O. Accrued Expenses and Other
Accrued expenses and other as of the periods presented consisted of the following (table in millions)
(1) Other primarily consists of litigation accrual, leases accrual, income tax payable and indirect tax accrual.
Accrued partner liabilities primarily relate to rebates and marketing development fund accruals for channel partners, system vendors and systems integrators. Accrued partner liabilities also include accruals for professional service arrangements for which VMware intends to leverage channel partners to directly fulfill the obligation to its customers.
As of January 31, 2020, other included $237 million litigation accrual related to Cirba patent and trademark infringement lawsuit and $155 million accrual for amounts owed to dissenting shareholders in connection with the Pivotal acquisition. Refer to Note E and Note B, respectively, for more information.

                                  | January 31, 2020 | February 1, 2019
--------------------------------- | ---------------- | ----------------
Accrued employee related expenses | $845             | $780
Accrued partner liabilities       | 181              | 207
Customer deposits                 | 247              | 239
Other(1)                          | 878              | 438
Total                             | $2,151           | $1,664

. Accrued Expenses
 leases income indirect tax.
 liabilities rebates marketing development fund channel partners system vendors integrators. professional service arrangements.
 January 31, 2020 $237 million Cirba patent trademark infringement lawsuit $155 million dissenting shareholders Pivotal acquisition. Note E B information.
 January 31, 2020 February 1, 2019
 Accrued employee expenses $845 $780
 partner liabilities 181 207
 Customer deposits 247 239
 878 438
 Total $2,151 $1,664


Telecommunications Segment
ICS operates an extensive network of direct routes and offers premium voice communication services for carrying a mix of business, residential and carrier long-distance traffic, data and transit traffic. Customers may have a bilateral relationship with ICS, meaning they have both a customer and vendor relationship with ICS. In these cases, ICS sells the customer access to the ICS supplier routes but also purchases access to the customer’s supplier routes.
Net revenue is derived from the long-distance data and transit traffic. Net revenue is earned based on the number of minutes during a call multiplied by the price per minute, and is recorded upon completion of a call. Completed calls are billable activity while incomplete calls are non-billable. Incomplete calls may occur as a result of technical issues or because the customer’s credit limit was exceeded and thus the customer routing of traffic was prevented.
Revenue for a period is calculated from information received through ICS’s billing software, such as minutes and market rates. Customized billing software has been implemented to track the information from the switch and analyze the call detail records against stored detailed information about revenue rates. This software provides ICS with the ability to perform a timely and accurate analysis of revenue earned in a period.
ICS evaluates gross versus net revenue recognition for each of its contractual arrangements by assessing indicators of control and significant influence to determine whether the ICS acts as a principal (i.e. gross recognition) or an agent (i.e. net recognition). ICS has determined that it acts as a principal for all of its performance obligations in connection with all revenue earned. Net revenue represents gross revenue, net of allowance for doubtful accounts receivable, service credits and service adjustments. Cost of revenue includes network costs that consist of access, transport and termination costs. The majority of ICS’s cost of revenue is variable, primarily based upon minutes of use, with transmission and termination costs being the most significant expense.
Disaggregation of Revenues ICS's revenues are predominantly derived from wholesale of international long distance minutes (in millions):

Years Ended December 31,                    |        |
------------------------------------------- | ------ | ------
                                            | 2019   | 2018
Termination of long distance minutes        | $696.1 | $793.6
Total revenue from contracts with customers | 696.1  | 793.6
Other revenue                               | —      | —
Total Telecommunications segment revenue    | $696.1 | $793.6

 ICS operates direct routes offers premium voice communication services business residential long-distance data transit traffic. Customers bilateral relationship ICS. ICS sells access supplier routes purchases access routes.
 Net revenue from long-distance data transit traffic. earned based on number minutes call multiplied by price per minute recorded upon completion. Completed calls billable incomplete non-billable. Incomplete calls technical issues credit limit exceeded routing prevented.
 Revenue calculated from billing software minutes market rates. Customized billing software call detail records revenue. software analysis revenue.
 ICS evaluates gross versus net revenue indicators control. principal. Net revenue represents gross revenue allowance for doubtful accounts receivable service credits service adjustments. Cost revenue includes network costs access transport termination costs. cost revenue variable based upon minutes use transmission termination costs significant.
 ICS revenues from international long distance minutes
 December 31,

 2019 2018
 long distance minutes $696. $793.
 revenue contracts 696. 793.
 Telecommunications revenue $696. $793.


Operating costs
Total Group adjusted operating costs were up $8.3 million or 3.1 per cent in 2019 compared to last year, broadly in line with inflation. The emphasis remained on effective resource allocation and careful cost management. The overall investment in product development was maintained, with continuing focus on high-growth, high-margin areas. Investment in the sales and marketing organisation was targeted on expanding our key account management programme to drive incremental business with our most valuable customers and developing routes to market for our new technologies to a broadening customer base. Administration costs in 2019 reflected an inflationary increase and higher corporate costs, primarily due to CEO transition.
Segmentally, investment continued in Networks & Security, where we see the most near-term opportunities for growth, particularly in relation to 400G high-speed Ethernet and our Positioning business. A new General Manager joined Lifecycle Service Assurance in October and a review is in progress to evolve the business and optimise the organisational structure to expand the customer base and deliver on our growth agenda. Proactive cost management has once again been demonstrated within Connected Devices, where we have seen a decrease in legacy product revenue year-on-year. As stated above, corporate costs in 2019 included costs associated with CEO transition.
Note
1. Before exceptional items, acquisition related costs, acquired intangible asset amortisation and share-based payment amounting to $4.3 million in total (2018 $19.6 million).

$ million                   | 2019  | 2018
--------------------------- | ----- | -----
Product development         | 96.5  | 96.9
Selling and marketing       | 129.2 | 123.9
Administration1             | 50.0  | 46.6
Adjusted operating costs1   | 275.7 | 267.4
Networks & Security         | 158.4 | 148.9
Lifecycle Service Assurance | 70.5  | 70.5
Connected Devices           | 38.2  | 40.8
Corporate                   | 8.6   | 7.2
Adjusted operating costs1   | 275.7 | 267.4

Operating costs
 up $8. 3 million. per cent 2019 line with inflation. emphasis on resource allocation cost management. investment in product development maintained focus high-growth high-margin areas. sales marketing expanding account management new technologies. Administration costs 2019 reflected inflationary increase higher costs due to CEO transition.
 investment in Networks & Security opportunities growth 400G high-speed Ethernet business. new General Manager joined Lifecycle Service Assurance review evolve business optimise structure expand customer base growth agenda. Proactive cost management Connected Devices decrease product revenue year-on-year. costs 2019 included CEO transition.
. acquisition intangible amortisation share-based payment $4. 3 million (2018 $19. 6 million.
 Product development.
 Selling marketing.
.
 operating 275. 267.
 Networks Security.
 Lifecycle Service Assurance 70.
 Connected Devices.
.
 275. 267.


2.4 KEY PERFORMANCE INDICATORS AND PERFORMANCE HIGHLIGHTS
The following key performance indicators are closely monitored to ensure that business strategies and objectives are closely aligned with shareholder value creation. The key performance indicators are not measurements in accordance with IFRS and should not be considered an alternative to other measures of performance in accordance with IFRS. The Corporation's method of calculating key performance indicators may differ from other companies and, accordingly, these key performance indicators may not be comparable to similar measures presented by other companies. The Corporation measures its performance, with regard to these objectives by monitoring revenue, adjusted EBITDA(1), free cash flow(1) and capital intensity(1) on a constant currency basis(1).
(1) Fiscal 2018 was restated to comply with IFRS 15 and to reflect a change in accounting policy as well as to reclassify results from Cogeco Peer 1 as discontinued operations. For further details, please consult the "Accounting policies" and "Discontinued operations" sections.
(2) Following the announcement of the agreement on February 27, 2019 to sell Cogeco Peer 1, fiscal 2019 financial guidelines were revised.
(3) Actual results are presented in constant currency based on fiscal 2018 average foreign exchange rates of 1.2773 USD/CDN.
For further details on the Corporation's operating results, please refer to the "Operating and financial results", the "Segmented operating and financial results" and the "Cash flow analysis" sections.

(in millions of dollars, except percentages)  | Actual Fiscal 2018 (1) $ | Revised projections (2) Fiscal 2019 (constant currency) (3) | Actual Fiscal 2019 (constant currency) (3) $ | Actual Fiscal 2019 (constant currency) (3) % | Achievement of the projections Fiscal 2019
--------------------------------------------- | ------------------------ | ----------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ------------------------------------------
Financial guidelines                          |                          |                                                             |                                              |                                              |
Revenue                                       | 2,147                    | Increase of 6% to 8%                                        | 2,294                                        | 6.8                                          | Achieved
Adjusted EBITDA                               | 1,007                    | Increase of 8% to 10%                                       | 1,092                                        | 8.5                                          | Achieved
Acquisitions of property, plant and equipment | 458                      | $450 to $470                                                | 425                                          | (7.1)                                        | Surpassed
Capital intensity                             | 21.3%                    | 20% to 21%                                                  | 18.5%                                        | -                                            | Surpassed
Free cash flow                                | 302                      | Increase of 38% to 45%                                      | 453                                          | 50.0                                         | Surpassed

. KEY PERFORMANCE INDICATORS HIGHLIGHTS
 indicators monitored business strategies objectives shareholder value creation. not IFRS alternative measures. Corporation's method calculating indicators not comparable. measures performance monitoring revenue EBITDA(1) free cash capital intensity(1) constant currency.
 Fiscal 2018 restated IFRS 15 change accounting policy reclassify results Cogeco Peer 1 discontinued operations. consult "Accounting policies" "Discontinued operations" sections.
 February 2019 sell Cogeco Peer 1 fiscal 2019 financial guidelines revised.
 results constant currency fiscal 2018 average foreign exchange rates 1. 2773 USD/CDN.
 financial "Segmented operating financial results "Cash flow analysis" sections.
 millions Fiscal 2018 Revised projections Fiscal 2019 (constant currency Achievement projections Fiscal 2019
 Financial guidelines
 Revenue 2,147 Increase 6% to 8% 2,294. Achieved
EBITDA 1,007 Increase 8% 10% 1,092.
 Acquisitions property equipment $450 $470.
 Capital 21. 3% 20% 21% 18. 5%
 cash flow Increase 38% 45%.


Transactions with Dell
VMware and Dell engaged in the following ongoing related party transactions, which resulted in revenue and receipts, and unearned revenue for VMware:
• Pursuant to OEM and reseller arrangements, Dell integrates or bundles VMware’s products and services with Dell’s products and sells them to end users. Dell also acts as a distributor, purchasing VMware’s standalone products and services for resale to end-user customers through VMwareauthorized resellers. Revenue under these arrangements is presented net of related marketing development funds and rebates paid to Dell. In addition, VMware provides professional services to end users based upon contractual agreements with Dell. • Dell purchases products and services from VMware for its internal use. • From time to time, VMware and Dell enter into agreements to collaborate on technology projects, and Dell pays VMware for services or reimburses VMware for costs incurred by VMware, in connection with such projects.
Dell purchases VMware products and services directly from VMware, as well as through VMware’s channel partners. Information about VMware’s
revenue and receipts, and unearned revenue from such arrangements, for the periods presented consisted of the following (table in millions):
Customer deposits resulting from transactions with Dell were $194 million and $85 million as of January 31, 2020 and February 1, 2019, respectively

                                          |                  | Revenue and Receipts |                  | Unearned Revenue |
----------------------------------------- | ---------------- | -------------------- | ---------------- | ---------------- | ----------------
                                          |                  | For the Year Ended   |                  | As of            |
                                          | January 31, 2020 | February 1, 2019     | February 2, 2018 | January 31, 2020 | February 1, 2019
Reseller revenue                          | $3,288           | $2,355               | $1,464           | $3,787           | $2,554
Internal-use revenue                      | 82               | 41                   | 46               | 57               | 29
Collaborative technology project receipts | 10               | 4                    | —                | n/a              | n/a

Transactions Dell
 VMware transactions resulted in revenue receipts unearned revenue for
 Dell integrates VMware’s products sells. Dell distributor products services for resale resellers. Revenue net of marketing development funds rebates. VMware provides services agreements Dell. Dell purchases products services VMware for internal use. VMware Dell projects Dell pays services reimburses costs.
 Dell purchases VMware products services channel partners. VMware’s
 revenue receipts unearned revenue
 Customer deposits Dell were $194 million $85 million as January 31, 2020 February 1, 2019
 Revenue Receipts Unearned Revenue
 Reseller revenue $3,288  $2,355 $1,464 $3,787 $2
 Internal-use revenue 82 | 41 | 46 | 57 | 29
 Collaborative technology project receipts 10  4 n/a


11. Income Taxes
The geographical breakdown of loss before income taxes is as follows (in thousands):

                         |           | Years Ended December 31, |
------------------------ | --------- | ------------------------ | ---------
                         | 2019      | 2018                     | 2017
Domestic loss            | $(20,345) | $(29,658)                | $(13,752)
Foreign income           | 3,933     | 3,123                    | 4,207
Loss before income taxes | $(16,412) | $(26,535)                | $(9,545)

. Taxes
 geographical breakdown loss
 Ended December 31,
 Domestic loss $(20,345) $(29,658),752)
 Foreign income 4
 Loss before taxes $(16,412) $(26,535)(9,545)


Debt
Our funding requirements are continually monitored and we execute our strategies to manage the overall asset and liability profile. Additionally, we maintain sufficient flexibility to access global funding sources as needed.
Total debt of $62,899 million increased $17,087 million from December 31, 2018, driven by issuances of $32,415 million; partially offset by debt maturities of $12,673 million and a decrease in commercial paper of $2,691 million.
Non-Global Financing debt of $38,173 million increased $23,587 million from prior year-end levels primarily driven by issuances to fund the Red Hat acquisition.
Global Financing debt of $24,727 million decreased $6,500 million from December 31, 2018, primarily due to the wind down of OEM IT commercial financing operations.
Global Financing provides financing predominantly for IBM’s external client assets, as well as for assets under contract by other IBM units. These assets, primarily for GTS, generate long-term, stable revenue streams similar to the Global Financing asset portfolio. Based on their attributes, these GTS assets are leveraged with the balance of the Global Financing asset base.
The debt used to fund Global Financing assets is composed of intercompany loans and external debt. Total debt changes generally correspond with the level of client and commercial financing receivables, the level of cash and cash equivalents, the change in intercompany and external payables and the change in intercompany investment from IBM. The terms of the intercompany loans are set by the company to substantially match the term, currency and interest rate variability underlying the financing receivable and are based on arm’s-length pricing. The Global Financing debt-to-equity ratio remained at 9 to 1 at December 31, 2019.
As previously stated, we measure Global Financing as a stand-alone entity, and accordingly, interest expense relating to debt supporting Global Financing’s external client and internal business is included in the “Global Financing Results of Operations” and in note D, “Segments.” In the Consolidated Income Statement, the external debt-related interest expense supporting Global Financing’s internal financing to IBM is reclassified from cost of financing to interest expense.

($ in millions)                     |         |
----------------------------------- | ------- | -------
At December 31:                     | 2019    | 2018
Total company debt                  | $62,899 | $45,812
Total Global Financing segment debt | $24,727 | $31,227
Debt to support external clients    | 21,487  | 27,536
Debt to support internal clients    | 3,239   | 3,690
Non-Global Financing debt           | 38,173  | 14,585

 funding requirements monitored asset liability profile. flexibility access global funding.
 debt $62,899 million increased $17,087 million December 31, 2018 issuances $32,415 million offset maturities $12,673 million decrease commercial paper $2,691 million.
 Non-Global Financing debt $38,173 million increased $23,587 million Red Hat acquisition.
 Global Financing debt $24,727 million decreased $6,500 million OEM IT financing.
 Financing provides financing external client assets assets contract units. generate revenue. assets leveraged Global Financing base.
 debt intercompany loans external debt. changes correspond with financing receivables cash equivalents payables investment IBM. terms intercompany loans match interest rate variability arm’s-length pricing. debt-to-equity ratio 9 to 1 December 31, 2019.
 Financing stand-alone entity interest expense Financing.Consolidated Income Statement Global financing interest expense.
 December 31
 company debt $62,899 $45,812
 Global Financing $24,727 $31,227
 external clients 21,487 27,536
 internal clients 3,239
 Non-Global Financing 38,173 14,585


Services
Teradyne services consist of extended warranties, training and application support, service agreement, post contract customer support (“PCS”) and replacement parts. Each service is recognized based on relative standalone selling price. Extended warranty, training and support, service agreements and PCS are recognized over time based on the period of service. Replacement parts are recognized at a point in time upon transfer of control to the customer.
Teradyne does not allow customer returns or provide refunds to customers for any products or services. Teradyne products include a standard 12-month warranty. This warranty is not considered a distinct performance obligation because it does not obligate Teradyne to provide a separate service to the customer and it cannot be purchased separately. Cost related to warranty are included in cost of revenues when product revenues are recognized.
As of December 31, 2019 and 2018, deferred revenue and customer advances consisted of the following and are included in the short and long-term deferred revenue and customer advances:

                                                  | 2019           | 2018
------------------------------------------------- | -------------- | --------
                                                  | (in thousands) |
Maintenance, service and training                 | $63,815        | $58,362
Extended warranty                                 | 30,677         | 27,422
Customer advances, undelivered elements and other | 56,358         | 24,677
Total deferred revenue and customer advances      | $150,850       | $110,461

 Teradyne extended warranties training support service agreement post contract customer support replacement parts. service recognized selling price. Extended warranty training support service agreements PCS recognized over time. Replacement parts recognized transfer control customer.
 Teradyne returns refunds. 12-month warranty. not purchased separately. Cost warranty.
 December 31, 2019 2018 deferred revenue customer advances
 Maintenance service training $63,815 $58,362
 Extended warranty 30,677 27,422
 Customer advances undelivered elements 56,358 24,677
 Total deferred revenue customer advances $150,850 $110,461


ACCOUNTING POLICY
Accounts receivable represent amounts owing to us that are currently due and collectible. We initially recognize accounts receivable on the date they originate. We measure accounts receivable initially at fair value, and subsequently at amortized cost, with changes recognized in net income. We measure an impairment loss for accounts receivable as the excess of the carrying amount over the present value of future cash flows we expect to derive from it, if any. The excess is allocated to an allowance for doubtful accounts and recognized as a loss in net income.
EXPLANATORY INFORMATION
We have retrospectively reclassified $23 million as at December 31, 2018 and January 1, 2019 related to our wireless financing programs from “accounts receivable” to “other current assets” as the collection time frame of the amounts differs from accounts receivable.

                                | As at December 31 | As at December 31 | As at December 31
------------------------------- | ----------------- | ----------------- | -----------------
(In millions of dollars)        | Note              | 2019              | 2018
Customer accounts receivable    |                   | 1,579             | 1,529
Other accounts receivable       |                   | 785               | 762
Allowance for doubtful accounts | 15                | (60)              | (55)
Total accounts receivable       |                   | 2,304             | 2,236

ACCOUNTING POLICY
 Accounts receivable due collectible. recognize. measure fair value amortized cost changes net income. impairment loss excess carrying amount over future cash flows. excess allocated allowance for doubtful accounts recognized loss net income.
 reclassified $23 million December 31, 2018 January 1, 2019 wireless financing programs from to current collection time differs.
 millions
 Customer accounts receivable 1,579 1,529
 Other accounts receivable 785 762
 Allowance for doubtful accounts 15
 Total accounts receivable 2,304 2,236


The Company is holding the following currency derivatives designated as hedging instruments:
Hedge ratio is 1:1 and changes in forward rate have been designated as the hedged risk. The change in the fair value of the hedging instrument is compared with the change in fair value of the hedged item, and the lower amount
is taken to OCI. If the change in fair value of the hedging instrument is higher, then the excess change in fair value is considered ineffective hedging and recorded in net foreign exchange gains and losses. Upon recognition of the
hedged net sales, the cumulative amount in hedging reserve is released in the OCI as a reclassification adjustment and recognized in net sales.
See note E1, “Equity” for movement in the cash flow hedge reserve. No hedged net sales were recognized in 2019, hence no amount was released from hedging reserve in the OCI. No hedge ineffectiveness was recognized in
the income statement in 2019.

Foreign exchange forward contracts |          |           |
---------------------------------- | -------- | --------- | -----
2019                               | < 1 year | 1–3 years | Total
Notional Amount (USD millions)     | 517      | 176       | 693
Average forward rate (SEK/USD)     | 9.13     | 8.92      | –

Company currency derivatives hedging instruments
 Hedge ratio 1:1 forward rate hedged risk. value lower
 taken OCI. higher excess ineffective recorded exchange gains losses.
 hedged net sales cumulative reserve released OCI reclassification adjustment recognized net sales.
 note E1 cash flow hedge reserve. No hedged net sales recognized 2019 amount released. No hedge ineffectiveness recognized
 income statement 2019.
 Foreign exchange forward contracts
 1 1–3 years Total
 Amount (USD millions) 517 176
 Average forward rate (SEK/USD).


Expected realisation of remaining performance obligations at year end
The Company applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
For contracts that exceed one year, deferred income that relates to unsatisfied or partially satisfied performance obligations at year end is expected to be recognised as revenue in the future as follows:
The above information represents the revenue the Company will recognise when it satisfies the remaining performance obligations in the contracts. The amounts presented do not include orders for which neither party has performed.
Revenue from the sale of hardware and software generally arises from contracts less than one year in length. Consequently, the above amounts predominantly relate to the sale of maintenance and support services.
Virtually all of the revenue will be recognised within three years.
The Company provides standard warranties on its products and services. The nature of these warranties is considered to provide customers with assurance that the related product or service will function as intended in accordance with the agreed specification, and does not contain or imply any additional service obligation to the customer. Warranty obligations are estimated and recognised as liabilities based on the probable outflow of resources.

                      | 2019      | 2018
--------------------- | --------- | ---------
                      | £ million | £ million
Within one year       | 1.0       | 1.2
Greater than one year | 0.8       | 0.9
                      | 1.8       | 2.1

Expected realisation remaining performance obligations year end
 Company applies 121 IFRS 15 disclose remaining performance obligations one year or less.
 contracts one year deferred income unsatisfied performance obligations end recognised as revenue future
 information represents revenue satisfies remaining performance obligations. amounts include orders neither party performed.
 Revenue sale hardware software arises contracts less than one year. amounts relate sale maintenance support services.
 revenue recognised within three years.
 Company provides standard warranties products services. function additional service obligation. Warranty obligations estimated recognised liabilities probable outflow resources.
 Within one year.
 Greater than one year.
.


Contractual Obligations and Commitments
The following table summarizes our contractual cash obligations and other commercial commitments as of December 31, 2019.
(1) These amounts include interest and principal payment obligations on our €135.0 million of 2024 Notes through the maturity date of June 30, 2024, interest and principal payments on our $445.0 million of 2022 Notes through the maturity date of March 1, 2022, interest and principal payments on our $189.2 million of 2021 Notes through the maturity date of April 15, 2021 and $12.5 million due under an installment payment agreement with a vendor.
(2) The amounts include principal and interest payments under our finance lease obligations. Our finance lease obligations were incurred in connection with IRUs for inter-city and intra-city dark fiber underlying substantial portions of our network. These finance leases are presented on our balance sheet at the net present value of the future minimum lease payments, or $169.8 million at December 31, 2019. These leases generally have initial terms of 15 to 20 years.
(3) These amounts include amounts due under our facilities, operating leases, colocation obligations and carrier neutral data center obligations. Certain of these operating lease liabilities are presented on our balance sheet at the net present value of the future minimum lease payments, or $96.8 million at December 31, 2019.
(4) These amounts include amounts due under unconditional purchase obligations including dark fiber IRU operating and finance lease agreements entered into but not delivered and accepted prior to December 31, 2019.

                                                            |            |                  | Payments due by period |             |
----------------------------------------------------------- | ---------- | ---------------- | ---------------------- | ----------- | -------------
                                                            | Total      | Less than 1 year | 1 - 3 years            | 3 - 5 years | After 5 years
                                                            |            |                  | (in thousands)         |             |
Debt(1)                                                     | 903,696    | 50,601           | 691,748                | 161,347     | —
Finance lease obligations(2)                                | 340,188    | 25,459           | 48,693                 | 45,311      | 220,725
Operating leases, colocation and data center obligations(3) | 205,087    | 36,119           | 42,344                 | 26,138      | 100,486
Unconditional purchase obligations(4)                       | 27,885     | 12,154           | 1,346                  | 1,307       | 13,078
Total contractual cash obligations                          | $1,476,856 | $124,333         | $784,131               | $234,103    | $334,289

Contractual Obligations Commitments
 table summarizes cash obligations commercial commitments December 31, 2019.
 interest principal €135. million 2024 June 30, $445. million 2022 $189. 2 million 2021 April 15 2021 $12. 5 million installment agreement vendor.
 finance lease obligations. IRUs inter-city intra-city dark fiber. $169. 8 million December 31, 2019. terms 15 to 20 years.
 facilities operating leases colocation obligations carrier data center obligations. liabilities future $96. 8 million December 31, 2019.
 unconditional purchase obligations dark fiber IRU operating finance lease agreements December 31, 2019.
 Payments due period
 Less 1 1 - 3 years 3 - 5 years 5 years
 Debt(1) 903,696 50,601 691,748 161,347
 Finance lease obligations(2) 340,188 25,459 48,693 45,311 220,725
leases center 205,087 36,119 42,344 26,138 100,486
 27,885 12,154 13,078
 obligations,476,856 $124,333,131 $234,103,289


Systems Business
During 2019, EDP Renewables, ConnectGen, and Innergex Renewable Energy each accounted for more than 10% of our systems business net sales, and the majority of our systems business net sales were in the United States and Australia. Substantially all of our systems business net sales during 2019 were denominated in U.S. dollars and Australian dollars. We typically recognize revenue for sales of solar power systems using cost based input methods, which result in revenue being recognized as work is performed based on the relationship between actual costs incurred compared to the total estimated costs for a given contract. We may also recognize revenue for the sale of a development project, which excludes EPC services, or for the sale of a completed system when we enter into the associated sales contract with the customer. The revenue recognition policies for our systems business are further described in Note 2. “Summary of Significant Accounting Policies” to our consolidated financial statements.
The following table shows net sales by reportable segment for the years ended December 31, 2019, 2018, and 2017:
Net sales from our modules segment increased by $958.1 million in 2019 primarily due to a 180% increase in the volume of watts sold and a 4% increase in the average selling price per watt. Net sales from our systems segment decreased by $139.0 million in 2019 primarily as a result of the sale of the Mashiko and certain India projects in 2018 and the completion of substantially all construction activities at the California Flats, Willow Springs, and various other projects in Florida in late 2018 and early 2019, partially offset by the sale of the Sun Streams, Sunshine Valley, and Beryl projects and ongoing construction activities at the Phoebe and GA Solar 4 projects in 2019.

                       |             | Years Ended |             |                | Change |                |
---------------------- | ----------- | ----------- | ----------- | -------------- | ------ | -------------- | -----
(Dollars in thousands) | 2019        | 2018        | 2017        | 2019 over 2018 |        | 2018 over 2017 |
Modules                | $ 1,460,116 | $ 502,001   | $ 806,398   | $ 958,115      | 191%   | $(304,397)     | (38)%
Systems .              | 1,603,001   | 1,742,043   | 2,134,926   | (139,042)      | (8)%   | (392,883)      | (18)%
Net sales .            | $ 3,063,117 | $ 2,244,044 | $ 2,941,324 | $ 819,073      | 36%    | $(697,280)     | (24)%

Systems Business
 2019 EDP Renewables ConnectGen Innergex Renewable Energy 10% net sales majority United States Australia. sales denominated U. S. Australian dollars. recognize revenue solar power systems cost based input methods. revenue development project completed system. revenue recognition policies described Note 2. Significant Accounting Policies” financial statements.
 table shows net sales December 31, 2019 2018 2017:
 sales modules segment increased $958. 1 million 2019 180% volume watts sold 4% increase average selling price per watt. systems segment decreased $139. 0 million 2019 sale Mashiko India projects 2018 construction California Flats Willow Springs projects Florida offset sale Sun Streams Sunshine Valley Beryl construction Phoebe GA Solar 4 projects 2019.
 Years
 thousands 2019 2018 2017
 Modules $ 1,460,116  $ 502,001  $ 806,398  $ 958,115 191%  $(304,397) (38)%
 Systems.1,603,001 1,742,043 2,134,926
 sales. 3,063,117 2,244,044 2,941,324 819,073 36%,280


Consolidated Statements of Earnings and Comprehensive Earnings
A detail of related party items included in Operating expenses (net of expense reimbursements) is as follows (in millions):
(1) Transactions with FNF are summarized through November 30, 2019, the date after which FNF is no longer considered a related party.

                                                           |         | Year ended December 31, |
---------------------------------------------------------- | ------- | ----------------------- | -----
                                                           | 2019(1) | 2018                    | 2017
Data entry, indexing services and other operating expenses | $8.8    | $8.2                    | $5.1
Corporate services                                         | 3.8     | 4.9                     | 9.2
Technology and corporate services                          | (0.1)   | (1.0)                   | (1.7)
Total related party expenses, net                          | $12.5   | $12.1                   | $12.6

Statements
 related party Operating expenses
 Transactions FNF summarized November 30, 2019 related party.
 ended December 31,
 Data entry indexing services operating expenses $8. 8 $8. $5.
 Corporate services 3. 4. 9.
 Technology corporate services (0. (1.
 Total related party expenses $12. 5 $12. 1 $12.


Share Unit Awards
In accordance with stockholder-approved equity incentive plans, we grant awards of restricted stock units and cash-settled restricted stock units ("share units") to employees and directors. These awards generally have requisite service periods of three years. Under each such award, stock or cash (as applicable) is issued without direct cost to the employee. We estimate the fair value of the share units based upon the market price of our stock at the date of grant. Certain share unit grants do not provide for the payment of dividend equivalents to the participant during the requisite service period (the "vesting period"). For those grants, the value of the grants is reduced by the net present value of the foregone dividend equivalent payments.
We recognize compensation expense for share unit awards on a straight-line basis over the requisite service period, accounting for forfeitures as they occur. All cash-settled restricted stock units are marked-to-market and presented within other current and noncurrent liabilities in our Consolidated Balance Sheets. The compensation expense for our stock-settled share unit awards totaled $23.9 million, $21.8 million, and $18.2 million for fiscal 2019, 2018, and 2017, respectively, including discontinued operations of $1.4 million for fiscal 2017. The tax benefit related to the stock-settled share unit award compensation expense for fiscal 2019, 2018, and 2017 was $6.0 million, $7.2 million, and $7.0 million, respectively. The compensation expense for our cash-settled share unit awards totaled $17.5 million, $5.8 million, and $20.9 million for fiscal 2019, 2018, and 2017, respectively, including discontinued operations of $2.6 million for fiscal 2017. The tax benefit related to the cash-settled share unit award compensation expense for fiscal 2019, 2018, and 2017 was $4.4 million, $1.9 million, and $8.0 million, respectively.
During the second quarter of fiscal 2019, in connection with the completion of the Pinnacle acquisition, we granted 2.0 million cash-settled share unit awards at a grant date fair value of $36.37 per share unit to Pinnacle employees in replacement of their unvested restricted share unit awards that were outstanding as of the closing date. Included in the compensation expense described above for fiscal 2019 is expense of $18.9 million for accelerated vesting of awards related to Pinnacle integration restructuring activities, net of the impact of marking-to-market these awards based on a lower market price of shares of Conagra Brands common stock. Approximately $36.3 million of the fair value of the replacement share unit awards granted to Pinnacle employees was attributable to pre-combination service and was included in the purchase price and established as a liability. Included in the expense for cash-settled share unit awards above is income of $6.7 million related to the mark-to-market of this liability. As of May 26, 2019, our liability for the replacement awards was $15.9 million, which includes post-combination service expense, the mark-to-market of the liability, and the impact of payouts since completing the Pinnacle acquisition. Post-combination expense of approximately $3.9 million, based on the market price of shares of Conagra Brands common stock as of May 26, 2019, is expected to be recognized related to the replacement awards over the remaining post-combination service period of approximately two years.
The following table summarizes the nonvested share units as of May 26, 2019 and changes during the fiscal year then ended:
During fiscal 2019, 2018, and 2017, we granted 0.9 million, 0.9 million, and 0.6 million stock-settled share units, respectively, with a weighted average grant date fair value of $35.43, $34.16, and $46.79 per share unit, respectively. During fiscal 2017, we granted 0.4 million cash-settled share units with a weighted average grant date fair value of $48.07 per share unit. No cash-settled share unit awards were granted in fiscal 2018.
The total intrinsic value of stock-settled share units vested was $24.6 million, $18.5 million, and $27.0 million during fiscal 2019, 2018, and 2017, respectively. The total intrinsic value of cash-settled share units vested was $50.5 million, $14.2 million, and $24.0 million during fiscal 2019, 2018, and 2017, respectively.
At May 26, 2019, we had $25.2 million and $4.2 million of total unrecognized compensation expense that will be recognized over a weighted average period of 1.9 years and 1.5 years, related to stock-settled share unit awards and cash-settled share unit awards, respectively
Notes to Consolidated Financial Statements - (Continued) Fiscal Years Ended May 26, 2019, May 27, 2018, and May 28, 2017 (columnar dollars in millions except per share amounts)

                                      | Stock-Settled             |                                        | Cash-Settled              |
------------------------------------- | ------------------------- | -------------------------------------- | ------------------------- | --------------------------------------
Share Units                           | Share Units (in Millions) | Weighted Average Grant-Date Fair Value | Share Units (in Millions) | Weighted Average Grant-Date Fair Value
Nonvested share units at May 27, 2018 | 1.78                      | $34.20                                 | 0.71                      | $34.58
Granted                               | 0.89                      | $35.43                                 | 1.95                      | $36.37
Vested/Issued                         | (0.72)                    | $33.29                                 | (1.64)                    | $35.55
Forfeited                             | (0.14)                    | $35.08                                 | (0.05)                    | $36.07
Nonvested share units at May 26, 2019 | 1.81                      | $34.89                                 | 0.97                      | $36.20

Share Unit Awards
 equity plans grant restricted cash-settled employees directors. service periods three years. stock cash issued without cost. estimate value market price grant. grants dividend equivalents. value reduced by value foregone dividend payments.
 recognize compensation expense awards accounting forfeitures. cash-settled stock units marked-to-market Consolidated Balance Sheets. compensation expense $23. 9 million $21. 8 million $18. 2 million 2019 2018 2017 discontinued operations $1. 4 million. tax benefit $6. 0 million $7. 2 million $7. 0 million. cash-settled awards totaled $17. 5 million $5. 8 million $20. 9 million 2019 2018 discontinued operations $2. 6 million 2017. $4. 4 million $1. 9 million $8. 0 million.
 quarter 2019 Pinnacle granted 2. million cash-settled share unit awards grant date fair value $36.37 share unit Pinnacle employees unvested awards. compensation 2019 $18. 9 million accelerated vesting Pinnacle restructuring lower market price Conagra Brands. $36. 3 million replacement awards pre-combination service purchase price liability. cash-settled awards $6. 7 million-to-market. May 26, 2019 liability replacement awards $15. 9 million post-combination service expense mark-to-market payouts Pinnacle acquisition. Post-combination expense $3. 9 million price Conagra Brands post-combination two years.
 nonvested share units May 26, 2019
 2019 2018 2017 granted. stock-settled share units fair value $35. 43 $34. 16 $46. 79 per share unit. 2017 granted. 4 million cash-settled units $48. 07. No cash-settled awards 2018.
 total stock-settled share units vested $24. 6 million $18. 5 million $27.2019 2018 2017. value cash-settled share units $50. 5 million $14. 2 million $24. million 2019 2018 2017.
 May 26, 2019 $25. 2 million $4. 2 million unrecognized compensation expense 1. 9. 5 years stock-settled cash-settled
 Consolidated Financial Statements Fiscal Years May 26, 2019 27, 2018 May 28, 2017 millions
 Stock-Settled Cash-Settled
 Nonvested share units May 27, 2018. 78 $34.
. $35. $36.
 Vested. $33. $35.
 Forfeited. $36.
 Nonvested share units May 26, 2019. 81 $34. 89. $36.


Results of Operations
Revenue (in thousands, except for percentages)
Comparison of Years Ended December 31, 2018 and 2017
Total net revenue for the year ended December 31, 2018, increased by $1,083.9 million, or 49%, compared to the year ended December 31, 2017.
Transaction-based revenue for the year ended December 31, 2018, increased by $551.3 million, or 29%, compared to the year ended December 31, 2017. This increase was attributable to the growth in GPV processed of $19.3 billion, or 30%, to $84.7 billion from $65.3 billion. We continued to benefit from growth in processed volumes from our existing sellers, in addition to meaningful contributions from new sellers. Additionally, GPV from larger sellers, which we define as all sellers that generate more than $125,000 in annualized GPV, represented 51% of our GPV in the fourth quarter of 2018, an increase from 47% in the fourth quarter of 2017. We continued to see ongoing success with attracting and enabling large seller growth, which we believe will help drive strong GPV growth as we scale.
Subscription and services-based revenue for the year ended December 31, 2018 increased by $339.0 million, or 134%, compared to the year ended December 31, 2017. Growth was driven primarily by Instant Deposit, Caviar, Cash Card, and Square Capital, as well as acquisitions completed in the second quarter. Subscription and services-based revenue grew to 18% of total net revenue in the year ended December 31, 2018, up from 11% in the year ended December 31, 2017.
Hardware revenue for the year ended December 31, 2018, increased by $27.1 million, or 65%, compared to the year ended December 31, 2017. The increase primarily reflects growth in shipments of Square Register following its launch in the fourth quarter of 2017 and, to a lesser extent, the launch of Square Terminal during the fourth quarter of 2018. The increase was also driven by continued growth in sales of our contactless and chip readers, as well as growth in sales of our Square Stand and third-party peripherals driven primarily by new features and product offerings. Additionally, the adoption of ASC 606 resulted in an increase of $5.9 million in hardware revenue for the year ended December 31, 2018 primarily related to the earlier revenue recognition of hardware sold through retail distribution channels and hardware installment sales, which were previously recorded upon sell through to the end user customer.
Bitcoin revenue for the year ended December 31, 2018, increased by $166.5 million compared to the year ended December 31, 2017. During the fourth quarter of 2017, we started offering our Cash App customers the ability to purchase bitcoin from us. Bitcoin revenue comprises the total sale amount we receive from bitcoin sales to customers and is recorded upon transfer of bitcoin to the customer’s account. The sale amount generally includes a small margin added to the price we pay to purchase bitcoin and accordingly, the amount of bitcoin revenue will fluctuate depending on the volatility of market bitcoin prices and customer demand.

                                        |            | Year Ended December 31, |            | 2017 to 2018 | 2016 to 2017
--------------------------------------- | ---------- | ----------------------- | ---------- | ------------ | ------------
                                        | 2018       | 2017                    | 2016       | % Change     | % Change
Transaction-based revenue               | $2,471,451 | $1,920,174              | $1,456,160 | 29%          | 32%
Starbucks transaction-based revenue     | —          | —                       | 78,903     | NM           | (100)%
Subscription and services-based revenue | 591,706    | 252,664                 | 129,351    | 134%         | 95%
Hardware revenue                        | 68,503     | 41,415                  | 44,307     | 65%          | (7)%
Bitcoin revenue                         | 166,517    | —                       | —          | NM           | NM
Total net revenue                       | $3,298,177 | $2,214,253              | $1,708,721 | 49%          | 30%

Operations
 Revenue
 Comparison Years 2018 2017
 net revenue 2018 increased $1,083. 9 million 49% compared 2017.
 Transaction-based revenue increased $551. 3 million 29%, 2017. increase attributable growth GPV processed $19. 3 billion 30% to $84. 7 billion from $65. 3 billion. growth processed volumes existing sellers new sellers. GPV larger sellers $125,000 represented 51% GPV fourth quarter 2018 increase 47% 2017. success attracting large seller growth GPV growth.
 Subscription services-based revenue 2018 increased $339. 0 million 134% 2017. driven Instant Deposit Caviar Cash Card Square Capital acquisitions. 18% total net revenue up 11% 2017.
 Hardware revenue increased $27. 1 million 65% 2017. increase reflects growth shipments Square Register 2017 Square Terminal 2018. driven sales contactless chip readers Square Stand third-party peripherals new features product offerings. ASC 606 increase $5.9 million hardware revenue December 31, 2018 related hardware retail installment sales recorded.
 Bitcoin revenue increased $166. 5 million 2017. fourth quarter 2017 Cash App customers purchase bitcoin. revenue total sale sales recorded transfer. small margin market bitcoin prices customer demand.
 Year Ended December 31, 2017 2018 2016 2017
 2016 %
 Transaction-based revenue $2,471,451 $1,920,174 $1,456,160 29% 32%
 Starbucks transaction-based revenue 78,903
 Subscription services-based revenue 591,706 252,664  129,351 134%
 Hardware revenue 68,503 41,415 44,307 65%
 Bitcoin revenue 166,517
 Total net revenue $3,298,177 $2,214,253  $1,708,721 49%


NOTES PAYABLE (continued)
All of these notes payable issued by the Group were unsecured.
On 1 April 2019, the Company updated the Global Medium Term Note Programme (the “Programme”) to include, among other things, the Company’s recent corporate and financial information and increased the limit of aggregate principal amount of the notes under the Programme from USD10 billion to USD20 billion (or its equivalent in other currencies).
On 11 April 2019, the Company issued five tranches of senior notes under the Programme with an aggregate principal amount of USD6 billion as set out below.
During the year ended 31 December 2019, the notes payable with an aggregate principal amount of USD2,000 million issued in April 2014 reached their maturity and were repaid in full by the Group.
As at 31 December 2019, the fair value of the notes payable amounted to RMB98,668 million (31 December 2018: RMB62,820 million). The respective fair values are assessed based on the active market price of these notes on the reporting date or by making reference to similar instruments traded in the observable market.

                         | Amount (USD’Million) | Interest Rate (per annum)  | Due
------------------------ | -------------------- | -------------------------- | ----
2024 Notes               | 1,250                | 3.280%                     | 2024
2024 Floating Rate Notes | 750                  | 3-month USD LIBOR + 0.910% | 2024
2026 Notes               | 500                  | 3.575%                     | 2026
2029 Notes               | 3,000                | 3.975%                     | 2029
2049 Notes               | 500                  | 4.525%                     | 2049
                         | 6,000                |                            |

NOTES PAYABLE
 notes issued Group unsecured.
 1 April 2019 Company updated Global Medium Term Note Programme corporate financial information increased principal amount USD10 billion to USD20 billion.
 11 April 2019 issued five tranches senior notes principal amount USD6 billion.
 31 December 2019 notes principal USD2,000 million issued April 2014 reached maturity repaid.
 31 December 2019 fair value RMB98,668 million (31 December 2018: RMB62,820 million. fair values assessed active market price similar instruments.
 Amount Interest Rate annum
 2024 Notes 1,250. 280%
 Floating Rate Notes 3-month USD LIBOR. 910%
. 575%
. 975%
. 525%


5. Investment income and financing costs
Investment income comprises interest received from short-term investments and other receivables as well as certain foreign exchange movements. Financing costs mainly arise from interest due on bonds and commercial paper issued, bank loans and the results of hedging transactions used to manage foreign exchange and interest rate movements
Note: 1 Includes €305 million (2018: €187 million; 2017: €272 million) of interest on foreign exchange derivatives.

                                                          | 2019  | 2018  | 2017
--------------------------------------------------------- | ----- | ----- | -----
                                                          | €m    | €m    | €m
Investment income:                                        |       |       |
Amortised cost                                            | 286   | 339   | 426
Fair value through profit and loss                        | 147   | 24    | 20
Foreign exchange                                          | –     | 322   | 28
                                                          | 433   | 685   | 474
Financing costs:                                          |       |       |
Items in hedge relationships:                             |       |       |
Other loans                                               | 17    | 74    | 170
Interest rate and cross-currency interest rate swaps      | (414) | (128) | (235)
Fair value hedging instrument                             | (8)   | 48    | 22
Fair value of hedged item                                 | 10    | (36)  | (16)
Other financial liabilities held at amortised cost:       |       |       |
Bank loans and overdrafts                                 | 336   | 317   | 419
Bonds and other liabilities1                              | 1,567 | 885   | 1,243
Interest (credit)/charge on settlement of tax issues      | (1)   | (11)  | 47
Fair value through profit and loss:                       |       |       |
Derivatives – options, forward starting swaps and futures | 391   | (75)  | (244)
Foreign exchange                                          | 190   | –     | –
                                                          | 2,088 | 1,074 | 1,406
Net financing costs                                       | 1,655 | 389   | 932

. Investment income financing costs
 interest short-term investments foreign exchange movements. Financing costs interest bonds commercial paper bank loans hedging transactions
 Includes €305 million €187 2017: €272 million interest foreign exchange derivatives.
 Investment income
 Amortised cost 286  339  426
 profit loss 147
 Foreign exchange 322
 433 685 474
 Financing costs
 hedge
 Other loans 74
 Interest swaps (414) (128)
 Fair value hedging instrument
 financial liabilities cost
 Bank loans overdrafts 336 317 419
 Bonds 1,567 1,243
 Interest)/charge settlement tax issues
 profit loss
 Derivatives options swaps futures 391 (75)
 Foreign exchange
 2,088 1,074 1,406
 Net financing costs 1,655 389


Segment Product Revenue, Operating Income and Operating Income as a Percentage of Revenue
Infrastructure and Defense Products
IDP revenue increased $104.2 million, or 13.2%, in fiscal 2019, compared to fiscal 2018, primarily due to higher demand for our base station products.
IDP operating income increased $31.6 million, or 13.4%, in fiscal 2019, compared to fiscal 2018, primarily due to higher revenue, partially offset by lower gross margin (which was negatively impacted by lower factory utilization).
See Note 16 of the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of this report for a reconciliation of segment operating income to the consolidated operating income for fiscal years 2019, 2018 and 2017.

Fiscal Year                        |          |
---------------------------------- | -------- | --------
(In thousands, except percentages) | 2019     | 2018
Revenue                            | $892,665 | $788,495
Operating income                   | $267,304 | $235,719
Operating income as a % of revenue | 29.9%    | 29.9%

Product Revenue Operating
 Infrastructure Defense Products
 IDP revenue increased $104. 2 million. 2% 2019 higher demand base station products.
 IDP operating income increased $31. 6 million. 4% higher revenue lower gross margin factory utilization.
 Note 16 Consolidated Financial Statements Part II 8 reconciliation segment operating income 2019 2018 2017.
 Revenue $892,665 $788,495
 Operating income $267,304 $235,719
 % revenue.


Note 5. Fair Value of Financial Instruments
The Company measures and reports certain cash equivalents, including money market funds and certificates of deposit, in addition to its long-term investments at fair value in accordance with the provisions of the authoritative accounting guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available
The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1: Observable inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities
Level 2: Other inputs, such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability
Level 3: Unobservable inputs that are supported by little or no market activity and that are based on management’s assumptions, including fair value measurements determined by using pricing models, discounted cash flow methodologies or similar techniques
The financial assets carried at fair value were determined using the following inputs (in thousands):
The Company’s other financial instruments, including accounts receivable, accounts payable, and other current liabilities, are carried at cost, which approximates fair-value due to the relatively short maturity of those instruments.

                      | Fair value at December 31, 2019 | Level 1  | Level 2 | Level 3
--------------------- | ------------------------------- | -------- | ------- | -------
Cash equivalents:     |                                 |          |         |
Money market funds    | $297,311                        | $297,311 | $ -     | $ -
Noncurrent assets:    |                                 |          |         |
Long-term investments | 132,188                         | -        | -       | 132,188
                      | Fair value at December 31, 2018 | Level 1  | Level 2 | Level 3
Cash equivalents:     |                                 |          |         |
Money market funds    | $485,872                        | $485,872 | $ -     | $ -
Noncurrent assets:    |                                 |          |         |
Long-term investments | -                               | -        | -       | -

Note 5. Fair Value of Financial Instruments
 Company measures reports cash equivalents money market funds certificates of deposit long-term investments at fair value authoritative accounting guidance fair value. guidance establishes hierarchy inputs maximizes observable minimizes unobservable observable
 hierarchy three levels reliability
 Level 1: Observable inputs unadjusted quoted prices active markets
 Level 2:
 Level 3: Unobservable inputs supported little no market activity based management’s assumptions pricing models discounted cash flow methodologies
 financial assets carried at fair value determined using inputs
 other financial instruments accounts receivable accounts payable current liabilities carried at cost approximates fair-value short maturity.
 Fair value at December 31, 2019
 Cash equivalents
 Money market funds $297,311
 Noncurrent assets
 Long-term investments 132,188
 Fair value at December 31, 2018
Cash equivalents
 Money market funds $485,872 $
 Noncurrent assets
 Long-term investments


Sales and Distribution
We maintain a strong local presence in each of the geographic regions in which we operate. Our net sales by geographic region(1) as a percentage of our total net sales were as follows:
(1) Net sales to external customers are attributed to individual countries based on the legal entity that records the sale.
We sell our products into approximately 150 countries primarily through direct selling efforts to manufacturers. In fiscal 2019, our direct sales represented approximately 80% of total net sales. We also sell our products indirectly via third-party distributors.
We maintain distribution centers around the world. Products are generally delivered to the distribution centers by our manufacturing facilities and then subsequently delivered to the customer. In some instances, however, products are delivered directly from our manufacturing facility to the customer. Our global coverage positions us near our customers’ locations and allows us to assist them in consolidating their supply base and lowering their production costs. We contract with a wide range of transport providers to deliver our products globally via road, rail, sea, and air. We believe our balanced sales distribution lowers our exposure to any particular geography and improves our financial profile.

                                   |       | Fiscal |
---------------------------------- | ----- | ------ | -----
                                   | 2019  | 2018   | 2017
Europe/Middle East/Africa (“EMEA”) | 36 %  | 38 %   | 36 %
Asia–Pacific                       | 33    | 34     | 35
Americas                           | 31    | 28     | 29
Total                              | 100 % | 100 %  | 100 %

Sales Distribution
 maintain local presence in regions. net sales by geographic total
 sales to external customers attributed countries legal entity sale.
 sell products 150 countries direct selling. fiscal 2019 direct sales 80% total net sales. sell indirectly via third-party distributors.
 maintain distribution centers. Products delivered manufacturing customer. some delivered directly from manufacturing customer. global coverage near locations supply base production costs. contract with transport providers products road sea air. balanced sales distribution lowers exposure improves financial profile.
 Europe/Middle East/Africa 36 % 38 %
 Asia–Pacific 33 34 35
 Americas 31 28
 Total 100 %


2019 Compensation of Outside Directors
(1) For fiscal 2019, the Compensation Committee granted each outside director an award of restricted shares or restricted stock units valued at $165,000 based upon the volume-weighted average closing price of our Common Shares over a 15-day trading period ending prior to the May 22, 2019, grant date. However, as required by SEC rules, the dollar value reported in this column reflects the grant date fair value of that award based upon the closing stock price of our Common Shares on the grant date in accordance with FASB ASC Topic 718. These awards vest on May 22, 2020 (subject to accelerated vesting or forfeiture in certain limited circumstances). See “—Cash and Stock Payments.”
(2) As of December 31, 2019, Mr. Post held 365,221 unvested shares of restricted stock (consisting of 14,706 time-based and 350,515 performance-based shares, which will vest and pay out or be forfeited in accordance with their original performance conditions) and each of our other outside directors held 14,706 unvested shares of restricted stock or unvested RSUs deferred under the Non-Employee Director Deferred Compensation Plan (the “Deferred RSUs”), which constituted the only unvested equity-based awards held by our outside directors as of such date. For further information on our directors’ stock ownership, see “Ownership of Our Securities— Executive Officers and Directors,” and for information on certain deferred fee arrangements pertaining to Mr. Roberts, see “—Other Benefits.”
(3) Includes (i) reimbursements for the cost of annual physical examinations and related travel of $5,000 for each of Mr. Hanks and Ms. Landrieu, $3,950 for Mr. Perry and $4,436 for Mr. Post, (ii) the payments related to the attendance of the KPMG Conference of $6,000 for Messrs. Hanks and Perry, (iii) payments related to the attendance of the NACD Global Board Leaders’ Summit of $6,000 for each of Ms. Landrieu and Messrs. Hanks and Perry and the payments related to the attendance of the G100 Conference of $4,000 for each of Ms. Bejar and Mr. Chilton. Except as otherwise noted in the prior sentence, the table above does not reflect (i) reimbursements for travel expenses or (ii) any benefits associated with the directors or their family members participating in recreational activities scheduled during Board retreats or meetings (as described further under the heading “Compensation Discussion and Analysis—Our Compensation Program Objectives and Components of Pay—Other Benefits—Perquisites”).
(4) The terms of each of these directors will end immediately following the 2020 annual shareholders meeting.

Name                        | Fees Earned or Paid in Cash | Stock Awards(1),(2) | All Other Compensation(3) | Total
--------------------------- | --------------------------- | ------------------- | ------------------------- | --------
Continuing Directors:       |                             |                     |                           |
Martha H. Bejar             | $120,000                    | $146,472            | $4,000                    | $270,472
Virginia Boulet             | 130,000                     | 146,472             | —                         | 276,472
Peter C. Brown              | 128,375                     | 146,472             | —                         | 274,847
Kevin P. Chilton            | 128,500                     | 146,472             | —                         | 274,972
Steven T. Clontz            | 115,000                     | 146,472             | —                         | 261,472
T. Michael Glenn            | 121,000                     | 146,472             | —                         | 267,472
W. Bruce Hanks              | 244,000                     | 146,472             | 17,000                    | 407,472
Michael J. Roberts          | 114,000                     | 146,472             | —                         | 260,472
Laurie A. Siegel            | 113,000                     | 146,472             | —                         | 259,472
Non-Returning Directors:(4) |                             |                     |                           |
Mary L. Landrieu            | 113,000                     | 146,472             | —                         | 259,472
Harvey P. Perry             | 309,000                     | 146,472             | 15,950                    | 471,422
Glen F. Post, III           | 109,000                     | 146,472             | 4,436                     | 259,908

2019 Compensation Outside Directors
 2019 Compensation Committee granted director restricted shares $165,000 average closing price Common Shares 15-day period May 22, 2019 grant date. dollar value reflects grant date fair value closing price FASB ASC Topic 718. awards vest May 22, 2020 accelerated vesting forfeiture. Stock Payments.
 December 31, 2019. Post held 365,221 unvested shares stock 14,706 time-based 350,515 performance-based outside directors held 14,706 unvested shares deferred Non-Employee Director Deferred Compensation Plan unvested equity-based awards directors. stock ownership deferred fee arrangements. Benefits.
 Includes reimbursements annual examinations travel $5,000. Hanks. Landrieu $3,950. Perry $4,436. Post payments KPMG Conference $6,000. Hanks Perry NACD Global Board Leaders’ Summit $6,000. Landrieu.Hanks Perry payments G100 Conference $4,000. Bejar. Chilton. table travel benefits directors recreational activities Board retreats meetings.
 terms directors end 2020 shareholders meeting.
 Fees Stock
 Directors
 Martha. Bejar $120,000 $146,472 $4,000 $270,472
 Virginia Boulet 130,000 146,472 276,472
 Peter. Brown 128,375 146
 Kevin. Chilton 128,500 146,472 274,972
 Steven. Clontz 115,000 146,472 261,472
. Michael Glenn 121,000 146
. Bruce Hanks 244,000 146 407,472
 Michael. Roberts 114,000 146,472 260
 Laurie. Siegel 113,000 146,472 259,472
 Non-Returning Directors
 Mary. Landrieu 113,000 146,472 259
 Harvey. Perry 309,000 146,472 15,950 471,422
. 109,000 146,472 4,436


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (United States Dollars in thousands, except per share data and unless otherwise indicated)
In light of the anticipated material non-cash charges to be recorded in connection with our financial guarantee arrangements as required subsequent to the adoption and implementation of ASU 2016-13 (as discussed in Note 1 to the Notes to Consolidated Financial Statements in Item 8 within "Accounting Standards Issued, But Not Yet Adopted – Measurement of credit losses on financial instruments"), management is evaluating both the disclosure of additional non-GAAP financial measures and the modification of its historical computation of adjusted EBITDA commencing in 2020 to enhance the disclosure of indicators of our business performance over the long term and to provide additional useful information to users of our financial statements.
Further, we utilize Adjusted Pro Forma Net Income, which we define as consolidated net income, adjusted for (i) transaction and non-recurring expenses; (ii) for 2019, losses associated with the financial guarantee arrangement for a Bank Partner that did not renew its loan origination agreement; and (iii) incremental pro forma tax expense assuming all of our noncontrolling interests were subject to income taxation. Adjusted Pro Forma Net Income is a useful measure because it makes our results more directly comparable to public companies that have the vast majority of their earnings subject to corporate income taxation. Adjusted Pro Forma Net Income has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as net income. Some of the limitations of Adjusted Pro Forma Net Income include:
• It makes assumptions about tax expense, which may differ from actual results; and • It is not a universally consistent calculation, which limits its usefulness as a comparative measure.
Management compensates for the inherent limitations associated with using the measure of Adjusted Pro Forma Net Income through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and reconciliation of Adjusted Pro Forma Net Income to the most directly comparable GAAP measure, net income, as presented below.
(1) Includes losses recorded in the fourth quarter of 2019 associated with the financial guarantee arrangement for a Bank Partner that did not renew its loan origination agreement when it expired in November 2019. See Note 14 to the Notes to Consolidated Financial Statements included in Item 8 for additional discussion of our financial guarantee arrangements.
(2) For the year ended December 31, 2019, includes loss on remeasurement of our tax receivable agreement liability of $9.8 million and professional fees associated with our strategic alternatives review process of $1.5 million. For the year ended December 31, 2018, includes certain costs associated with our IPO, which were not deferrable against the proceeds of the IPO. Further, includes certain costs, such as legal and debt arrangement costs, related to our March 2018 term loan upsizing. For the year ended December 31, 2017, includes one-time fees paid to an affiliate of one of the members of the board of managers in conjunction with the August 2017 term loan transaction.
(3) For the year ended December 31, 2019, includes (i) legal fees associated with IPO related litigation of $2.0 million, (ii) one-time tax compliance fees related to filing the final tax return for the Former Corporate Investors associated with the Reorganization Transactions of $0.2 million, and (iii) lien filing expenses related to certain Bank Partner solar loans of $0.6 million.
(4) Represents the incremental tax effect on net income, adjusted for the items noted above, assuming that all consolidated net income was subject to corporate taxation for the periods presented. For the years ended December 31, 2019, 2018 and 2017, we assumed effective tax rates of 14.8%, 19.7% and 38.4%, respectively.

                                           |          | Year Ended December 31, |
------------------------------------------ | -------- | ----------------------- | --------
                                           | 2019     | 2018                    | 2017
Net income                                 | $95,973  | $127,980                | $138,668
Change in financial guarantee liability(1) | 16,215   | —                       | —
Transaction expenses(2)                    | 11,345   | 2,393                   | 2,612
Non-recurring expenses(3)                  | 2,804    | —                       | —
Incremental pro forma tax expense(4)       | (24,768) | (21,248)                | (54,266)
Adjusted Pro Forma Net Income              | $101,569 | $109,125                | $87,014

ITEM 7. MANAGEMENT DISCUSSION ANALYSIS FINANCIAL CONDITION RESULTS OPERATIONS States Dollars thousands share data
 anticipated non-cash charges financial guarantee arrangements ASU 2016-13 Note 1 Consolidated Financial Statements Item 8 "Accounting Standards Issued Not Adopted Measurement credit losses financial management evaluating non-GAAP financial measures modification historical computation adjusted EBITDA 2020 enhance business performance provide information financial statements.
 utilize Adjusted Pro Forma Net Income consolidated adjusted transaction non expenses 2019 losses financial guarantee arrangement Bank Partner loan incremental pro forma tax expense noncontrolling interests taxation. results comparable public companies earnings corporate income taxation. limitations not GAAP financial measures. limitations
 assumptions tax expense differ results not universally consistent calculation limits usefulness comparative measure.
Management compensates limitations Adjusted Pro Forma Net Income disclosure financial statements GAAP reconciliation comparable GAAP income.
 Includes losses fourth quarter 2019 financial guarantee Bank Partner loan November 2019. Note 14 Consolidated Financial Statements.
 year December 31, 2019 loss remeasurement tax receivable agreement liability $9. 8 million professional fees strategic alternatives review $1. 5 million. December 31, 2018 costs not deferrable proceeds. legal debt arrangement March 2018 loan upsizing. December 31, 2017 one-time fees affiliate August 2017 loan transaction.
 December 31, 2019 legal fees litigation $2. 0 million tax compliance fees $0. 2 million lien filing expenses Bank Partner solar loans $0. 6 million.
 Represents incremental tax effect net income adjusted consolidated income subject corporate taxation. December 31, 2019 2018 2017 tax rates 14. 8% 19. 7% 38. 4%.
 Ended December
$95,973 $127,980,668
 guarantee 16,215
 Transaction 11,345
 Non-recurring 2,804
 Incremental tax (24,768 (21,248,266)
 Income $101,569 $109,125 $87,014


Operating expenses
Sales and marketing expense decreased primarily due to a $51 million decrease in stock-based compensation expense and a $41 million decrease as a result of the divestiture of our WSS and PKI solutions.
Research and development expense decreased primarily due to a $66 million decrease in stockbased compensation expense.
General and administrative expense decreased primarily due to a $130 million decrease in stock-based compensation expense.
Amortization of intangible assets decreased primarily due to the intangible assets sold with the divestiture of WSS and PKI solutions.
Restructuring, transition and other costs reflect a decrease of $70 million in fiscal 2019 compared to fiscal 2018 in severance and other restructuring costs. In addition, fiscal 2018 costs included $88 million of transition related costs related to our fiscal 2018 divestiture of our WSS and PKI solutions compared to $3 million in fiscal 2019.

Fiscal Year                               |        |        | Variance in |
----------------------------------------- | ------ | ------ | ----------- | -------
                                          | 2019   | 2018   | Dollars     | Percent
(In millions, except for percentages)     |        |        |             |
Sales and marketing                       | $1,493 | $1,593 | $(100)      | (6)%
Research and development                  | 913    | 956    | (43)        | (4)%
General and administrative                | 447    | 574    | (127)       | (22)%
Amortization of intangible assets         | 207    | 220    | (13)        | (6)%
Restructuring, transition and other costs | 241    | 410    | (169)       | (41)%
Total                                     | $3,301 | $3,753 | $(452)      | (12)%

 Sales marketing decreased $51 million stock-based compensation $41 million divestiture WSS PKI.
 Research development decreased $66 million.
 General administrative decreased $130 million decrease stock-based compensation.
 Amortization intangible assets decreased sold divestiture WSS PKI.
 Restructuring transition costs decrease $70 million 2019. $88 million transition divestiture WSS PKI $3 million 2019.
 Fiscal Year Variance
 2018 Dollars Percent
 Sales marketing $1,493
 Research development 913
 General administrative 447  574 (127)
 Amortization intangible assets 207 220
 Restructuring transition costs 241  410 (169) (41)
 Total $3,301 $3,753 $(452) (12)


Segment Financial Results
Revenues
The following table sets forth revenues by segment for the periods presented (in millions):
(1) Revenues for Corporate and Other represent deferred revenue purchase accounting adjustments recorded in accordance with GAAP.

                        | Year ended December 31 |          | Variance |
----------------------- | ---------------------- | -------- | -------- | --
                        | 2019                   | 2018     | $        | %
Software Solutions      | $1,012.3               | $962.0   | $50.3    | 5%
Data and Analytics      | 165.4                  | 154.5    | 10.9     | 7%
Corporate and Other (1) | (0.5)                  | (2.5)    | 2.0      | NM
Total                   | $1,177.2               | $1,114.0 | $63.2    | 6%

Segment Financial Results
 Revenues
 table revenues segment periods
 Revenues Corporate Other deferred accounting adjustments GAAP.
 Year December 31
 2019 2018
 Software Solutions $1,012. $962. $50. 5%
 Data Analytics 165. 154. 10. 7%
 Corporate Other.
 $1,177. $1,114. $63. 6%


Employee Stock Purchase Plan
The weighted average estimated fair value, as defined by the amended authoritative guidance, of rights issued pursuant to the Company’s ESPP during 2019, 2018 and 2017 was $4.28, $5.18 and $6.02, respectively. Sales under the ESPP were 24,131 shares of common stock at an average price per share of $9.76 for 2019, 31,306 shares of common stock at an average price per share of $15.40 for 2018, and 38,449 shares of common stock at an average price per share of $12.04 for 2017.
As of December 29, 2019, 62,335 shares under the 2009 ESPP remained available for issuance. The Company recorded compensation expenses related to the ESPP of $60,000, $205,000 and $153,000 in 2019, 2018 and 2017, respectively.
The fair value of rights issued pursuant to the Company’s ESPP was estimated on the commencement date of each offering period using the following weighted average assumptions:
The methodologies for determining the above values were as follows:
• Expected term: The expected term represents the length of the purchase period contained in the ESPP.
• Risk-free interest rate: The risk-free interest rate assumption is based upon the risk-free rate of a Treasury Constant Maturity bond with a maturity appropriate for the term of the purchase period.
• Volatility: The Company determines expected volatility based on historical volatility of the Company’s common stock for the term of the purchase period.
• Dividend Yield: The expected dividend assumption is based on the Company’s intent not to issue a dividend under its dividend policy.

                        | Fiscal Years |       |
----------------------- | ------------ | ----- | -----
                        | 2019         | 2018  | 2017
Expected life (months)  | 6.0          | 6.0   | 6.1
Risk-free interest rate | 2.37%        | 2.26% | 1.22%
Volatility              | 54%          | 50%   | 53%

Employee Stock Purchase Plan
 average value rights issued ESPP 2019 2018 2017 was $4. 28, $5. 18 $6. 02. Sales were 24,131 shares $9. 76 2019 31,306 $15. 40 2018 38,449 $12. 04 2017.
 December 29, 2019 62,335 shares 2009 ESPP remained available for issuance. compensation expenses $60,000 $205,000 $153,000 2019 2018 2017.
 fair value rights estimated commencement each offering period weighted average assumptions
 methodologies
 Expected term purchase period ESPP.
 Risk-free interest rate Treasury Constant Maturity bond period.
 Volatility volatility historical volatility common stock.
 Dividend Yield dividend intent not issue dividend dividend policy.
 Fiscal Years
 Expected life (months 6.
 Risk-free interest rate. 37%. 26%. 22%
 Volatility 54%


Information on the reportable segment net revenues and segment operating income are presented below (amounts in millions):
(1) Intersegment revenues reflect licensing and service fees charged between segments.

                                     |            | Year Ended December 31, 2019 |        |
------------------------------------ | ---------- | ---------------------------- | ------ | ------
                                     | Activision | Blizzard                     | King   | Total
Segment Revenues                     |            |                              |        |
Net revenues from external customers | $2,219     | $1,676                       | $2,031 | $5,926
Intersegment net revenues (1)        | —          | 43                           | —      | 43
Segment net revenues                 | $2,219     | $1,719                       | $2,031 | $5,969
Segment operating income             | $850       | $464                         | $740   | $2,054
                                     |            | Year Ended December 31, 2018 |        |
                                     | Activision | Blizzard                     | King   | Total
Segment Revenues                     |            |                              |        |
Net revenues from external customers | $2,458     | $2,238                       | $2,086 | $6,782
Intersegment net revenues (1)        | —          | 53                           | —      | 53
Segment net revenues                 | $2,458     | $2,291                       | $2,086 | $6,835
Segment operating income             | $1,011     | $685                         | $750   | $2,446
                                     |            | Year Ended December 31, 2017 |        |
                                     | Activision | Blizzard                     | King   | Total
Segment Revenues                     |            |                              |        |
Net revenues from external customers | $2,628     | $2,120                       | $1,998 | $6,746
Intersegment net revenues (1)        | —          | 19                           | —      | 19
Segment net revenues                 | $2,628     | $2,139                       | $1,998 | $6,765
Segment operating income             | $1,005     | $712                         | $700   | $2,417

reportable segment net revenues operating income
 revenues licensing service fees segments.
 Ended December 31, 2019
 Activision Blizzard
 revenues customers $2,219 $1,676 $2,031 $5,926
 Intersegment revenues
 $2,219 $2,031,969
 operating income $850 $464 $740  $2,054
 Ended December 31, 2018
 revenues customers $2,458 $2,238 $2,086 $6,782
 revenues
 $2,458 $2 $2,086 $6,835
 operating income $1,011 $685 $750 $2,446
 Ended December 31, 2017
 revenues external customers $2,628 $2,120 $1,998 $6,746
 revenues $2,628 $2 $1,998
 operating income $1,005 $712 $700 $2,417


EXPLANATORY INFORMATION
For the years ended December 31, 2019 and 2018, accounting for outstanding share-based payments using the equity-settled method for stock-based compensation was determined to be more dilutive than using the cash-settled method. As a result, net income for the year ended December 31, 2019 was reduced by $6 million (2018 – $2 million) in the diluted earnings per share calculation.
For the year ended December 31, 2019, there were 1,077,875 options out of the money (2018 – 37,715) for purposes of the calculation of earnings per share. These options were excluded from the calculation of the effect of dilutive securities because they were anti-dilutive.

                                                                                | Years ended December 31 |
--------------------------------------------------------------------------------------------------- | ----------------------- | -----
(In millions of dollars, except per share amounts)                                                  | 2019                    | 2018
Numerator (basic) – Net income for the year                                                         | 2,043                   | 2,059
Denominator – Number of shares (in millions): Weighted average number of shares outstanding – basic | 512                     | 515
Effect of dilutive securities (in millions): Employee stock options and restricted share units      | 1                       | 1
Weighted average number of shares outstanding – diluted                                             | 513                     | 516
Earnings per share:                                                                                |                         |
Basic                                                                                | $3.99                   | $4.00
Diluted                                                                                | $3.97                   | $3.99

 years December 2019 2018 share-based payments equity-settled method more dilutive cash-settled. net income December 2019 reduced $6 million (2018 – $2 million) diluted earnings per share calculation.
 December 2019 1,077,875 options (2018 – 37,715) earnings per share. options excluded anti-dilutive.
 Years ended December 31
 millions 2019 2018
 Net income 2,043 2,059
 Number average 512 515
 Effect dilutive securities Employee stock options restricted share units
 average shares 513 516
 Earnings per share
 $3. 99 $4.
.


Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Our common shares, without par value, are traded on the NASDAQ Stock Market LLC under the symbol “AGYS”. The high and low sales prices for the common shares for each quarter during the past two fiscal years are presented in the table below.
The closing price of the common shares on May 21, 2019, was $22.51 per share. There were 1,561 active shareholders of record.
We did not pay dividends in fiscal 2019 or 2018 and are unlikely to do so in the foreseeable future. The current policy of the Board of Directors is to retain any available earnings for use in the operations of our business.

2019           | High   | Low
-------------- | ------ | ------
Fourth quarter | $21.17 | $13.92
Third quarter  | $17.02 | $13.88
Second quarter | $16.72 | $14.72
First quarter  | $15.55 | $11.78
2018           | High   | Low
Fourth quarter | $13.00 | $10.77
Third quarter  | $12.98 | $11.30
Second quarter | $12.14 | $9.80
First quarter  | $10.30 | $9.08

. Registrant's Common Equity Shareholder Matters Issuer Purchases Securities.
 common shares traded Stock Market. high low sales prices two years.
 closing price May 21, 2019 $22. 51 per share. 1,561 active shareholders.
 dividends 2019 2018 unlikely. policy Board retain earnings operations.
 Fourth quarter $21. $13.
 Third $17. $13.
 Second $16. $14.
 First quarter $15. $11.
 Fourth quarter $13. $10.
 Third $12. $11.
 $12. $9.
 First quarter $10. $9.


Free Cash Flow
Free cash flow is a non-GAAP financial measure that reflects an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Free cash flow is calculated by subtracting capital expenditures from net cash provided by operating activities. We believe it is a more conservative measure of cash flow since purchases of fixed assets are necessary for ongoing operations.
Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate payments made on finance lease obligations or cash payments for business acquisitions or wireless licenses. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.
The following table reconciles net cash provided by operating activities to Free cash flow:
The increase in free cash flow during 2019 is a reflection of the increase in operating cash flows, partially offset by the increase in capital expenditures discussed above.

                                                           |          | (dollars in millions)
---------------------------------------------------------- | -------- | ---------------------
Years Ended December 31,                                   | 2019     | 2018
Net cash provided by operating activities                  | $ 35,746 | $ 34,339
Less Capital expenditures (including capitalized software) | 17,939   | 16,658
Free cash flow                                             | $ 17,807 | $ 17,681

Free Cash Flow
 non-GAAP measure liquidity. calculated subtracting capital expenditures from operating activities. conservative purchases fixed assets necessary operations.
 limitations represent residual cash flow discretionary expenditures. incorporate payments finance lease obligations business acquisitions wireless licenses. consolidated statements cash.
 table reconciles net cash activities Free cash flow
 increase free cash flow 2019 operating cash flows offset capital expenditures.
 millions
 December 31, 2019 2018
 Net cash operating activities $ 35,746  $ 34,339
 Less Capital expenditures 17,939 16,658
 Free cash flow $ 17,807  $ 17,681


Value-at-Risk (VaR)
We employ various tools to monitor our derivative risk, including value-at-risk ("VaR") models. We perform simulations using historical data to estimate potential losses in the fair value of current derivative positions. We use price and volatility information for the prior 90 days in the calculation of VaR that is used to monitor our daily risk. The purpose of this measurement 45 is to provide a single view of the potential risk of loss associated with derivative positions at a given point in time based on recent changes in market prices. Our model uses a 95% confidence level. Accordingly, in any given one-day time period, losses greater than the amounts included in the table below are expected to occur only 5% of the time. We include commodity swaps, futures, and options and foreign exchange forwards, swaps, and options in this calculation. The following table provides an overview of our average daily VaR for our energy, agriculture, and foreign exchange positions for fiscal 2019 and 2018.

                        | Fair Value Impact                                 |
----------------------- | ------------------------------------------------- | -------------------------------------------------
In Millions             | Average During the Fiscal Year Ended May 26, 2019 | Average During the Fiscal Year Ended May 27, 2018
Processing Activities   |                                                   |
Energy commodities      | $0.4                                              | $0.2
Agriculture commodities | 0.4                                               | 0.4
Other commodities       | 0.1                                               | —
Foreign exchange        | 0.7                                               | 0.7

Value-at-Risk
 tools derivative risk. perform simulations historical data estimate potential losses derivative positions. use price volatility information prior 90 days calculation daily risk. measurement single view potential risk loss derivative positions changes market prices. model uses 95% confidence level. losses greater occur 5%. include commodity swaps futures options foreign exchange forwards swaps options. average daily VaR energy foreign exchange positions fiscal 2019 2018.
 Fair Value Impact
 Millions Average Year May 26, 2019 27, 2018
 Processing Activities
 Energy commodities.
 Agriculture commodities.
 Other commodities.
 Foreign exchange.


PRODUCTS
Our primary product is drinkable kefir, a cultured dairy product. Lifeway Kefir is tart and tangy, high in protein, calcium and vitamin D. Thanks to our exclusive blend of kefir cultures, each cup of kefir contains 12 live and active cultures and 15 to 20 billion beneficial CFU (Colony Forming Units) at the time of manufacture.
We manufacture (directly or through co-packers) our products under our own brand, as well as under private labels on behalf of certain customers. As of December 31, 2019, Lifeway offered approximately 20 varieties of our kefir products including more than 60 flavors . In addition to our core drinkable kefir products, we offer several lines of products developed through our innovation and development efforts. These include Kefir Cups, a strained, cupped version of our kefir; and Organic Farmer Cheese Cups, a cupped version of our soft cheeses, both served in resealable 5 oz. containers. We also offer Skyr, a strained cupped Icelandic yogurt; Plantiful, a plant-based probiotic beverage made from organic and non-GMO pea protein with 10 vegan kefir cultures; a line of probiotic supplements for adults and children; and a soft serve kefir mix.
Our product categories are:
• Drinkable Kefir, sold in a variety of organic and non-organic sizes, flavors, and types, including low fat, non-fat, whole milk, protein, and BioKefir (a 3.5 oz. kefir with additional probiotic cultures). • European-style soft cheeses, including farmer cheese in resealable cups. • Cream and other, which consists primarily of cream, a byproduct of making our kefir. • ProBugs, a line of kefir products designed for children. • Other Dairy, which includes Cupped Kefir and Icelandic Skyr, a line of strained kefir and yogurt products in resealable cups. • Frozen Kefir, available in both soft serve and pint-size containers.
Net sales of products by category were as follows for the years ended December 31:
(a) Includes Lifeway Kefir Shop sales

                                   |          | 2019 |           | 2018
---------------------------------- | -------- | ---- | --------- | ----
In thousands                       | $        | %    | $         | %
Drinkable Kefir other than ProBugs | $ 71,822 | 77%  | $ 78,523  | 76%
Cheese                             | 11,459   | 12%  | 11,486    | 11%
Cream and other                    | 4,228    | 4%   | 5,276     | 5%
ProBugs Kefir                      | 2,780    | 3%   | 2,795     | 3%
Other dairy                        | 1,756    | 2%   | 3,836     | 4%
Frozen Kefir (a)                   | 1,617    | 2%   | 1,434     | 1%
Net Sales                          | $ 93,662 | 100% | $ 103,350 | 100%

 primary product drinkable kefir cultured dairy. Lifeway Kefir tart tangy high protein calcium vitamin D. each cup contains 12 cultures 15 to 20 billion beneficial CFU Units).
 brand private labels. December 31, 2019 20 varieties kefir 60 flavors. lines products. Kefir Cups Organic Farmer Cheese Cups resealable 5 oz. containers. Skyr Icelandic yogurt Plantiful probiotic beverage organic pea protein 10 vegan kefir cultures probiotic supplements soft serve kefir mix.
 product categories
 Drinkable Kefir organic non-organic sizes flavors low fat non whole milk protein BioKefir. probiotic. European-style soft cheeses farmer resealable cups. Cream. ProBugs children. Other Dairy Cupped Kefir Icelandic Skyr. Frozen Kefir soft serve pint-size containers.
 Net sales by category December 31
 Lifeway Kefir Shop sales

 Drinkable Kefir 71,822 77% 78,523 76%
 Cheese 11,459,486 11%
 Cream 4,228 4% 5,276 5%
 ProBugs Kefir 2,780
 Other dairy 1,756 3,836
 Frozen Kefir 1,617 1,434
 Net Sales $ 93,662 103,350