporate-owned life insurance policies | $16,883      | $13,103
Fair value of mutual funds and money market funds               | 21,975       | 18,867
Total                                                           | $38,858      | $31,970
Deferred compensation plan assets reported in:                  |              |
Other long-term assets                                          | $38,858      | $31,970
Deferred compensation plan liabilities reported in:             |              |
Accrued compensation and related benefits (short-term)          | $425         | $447
Other long-term liabilities                                     | 39,665       | 32,283
Total                                                           | $40,090      | $32,730

Deferred Compensation Plan
 Company non-qualified unfunded deferred compensation plan employees defer receipt compensation funds for retirement. guarantee returns. responsible for administrative expenses. deferrals investment gains losses remain liabilities subject to claims creditors.
 liabilities compensation deferred recorded at fair value reporting period. Changes value included in operating expense Consolidated Statements Operations. manages risk with investments life insurance policies mutual funds money market funds. investments recorded at value fair value. Changes included in interest income Consolidated Statements Operations. table summarizes deferred compensation plan balances Consolidated Balance Sheets
 Deferred compensation plan asset components
 Cash surrender value life insurance policies $16,883 $13,103
 Fair value mutual funds money market funds 21,975 18,867
 Total $38,858 $31,970
 plan assets
$38,858 $31,970
 Deferred compensation liabilities
 compensation $425
 liabilities 39,665 32,283
 $40,090,730


The following securities have been excluded from the calculation of diluted weighted average common shares outstanding as the inclusion of these securities would have an anti-dilutive effect:
Participating securities are composed of certain stock options granted under the 2015 Plan, and previously granted under the 2009 Equity Incentive Plan, that may be exercised before the options have vested. Unvested shares have a non-forfeitable right to dividends. Unvested shares issued as a result of early exercise are subject to repurchase by us upon termination of employment or services at the original exercise price. The common stock subject to repurchase is no longer classified as participating securities when shares revert to common stock outstanding as the awards vest and our repurchase right lapses.
Our redeemable noncontrolling interest relates to our 85% equity ownership interest in OpenEye. The OpenEye stockholder agreement contains a put option that gives the minority OpenEye stockholders the right to sell their OpenEye shares to us based on the fair value of the shares. The OpenEye stockholder agreement also contains a call option that gives us the right to purchase the remaining OpenEye shares from the minority OpenEye stockholders based on the fair value of the shares. The put and call options can each be exercised beginning in the first quarter of 2023. This redeemable noncontrolling interest is considered temporary equity and we report it between liabilities and stockholders’ equity in the consolidated balance sheets. The amount of the net income or loss attributable to redeemable noncontrolling interests is recorded in the consolidated statements of operations.

                                   |         | Year Ended December 31, |
---------------------------------- | ------- | ----------------------- | -------
                                   | 2019    | 2018                    | 2017
Stock options                      | 223,259 | 229,294                 | 258,917
Restricted stock awards            | —       | —                       | 129
Restricted stock units             | 136,600 | 148,175                 | 188,050
Common stock subject to repurchase | 250     | 957                     | 13,281

securities excluded from diluted common shares-dilutive
 Participating securities stock options 2015 Plan 2009 Equity Incentive Plan exercised before options vested. Unvested shares non-forfeitable right to dividends. early subject to repurchase termination employment at original exercise price. stock shares revert to repurchase right lapses.
 redeemable noncontrolling interest to 85% equity ownership OpenEye. agreement put option sell shares fair value. call option purchase remaining shares. put call options exercised first quarter 2023. temporary equity consolidated balance sheets. net income loss recorded in consolidated statements of operations.
 Year Ended December 31,
 2019 2018 2017
 Stock options 223,259 229,294 258,917
 Restricted stock awards 129
 units 136,600 148,175 188,050
 Common stock subject to repurchase 250  957 13,281


5. Other operating expenses
The expenses from logistics services provided by METRO LOGISTICS to companies intended for sale and non-group companies are offset by income from logistics services, which are reported under other operating income.

€ million                                | 2017/2018 | 2018/2019
---------------------------------------- | --------- | ---------
Expenses from logistics services         | 272       | 254
Losses from the disposal of fixed assets | 4         | 6
Impairment losses on goodwill            | 0         | 3
Miscellaneous                            | 17        | 17
                                         | 293       | 279

. operating expenses
 logistics services METRO LOGISTICS offset reported income.
 million 2017/2018 2018/2019
 Expenses logistics services 272 254
 Losses disposal fixed assets 4
 losses goodwill
 Miscellaneous 17
 293


Sufficiency of Cash Resources The following table sets forth selected information regarding our financial condition:
Our net working capital position improved $18.0 million as of December 31, 2019 compared to December 31, 2018 primarily as a result of the elimination in 2019 of the quarterly dividend of approximately $27.6 million and a decrease in accrued compensation of $7.4 million.
These reductions in the working capital deficit were offset in part by the recognition of current lease liabilities of $6.2 million at December 31, 2019 as part of the adoption on January 1, 2019 of ASU No. 2016- 02, Leases. Working capital was also impacted by a decline in accounts receivable of $13.1 million compared to December 31, 2018.
Our most significant use of funds in 2020 is expected to be for: (i) interest payments on our indebtedness of between $125.0 million and $130.0 million and principal payments on debt of $18.4 million; and (ii) capital expenditures of between $195.0 million and $205.0 million.
Based on available cash, we may utilize a portion of the dividend savings to reduce our longterm debt or repurchase additional amounts of our Senior Notes in the open market or in private transactions if such purchases can be made on economically favorable terms. In the future, our ability to use cash may be limited by our other expected uses of cash and our ability to incur additional debt will be limited by our existing and future debt agreements.
We believe that cash flows from operating activities, together with our existing cash and borrowings available under our revolving credit facility, will be sufficient for at least the next twelve months to fund our current anticipated uses of cash.
After that, our ability to fund these expected uses of cash and to comply with the financial covenants under our debt agreements will depend on the results of future operations, performance and cash flow. Our ability to fund these expected uses from the results of future operations will be subject to prevailing economic conditions and to financial, business, regulatory, legislative and other factors, many of which are beyond our control.
We may be unable to access the cash flows of our subsidiaries since certain of our subsidiaries are parties to credit or other borrowing agreements, or subject to statutory or regulatory restrictions, that restrict the payment of dividends or making intercompany loans and investments, and those subsidiaries are likely to continue to be subject to such restrictions and prohibitions for the foreseeable future.
In addition, future agreements that our subsidiaries may enter into governing the terms of indebtedness may restrict our subsidiaries’ ability to pay dividends or advance cash in any other manner to us.
To the extent that our business plans or projections change or prove to be inaccurate, we may require additional financing or require financing sooner than we currently anticipate. Sources of additional financing may include commercial bank borrowings, other strategic debt financing, sales of nonstrategic assets, vendor financing or the private or public sales of equity and debt securities.
There can be no assurance that we will be able to generate sufficient cash flows from operations in the future, that anticipated revenue growth will be realized, or that future borrowings or equity issuances will be available in amounts sufficient to provide adequate sources of cash to fund our expected uses of cash. Failure to obtain adequate financing, if necessary, could require us to significantly reduce our operations or level of capital expenditures, which could have a material adverse effect on our financial condition and the results of operations.

                                 |          | December 31,
-------------------------------- | -------- | ------------
(In thousands, except for ratio) | 2019     | 2018
Cash and cash equivalents        | $ 12,395 | $ 9,599
Working capital (deficit)        | (67,429) | (85,471)
Current ratio                    | 0.72     | 0.70

Sufficiency Cash Resources table financial condition
 net working capital improved $18. 0 million December 31, 2019 elimination quarterly dividend $27. 6 million decrease accrued compensation $7. 4 million.
 reductions working capital deficit offset by current lease liabilities $6. 2 million December 31, 2019 ASU No. 2016- 02, Leases. impacted decline accounts receivable $13. 1 million 2018.
 significant use funds 2020 for interest payments indebtedness $125. 0 million $130. 0 million principal payments debt $18. 4 million capital expenditures $195. 0 million $205. 0 million.
 utilize dividend savings reduce longterm debt repurchase Senior Notes. cash additional debt future debt agreements.
 cash flows existing cash borrowings revolving credit twelve months fund current uses.
 financial covenants future operations performance cash flow. subject to economic conditions financial business regulatory legislative factors control.
unable access cash flows subsidiaries parties credit borrowing agreements subject statutory regulatory restrictions payment dividends intercompany loans investments likely restrictions.
 future agreements indebtedness may restrict pay dividends advance cash.
 business plans projections change inaccurate may require additional financing sooner. Sources financing include commercial bank borrowings strategic debt financing sales nonstrategic assets vendor financing sales equity debt securities.
 no assurance cash flows revenue growth future borrowings equity issuances. Failure financing could reduce operations capital expenditures financial condition results operations.
 December 31,
 thousands ratio 2019 2018
 Cash equivalents $ 12,395  $ 9,599
 Working capital (deficit) (67,429) (85,471)
 Current ratio 0. 72. 70


Summarized financial information of Hilli LLC
The most significant impacts of Hilli LLC VIE's operations on our consolidated statements of income and consolidated statements of cash flows, as of December 31, 2019 and 2018, are as follows:

(in thousands of $)                                                     | 2019      | 2018
----------------------------------------------------------------------- | --------- | --------
Statement of income                                                     |           |
Liquefaction services revenue                                           | 218,096   | 127,625
Realized and unrealized (losses)/gains on the oil derivative instrument | (26,001)  | 16,767
Statement of cash flows                                                 |           |
Net debt repayments                                                     | (243,513) | (30,300)
Net debt receipts                                                       | 129,454   | —

Hilli LLC
 impacts income cash flows December 31, 2019 2018
 2018
 income
 Liquefaction services revenue 218,096 127,625
 oil derivative instrument (26,001) 16,767
 cash flows
 Net debt repayments (243,513) (30,300)
 debt receipts 129,454


17. Personnel expenses
Personnel expenses can be broken down as follows:
Wages and salaries include expenses relating to restructuring measures and severance payments of €23 million (2017/18: €19 million). The variable remuneration rose from €52 million in financial year 2017/18 to €81 million in financial year 2018/19. Wages and salaries also include expenses for long-term remuneration components totalling €7 million (2017/18: €16 million).

€ million                                                                                | 2017/2018 | 2018/2019
--------------------------------------------------------------------------------------------- | --------- | ---------
Wages and salaries                                                                            | 2,173     | 2,264
Social security expenses, expenses for post-employment benefits and related employee benefits | 552       | 552
thereof for post-employment benefits                                                          | (43)      | (41)
                                                                                | 2,725     | 2,816

. Personnel expenses
 Wages salaries restructuring severance payments €23 million €19 million. variable remuneration €52 million 2017/18 to €81 million 2018/19. long-term remuneration €7 million (2017/18 €16 million.
 2018/2019
 Wages salaries 2,173
 Social security post benefits
 2,725 2,816


A summary of our outstanding debt as of December 31, 2018, is as follows (amounts in millions):
Refer to Note 13 of the notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further disclosures regarding our debt obligations.

           |                       |                                                   | December 31, 2018
---------- | --------------------- | ------------------------------------------------- | -------------------
           | Gross Carrying Amount | Unamortized Discount and Deferred Financing Costs | Net Carrying Amount
2021 Notes | 650                   | (3)                                               | 647
2022 Notes | 400                   | (3)                                               | 397
2026 Notes | 850                   | (8)                                               | 842
2027 Notes | 400                   | (5)                                               | 395
2047 Notes | 400                   | (10)                                              | 390
Total debt | $2,700                | $(29)                                             | $2,671

outstanding debt December 31, 2018
 Note 13 Item 8 Annual Report Form 10-K disclosures debt obligations.
 December 31, 2018
 Gross Carrying Amount Unamortized Discount Deferred Financing Costs Net Carrying Amount
 2021 650 647
 2022
 2026 842
 2027 395
 2047
 Total debt $2,700 $2,671


Unfunded Status
The following table presents the unfunded status of the Combined Pension Plan and post-retirement benefit plans:
The current portion of our post-retirement benefit obligations is recorded on our consolidated balance sheets in accrued expenses and other current liabilities-salaries and benefits.

                                       | Combined Pension Plan    |                       | Post-Retirement Benefit Plans |
-------------------------------------- | ------------------------ | --------------------- | ----------------------------- | -------
                                       | Years Ended December 31, |                       | Years Ended December 31,      |
                                       | 2019                     | 2018                  | 2019                          | 2018
                                       |                          | (Dollars in millions) |                               |
Benefit obligation                     | $(12,217)                | (11,594)              | (3,037)                       | (2,977)
Fair value of plan assets              | 10,493                   | 10,033                | 13                            | 18
Unfunded status                        | (1,724)                  | (1,561)               | (3,024)                       | (2,959)
Current portion of unfunded status     | —                        | —                     | (224)                         | (252)
Non-current portion of unfunded status | $(1,724)                 | (1,561)               | (2,800)                       | (2,707)

Unfunded Status
 table unfunded status Combined Pension Plan post-retirement benefit plans
 current post-retirement benefit obligations recorded balance sheets accrued expenses liabilities benefits.
 Combined Pension Plan Post-Retirement Benefit Plans
 Years Ended December
 millions
 Benefit obligation $(12,217) (11,594 (3,037) (2,977
 plan assets 10,493
 Unfunded status (1,724) (1,561 (2
 Current
 Non-current(1,724) (1,561


Note 17. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consisted of the following (in thousands):

                                                        | December 31, |
------------------------------------------------------- | ------------ | -------
                                                        | 2019         | 2018
Accrued purchases                                       | $4,328       | $1,679
Accrued legal and professional fees                     | 3,860        | 3,380
Accrued customer-acquisition advertising costs (Note 1) | 3,745        | 2,831
Deferred Symphony acquisition purchase price (Note 4)   | 3,517        | 3,394
Accrued roadside assistance claim costs                 | 1,709        | 1,330
Accrued telephone charges                               | 1,605        | 2,000
Financial derivatives (Note 12)                         | 251          | 2,859
Accrued restructuring (Note 5)                          | 56           | 976
Accrued rent (Note 3)                                   | —            | 3,283
Other                                                   | 10,259       | 9,503
                                                        | $29,330      | $31,235

17. Accrued Expenses Liabilities
 December
 purchases $4,328 $1,679
 legal fees 3,860 3,380
 customer-acquisition advertising costs 2,831
 Symphony acquisition price 3,517 3,394
 roadside assistance costs 1,709 1,330
 telephone charges 1,605
 derivatives 251 2,859
 restructuring 976
 rent 3,283
 10,259
 $29,330 $31,235


Software Development Costs
We capitalize purchased software upon acquisition if it is accounted for as internal-use software or if it meets the future alternative use criteria. We capitalize incurred labor costs for software development from the time technological feasibility of the software is established, or when the preliminary project phase is completed in the case of internal-use software, until the software is available for general release. Research and development costs and other computer software maintenance costs related to software development are expensed as incurred.
We estimate the useful life of our capitalized software and amortize its value over that estimated life. If the actual useful life is shorter than our estimated useful life, we will amortize the remaining book value over the remaining useful life or the asset may be deemed to be impaired and, accordingly, a write-down of the value of the asset may be recorded as a charge to earnings.
Upon the availability for general release, we commence amortization of the capitalized software costs on a product by product basis. Amortization of capitalized software is recorded using the greater of (i) the ratio of current revenues to total and anticipated future revenues for the applicable product or (ii) the straightline method over the remaining estimated economic life, which is estimated to be three to five years.
At each balance sheet date, the unamortized capitalized costs of a software product are compared with the net realizable value of that product. The net realizable value is the estimated future gross revenues from that product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and client support required to satisfy our responsibility set forth at the time of sale.
The amount by which the unamortized capitalized costs of a software product exceed the net realizable value of that asset is written off. If we determine that the value of the capitalized software could not be recovered, a write-down of the value of the capitalized software to its recoverable value is recorded as a charge to earnings. The unamortized balances of capitalized software were as follows:

                                | December 31, |
------------------------------- | ------------ | ---------
(In thousands)                  | 2019         | 2018
Software development costs      | $428,641     | $317,637
Less: accumulated amortization  | (184,712)    | (107,977)
Software development costs, net | $243,929     | $209,660

Software Development Costs
 capitalize purchased software acquisition internal-use or future alternative use criteria. capitalize labor costs development technological feasibility established preliminary project phase until available for general release. Research development software maintenance costs expensed as incurred.
 estimate useful life capitalized software amortize value over estimated. If life shorter amortize remaining value or impaired write-down value charge to earnings.
 availability release amortization capitalized software costs product product. Amortization recorded using ratio current revenues to future revenues or straightline method over remaining estimated economic life three to five years.
 balance sheet date unamortized capitalized costs compared with net realizable value. value future revenues reduced by future costs maintenance client support.
 unamortized capitalized costs exceed net realizable value written off. If write-down to recoverable value recorded as charge to earnings. unamortized balances of capitalized software
 2019 2018
,641 $317,637
 amortization (184,712),977
 $243,929 $209,660


Stock Options
The following table summarizes activity involving stock option awards for the year ended December 31, 2019:
The aggregate intrinsic value of our options outstanding and exercisable at December 31, 2019 was less than $1 million. The weighted-average remaining contractual term for such options was 0.18 years.
During 2019, we received net cash proceeds of less than $1 million in connection with our option exercises. The tax benefit realized from these exercises was less than $1 million. The total intrinsic value of options exercised for the years ended December 31, 2019, 2018 and 2017, was less than $1 million each year.

                                                 | Number of options | Weighted-Average Exercise Price
------------------------------------------------ | ----------------- | -------------------------------
                                                 | (in thousands)    |
Outstanding and Exercisable at December 31, 2018 | 543               | $27.46
Exercised                                        | (6)               | 11.38
Forfeited/Expired                                | (68)              | 24.78
Outstanding and Exercisable at December 31, 2019 | 469               | 28.04

 table summarizes awards December 31, 2019
 aggregate intrinsic value options less $1 million.-average contractual term 0. 18 years.
 cash proceeds less $1 million option exercises. tax benefit less $1 million. total value options 2019 2018 2017 less $1 million.
 Weighted-Average Exercise Price
 Exercisable December 31, 2018 $27.
 Exercised.
 Forfeited/Expired.
 Exercisable December 31, 2019.


13. Stock-Based Compensation:
Under the 2014 RSU Plan, we may grant restricted stock units of up to an aggregate of 3,000 units. Each unit converts to one share of the Company’s stock at the
time of vesting. The fair value of RSU awards is determined at the closing market price of the Company’s common stock at the date of grant. For the years ended March
31, 2018 and 2019, there were 292 and 315 awards, respectively, granted from this plan. Restricted stock activity during the year ended 2019 is as follows:
Performance-based awards vest one year after the grant date. Service-based awards vest as to one-third annually with the requisite service periods beginning on
the grant date. Awards are amortized over their respective grade-vesting periods. The total unrecognized compensation costs related to unvested stock awards expected
to be recognized over the vesting period, approximately three years, was $1,476 at March 31, 2019.
We have four fixed stock option plans. Under the 2004 Stock Option Plan, as amended, we may grant options to employees for the purchase of up to an aggregate
of 10,000 shares of common stock. Under the 2004 Non-Employee Directors’ Stock Option Plan, as amended, we may grant options for the purchase of up to an
aggregate of 1,000 shares of common stock. No awards were made under these two plans after August 1, 2013. Under the 2014 Stock Option Plan, we can grant options
to employees for the purchase of up to an aggregate of 10,000 shares of common stock. Under the 2014 Non-Employee Directors’ Stock Option Plan, as amended, we can
grant options to our directors for the purchase of up to an aggregate of 1,000 shares of common stock. Under all plans, the exercise price of each option shall not be less
than the market price of our stock on the date of grant and an option’s maximum term is 10 years. Options granted under the 2004 Stock Option Plan and the 2014 Stock
Option Plan vest as to 25% annually and options granted under the 2004 Non-Employee Directors’ Stock Option Plan and the 2014 Non-Employee Director’s Stock
Option Plan vest as to one-third annually. Requisite service periods related to all plans begin on the grant date. As of March 31, 2019, there were 12,447 shares of
common stock available for future issuance under all of the plans, consisting of options available to be granted and options currently outstanding.

                             | March 31, 2019   |
---------------------------- | ---------------- | ------------------------------------------------
                             | Number of shares | Weighted-Average Grant Date Fair Value per Share
Non-vested at March 31, 2018 | 358              | $16.27
Granted                      | 315              | 15.28
Vested                       | (172)            | 16.27
Cancelled and forfeited      | (68)             | 16.27
Non-vested at March 31, 2019 | 433              | $15.55

. Stock-Based Compensation
 2014 RSU Plan restricted stock units 3,000 units. Each unit converts to one share stock
 vesting. fair value awards determined closing market price common stock grant. years
 2018 2019 292 315 awards granted. Restricted stock activity 2019
 Performance-based awards vest year after grant date. Service-based awards vest one-third annually service periods
 grant date. amortized over grade-vesting periods. total unrecognized compensation costs stock awards
 $1,476 at March 31, 2019.
 four fixed stock option plans. 2004 Stock Option Plan options
 10,000 shares common stock. 2004 Non-Employee Directors’ Stock Option Plan
 1,000 shares. No awards after August 1, 2013. 2014 Stock Option Plan options
 10,000 shares common.
 1,000. exercise price option not less
 market price stock grant maximum term 10 years. Options 2004 2014
 vest 25% annually
Option Plan one-third annually. service periods grant date. March 31, 2019 12,447 shares
 common stock future issuance options outstanding.
 shares Weighted-Average Grant Value Share
 Non-vested March 31, 2018 $16.
 Granted.
.
 Cancelled forfeited.
 Non-vested March 31, 2019 $15.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except for share and per share data)
We employ a liability-driven investment strategy whereby a mix of equity and fixed-income investments are used to pursue a derisking strategy which over time seeks to reduce interest rate mismatch risk and other risks while achieving a return that matches or exceeds the growth in projected pension plan liabilities. Risk tolerance is established through careful consideration of plan liabilities and funded status. The investment portfolio primarily contains a diversified mix of equity and fixed-income investments. Other assets such as private equity are used modestly to enhance long-term returns while improving portfolio diversification. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and asset/liability studies at regular intervals.
The following table summarizes the fair values of our pension plan assets:
(1) Comprised of common stocks of companies in various industries. The Pension Plan fund manager may shift investments from value to growth strategies or vice-versa, from small cap to large cap stocks or vice-versa, in order to meet the Pension Plan's investment objectives, which are to provide for a reasonable amount of long-term growth of capital without undue exposure to volatility, and protect the assets from erosion of purchasing power.
(2) Comprised of investment grade short-term investment and money-market funds.
(3) Comprised of partnerships that invest in various U.S. and international industries.
(4) Comprised of long-term government bonds with a minimum maturity of 10 years and zero-coupon Treasury securities ("Treasury Strips") with maturities greater than 20 years.
(5) Comprised predominately of investment grade U.S. corporate bonds with maturities greater than 10 years and U.S. high-yield corporate bonds; emerging market debt (local currency sovereign bonds, U.S. dollar-denominated sovereign bonds and U.S. dollar-denominated corporate bonds); and U.S. bank loans.
(6) Comprised of investments in securities of U.S. and non-U.S. real estate investment trusts (REITs), real estate operating companies and other companies that are principally engaged in the real estate industry and of investments in global private direct commercial real estate. Investments can be redeemed immediately following the valuation date with a notice of at least fifteen business days before valuation.
(7) Comprised of investments that are measured at fair value using the NAV per share practical expedient. In accordance with the provisions of ASC 820-10, these investments have not been classified in the fair value hierarchy. The fair value amount not leveled is presented to allow reconciliation of the fair value hierarchy to total fund pension plan assets.

                                     | As of December 31, |
------------------------------------ | ------------------ | --------
                                     | 2019               | 2018
Equity securities - U.S. holdings(1) | $24,586            | $20,469
Equity funds - U.S. holdings(1) (7)  | —                  | 54
Bond funds - government(4) (7)       | 33,991             | 19,146
Bond funds - other(5) (7)            | 207,901            | 202,393
Real estate(6) (7)                   | 2,979              | 2,652
Cash and cash equivalents(2)         | 5,700              | 5,866
Partnerships(3)                      | 7,539              | 9,172
Total fair value of plan assets      | $282,696           | $259,752

CONSOLIDATED FINANCIAL STATEMENTS thousands share data
 liability-driven investment strategy mix equity fixed-income investments interest rate mismatch risk risks return growth pension plan liabilities. Risk plan liabilities funded status. investment portfolio diversified equity fixed. private equity returns portfolio diversification. risk measured monitored quarterly reviews annual liability measurements/liability studies.
 table summarizes pension plan assets
 common stocks industries. shift investments value growth small cap large cap stocks objectives long-term growth capital volatility protect erosion purchasing power.
 investment grade short-term investment money-market funds.
 partnerships U. S. international industries.
 long-term government bonds minimum maturity 10 years zero-coupon Treasury securities maturities 20 years.
 investment grade U. S. corporate bonds 10 years. high-yield emerging market debt.-denominated bank loans.
 investments securities U. S. non-U. S.estate investment trusts companies global real estate. Investments redeemed valuation notice fifteen business days before.
 investments measured fair value NAV per share. investments not classified fair value hierarchy. reconciliation pension plan assets.
 December 31,
 Equity securities U. holdings(1) $24,586 $20,469
 Equity funds.
 Bond funds 33,991 19,146
 207,901 202,393
 Real estate(6) 2,979 2,652
 Cash equivalents(2) 5,700,866
 Partnerships(3) 7,539 9,172
 Total fair value assets $282,696 $259,752


(5) Earnings Per Share
Basic earnings per share is computed by dividing Net earnings attributable to Black Knight by the weighted-average number of shares of common stock outstanding during the period.
For the periods presented, potentially dilutive securities include unvested restricted stock awards and the shares of BKFS Class B common stock prior to the Distribution. For the year ended December 31, 2017, the numerator in the diluted net earnings per share calculation is adjusted to reflect our income tax expense at an expected effective tax rate assuming the conversion of the shares of BKFS Class B common stock into shares of BKFS Class A common stock on a one-for-one basis prior to the Distribution. The effective tax rate for the year ended December 31, 2017 was (16.7)%, including the effect of the benefit related to the revaluation of our net deferred income tax liability and certain other discrete items recorded during 2017. For the year ended December 31, 2017, the denominator includes approximately 63.1 million shares of BKFS Class B common stock outstanding prior to the Distribution. The denominator also includes the dilutive effect of approximately 0.9 million, 0.6 million and 0.6 million shares of unvested restricted shares of common stock for the years ended December 31, 2019, 2018 and 2017, respectively.
The shares of BKFS Class B common stock did not share in the earnings or losses of Black Knight and were, therefore, not participating securities. Accordingly, basic and diluted net earnings per share of BKFS Class B common stock have not been presented.
The computation of basic and diluted earnings per share is as follows (in millions, except per share amounts):

                                                                               |        | Year ended December 31, |
------------------------------------------------------------------------------ | ------ | ----------------------- | ------
                                                                               | 2019   | 2018                    | 2017
Basic:                                                                         |        |                         |
Net earnings attributable to Black Knight                                      | $108.8 | $168.5                  | $182.3
Shares used for basic net earnings per share:                                  |        |                         |
Weighted average shares of common stock outstanding                            | 147.7  | 147.6                   | 88.7
Basic net earnings per share                                                   | $0.74  | $1.14                   | $2.06
Diluted:                                                                       |        |                         |
Earnings before income taxes and equity in losses of unconsolidated affiliates |        |                         | $192.4
Income tax benefit excluding the effect of noncontrolling interests            |        |                         | (32.2)
Net earnings                                                                   |        |                         | $224.6
Net earnings attributable to Black Knight                                      | $108.8 | $168.5                  |
Shares used for diluted net earnings per share:                                |        |                         |
Weighted average shares of common stock outstanding                            | 147.7  | 147.6                   | 88.7
Dilutive effect of unvested restricted shares of common                        |        |                         |
stock                                                                          | 0.9    | 0.6                     | 0.6
Weighted average shares of BKFS Class B common stock outstanding               | —      | —                       | 63.1
Weighted average shares of common stock, diluted                               | 148.6  | 148.2                   | 152.4
Diluted net earnings per share                                                 | $0.73  | $1.14                   | $1.47

Earnings Per Share
 computed Net earnings Black Knight by weighted-average shares common stock.
 dilutive securities include unvested restricted stock awards BKFS Class B common stock prior Distribution. December 31, 2017 diluted net earnings adjusted income tax expense conversion BKFS Class B into A. effective tax rate December 31, 2017 (16. 7)%, including deferred income tax liability. denominator includes 63. 1 million shares BKFS Class B common stock. dilutive effect 0. 9 million. 6 million. million shares unvested restricted shares common December 31, 2019 2018 2017.
 BKFS Class B common stock earnings losses Black Knight not participating. basic diluted net earnings per share presented.
 computation earnings per share millions
 Year ended December
 Net earnings Black Knight $108. $168. $182.
 earnings
 Weighted average shares common stock outstanding 147.
net earnings share $0. 74 $1. 14 $2.
 taxes equity losses unconsolidated affiliates $192.
 Income tax benefit noncontrolling interests.
 earnings $224.
 Black Knight $108. $168.
 diluted earnings
 average shares common stock 147. 88.
 unvested shares
.
 shares BKFS Class B common stock 63.
 shares 148. 148. 152.
 net earnings share $0. 73 $1. 14 $1.


Revenue stream
The Company generates revenue primarily from the sales of equipment and sales of spares & service. The products and services described by nature in Note 1, can be part of all revenue streams.
The proceeds resulting from the patent litigation & arbitration settlements (€159 million) are included in the equipment revenue stream.

                         | Year ended December 31, |
------------------------ | ----------------------- | ---------
(EUR thousand)           | 2018                    | 2019
Equipment revenue        | 631,504                 | 1,068,645
Spares & service revenue | 186,577                 | 215,215
Total                    | 818,081                 | 1,283,860

 Company generates equipment spares. products Note 1.
 proceeds patent litigation arbitration settlements (€159 million equipment revenue.
 December 31,
 Equipment revenue 631,504 1,068,645
 Spares service 186,577 215,215
 818,081 1,283,860


The Company continually reviews the adequacy of our valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be realized in accordance with ASC 740, Income Taxes. Due to our recent decrease in revenue and profitability for 2019, and all other positive and negative objective evidence considered as part of our analysis, our ability to consider other subjective evidence such as projections for future growth is limited when evaluating whether our deferred tax assets will be realized. As such, the Company was no longer able to conclude that it was more likely than not that our domestic deferred tax assets would be realized and a valuation allowance against our domestic deferred tax assets was established in the third quarter of 2019. The amount of the deferred tax assets considered realizable may be adjusted in future periods in the event that sufficient evidence is present to support a conclusion that it is more likely than not that all or a portion of our domestic deferred tax assets will be realized.
As of December 31, 2019, the Company had gross deferred tax assets totaling $56.2 million offset by a valuation allowance totaling $48.6 million. Of the valuation allowance, $42.8 million was established in the current year primarily related to our domestic deferred tax assets. The remaining $5.8 million established in prior periods related to state research and development credit carryforwards and foreign net operating loss and research and development credit carryforwards where we lack sufficient activity to realize those deferred tax assets. The remaining $7.6 million in deferred tax assets that were not offset by a valuation allowance are located in various foreign jurisdictions where the Company believes it is more likely than not we will realize these deferred tax assets.
Supplemental balance sheet information related to deferred tax assets is as follows:
As of December 31, 2019 and 2018, the deferred tax assets for foreign and domestic loss carry-forwards, research and development tax credits, unamortized research and development costs and state credit carryforwards totaled $41.3 million and $28.8 million, respectively. As of December 31, 2019, $19.1 million of these deferred tax assets will expire at various times between 2020 and 2039. The remaining deferred tax assets will either amortize through 2029 or carryforward indefinitely.
As of December 31, 2019 and 2018, respectively, our cash and cash equivalents were $73.8 million and $105.5 million and short-term investments were $33.2 million and $3.2 million, which provided available short-term liquidity of $107.0 million and $108.7 million. Of these amounts, our foreign subsidiaries held cash of $52.3 million and $87.1 million, respectively, representing approximately 48.9% and 80.1% of available short-term liquidity, which is used to fund on-going liquidity needs of these subsidiaries. We intend to permanently reinvest these funds outside the U.S. except to the extent any of these funds can be repatriated without withholding tax and our current business plans do not indicate a need to repatriate to fund domestic operations. However, if all of these funds were repatriated to the U.S. or used for U.S. operations, certain amounts could be subject to tax. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practical to determine the amount of funds subject to unrecognized deferred tax liability.
During 2019, 2018 and 2017, no income tax benefit or expense was recorded for stock options exercised as an adjustment to equity.

               |                     |                     | December 31, 2019
-------------- | ------------------- | ------------------- | ------------------------
(In thousands) | Deferred Tax Assets | Valuation Allowance | Deferred Tax Assets, net
Domestic       | $46,266             | $(46,266)           | $ —
International  | 9,911               | (2,350)             | 7,561
Total          | $56,177             | $(48,616)           | $7,561

Company reviews valuation allowance recognizes benefits deferred tax assets ASC 740 Income Taxes. decrease revenue profitability 2019 growth limited deferred tax assets. domestic deferred tax assets valuation allowance against domestic established third quarter 2019. deferred tax assets realizable may be adjusted evidence.
 December 31, 2019 Company deferred tax assets $56. 2 million offset by valuation allowance $48. 6 million. $42. 8 million established domestic deferred tax assets. remaining $5. 8 million state research development credit carryforwards foreign net operating loss research development credit carryforwards. remaining $7. 6 million not offset in foreign jurisdictions likely.
 Supplemental balance sheet information tax assets
 As December 31, 2019 2018 deferred tax assets for foreign domestic loss carry-forwards research development tax credits unamortized research development costs state credit carryforwards totaled $41. 3 million $28. 8 million. December 31, 2019 $19.1 million deferred tax assets expire 2020 2039. remaining amortize 2029 or carryforward indefinitely.
 December 31, 2019 2018 cash equivalents $73. 8 million $105. 5 million short-term investments $33. 2 million $3. 2 million short-term liquidity $107. 0 million $108. 7 million. foreign subsidiaries held cash $52. 3 million $87. 1 million 48. 9% 80. 1% short-term liquidity on liquidity. intend reinvest funds outside U. domestic. if. amounts subject tax. determine deferred tax liability.
 2019 2018 2017 no income tax benefit expense for stock options equity.
 December 31, 2019
 Deferred Tax Assets
 Domestic $46,266 $(46,266)
 International 9,911 7,561
 Total $56,177


Liquidity risk
Our policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business.
Our liquidity needs are affected by many factors, some of which are based on the normal on-going operations of the business, and others that relate to the uncertainties of the global economy and the semiconductor industry. Although our cash requirements fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with our principal sources of liquidity are sufficient to satisfy our current requirements, including our expected capital expenditures in 2020.
We intend to return cash to our shareholders on a regular basis in the form of dividend payments and, subject to our actual and anticipated liquidity requirements and other relevant factors, share buybacks.
The following table summarizes the Company’s contractual and other obligations as at December 31, 2019.
Total short-term lines of credit amounted to €150 million at December 31, 2019. The amount outstanding at December 31, 2019 was nil and the undrawn portion totaled €150 million. The standby revolving credit facility of €150 million with a consortium of banks will be available through December 16, 2023.
For the majority of purchase commitments, the Company has flexible delivery schedules depending on the market conditions, which allows the Company, to a certain extent, to delay delivery beyond originally planned delivery schedules.

                                          | Total   | Less than 1 year | 1-5 years | More than 5 years
----------------------------------------- | ------- | ---------------- | --------- | -----------------
Accounts payable                          | 119,712 | 119,712          | —         | —
Income tax payable                        | 34,599  | 34,599           | —         | —
Accrued expenses and other payables       | 149,843 | 149,843          | —         | —
Lease liabilities                         | 24,261  | 6,977            | 14,726    | 2,558
Pension liabilities                       | 7,734   | 333              | 2,544     | 4,857
Purchase obligations:                     |         |                  |           |
Purchase commitments to suppliers         | 100,694 | 99,546           | 1,148     | —
Capital expenditure and other commitments | 43,692  | 40,745           | 2,947     | —
Total contractual obligations             | 480,535 | 451,755          | 21,365    | 7,415

Liquidity risk
 policy maintain strong capital base investor creditor market confidence sustain future development business.
 liquidity needs affected by factors operations uncertainties global economy semiconductor industry. cash requirements fluctuate cash operations principal sources liquidity satisfy current requirements expected capital expenditures 2020.
 intend return cash shareholders dividend payments share buybacks.
 table summarizes contractual obligations December 31, 2019.
 short-term lines credit €150 million. outstanding nil undrawn portion €150 million. standby revolving credit facility €150 million available through December 16, 2023.
 flexible delivery schedules delay delivery.
 Less than 1 year 1-5 years
 Accounts payable 119,712
 Income tax payable 34,599
 Accrued expenses payables 149,843
 Lease liabilities 24,261 6,977
 Pension liabilities 7,734 333 2,544 4,857
 Purchase obligations
100,694 99,546 1,148
 Capital 43,692 40,745,947
 obligations 480,535 451,755 21,365


The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes that give rise to significant portions of the net deferred tax asset (liability) are as follows (in millions):
As of December 31, 2019 and 2018, the Company had approximately $521.9 million and $768.9 million, respectively, of federal NOL carryforwards, before reduction for unrecognized tax benefits, which are subject to annual limitations prescribed in Section 382 of the Internal Revenue Code. The decrease is due to current year utilization. If not utilized, a portion of the NOLs will expire in varying amounts from 2024 to 2036; however, a small portion of the NOL that was generated after December 31, 2017 is carried forward indefinitely.
As of December 31, 2019 and 2018, the Company had approximately $134.5 million and $83.7 million, respectively, of federal credit carryforwards, before consideration of valuation allowance or reduction for unrecognized tax benefits, which are subject to annual limitations prescribed in Section 383 of the Internal Revenue Code. If not utilized, the credits will expire in varying amounts from 2028 to 2039.
As of December 31, 2019 and 2018, the Company had approximately $825.8 million and $801.0 million, respectively, of state NOL carryforwards, before consideration of valuation allowance or reduction for unrecognized tax benefits. If not utilized, a portion of the NOLs will expire in varying amounts starting in 2020.
Certain states have adopted the federal rule allowing unlimited NOL carryover for NOLs generated in tax years beginning after December 31, 2017. Therefore, a portion of the state NOLs generated after 2017 carry forward indefinitely. As of December 31, 2019 and 2018, the Company had $138.6 million and $115.8 million, respectively, of state credit carryforwards before consideration of valuation allowance or reduction for unrecognized tax benefits. If not utilized, a portion of the credits will begin to expire in varying amounts starting in 2020.
As of December 31, 2019 and 2018, the Company had approximately $757.1 million and $734.4 million, respectively, of foreign NOL carryforwards, before consideration of valuation allowance. If not utilized, a portion of the NOLs will begin to expire in varying amounts starting in 2020. A significant portion of these NOLs will expire by 2025.
As of December 31, 2019 and 2018, the Company had $76.8 million and $68.8 million, respectively, of foreign credit carryforwards before consideration of valuation allowance. If not utilized, the majority of these credits will expire by 2026.
The Company continues to maintain a valuation allowance of $186.3 million on a portion of its Japan NOLs, which expire in varying amounts from 2020 to 2024. In addition to the valuation allowance mentioned above on Japan NOLs, the Company continues to maintain a full valuation allowance on its U.S. state deferred tax assets, and a valuation allowance on foreign NOLs and tax credits in certain other foreign jurisdictions.

                                                               | As of December 31, |
-------------------------------------------------------------- | ------------------ | -------
                                                               | 2019               | 2018
Net operating loss and tax credit carryforwards                | $612.9             | $584.9
163 (j) interest expense carryforward                          | 49.3               | —
Tax-deductible goodwill and amortizable intangibles            | (48.6)             | (29.4)
Capitalization of research and development expenses            | 42.7               | —
Reserves and accruals                                          | 27.5               | 57.4
Property, plant and equipment                                  | (81.2)             | (63.5)
Inventories                                                    | 22.0               | 20.2
Undistributed earnings of foreign subsidiaries                 | (63.7)             | (48.7)
Share-based compensation                                       | 10.3               | 7.7
Pension                                                        | 26.3               | 24.3
Other                                                          | 8.0                | 6.0
Deferred tax assets and liabilities before valuation allowance | 605.5              | 558.9
  Valuation allowance                                          | (357.9)            | (347.5)
Net deferred tax asset                                         | $247.6             | $211.4

tax effects differences income expense net deferred tax asset
 December 31, 2019 2018 Company had $521. 9 million $768. 9 million federal NOL carryforwards before tax benefits Section 382 Revenue. decrease due current utilization. NOLs expire 2024 to 2036 small portion after December 31, 2017 forward indefinitely.
 December 31, 2019 2018 Company had $134. 5 million $83. 7 million federal credit carryforwards before subject Section 383. credits expire 2028 to 2039.
 December 31, 2019 2018 had $825. 8 million $801. 0 million state NOL carryforwards before. expire 2020.
 states unlimited NOL carryover 2017. state NOLs 2017 carry forward indefinitely. December 31, 2019 2018 Company had $138. 6 million $115. 8 million state credit carryforwards before. credits expire 2020.
 December 31, 2019 2018 $757.1 million $734. 4 million foreign NOL carryforwards before valuation allowance. not NOLs 2020. 2025.
 December 31, 2019 2018 Company $76. 8 million $68. 8 million foreign credit carryforwards before valuation allowance. majority expire 2026.
 valuation allowance $186. 3 million Japan NOLs 2020 to 2024. full valuation allowance. state deferred tax assets foreign NOLs tax credits foreign jurisdictions.
 December
 Net operating loss tax credit carryforwards $612. 9 $584.
 interest expense carryforward 49.
 Tax-deductible goodwill amortizable intangibles.
 research development expenses 42.
 Reserves accruals.
 Property plant equipment.
.
 Undistributed earnings foreign subsidiaries.
 Share-based compensation.
. 24.
.
 Deferred tax assets liabilities before valuation allowance 605. 558.
 (357. (347.
deferred tax. $211.


OPERATING AND FINANCIAL RESULTS
(1) Fiscal 2019 average foreign exchange rate used for translation was 1.3255 USD/CDN.
(2) Fiscal 2018 was restated to comply with IFRS 15 and to reflect a change in accounting policy. For further details, please consult the "Accounting policies" section.
(3) Fiscal 2019 actuals are translated at the average foreign exchange rate of fiscal 2018 which was 1.2773 USD/CDN.
REVENUE Fiscal 2019 revenue increased by 22.4% (17.9% in constant currency). In local currency, revenue amounted to US$782.3 million compared to US$662.3 million for fiscal 2018. The increase resulted mainly from: • the impact of the MetroCast acquisition completed on January 4, 2018 which was included in revenue for only an eight-month period in the prior year; • rate increases; • continued growth in Internet service customers; and • the FiberLight acquisition completed in the first quarter of fiscal 2019; partly offset by • a decrease in video service customers. Excluding the MetroCast and FiberLight acquisitions, revenue in constant currency increased by 5.2% for fiscal 2019.
OPERATING EXPENSES Fiscal 2019 operating expenses increased by 19.5% (15.2% in constant currency) mainly as a result of: • the impact of the MetroCast acquisition which was included in operating expenses for only an eight-month period in the prior year; • programming rate increases; • the FiberLight acquisition completed in the first quarter of fiscal 2019; • higher compensation expenses due to higher headcount to support growth; and • higher marketing initiatives to drive primary service units growth; partly offset by • the prior year's non-recurring costs of $3.1 million (US$2.5 million) related to hurricane Irma.
ADJUSTED EBITDA Fiscal 2019 adjusted EBITDA increased by 26.1% (21.5% in constant currency). In local currency, adjusted EBITDA amounted to US$351.3 million compared to US$288.4 million for fiscal 2018. The increase was mainly due to the impact of the MetroCast and FiberLight acquisitions combined with strong organic growth. Excluding the MetroCast and FiberLight acquisitions and the prior year's non-recurring costs of $3.1 million ($US2.5 million) related to hurricane Irma, adjusted EBITDA in constant currency increased by 5.7% for fiscal 2019.
CAPITAL INTENSITY AND ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT Fiscal 2019 acquisitions of property, plant and equipment decreased by 9.4% (12.4% in constant currency) mainly due to: • the acquisition of several dark fibres throughout south Florida from FiberLight, LLC for a consideration of $21.2 million (US$16.8 million) during the second quarter of fiscal 2018; partly offset by • additional capital expenditures related to the impact of the MetroCast acquisition; and • additional capital expenditures related to the expansion in Florida. Fiscal 2019 capital intensity reached 18.6% compared to 25.1% for fiscal 2018 mainly as a result of lower capital expenditures combined with revenue growth.

Years ended August 31,                        | 2019 (1)  | 2018 (2) | Change | Change in constant currency (3) | Foreign exchange impact (3)
--------------------------------------------- | --------- | -------- | ------ | ------------------------------- | ---------------------------
(in thousands of dollars, except percentages) | $         | $        | %      | %                               | $
Revenue                                       | 1,036,853 | 847,372  | 22.4   | 17.9                            | 37,433
Operating expenses                            | 571,208   | 478,172  | 19.5   | 15.2                            | 20,522
Adjusted EBITDA                               | 465,645   | 369,200  | 26.1   | 21.5                            | 16,911
Adjusted EBITDA Margin                        | 44.9%     | 43.6%    |        |                                 |
Acquisitions of property, plant and equipment | 192,605   | 212,580  | (9.4)  | (12.4)                          | 6,332
Capital intensity                             | 18.6%     | 25.1%    |        |                                 |

OPERATING FINANCIAL RESULTS
 Fiscal 2019 average foreign exchange rate 1. 3255 USD/CDN.
 Fiscal 2018 restated IFRS 15 change accounting policy. "Accounting policies.
 Fiscal 2019 translated average foreign exchange rate 1. 2773 USD/CDN.
 REVENUE 2019 increased 22. 4% (17. 9%. US$782. 3 million US$662. 3 million 2018. increase MetroCast rate increases Internet service FiberLight acquisition offset decrease video service customers. revenue increased 5. 2%.
 OPERATING EXPENSES increased 19. 5% (15. 2% MetroCast acquisition rate increases FiberLight acquisition higher compensation expenses marketing initiatives offset prior year non-recurring costs $3. 1 million (US$2. 5 million hurricane Irma.
 ADJUSTED EBITDA increased 26. 1% (21. 5%. US$351. 3 million US$288. 4 million 2018. MetroCast FiberLight acquisitions organic growth.MetroCast FiberLight acquisitions prior costs $3. 1 million$US2. 5 million hurricane Irma adjusted EBITDA increased 5. 7% 2019.
 CAPITAL INTENSITY ACQUISITIONS acquisitions decreased. 4% (12. 4% due dark fibres Florida FiberLight $21. 2 million (US$16. 8 million quarter 2018 offset additional capital expenditures MetroCast acquisition expansion Florida. 2019 capital intensity 18. 6% 25. 1% 2018 lower capital expenditures revenue growth.
 August currency Foreign exchange impact
 Revenue 1,036,853 847,372 22. 37
 Operating expenses 571,208 478,172.
 Adjusted EBITDA 465,645 369,200.
 EBITDA Margin 44. 9% 43. 6%
 Acquisitions property plant equipment 192,605 212,580.
 Capital intensity 18. 6% 25. 1%


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol "MEI." The following is a tabulation of high and low sales prices for the periods presented and cash dividends declared per share.
On June 13, 2019, the Board of Directors declared a dividend of $0.11 per share of common stock, payable on July 26, 2019, to holders of record on July 12, 2019. As of June 18, 2019, the number of record holders of our common stock was 397.

                                 | High   | Low    | Dividends
Declared Per
Share
-------------------------------- | ------ | ------ | ----------------------------
Fiscal Year Ended April 27, 2019 |        |        |
First Quarter                    | $45.45 | $37.70 | $0.11
Second Quarter                   | 41.30  | 27.65  | 0.11
Third Quarter                    | 33.98  | 20.99  | 0.11
Fourth Quarter                   | 32.22  | 25.11  | 0.11
Fiscal Year Ended April 28, 2018 |        |        |
First Quarter                    | $44.95 | $36.05 | $0.09
Second Quarter                   | 46.75  | 36.75  | 0.09
Third Quarter                    | 48.44  | 39.00  | 0.11
Fourth Quarter                   | 42.10  | 36.95  | 0.11

. Registrant’s Common Equity Stockholder Issuer Purchases Securities
 common stock traded New York Stock Exchange. tabulation high low sales prices cash dividends share.
 June 13, 2019 Board Directors declared dividend $0. 11 share common stock payable July 26, 2019 July 12. June 18 2019 holders 397.
 Dividends
 Declared
 Share
 Fiscal Year Ended April 27, 2019
 First Quarter $45. $37.
 Second Quarter.
 Third Quarter.
 Fourth Quarter.
 Fiscal Year Ended April 28, 2018
 First Quarter $44.
 Second Quarter.
 Third Quarter.
 Fourth Quarter.


Uncertain Tax Positions
In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
The following table reconciles the beginning and ending amount of unrecognized tax benefits for the fiscal years ended September 30, 2019, 2018,and 2017 (amounts shown in thousands):
Of the total unrecognized tax benefits at September 30, 2019, $1.6 million will impact the Company’s effective tax rate. The Company does not anticipate that there will be a substantial change in unrecognized tax benefits within the next twelve months.
The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2019, no accrued interest or penalties related to uncertain tax positions are recorded in the consolidated financial statements.
The Company is subject to income taxation in the U.S. at the federal and state levels. All tax years are subject to examination by U.S., California, and other state tax authorities due to the carryforward of unutilized net operating losses and tax credits. The Company is also subject to foreign income taxes in the countries in which it operates. The Company’s U.S. federal tax return for the year ended September 30, 2017 is currently under examination. To our knowledge, the Company is not currently under examination by any other taxing authorities.

                                                             | 2019   | 2018   | 2017
------------------------------------------------------------ | ------ | ------ | ------
Gross unrecognized tax benefits at the beginning of the year | $1,321 | $1,181 | $—
Additions from tax positions taken in the current year       | 213    | 140    | 140
Additions from tax positions taken in prior years            | 73     | —      | 1,041
Reductions from tax positions taken in prior years           | —      | —      | —
Tax settlements                                              | —      | —      | —
Gross unrecognized tax benefits at end of the year           | $1,607 | $1,321 | $1,181

Uncertain Tax Positions
 impact uncertain income tax position recognized largest amount more-likely sustained audit. not recognized less 50% likelihood sustained.
 table reconciles unrecognized tax benefits fiscal years 2019 2018 2017
 total unrecognized tax benefits September 30, 2019 $1. 6 million effective tax rate. substantial change tax benefits next twelve months.
 interest penalties income tax. September 30, 2019 no accrued interest penalties uncertain tax positions recorded in consolidated financial statements.
 Company subject to income taxation. federal state levels. tax years. unutilized operating losses tax credits. subject to foreign income taxes. federal tax return September 30 2017 under examination. not under examination other taxing authorities.
 Gross unrecognized tax benefits year $1,321
 Additions from tax positions current year
 Additions prior years 73
 Reductions years
 Tax settlements
unrecognized tax benefits $1,607,321,181


2. Property and equipment:
Property and equipment consisted of the following (in thousands):
Depreciation and amortization expense related to property and equipment and finance leases was $80.2 million, $81.2 million and $75.9 million, for 2019, 2018 and 2017, respectively.
The Company capitalizes the compensation cost of employees directly involved with its construction activities. In 2019, 2018 and 2017, the Company capitalized compensation costs of $10.7 million, $10.5 million and $9.7 million respectively. These amounts are included in system infrastructure costs.
Exchange agreement
In 2019, 2018 and 2017 the Company exchanged certain used network equipment and cash consideration for new network equipment. The fair value of the new network equipment received was estimated to be $3.3 million, $3.2 million and $9.1 million resulting in gains of $1.0 million, $1.0 million and $3.9 million respectively. The estimated fair value of the equipment received was based upon the cash consideration price the Company pays for the new network equipment on a standalone basis (Level 3).
Installment payment agreement
The Company has entered into an installment payment agreement (“IPA”) with a vendor. Under the IPA the Company may purchase network equipment in exchange for interest free note obligations each with a twenty-four month term. There are no payments under each note obligation for the first six months followed by eighteen equal installment payments for the remaining eighteen month term. As of December 31, 2019 and December 31, 2018, there was $12.5 million and $11.2 million, respectively, of note obligations outstanding under the IPA, secured by the related equipment. The Company recorded the assets purchased and the present value of the note obligation utilizing an imputed interest rate. The resulting discounts totaling $0.4 million and $0.4 million as of December 31, 2019 and December 31, 2018, respectively, under the note obligations are being amortized over the note term using the effective interest rate method.

                                               | December 31, |
---------------------------------------------- | ------------ | ---------
                                               | 2019         | 2018
Owned assets:                                  |              |
Network equipment                              | $566,936     | $538,761
Leasehold improvements                         | 227,388      | 214,495
System infrastructure                          | 134,726      | 124,018
Software                                       | 10,035       | 9,963
Office and other equipment                     | 18,169       | 16,711
Building                                       | 1,252        | 1,277
Land                                           | 106          | 108
                                               | 958,612      | 905,333
Less—Accumulated depreciation and amortization | (790,033)    | (736,356)
                                               | 168,579      | 168,977
Assets under finance leases:                   |              |
IRUs                                           | 408,170      | 395,170
Less—Accumulated depreciation and amortization | (207,820)    | (188,822)
                                               | 200,350      | 206,348
Property and equipment, net                    | $368,929     | $375,325

. Property equipment
 Depreciation amortization expense leases $80. 2 million $81. 2 million $75. 9 million 2019 2018 2017.
 Company capitalizes compensation cost employees construction. capitalized costs $10. 7 million $10. 5 million $9. 7 million. system infrastructure costs.
 exchanged used network equipment cash new equipment. $3. 3 million $3. 2 million $9. 1 million gains $1. million $1. million $3. 9 million. cash price.
 vendor. equipment interest free note obligations twenty-four month term. no payments first six months eighteen payments. December 31, 2019 2018 $12. 5 million $11. 2 million note obligations outstanding secured equipment. recorded assets purchased present value imputed interest rate. discounts $0. 4 million $0. 4 million December 31, 2019 obligations amortized term effective interest rate method.
 Owned assets
 Network equipment $566,936 $538,761
Leasehold improvements 227,388 214,495
 134,726 124,018
 Office equipment 18,169 16,711
 Land
 958,612 905,333
 depreciation amortization,356
 leases
,170,170
 depreciation (207,820),822)
 200,350 206,348
 Property $368,929 $375,325


Free Cash Flow
The following provides a reconciliation of free cash flow, as used in this annual report, to its most directly comparable U.S. GAAP financial measures:
Management believes that the free cash flow measure provides useful information to investors regarding our financial condition because it is a measure of cash generated which management evaluates for alternative uses. It is management’s current intention to use excess cash to fund investments in capital equipment, acquisition opportunities and consistent dividend payments. Free cash flow is not a U.S. GAAP financial measure and should not be considered in isolation of, or as a substitute for, cash flows calculated in accordance with U.S. GAAP.

                                                                                |         | Fiscal Year |
--------------------------------------------------------------------------------- | ------- | ----------- | -------
($ in millions)                                                                   | 2019    | 2018        | 2017
Net cash provided from operating activities                                       | $232.4  | $209.2      | $130.3
Purchases of property, plant, equipment and software                              | (180.3) | (135.0)     | (98.5)
Acquisition of businesses, net of cash acquired                                   | (79.0)  | (13.3)      | (35.3)
Proceeds from divestiture of business                                             | —       | —           | 12.0
Proceeds from disposals of property, plant and equipment and assets held for sale | 0.4     | 1.9         | 2.5
Proceeds from note receivable from sale of equity method investment               | —       | 6.3         | 6.3
Proceeds from insurance recovery                                                  | 11.4    | —           | —
Dividends paid                                                                    | (38.6)  | (34.4)      | (34.1)
Free cash flow                                                                    | $(53.7) | $34.7       | $(16.8)

Cash Flow
 reconciliation annual report. GAAP measures
 cash flow provides information financial condition alternative uses. use excess cash investments capital equipment acquisition opportunities dividend payments. cash not. GAAP measure not cash flows. GAAP.
 Fiscal Year
$ millions 2019 2018 2017
 Net cash operating activities $232. 4 $209. $130.
 Purchases property plant equipment software (180. (135. (98.
 Acquisition businesses cash (79. (13. (35.
 Proceeds divestiture business 12.
 disposals property plant equipment assets sale.
 Proceeds receivable sale equity investment 6.
 insurance recovery 11.
 Dividends paid (38. (34.
 Free cash flow $(53. 7) $34. 7 $(16.


Cash Flow Hedges
The Company has interest rate swap agreements to hedge the cash flows of a portion of its variable rate senior secured term loans (the "Variable Rate Loans"). The objective of these instruments is to reduce variability in the forecasted interest payments of the Company's Variable Rate Loans, which is based on the LIBOR rate. Under the terms of the interest rate swap agreements, the Company will receive monthly variable interest payments based on the one-month LIBOR rate and will pay interest at a fixed rate.
In February 2018, the Company entered into interest rate swap agreements to hedge the cash flows of an additional $250 million of its Variable Rate Loans. The interest rate swap agreements on $1.1 billion of the Company's Variable Rate Loans had a maturity date of December 2021 and a fixed interest rate of 1.08%.
The interest rate swap agreements on $300 million and $250 million of the Company's Variable Rate Loans both had a maturity date of August 2022 and fixed interest rates of 1.66% and 2.59%, respectively. The counterparties to these agreements are financial institutions.
In September 2018, the Company terminated its existing interest rate swaps. The net derivative gain of $60 million related to the discontinued cash flow hedge remained within accumulated other comprehensive loss and is being reclassified into earnings over the remaining life of the original hedge as the hedged variable rate debt impacts earnings.
Additionally, in September 2018, the Company entered into new interest rate swap agreements to hedge the cash flows of $1.5 billion of the Company's Variable Rate Loans. These interest rate swap agreements have a maturity date of August 2025 and a fixed interest rate of 3.00%.
The interest rate swap transactions were accounted for as cash flow hedges. The gain (loss) on the swap is reported as a component of other comprehensive income (loss) and is reclassified into earnings when the interest payments on the underlying hedged items impact earnings. A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective.
The effect of the Company's cash flow hedges on other comprehensive (loss) income and earnings for the periods presented was as follows:
The Company expects to reclassify gains of $1 million from accumulated other comprehensive loss into earnings during the next 12 months.

                                                                                |                 | Year Ended        |
------------------------------------------------------------------------------------------------------------------------------------ | --------------- | ----------------- | -----------------
                                                                                | January 3, 2020 | December 28, 2018 | December 29, 2017
                                                                                |                 | (in millions)     |
Total interest expense, net presented in the consolidated statements of income in which the effects of cash flow hedges are recorded | $133            | $138              | $140
Amount recognized in other comprehensive (loss) income                                                                               | $(55)           | $(7)              | $10
Amount reclassified from accumulated other comprehensive loss into earnings during the next 12 months.                               | (7)             | (6)               | —

Cash Flow Hedges
 Company has interest rate swap agreements hedge cash flows variable rate senior secured term loans. reduce variability interest payments based LIBOR rate. monthly variable interest payments LIBOR interest fixed rate.
 February 2018 interest rate swap agreements cash additional $250 million Loans. agreements $1. 1 billion maturity December 2021 fixed interest rate 1. 08%.
 agreements $300 million $250 million maturity August 2022 fixed interest rates 1. 66% 2. 59%. counterparties are financial institutions.
 September 2018 terminated interest rate swaps. net derivative gain $60 million hedge reclassified into earnings.
 September 2018 new interest rate swap agreements hedge cash flows $1. 5 billion Variable Rate Loans. maturity August 2025 fixed interest rate 3. 00%.
 cash flow hedges. gain (loss) reclassified into earnings interest payments impact earnings. hedge effectiveness quarterly unless.
effect Company cash flow hedges income earnings
 expects reclassify gains $1 million earnings next 12 months.
 Year
 January 3, 2020 December 28, 2018 December 29, 2017
 millions
 Total interest expense consolidated statements cash hedges $133 $138 $140
 recognized income $(55) $(7) $10
 reclassified loss earnings next 12 months.