Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our audited Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements and other disclosures included in this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A, “Risk Factors”). Additional information related to the comparison of our results of operations between the years 2018 and 2017 is included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2018 Form 10-K filed with the SEC and is incorporated by reference into this Annual Report on Form 10-K. Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars.

MANAGEMENT OVERVIEW

Gilead Sciences, Inc. (Gilead, we, our or us), incorporated in Delaware on June 22, 1987, is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. With each new discovery and investigational drug candidate, we strive to transform and simplify care for people with life-threatening illnesses around the world. We have operations in more than 35 countries worldwide, with headquarters in Foster City, California. Gilead’s primary areas of focus include viral diseases, inflammatory and fibrotic diseases and oncology. We seek to add to our existing portfolio of products through our internal discovery and clinical development programs, product acquisition, in-licensing and strategic collaborations.

Our portfolio of marketed products includes AmBisome®, Atripla®, Biktarvy®, Cayston®, Complera®/Eviplera®, Descovy®, Descovy for PrEP®, Emtriva®, Epclusa®, Genvoya®, Harvoni®, Hepsera®, Letairis®, Odefsey®, Ranexa®, Sovaldi®, Stribild®, Truvada®, Truvada for PrEP®, Tybost®, Vemlidy®, Viread®, Vosevi®, Yescarta® and Zydelig®. We also sell and distribute authorized generic versions of Epclusa and Harvoni in the United States through our separate subsidiary, Asegua Therapeutics, LLC. In addition, we sell and distribute certain products through our corporate partners under collaborative agreements.

2019 Business Highlights

Our financial performance in 2019 was solid, as growth across our HIV franchise continued to drive results. We took several significant steps to position us for future growth, including an important research and development (R&D) collaboration, the introduction of a new corporate strategy and the hiring of key members of our executive leadership team. In 2019:

• We developed a new, corporate strategy to guide our work as we seek to drive growth over the next decade, with the ambitious goal of launching 10 new, transformative therapies over the next 10 years.

• We continued to make progress with our pipeline. We currently have 40 clinical-stage programs, with 14 programs either in registrational or in label-enabling studies. Of these programs, four have already received Breakthrough Therapy designation from U.S. Food and Drug Administration (FDA).

• We achieved sales of $16.4 billion across our HIV franchise in 2019, an increase of 12% from 2018, reaching another all-time high. The continued revenue growth of our HIV products was driven by the demand for Biktarvy and the increase in the number of individuals taking our products for pre-exposure prophylaxis (PrEP). At the end of 2019, Biktarvy was available in most major markets and, in the United States, approximately 27% of individuals on PrEP were receiving Descovy.

• We entered into a transformative R&D collaboration with Galapagos NV (Galapagos) in July, building on an existing partnership, and effectively enabling us to double our R&D footprint and accelerate our development of novel treatments for inflammatory and fibrotic diseases. We submitted a regulatory filing for filgotinib to FDA, and the compound is now under priority review for rheumatoid arthritis (RA). We also submitted filgotinib for approval in Europe and Japan and actively prepared for competitive launches in all three regions. We and Galapagos continued to advance the Phase 3 study of GLPG-1690 for the treatment of idiopathic pulmonary fibrosis. With regard to nonalcoholic steatohepatitis (NASH), after the STELLAR and ATLAS studies failed to reach their primary endpoints, we continued to work to understand the results to determine appropriate next steps for these therapies, including the potential for combination therapeutic approaches.

• In cell therapy, Kite, a Gilead company (Kite), submitted KTE-X19 for regulatory approval in the United States and Europe as a treatment for relapsed or refractory mantle cell lymphoma (MCL). If approved, Kite will be the first company with two cell therapies on the market. We also continued to demonstrate the efficacy of Yescarta. Data shared at the end of 2019 showed that approximately half of patients treated with Yescarta for refractory large B-cell lymphoma were still alive three years following treatment in the ZUMA-1 study, confirming Yescarta’s benefit/risk profile. In addition to cell therapy, we continued to grow our research portfolio in immuno-oncology.

• Our business also expanded geographically, including in China, where eight products have been approved since 2017 and four products (Vemlidy, Epclusa, Harvoni and Genvoya) have been listed on the National Reimbursement Drug List effective in January 2020.

During 2019, we continued to advance our product pipeline across our therapeutic areas with the goal of delivering best-in-class drugs that have the potential to improve the lives of patients with serious illnesses.

Key corporate, product, pipeline and other updates included:

Viral Diseases

•	Licensing and collaboration agreements with The Rockefeller University, Novartis AG and Lyndra Therapeutics, Inc.

•	Approval of Vosevi and Biktarvy by the China National Medical Products Administration.

•	Approval of a PrEP indication for Descovy by FDA.

•	Approval of Biktarvy and Epclusa by Japan’s Ministry of Health, Labour and Welfare (MHLW).

Inflammatory and Fibrotic Diseases

•	Collaborations with Kyverna Therapeutics, Inc. Glympse Bio, Inc., Renown Institute for Health Innovation, Goldfinch Bio, Inc., Insitro, Inc., Novo Nordisk A/S and Yuhan Corporation.

•	Agreement with Eisai Co., Ltd. for the distribution and co-promotion of filgotinib in Japan, pending regulatory approval from Japan’s MHLW, for the treatment of RA.

•	Submission of a New Drug Application (NDA) under priority review to FDA and submission of a NDA to Japan’s MHLW for filgotinib.

•	Topline results from the Phase 2 ATLAS study of combination and monotherapy investigational treatments in patients with bridging fibrosis (F3) and compensated cirrhosis (F4) due to NASH. While the study did not meet its primary endpoint, we continued to analyze the ATLAS data to determine appropriate next steps for these therapies.

•	Collaboration with Galapagos and equity investment in Galapagos to gain access to Galapagos’ current and future product portfolio. See Note 11. Collaborative and Other Arrangements of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

•	European Medicines Agency’s validation of the marketing authorization application for filgotinib; the application is now under evaluation by the Agency.

Oncology

•	FDA’s acceptance of our Biologics License Application and granting Priority Review designation for KTE-X19 for the treatment of adult patients with relapsed or refractory MCL.

•	European Medicines Agency’s validation of the marketing authorization application for KTE-X19; the application is now under evaluation by the Agency.

•	Collaborations with Carna Biosciences Inc., Nurix Therapeutics, Inc., Humanigen, Inc. and Kiniksa Pharmaceuticals, Ltd.

Leadership Changes

•

We have put in place a diverse, highly experienced leadership team. Senior leadership changes in 2019 included the appointment of Daniel P. O’Day as Chairman and Chief Executive Officer, Andrew D. Dickinson as Executive Vice President and Chief Financial Officer, Merdad V. Parsey as Chief Medical Officer, Christi L. Shaw as Chief Executive Officer of Kite, Johanna Mercier as Chief Commercial Officer; the departures of John G. McHutchison, Chief Scientific Officer and Head of Research and Development, Gregg H. Alton, Chief Patient Officer, and Katie L. Watson, Executive Vice President, Human Resources; and the planned retirement of Robin L. Washington from her role as Executive Vice President and Chief Financial Officer.

Other

•	Donation to the U.S. Centers for Disease Control and Prevention of up to 2.4 million bottles of Truvada and Descovy annually until 2030 for uninsured Americans at risk for HIV.

2019 Financial Highlights

Total revenues increased to $22.4 billion and total product sales increased to $22.1 billion in 2019, compared to $22.1 billion and $21.7 billion in 2018, respectively, primarily due to higher sales of our HIV products, partially offset by lower sales of Ranexa and Letairis and our HCV products. In the United States, product sales were $16.6 billion in 2019, compared to $16.2 billion in 2018. In Europe, product sales were $3.6 billion in 2019, compared to $3.7 billion in 2018. Product sales in other international locations were $2.0 billion in 2019, compared to $1.8 billion in 2018.

Cost of goods sold decreased to $4.7 billion in 2019, compared to $4.9 billion in 2018, primarily due to $259 million of lower royalty expenses, and lower amortization expenses related to intangible assets associated with Ranexa, partially offset by higher inventory write-downs. In 2019 and 2018, we recorded write-downs of $547 million and $440 million, respectively, for

slow moving and excess raw material and work in process inventory primarily due to lower long-term demand for our HCV products.

R&D expenses increased to $9.1 billion in 2019, compared to $5.0 billion in 2018, primarily due to up-front collaboration and licensing expenses of $3.9 billion related to our collaboration with Galapagos as well as higher personnel costs largely to support our cell therapy business, partially offset by lower stock-based compensation expense. In 2019 and 2018, we recorded impairment charges of $800 million and $820 million, respectively, related to in-process R&D (IPR&D) intangible assets acquired in connection with the acquisition of Kite Pharma, Inc.

Selling, general and administrative (SG&A) expenses increased to $4.4 billion in 2019, compared to $4.1 billion in 2018, primarily due to promotional expenses in the United States and expenses associated with the expansion of our business in Japan and China, partially offset by lower stock-based compensation expense.

Net income attributable to Gilead changed to $5.4 billion or $4.22 per diluted share in 2019, compared to $5.5 billion or $4.17 per diluted share in 2018, primarily due to pre-tax up-front collaboration and licensing expenses of $3.9 billion related to our collaboration with Galapagos, partially offset by the net favorable fluctuation in tax effects of intra-entity intangible asset transfers to different tax jurisdictions and an increase in net unrealized gains from equity securities. The year-over-year diluted earnings per share were favorably impacted by our stock repurchase activities.

As of December 31, 2019, we had $25.8 billion of cash, cash equivalents and marketable debt securities compared to $31.5 billion as of December 31, 2018. During 2019, we generated $9.1 billion in operating cash flow and paid $5.6 billion in connection with the collaboration with and equity investments in Galapagos, which was classified as cash flows from investing activities. We also repaid $2.8 billion of principal amount of debt, paid cash dividends of $3.2 billion and utilized $1.7 billion on repurchases of common stock in 2019.

Strategy and Outlook 2020

Our focus is to create possibilities for patients through scientific breakthroughs and innovation, by leveraging our pillars of a durable core business, existing pipeline opportunities and our strategy to drive additional growth. Our strategy includes ambitions and priorities, which enable us to achieve those ambitions. Our strategic ambitions define what success looks like over the next decade and are summarized as (i) bring 10+ transformative therapies to patients by 2030; (ii) be the biotech employer and partner of choice; and (iii) deliver shareholder value in a sustainable and responsible manner. Our strategic priorities reflect how we will deliver those ambitions: (i) expand internal and external innovation; (ii) strengthen portfolio strategy and decision making; (iii) increase patient benefit and access; and (iv) continue to evolve our culture.

In 2020, we expect underlying growth in our base business, which is expected to offset the full-year impact of our cardiopulmonary products loss of exclusivity, which occurred in 2019, and the initial generic version of Truvada in the United States in late 2020. We will also continue to invest to support the growth of Biktarvy, our Descovy for PrEP launch, preparation for competitive launches of filgotinib in RA in the United States, Japan and Europe, and continued investments in our pipeline, cell therapy and external partnerships. Our overall plan is now guided by our newly established corporate strategy that provides focus and guides resource and capital allocation priorities. We expect data read-outs in 2020 including filgotinib for ulcerative colitis, KTE-X19 for acute lymphoblastic leukemia (ALL), axicabtagene ciloleucel CD19 for indolent B-cell non-Hodgkin lymphoma (iNHL) and second line diffuse large B-cell lymphoma and GLPG-1972 for osteoarthritis. To further augment our product pipeline, we continue to pursue opportunities for collaborations, partnerships and strategic investments that fit into our long-term strategic plan.

Our progress on all of these initiatives is subject to a number of uncertainties, including, but not limited to, the possibility of unfavorable results from new and ongoing clinical trials; the continuation of an uncertain global macroeconomic environment; additional pricing pressures from payers and competitors; slower than anticipated growth in our HIV products; an increase in discounts, chargebacks and rebates due to ongoing contracts and future negotiations with commercial and government payers; market share and price erosion caused by the introduction of generic versions of products containing tenofovir disoproxil fumarate (TDF) outside the United States and Viread, Letairis and Ranexa in the United States; inaccuracies in our HCV patient start estimates; potential amendments to the Affordable Care Act or other government action that could have the effect of lowering prices; a larger-than anticipated shift in payer mix to more highly discounted payer segment; and volatility in foreign currency exchange rates.

RESULTS OF OPERATIONS

Total Revenues

The following table summarizes the period-over-period changes in our revenues:

(In millions, except percentages)		2019				Change			2018				Change			2017
Revenues:
Product sales		$	22,119			2	%		$	21,677			(16	)%		$	25,662
Royalty, contract and other revenues		330				(27	)%		450				1	%		445
Total revenues		$	22,449			1	%		$	22,127			(15	)%		$	26,107

Product Sales

2019 Compared to 2018

Total product sales increased by 2% to $22.1 billion in 2019, compared to $21.7 billion in 2018, primarily due to higher sales of our HIV products, partially offset by lower sales of Ranexa and Letairis and our HCV products.

HIV product sales increased by 12% to $16.4 billion in 2019, compared to $14.6 billion in 2018, primarily due to higher sales volume as a result of the continued uptake of Biktarvy. The increase was partially offset by decreases in sales volumes of Genvoya and our Truvada (emtricitabine (FTC)/TDF)-based products and lower average net selling price.

HCV product sales decreased by 20% to $2.9 billion in 2019, compared to $3.7 billion in 2018, primarily due to lower average net selling price, including a decline in U.S. Medicare prices in 2019.

Yescarta sales increased by 73% to $456 million in 2019, compared to $264 million in 2018, primarily due to a higher number of therapies provided to patients and the continued expansion in Europe.

Other product sales, which include Vemlidy, Viread, Letairis, Ranexa, Zydelig, AmBisome and Cayston, decreased by 26% to $2.3 billion in 2019, compared to $3.1 billion in 2018, primarily due to the expected decline in sales of Ranexa and Letairis after the entry of generic versions in the United States in early 2019.

Of our total product sales, 25% were generated outside the United States in 2019. We faced exposure to movements in foreign currency exchange rates, primarily in the Euro. We used foreign currency exchange contracts to hedge a percentage of our foreign currency exposure. Foreign currency exchange, net of hedges, had an immaterial impact on our product sales in 2019, based on a comparison using foreign currency exchange rates from 2018.

We record product sales net of estimated government and other rebates and chargebacks, cash discounts for prompt payment, distributor fees and other related costs. These deductions are generally referred to as gross-to-net deductions, which totaled $15.3 billion, or 41% of gross product sales in 2019, compared to $16.5 billion, or 43% of gross product sales in 2018. Of the $15.3 billion in 2019, $13.5 billion or 36% of gross product sales in 2019 was related to government and other rebates and chargebacks, and $1.8 billion was related to cash discounts for prompt payment, distributor fees and other related costs.

Product sales in the United States increased by 2% to $16.6 billion in 2019, compared to $16.2 billion in 2018, primarily due to higher sales of our HIV products, partially offset by lower sales of Ranexa and Letairis following the entry of generic versions in 2019 and lower sales of our HCV products. The increase in sales of our HIV products was primarily due to the continued uptake of Biktarvy and an increase in the number of individuals taking PrEP, partially offset by the decreases in sales volumes of our other HIV products including Genvoya, Atripla and Stribild. The decrease in sales of our HCV products was primarily due to lower average net selling price, including a decline in U.S. Medicare prices in 2019.

Product sales in Europe decreased by 3% to $3.6 billion in 2019, compared to $3.7 billion in 2018, primarily due to lower sales of our HCV products and the broader availability of generic versions of Truvada and Atripla. The decrease in sales of our HCV products was primarily due to lower patient starts and lower average net selling price. The decrease was partially offset by the continued uptake of Biktarvy, Odefsey and Yescarta, and favorable net adjustments for government rebates related to sales made in prior years.

Product sales in other international locations increased by 11% to $2.0 billion in 2019, compared to $1.8 billion in 2018, primarily due to higher HIV product sales in Japan, as a result of acquiring the rights to certain products in our HIV portfolio in Japan effective January 1, 2019, and higher HCV product sales in Japan due to the launch of Epclusa in 2019.

The following table summarizes the period-over-period changes in our product sales:

(In millions, except percentages)		2019				Change			2018				Change			2017
Atripla		$	600			(50	)%		$	1,206			(33	)%		$	1,806
Biktarvy		4,738				*			1,184				*			—
Complera/Eviplera		406				(38	)%		653				(32	)%		966
Descovy		1,500				(5	)%		1,581				30	%		1,218
Genvoya		3,931				(15	)%		4,624				26	%		3,674
Odefsey		1,655				4	%		1,598				44	%		1,106
Stribild		369				(43	)%		644				(39	)%		1,053
Truvada		2,813				(6	)%		2,997				(4	)%		3,134
Other HIV(1)		47				(23	)%		61				5	%		58
Revenue share - Symtuza(2)		379				*			79				*			—
Total HIV		16,438				12	%		14,627				12	%		13,015
AmBisome		407				(3	)%		420				15	%		366
Ledipasvir/Sofosbuvir(3)		643				(47	)%		1,222				(72	)%		4,370
Letairis		618				(34	)%		943				6	%		887
Ranexa		216				(72	)%		758				6	%		717
Sofosbuvir/Velpatasvir(4)		1,965				—	%		1,966				(44	)%		3,510
Vemlidy		488				52	%		321				*			122
Viread		243				(21	)%		307				(71	)%		1,046
Vosevi		257				(35	)%		396				35	%		293
Yescarta		456				73	%		264				*			7
Zydelig		103				(23	)%		133				(11	)%		149
Other(5)		285				(11	)%		320				(73	)%		1,180
Total product sales		$	22,119			2	%		$	21,677			(16	)%		$	25,662

_________________________________________
*	Percentage is greater than 100%
(1)	Includes Emtriva and Tybost
(2)	Represents our revenue from cobicistat (C), emtricitabine (FTC) and tenofovir alafenamide (TAF) in Symtuza (darunavir/C/FTC/TAF), a fixed dose combination product commercialized by Janssen Sciences Ireland UC
(3)	Amounts consist of sales of Harvoni and the authorized generic version of Harvoni sold by our separate subsidiary, Asegua Therapeutics LLC
(4)	Amounts consist of sales of Epclusa and the authorized generic version of Epclusa sold by our separate subsidiary, Asegua Therapeutics LLC
(5)	Includes Cayston, Hepsera and Sovaldi

The following is additional discussion of sales of our HIV and HCV products:

•	Descovy (FTC/TAF)-based products: Biktarvy, Descovy, Genvoya, Odefsey and Revenue Share - Symtuza

The following table summarizes the period-over-period changes in our sales of Descovy (FTC/TAF)-based products:

(In millions, except percentages)		2019				Change			2018				Change			2017
U.S.		$	9,716			34	%		$	7,261			47	%		$	4,955
Europe		1,857				22	%		1,528				71	%		892
Other locations		630				127	%		277				83	%		151
Total		$	12,203			35	%		$	9,066			51	%		$	5,998
% of total product sales		55		%					42		%					23		%
% of HIV product sales		74		%					62		%					46		%

Descovy (FTC/TAF)-based product sales increased in all major markets in 2019 compared to 2018. The increase in both the United States and Europe was primarily due to higher demand and a shift in product mix toward Biktarvy. The increase in other international locations was primarily due to higher product sales in Japan as a result of acquiring the rights to certain products in our HIV portfolio in Japan effective January 1, 2019.

•	Truvada (FTC/TDF)-based products: Atripla, Complera/Eviplera, Stribild and Truvada

The following table summarizes the period-over-period changes in our sales of Truvada (FTC/TDF)-based products:

(In millions, except percentages)		2019				Change			2018				Change			2017
U.S.		$	3,569			(18	)%		$	4,353			(9	)%		$	4,771
Europe		450				(45	)%		815				(51	)%		1,677
Other locations		169				(49	)%		332				(35	)%		511
Total		$	4,188			(24	)%		$	5,500			(21	)%		$	6,959
% of total product sales		19		%					25		%					27		%

Truvada (FTC/TDF)-based product sales decreased in the United States and Europe in 2019 compared to 2018. The decrease in U.S. sales was primarily due to lower sales volume as a result of patients switching to newer regimens containing FTC/TAF, partially offset by the increased usage of Truvada for PrEP. The decrease in Europe sales was primarily due to lower sales volumes of Truvada and Atripla as a result of the broader availability of generic versions and patients switching to newer regimens containing FTC/TAF. We expect a decline in our sales of Truvada in the United States as patients switch to Descovy for PrEP from Truvada for PrEP and the expected entry of generic versions in late 2020.

•	HCV products: Epclusa, Harvoni, Sovaldi, Vosevi and Authorized Generics of Epclusa and Harvoni

The following table summarizes the period-over-period changes in our sales of HCV products:

(In millions, except percentages)		2019				Change			2018				Change			2017
U.S.		$	1,465			(28	)%		$	2,023			(65	)%		$	5,854
Europe		742				(17	)%		896				(52	)%		1,853
Other locations		729				(5	)%		767				(46	)%		1,430
Total		$	2,936			(20	)%		$	3,686			(60	)%		$	9,137
% of total product sales		13		%					17		%					36		%

The decrease in HCV product sales in the United States in 2019 compared to 2018 was primarily due to lower average net selling price, including a decline in U.S. Medicare prices in 2019. The decrease in HCV product sales in Europe in 2019 compared to 2018 was primarily due to lower patient starts and lower average net selling price, partially offset by favorable net adjustments for government rebates and discounts related to sales made in prior years. The decrease in HCV product sales in other international locations in 2019 compared to 2018 was primarily due to lower sales of Sovaldi, partially offset by higher sales of Epclusa.

Cost of Goods Sold and Product Gross Margin

The following table summarizes the period-over-period changes in our product sales, cost of goods sold and product gross margin:

(In millions, except percentages)		2019				Change			2018				Change			2017
Total product sales		$	22,119			2	%		$	21,677			(16	)%		$	25,662
Cost of goods sold		$	4,675			(4	)%		$	4,853			11	%		$	4,371
Product gross margin		79		%					78		%					83		%

In 2019, cost of goods sold decreased by $178 million compared to 2018, primarily due to lower royalty expenses and lower amortization expense related to the intangible assets associated with Ranexa, which was fully amortized in the first quarter of 2019, partially offset by higher inventory write-downs. In 2019, we recorded inventory write-downs of $649 million, of which $547 million was related to slow moving and excess raw material and work in process inventory primarily due to lower long-term demand for our HCV products. In 2018, we recorded inventory write-downs of $572 million, of which $440 million was related to excess raw materials primarily due to a sustained decrease in demand for Harvoni as a result of a shift in the market from Harvoni to Epclusa. Royalty expenses decreased by $259 million in 2019, compared to 2018, primarily due to lower sales of Atripla, Ranexa, Letairis and products containing elvitegravir.

Research and Development Expenses

The following table summarizes the period-over-period changes in our R&D expenses:

(In millions, except percentages)		2019				Change			2018				Change			2017
R&D expenses		$	9,106			81	%		$	5,018			34	%		$	3,734

R&D expenses consist primarily of clinical studies performed by contract research organizations, materials and supplies, payments under collaborative and other arrangements, including up-front and milestone payments, licenses and fees, as well as expense reimbursements to the collaboration partners, IPR&D impairment charges, personnel costs, including salaries, benefits and stock-based compensation expense, and overhead allocations consisting of various support and infrastructure costs.

We do not track total R&D expenses by product candidate, therapeutic area or development phase. However, we manage our R&D expenses by identifying the R&D activities we anticipate will be performed during a given period and then prioritizing efforts based on scientific data, probability of technical and regulatory successful development, market potential, available human and capital resources and other considerations. We continually review our R&D projects based on unmet medical need and, as necessary, reallocate resources among our internal R&D portfolio and external opportunities that we believe will best support the long-term growth of our business.

The following table provides a breakout of our R&D expenses by major cost type:

(In millions, except percentages)		2019				Change			2018				Change			2017
Up-front collaboration and licensing expenses		$	4,251			*			$	278			25	%		$	222
Personnel, infrastructure and other expenses		2,016				7	%		1,876				34	%		1,399
Clinical studies and outside services		1,750				5	%		1,665				(11	)%		1,881
IPR&D impairment charges		800				(2	)%		820				*			—
Stock-based compensation expenses		289				(24	)%		379				63	%		232
Total		$	9,106			81	%		$	5,018			34	%		$	3,734

_________________________________________
*	Percentage is greater than 100%

In 2019, R&D expenses increased by $4.1 billion compared to 2018, primarily due to $3.9 billion of up-front collaboration and licensing expenses related to our collaboration with Galapagos as well as higher personnel costs largely to support our cell therapy business and increased investment in our research projects, partially offset by lower stock-based compensation expense.

In 2019, we recorded an impairment charge of $800 million related to IPR&D intangible assets acquired in connection with our acquisition of Kite Pharma, Inc. primarily for the treatment of indolent non-Hodgkin lymphoma largely driven by changes in the estimated market opportunities as new therapies or combinations of existing therapies were approved. In 2018, we recorded an impairment charge of $820 million related to IPR&D intangible assets for the KITE-585 program (an anti-B cell maturation antigen being evaluated for the treatment of multiple myeloma) due to its discontinuance.

Stock-based compensation expense for 2019 decreased by $90 million, compared to 2018, primarily due to the 2018 impact of stock-based compensation expense associated with our acquisition of Kite Pharma, Inc.

Selling, General and Administrative Expenses

The following table summarizes the period-over-period changes in our SG&A expenses:

(In millions, except percentages)		2019				Change			2018				Change			2017
SG&A expenses		$	4,381			8	%		$	4,056			5	%		$	3,878

SG&A expenses relate to sales and marketing, finance, human resources, legal and other administrative activities. Expenses consist primarily of personnel costs, facilities and overhead costs, outside marketing, advertising and legal expenses and other general and administrative costs. SG&A expenses also include the Branded Prescription Drug (BPD) fee. In the United States, we, along with other pharmaceutical manufacturers of branded drug products, are required to pay a portion of the BPD fee, which is estimated based on select government sales during the prior year as a percentage of total industry government sales and is trued-up upon receipt of invoices from the Internal Revenue Service.

In 2019, SG&A expenses increased by $325 million compared to 2018, primarily due to higher promotional expenses in the United States and expenses associated with the expansion of our business in Japan and China, partially offset by lower stock-based compensation expense. Stock-based compensation expense for 2019 decreased by $106 million, compared to 2018, primarily due to the 2018 impact of stock-based compensation expense associated with our acquisition of Kite Pharma, Inc.

BPD fee expenses were $247 million, $229 million and $385 million in 2019, 2018 and 2017, respectively. BPD fee expenses are not tax-deductible.

Other Income (Expense), Net

The following table summarizes the period-over-period changes in our Other income (expense), net:

(In millions, except percentages)		2019				Change			2018				Change			2017
Other income (expense), net		$	1,868			176	%		$	676			29	%		$	523

The change in Other income (expense), net in 2019, compared to 2018, was primarily due to higher net unrealized gains of $1.1 billion from changes in the fair value of our equity securities largely relating to our equity investments in Galapagos. Starting in January 2018, we recorded unrealized gains (losses) from changes in the fair value of our marketable equity securities in Other income (expense), net, on our Consolidated Statements of Income as a result of the adoption of Accounting Standards Update No. 2016-01 “Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.”

Provision for Income Taxes

The following table summarizes the period-over-period changes in our Provision for income taxes:

(In millions, except percentages)		2019				Change			2018				Change			2017
Effective tax rate		(4.0		)%		(34.0	)%		30.0		%		(35.7	)%		65.7		%
Provision for income taxes		$	(204	)					$	2,339						$	8,885

The decrease in effective tax rate and provision for income taxes in 2019, compared to 2018, was primarily due to a $1.2 billion deferred tax benefit in 2019 related to intangible asset transfers from a foreign subsidiary to Ireland and the United States. The 2018 effective tax rate included a $588 million deferred tax charge resulting from a transfer of acquired intangible assets from a foreign subsidiary to the United States.

The decrease in effective tax rate and provision for income taxes in 2018, compared to 2017, was primarily due to a $5.5 billion net tax charge in 2017 and a reduction to the U.S. corporate tax rate in 2018 as a result of the enactment of the Tax Cuts and Jobs Act (Tax Reform) in December 2017. The 2018 effective tax rate was further decreased due to a $202 million tax benefit recorded in 2018 related to settlement of tax examinations, offset by the $588 million deferred tax charge in 2018 discussed above, changes to the geographic mix of earnings and the tax on Global Intangible Low-Taxed Income (enacted as part of Tax Reform).

See Note 19. Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional details on Tax Reform.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes our cash, cash equivalents, and marketable debt securities and working capital:

			December 31,
(In millions)			2019				2018
Cash, cash equivalents and marketable debt securities			$	25,840			$	31,512
Working capital			$	20,537			$	25,231

Cash, Cash Equivalents and Marketable Debt Securities

Cash, cash equivalents and marketable debt securities decreased by $5.7 billion, or 18%, compared to December 31, 2018. During 2019, we generated $9.1 billion in operating cash flow, paid $5.6 billion in connection with our collaboration with and equity investments in Galapagos, repaid $2.8 billion of debt, paid cash dividends of $3.2 billion and repurchased 26 million shares of our common stock for $1.7 billion through open market transactions.

Working Capital

Working capital decreased by $4.7 billion, or 19%, compared to December 31, 2018, primarily due to the use of cash noted above under the heading Cash, Cash Equivalents and Marketable Debt Securities.

Cash Flows

The following table summarizes our cash flow activities:

(In millions)			2019				2018				2017
Cash provided by (used in):
Operating activities			$	9,144			$	8,400			$	11,898
Investing activities			$	(7,817	)		$	14,355			$	(16,069	)
Financing activities			$	(7,634	)		$	(12,318	)		$	3,393

Cash Provided by Operating Activities

Cash provided by operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net income for non-cash items and changes in operating assets and liabilities. Cash provided by operating activities increased by $744 million to $9.1 billion in 2019 compared to 2018, primarily due to lower tax payments in 2019, partially offset by lower collections on accounts receivable in 2019 and the collection of a receivable from Bristol-Myers Squibb Company in 2018 following the termination of a collaboration pursuant to the terms of the existing agreements. The tax payments made in 2018 included a $500 million payment related to the first annual installment of the Tax Reform transition tax, a $771 million deemed early payment of the Tax Reform transition tax and a $514 million settlement of a tax examination.

Starting in 2019, up-front and milestone payments related to collaborative and other arrangements are classified as cash flows from investing activities in our Consolidated Statements of Cash Flows. Comparative prior year amounts were not material and were not reclassified to investing activities from operating activities.

Cash Provided by (Used in) Investing Activities

Cash provided by (used in) investing activities primarily consists of purchases, sales and maturities of our marketable debt securities, capital expenditures, up-front and milestone payments related to collaborative and other arrangements, purchases of equity securities and other investments. Cash used in investing activities was $7.8 billion in 2019 compared to cash provided by investing activities of $14.4 billion in 2018. The change in cash provided by (used in) investing activities was primarily due to higher purchases of marketable debt securities and the $5.6 billion payments made in connection with our collaboration with and equity investments in Galapagos, partially offset by higher proceeds from sales of marketable debt securities. The higher purchases of marketable debt securities were the result of a shift in our investment strategy to investing in longer dated securities in 2019 compared to 2018. In addition, we paid Japan Tobacco Inc. $365 million during 2019 in connection with acquiring the rights to market and distribute certain HIV products in Japan.

Cash provided by investing activities was $14.4 billion in 2018 compared to cash used in investing activities of $16.1 billion in 2017. The change in cash provided by (used in) investing activities was primarily due to higher proceeds from maturities of our marketable debt securities and lower purchases of marketable debt securities, partially offset by lower proceeds from sales of our marketable debt securities. In addition, $10.4 billion cash was used to acquire Kite Pharma, Inc. in 2017, whereas no cash was used for business combinations in 2018.

Cash Provided by (Used in) Financing Activities

Cash used in financing activities decreased by $4.7 billion to $7.6 billion in 2019 compared to 2018, primarily due to $3.5 billion lower repayments of debt and $1.2 billion lower repurchases of our common stock during 2019.

Cash used in financing activities was $12.3 billion in 2018, compared to cash provided by financing activities of $3.4 billion in 2017. The change in cash provided by (used in) financing activities was primarily due to higher repayment of debt and repurchases of our common stock in 2018. In addition, we had $9.0 billion net proceeds from debt issuances to partially fund our acquisition of Kite Pharma, Inc. in 2017, whereas no debt was issued in 2018.

Debt and Credit Facilities

In 2019 and 2018, we repaid at maturity $2.8 billion and $1.8 billion principal amount of senior unsecured notes, respectively. In addition, in 2018, we repaid $4.5 billion borrowed under our term loan facility credit agreement, at which time the term loan facility credit agreement was terminated. In February 2020, we repaid at maturity $500 million principal amount of senior unsecured notes.

As of December 31, 2019, no amounts were outstanding under our $2.5 billion five-year revolving credit facility maturing in May 2021.

We are required to comply with certain covenants under our notes indentures, and as of December 31, 2019, we were not in violation of any covenants.

The summary of our borrowings under various financing arrangements is included in Note 12. Debt and Credit Facilities of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Capital Return Program

The details of our Stock Repurchase Programs and Dividends are included in Note 15. Stockholders’ Equity of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Stock Repurchase Programs

In the first quarter of 2016, our Board of Directors authorized a $12.0 billion stock repurchase program (2016 Program), under which repurchases may be made in the open market or in privately negotiated transactions. We started repurchases under the 2016 Program in April 2016.

Repurchases under the 2016 Program were 26 million and 40 million shares of our common stock for $1.7 billion and $2.9 billion in 2019 and 2018, respectively. As of December 31, 2019, the remaining authorized repurchase amount under the 2016 Program was $3.4 billion.

In the first quarter of 2020, our Board of Directors authorized a new $5.0 billion stock repurchase program (2020 Program), which will commence upon the completion of the 2016 Program. Purchases under the 2020 Program may be made in the open market or in privately negotiated transactions.

Dividends

We declared and paid quarterly cash dividends for an aggregate amount of $3.2 billion or $2.52 per share of our common stock and $3.0 billion or $2.28 per share of our common stock in 2019 and 2018, respectively.

On February 4, 2020, we announced that our Board of Directors declared a quarterly cash dividend increase of 8% from $0.63 to $0.68 per share of our common stock, with a payment date of March 30, 2020 to all stockholders of record as of the close of business on March 13, 2020. Future dividends are subject to declaration by the Board of Directors.

Capital Resources

We believe our existing capital resources, supplemented by cash flows generated from our operations, will be adequate to satisfy our capital needs for the foreseeable future. Our future capital requirements will depend on many factors, including but not limited to the following:

•	the commercial performance of our current and future products;

•	the progress and scope of our R&D efforts, including preclinical studies and clinical trials;

•	the cost, timing and outcome of regulatory reviews;

•	the expansion of our sales and marketing capabilities;

•	the possibility of acquiring additional manufacturing capabilities or office facilities;

•	the possibility of acquiring other companies or new products;

•	debt service requirements;

•	the establishment of additional collaborative relationships with other companies; and

•	costs associated with the defense, settlement and adverse results of government investigations and litigation.

We may in the future require additional funding, which could be in the form of proceeds from equity or debt financings. If such funding is required, we cannot guarantee that it will be available to us on favorable terms, if at all.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

The discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an ongoing basis, we evaluate and base our estimates on historical experience and on various other market specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

Revenue Recognition

Product Sales

We recognize revenue from product sales when control of the product transfers, generally upon shipment or delivery, to the customer, or in certain cases, upon the corresponding sales by our customer to a third party. Upon recognition of revenue from product sales, provisions are made for various forms of variable consideration, which include government and other rebates such as Medicaid reimbursements, customer incentives such as cash discounts for prompt payment, distributor fees and expected returns of expired products, as appropriate. Variable consideration is included in the net sales price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. Government and other rebates and chargebacks represent the majority of our variable consideration and require complex and significant judgment by management. Estimates are assessed each period and updated to reflect current information.

Government and Other Rebates and Chargebacks

Government and other rebates and chargebacks include amounts paid to payers and healthcare providers in the United States, including Medicaid rebates, AIDS Drug Assistance Program rebates and chargebacks, Veterans Administration and Public Health Service chargebacks and other rebates, as well as foreign government rebates. Rebates and chargebacks are based on contractual arrangements or statutory requirements which may vary by product, by payer and individual payer plans.

For qualified programs that can purchase our products through wholesalers or other distributors at a lower contractual price, the wholesalers or distributors charge back to us the difference between their acquisition cost and the lower contractual price.

Our allowances for government and other rebates and chargebacks are estimated based on products sold, historical payer mix, and as available, pertinent third-party industry information, estimated patient population, known market events or trends, and for our U.S. product sales, channel inventory data obtained from our major U.S. wholesalers in accordance with our inventory management agreements. We also take into consideration, as available, new information regarding changes in programs’ regulations and guidelines that would impact the amount of the actual rebates and/or our expectations regarding future payer mix for these programs. We believe the methodology that we use to estimate our government and other rebates and chargebacks is reasonable and appropriate given the current facts and circumstances. However, actual results may differ significantly from our estimates. Historically, our actual government rebates and chargebacks claimed for prior periods have varied by less than 5% from our estimates.

Government and other chargebacks that are payable to our direct customers are classified as reductions of Accounts receivable in our Consolidated Balance Sheets and totaled $655 million and $492 million at December 31, 2019 and 2018, respectively. Government and other rebates that are payable to third party payers and healthcare providers are recorded in Accrued government and other rebates on our Consolidated Balance Sheets and totaled $3.5 billion and $3.9 billion at December 31, 2019 and 2018, respectively.

The following table summarizes the consolidated activities and ending balances in our government and other rebates and chargebacks accounts:

(in millions)		Balance at Beginning of Year				Decrease/(Increase) to Product Sales				Payments				Balance at End of Year
Year ended December 31, 2019:
Activity related to 2019 sales		$	—			$	13,791			$	(9,920	)		$	3,871
Activity related to sales prior to 2019		4,420				(279		)		(3,904		)		237
Total		$	4,420			$	13,512			$	(13,824	)		$	4,108
Year ended December 31, 2018:
Activity related to 2018 sales		$	—			$	14,784			$	(10,953	)		$	3,831
Activity related to sales prior to 2018		5,044				41				(4,496		)		589
Total		$	5,044			$	14,825			$	(15,449	)		$	4,420

Legal Contingencies

We are a party to various legal actions. The most significant of these are described in Note 14. Commitments and Contingencies - Legal Proceedings of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. It is not possible to determine the outcome of these matters. We recognize accruals for such actions to the extent that we conclude that a loss is both probable and reasonably estimable. We accrue for the best estimate of a loss within a range; however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of the inherent uncertainty and unpredictability related to these matters, accruals are based on what we believe to be the best information available at the time of our assessment, including the legal facts and circumstances of the case, status of the proceedings, applicable law and the views of legal counsel. Upon the final resolution of such matters, it is possible that there may be a loss in excess of the amount recorded, and such amounts could have a material adverse effect on our results of operations, cash flows or financial position. We periodically reassess these matters when additional information becomes available and adjust our estimates and assumptions when facts and circumstances indicate the need for any changes. We did not have any material accruals in our Consolidated Balance Sheets for such matters as of December 31, 2019 and 2018.

Valuation of Intangible Assets

We have acquired, and expect to continue to acquire, intangible assets through acquisition or consolidation of variable interest entities. The identifiable intangible assets are measured at their respective fair values as of the acquisition date and may be subject to revision within the measurement period, which may be up to one year from the acquisition date. The fair values of the assets are generally determined using a probability-weighted income approach that discounts expected future cash flows to present value. The estimated net cash flows are discounted using a discount rate that is based on the estimated weighted-average cost of capital for companies with profiles similar to our profile and represents the rate that market participants would use to value the intangible assets. The discounted cash flow models used in valuing these intangible assets require the use of significant estimates and assumptions including but not limited to:

•	estimates of revenues and operating profits related to the products or product candidates;

•	the probability of technical and regulatory success for unapproved product candidates considering their stages of development;

•	the time and resources needed to complete the development and approval of product candidates;

•	the life of the potential commercialized products and associated risks, including the inherent difficulties and uncertainties in developing a product candidate such as obtaining FDA and other regulatory approvals; and

•	risks related to the viability of and potential alternative treatments in any future target markets.

We believe the fair values used to record intangible assets acquired are based upon reasonable estimates and assumptions given the facts and circumstances as of the related valuation dates.

Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. During the period the assets are considered indefinite-lived, they are not amortized. When development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would

be deemed finite-lived and then be amortized based on their respective estimated useful lives at that point in time primarily on a straight-line basis.

Intangible assets are reviewed for impairment on an annual basis as well as between annual tests if we become aware of any events or changes that would indicate that it is more likely than not that the fair values of the intangible assets and/or IPR&D projects are below their respective carrying amounts. When performing quantitative impairment assessments, we calculate the fair value using discounted cash flow models that require significant estimates and assumptions similar to the methodology for determining the acquisition date fair value of intangible assets, as described above. If the carrying value of an intangible asset exceeds its fair value, then the intangible asset is written-down to its fair value. Significant judgment is employed in determining these estimates and assumptions and changes to our estimates and assumptions could have a significant impact on our results of operations in any given period. For example, in 2019, we recognized an $800 million impairment charge related to IPR&D projects primarily for the treatment of indolent non-Hodgkin lymphoma due to changes in estimated market opportunities.

There are often major risks and uncertainties associated with IPR&D projects as we are required to obtain regulatory approvals in order to be able to market these products. Such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. Consequently, the eventual realized value of the acquired IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods which could have a material adverse effect on our results of operations. For example, in 2018, we concluded that the KITE-585 program acquired in connection with our acquisition of Kite Pharma, Inc. did not justify further efforts based on the totality of the clinical data gathered and discontinued the program. As a result, the carrying value of the IPR&D relating to the KITE-585 program was written down to zero and we recorded an impairment charge of $820 million.

See Note 9. Intangible Assets of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information on the impairment charges related to our indefinite-lived IPR&D intangible assets.

Provision for Income Taxes

We estimate our income tax provision, including deferred tax assets and liabilities, based on significant management judgment. We evaluate the realization of all or a portion of our deferred tax assets on a quarterly basis. We record a valuation allowance to reduce our deferred tax assets to the amounts that are more likely than not to be realized. We consider future taxable income, ongoing tax planning strategies and our historical financial performance in assessing the need for a valuation allowance. If we expect to realize deferred tax assets for which we have previously recorded a valuation allowance, we will reduce the valuation allowance in the period in which such determination is first made.

We are subject to income taxes in the United States and various foreign jurisdictions including Ireland. Due to economic and political conditions, various countries are actively considering and have made changes to existing tax laws. For example, the United States enacted significant tax reform, and certain provisions of the new law will continue to significantly affect us. We cannot predict the form or timing of potential legislative changes that could have a material adverse impact on our results of operations. In addition, significant judgment is required in determining our worldwide provision for income taxes.

We record liabilities related to uncertain tax positions in accordance with the guidance that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. An adverse resolution of one or more of these uncertain tax positions in any period could have a material impact on the results of operations for that period.

See Note 19. Income Taxes of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

CONTRACTUAL OBLIGATIONS

Contractual obligations represent future cash commitments related to significant enforceable and legally binding obligations and certain purchase obligations that we are likely to continue regardless of the fact that they may be cancelable. The expected timing and payment amounts presented below are estimated based on existing contracts and do not reflect any future modifications to, or terminations of, existing contracts or anticipated or potential new contracts.

The following table summarizes the aggregate maturities of our contractual obligations as of December 31, 2019:

		Payments due by Period
(In millions)		Total				2020				2021-2022				2023-2024				Thereafter
Debt(1)		$	38,123			$	3,456			$	5,421			$	3,962			$	25,284
Operating lease obligations(2)		850				125				226				187				312
Purchase obligations(3)		1,682				1,315				267				84				16
Transition tax payable(4)		4,639				148				946				2,068				1,477
Total(5)(6)		$	45,294			$	5,044			$	6,860			$	6,301			$	27,089

_________________________________________
(1)	Debt consists of senior unsecured notes and includes principal and future interest payments. Interest payments for our fixed rate senior unsecured notes are incurred and calculated based on terms of the related notes. See Note 12. Debt and Credit Facilities of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.
(2)	See Note 13. Leases of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.
(3)	Amounts primarily relate to capital commitments, active pharmaceutical ingredients (API) with minimum purchase commitments and certain inventory-related items, advertising and R&D commitments. Significant R&D commitments related to clinical studies performed by contract research organizations (CROs) are excluded from the table as material CRO contracts are cancelable by us. In addition, the table does not reflect approximately $220 million of additional minimum purchase commitments resulting from an API contract amended in January 2020.
(4)	In connection with Tax Reform we recorded a federal income tax payable for transition tax on the mandatory deemed repatriation of foreign earnings that is payable over an eight-year period. The amounts included in the table above represent the remaining federal income tax payable at December 31, 2019.
(5)	As of December 31, 2019, our long-term income taxes payable includes unrecognized tax benefits, interest and penalties totaling $1.6 billion. Due to the high degree of uncertainty on the timing of future cash settlement and other events that could extinguish these unrecognized tax benefits, we are unable to estimate the period of cash settlement and therefore we have excluded these unrecognized tax benefits.
(6)	We have committed to make potential future milestone and other payments to third parties as part of licensing, collaboration, development and other arrangements. Payments under these agreements generally are contingent upon certain future events including achievement of certain developmental, regulatory or commercial milestones. Because the achievement of these events is neither probable nor reasonably estimable and such potential payments have not been recorded in our Consolidated Balance Sheets, they have not been included in the table above.

RECENT ACCOUNTING PRONOUNCEMENTS

The information required by this item is included in Note 1. Organization and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.