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some statements and information contained in this management 's discussion and analysis of financial condition and results of operations are not historical facts but are forward-looking statements . for a discussion of these forward-looking statements , and of important factors that could cause results to differ materially from the forward-looking statements contained in this report , see item 1 of part i , “ business – forward-looking statements. ” critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses willamette valley vineyards ' financial statements , which have been prepared in accordance with generally accepted accounting principles . as such , management is required to make certain estimates , judgments and assumptions that are believed to be reasonable based upon the information available . on an on-going basis , management evaluates its estimates and judgments , including those related to product returns , bad debts , inventories , investments , income taxes , financing operations , and contingencies and litigation . management bases its estimates and judgments on historical experience and on various other factors that are believed 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 from these estimates under different assumptions or conditions . 20 revenue - the company 's principal sources of revenue are derived from sales and distribution of wine . distributor sales are recognized from wine sales at the time of shipment and passage of title . the company 's payment arrangements with customers provide primarily 30-day terms and , to a limited extent , 45-day , 60-day or longer terms for some international customers . direct sales from items sold through the company 's retail locations are recognized at the time of sale . inventory - the company values inventories at the lower of actual cost to produce the inventory or market value . the company regularly reviews inventory quantities on hand and adjusts its production requirements for the next twelve months based on estimated forecasts of product demand . a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand . in the future , if the company 's inventory cost is determined to be greater than the net realizable value of the inventory upon sale , the company would be required to recognize such excess costs in its cost of goods sold at the time of such determination . therefore , although the company makes every effort to ensure the accuracy of its forecasts of future product demand , any significant unanticipated changes in demand could have a significant impact on the ultimate selling price and cases sold and , therefore , the carrying value of the company 's inventory and its reported operating results . additionally , the company regularly evaluates inventory for obsolescence and marketability and if it determines that the inventory is obsolete , or no longer suitable for use or marketable , the cost of that inventory is recognized in its cost of sales at the time of such determination . vineyard development - the company capitalizes internal vineyard development costs prior to the vineyard land becoming fully productive . these costs consist primarily of the costs of the vines and expenditures related to labor and materials to prepare the land and construct vine trellises . amortization of such costs as annual crop costs is done on a straight-line basis for the estimated economic useful life of the vineyard , which is estimated to be 30 years . the company regularly evaluates the recoverability of capitalized costs . amortization of vineyard development costs are included in capitalized crop costs that in turn are included in inventory costs and ultimately become a component of cost of goods sold . depletions - the company pays depletion allowances to the company 's distributors based on their sales to their customers . the company sets these allowances on a monthly basis and the company 's distributors bill them back on a monthly basis . all depletion expenses associated with a given month are recognized in that month as a reduction of revenues . the company also reimburses for samples used by distributors up to 1.5 % of product sold to the distributors . sample expenses are recognized at the time the company is billed by the distributor as a selling , general and administrative expense . shipping - amounts paid by customers to the company for shipping and handling expenses are included in the net revenue . expenses incurred for outbound shipping and handling charges are included in selling , general and administrative expense . the company 's gross margins may not be comparable to other companies in the same industry as other companies may include shipping and handling expenses as a cost of goods sold . income taxes – the company accounts for income taxes using the asset and liability approach . this requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and the tax basis of assets and liabilities at the applicable tax rates . the company evaluates deferred tax assets , and records a valuation allowance against those assets , if available evidence suggests that some of those assets will not be realized . the effect of uncertain tax positions would be recorded in the financial statements only after determining a more likely than not probability that the uncertain tax positions would withstand an examination by tax authorities based on the technical merits of the position . the tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement . as facts and circumstances change , management reassesses these probabilities and would record any changes in the financial statements as appropriate . story_separator_special_tag management intends to fully utilize the production capacity at the estate winery before expanding into the tualatin winery . 24 grape supply for the 2016 and 2015 vintages , the company grew approximately 47 % and 54 % of all grapes harvested , respectively . the remaining grapes harvested were purchased from other growers . in 2016 and 2015 , 32 % and 16 % of grapes harvested were purchased under short-term contracts , and 21 % and 30 % of grapes harvested were purchased under long-term contracts , respectively . the company considers short-term contracts to be for single vintage years and long-term contracts to cover multiple vintage years . grapes are typically harvested and received in october of the vintage year . upon receipt , the grapes are weighed , and a quality analysis is performed to ensure the grapes meet the standards set forth in the purchase contract . based on the amount of qualifying grapes received , the full amount payable to the grower is recorded to the grapes payable liability account . approximately 50 % of the grapes payable amount is due in november of the vintage year . the remaining amount is due in march of the following year . the grapes are processed into wine , which is typically bottled and available for sale between five months and two years from date of harvest . the company received $ 525,118 and $ 959,446 worth of grapes from long-term contracts during the years ended december 31 , 2016 and 2015 , respectively . the company received $ 1,258,642 and $ 900,792 worth of grapes from short-term contracts during the years ended december 31 , 2016 and 2015 , respectively . total grapes payable were $ 693,666 and $ 816,879 as of december 31 , 2016 and 2015 , respectively . grapes payable includes $ 225,118 and $ 410,575 of grapes payable from long-term contracts as of december 31 , 2016 and 2015 , respectively . the company plans to address long-term grape supply needs by developing new vineyards on properties currently owned or secured by lease . the company has approximately 174 acres of vineyards that have been planted but are in the pre-productive stage . we anticipate that these vineyards will begin bearing fruit in the next one to three years . the company has approximately 173 acres of land that is suitable for future vineyard development . management currently has plans to plant approximately 76 acres and 75 acres in the years 2017 and 2018 , which we anticipate will begin bearing fruit in years 2021 and 2022 , respectively . additionally , the company intends to seek out opportunities to acquire land for future grape plantings in order to continue to increase available quantities , maintain control over farming practices , more effectively manage grape costs and mitigate uncertainty associated with long-term contracts . in 2016 , a major grape supplier substantially under-delivered grape quantities , anticipated under the contract with us , causing the company to purchase grapes from other local growers . the company is reevaluating its relationship with this grower and as a result may purchase fewer grapes under the long-term contract categorization . wine quality continued awareness of the willamette valley vineyards brand and the quality of its wines , was enhanced by national and regional media coverage and partnerships throughout 2016. the company 's founder jim bernau was nominated for 'person of the year ' in the wine star awards presented by wine enthusiast magazine . the willamette valley was honored by earning ‘ region of the year . ' the company was selected as the best vineyard/tasting room experience by sunset magazine in their annual sunset travel awards . the sunset travel awards honor the west 's top destinations in lodging , dining , cultural tourism , outdoor adventure and attractions . the company is the first oregon winery to win the award . 25 the company 's founder jim bernau was selected as the face of the oregon wine board 's oregon wine month campaign that ran in may 2016. print advertisements and in-store point of sale materials were featured throughout the country promoting oregon wines . wine enthusiast magazine rated the company 's 2015 whole cluster pinot noir a 90 point and editors ' choice , whole cluster rose ' a 90 point and editors ' choice , pinot gris a 90 point and editors ' choice , 2013 bernau block pinot noir a 91 point and cellar selection , 2013 signature cuvée pinot noir a 92 point , 2013 hannah pinot noir a 91 point , 2013 elton pinot noir a 90 point , and 2014 estate chardonnay a 90 point score . wine spectator rated the company 's 2013 tualatin estate pinot noir a 91 point , 2013 signature cuvée pinot noir a 91 point , and 2013 vintage 40 chardonnay a 89 point score . wine spectator rated the 2014 riesling with a 90 point and “ best buy ” in the february 2016 issue . vinous , which recently purchased stephen tanzer 's international wine cellar , reviewed the company 's 2013 pinot noirs and awarded 91 points to the hannah pinot noir , signature cuvée pinot noir and bernau block pinot noir . they awarded 90 points to the elton pinot noir , whole cluster pinot noir and vintage 40 pinot noir . the 2016 quarter 1 issue of burghound.com rated the company 's 2012 fuller pinot noir a 92 point , 2012 o'brien pinot noir a 91 point , 2012 tualatin estate pinot noir a 91 point , 2012 hannah pinot noir a 90 point , and 2012 signnature cuve ' e pinot noir a 90 point . wine advocate rated the company 's 2014 elton chardonnay a 90 point score . the international wine report rated the company 's 2013 elton pinot noir with a 93 point score .
| results of operations the company had net sales of $ 19,425,412 and $ 17,938,872 for the years december 31 , 2016 and 2015 , respectively , an increase of $ 1,486,540 or 8.3 % , for the year ended december 31 , 2016 over the prior year period . the reasons for this increase include increased sales in all categories except bulk wine ; retail sales ( 10.2 % ) , in-state sales ( 13.8 % ) , out-of-state sales ( 12.5 % ) and sales of bulk products ( -68.5 % ) . the reduction in bulk wine sales is primarily attributable to high harvest yields in 2015 that did not exist in 2016. gross profit was $ 12,220,528 and $ 10,846,761 for the years ended december 31 2016 and 2015 , respectively , an increase of $ 1,373,767 , or 12.7 % , for the year ended december 31 , 2016 over the prior year period . this increase was generally driven by an increase in sales and a reduced cost of sales as a percentage of sales . the gross margin percentage was 62.9 % and 60.5 % for the years ended december 31 , 2016 and 2015 , respectively , an increase of 4.0 % , for the year ended december 31 , 2016 over the prior year period . this increase in the gross profit percentage is primarily the result of an overall increase in per case margins . selling , general and administrative expenses were $ 8,053,127 and $ 7,573,801 for the years ended december 31 , 2016 and 2015 , respectively , an increase of $ 479,326 , or 6.3 % , for the year ended december 31 , 2016 over the prior year period . this increase was mainly the result of both increased selling expenses and increased general and administrative costs associated with efforts to increase sales and accommodate and develop retail growth .
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revenue from fixed fee professional services engagements is recognized based on progress made toward the total project effort , which can be reasonably estimated . as a practical expedient , vmware recognizes revenue from professional services engagements invoiced on a time and materials basis story_separator_special_tag the following management 's discussion and analysis is provided in addition to the accompanying consolidated financial statements and notes to assist in understanding our results of operations and financial condition . in december 2019 , vmware completed the acquisition of pivotal , formerly a subsidiary of vmware 's parent company , dell . the acquisition was accounted for as a transaction between entities under common control in accordance with accounting standards codification 805-50 , business combination - related issues , which requires retrospective combination of entities for all periods presented , as if the combination had been in effect since the inception of common control . as such , prior period financial information has been recast . the recast financial statements combine vmware 's historical financial results with those of pivotal . refer to note b to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for more information . additionally , effective with the fourth quarter of fiscal 2020 , vmware presented new revenue and new cost of revenue line items entitled , “ subscription and saas revenue ” and “ cost of subscription and saas revenue ” in this annual report on form 10-k. previously , subscription and saas revenue was allocated between license revenue and services revenue on the consolidated statements of income . in light of the company 's recent acquisitions , management decided that revenue recognized from subscription and saas offerings will be presented separately as it provides a more meaningful representation of the nature of its revenue . period-over-period changes are calculated based upon the respective underlying , non-rounded data . we refer to our fiscal years ended january 29 , 2021 , january 31 , 2020 , february 1 , 2019 and february 2 , 2018 as “ fiscal 2021 , ” “ fiscal 2020 , ” “ fiscal 2019 ” and “ fiscal 2018 , ” respectively . unless the context requires otherwise , we are referring to vmware , inc. and its consolidated subsidiaries when we use the terms “ vmware , ” the “ company , ” “ we , ” “ our ” or “ us. ” overview we originally pioneered the development and application of virtualization technologies with x86 server-based computing , separating application software from the underlying hardware . information technology ( “ it ” ) driven innovation continues to disrupt markets and industries . technologies emerge faster than organizations can absorb , creating increasingly complex environments . it is working at an accelerated pace to harness new technologies , platforms and cloud models , ultimately guiding their business through a digital transformation . to take on these challenges , we are working with customers in the areas of hybrid and multi-cloud , modern applications , networking , security and digital workspaces . our software provides a flexible digital foundation to enable customers in their digital transformation . we help customers manage their it resources across private clouds and complex multi-cloud , multi-device environments by offering solutions across three categories : software-defined data center ( “ sddc ” ) , hybrid and multi-cloud computing and digital workspace — end-user computing ( “ euc ” ) . this portfolio supports and addresses the key it priorities of our customers including accelerating their cloud journey , modernizing their applications , empowering digital workspaces , transforming networking and embracing intrinsic security . vmware enables customers to digitally transform their operations as they ready their applications , infrastructure and employees for constantly evolving business needs . effective with the fourth quarter of fiscal 2020 , we are presenting new revenue and cost of revenue line items entitled , “ subscription and saas revenue ” and “ cost of subscription and saas revenue ” in this annual report on form 10-k. previously , subscription and saas revenue was referred to as “ hybrid cloud subscription and saas revenue ” and was allocated between 40 license revenue and services revenue in the consolidated statements of income . in light of our recent acquisitions , management decided that revenue recognized from subscription and saas offerings will be presented separately as it provides a more meaningful representation of the nature of its revenue . the new subscription and saas revenue line item includes revenue from our vmware cloud provider program ( “ vcpp ” ) cloud offerings that are billed to customers on a consumption basis , revenue from pivotal and other offerings that are billed on a subscription basis as well as revenue from saas offerings , such as vmware workspace one ( “ workspace one ” ) and vmware cloud on aws . revenue and its related costs from prior periods have been reclassified to conform to the fiscal 2020 presentation . we sell our solutions using enterprise agreements ( “ eas ” ) or as part of our non-ea , or transactional , business . eas are comprehensive volume license offerings , offered both directly by us and through certain channel partners that also provide for multi-year maintenance and support . we continue to experience strong renewals , including renewals of our eas , resulting in additional license sales of both our existing and newer products and solutions . sddc or software-defined data center our sddc technologies form the foundation of our customers ' private cloud environments and provide the capabilities for our customers to extend their private cloud to the public cloud and to help them run , manage , secure and connect all their applications across all clouds and devices . during fiscal 2020 , we continued to see growth in sales of our sddc solutions . future sales growth rates may fluctuate period to period , depending largely upon the extent to which sddc technologies are included in our larger eas . story_separator_special_tag the amount excluded from the remaining performance obligations because such contracts are subject to cancellation until fulfillment of the performance obligation occurs was not material as of january 31 , 2020. as of february 1 , 2019 , total backlog was approximately $ 449 million and our backlog related to licenses was approximately $ 147 million . backlog totaling $ 34 million as of february 1 , 2019 was excluded from the remaining 43 performance obligations because such contracts are subject to cancellation until fulfillment of the performance obligation occurs . the amount and composition of backlog will fluctuate period to period , and backlog is managed based upon multiple considerations , including product and geography . we do not believe the amount of backlog is indicative of future sales or revenue or that the mix of backlog at the end of any given period correlates with actual sales performance of a particular geography or particular products and services . cost of license revenue , cost of subscription and saas revenue , cost of services revenue and operating expenses our cost of services revenue and operating expenses primarily reflected increasing cash-based employee-related expenses , driven by incremental growth in salaries and headcount , both organic and through acquisitions , across most of our income statement expense categories for fiscal 2020. we expect increases in cash-based employee-related expenses to continue . cost of license revenue cost of license revenue primarily consists of the cost of fulfillment of our sd-wan offerings , royalty costs in connection with technology licensed from third-party providers and amortization of intangible assets . the cost of fulfillment of our software and hardware sd-wan offerings includes personnel costs and related overhead associated with the physical and electronic delivery of our products . cost of license revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_7_th cost of license revenue increased in fiscal 2020 compared to fiscal 2019 and in fiscal 2019 compared to fiscal 2018 , but remained relatively consistent as a percentage of license revenue . cost of subscription and saas revenue cost of subscription and saas revenue primarily includes personnel costs and related overhead associated with the physical and electronic delivery of our products and all hosted services supporting our saas offerings . additionally , cost of services revenue includes depreciation of equipment supporting our subscription and saas offerings . cost of subscription and saas revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_8_th cost of subscription and saas revenue increased during fiscal 2020 compared to fiscal 2019. the increase was primarily due to growth in costs associated with hosted services to support our saas offerings of $ 46 million , resulting from an increase in demand for technical support and services , as well as in increase in cash-based employee-related expenses of $ 25 million , driven by incremental growth in headcount and salaries . the increase was also driven by increased equipment , depreciation and facilities costs , as well as increased amortization of intangible assets of $ 14 million . cost of subscription and saas revenue increased during fiscal 2019 compared to fiscal 2018. the increase was primarily due to an increase in costs associated with third-party hosted services of $ 35 million to support our saas offerings in fiscal 2019 , amortization of intangible assets of $ 28 million and growth in cash-based employee-related expenses of $ 13 million , driven by incremental growth in headcount and salaries . 44 cost of services revenue cost of services revenue primarily includes the costs of personnel and related overhead to physically and electronically deliver technical support for our products and costs to deliver professional services . additionally , cost of services revenue includes depreciation of equipment supporting our service offerings . cost of services revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_9_th cost of services revenue increased during fiscal 2020 compared to fiscal 2019. the increase was primarily due to growth in cash-based employee-related expenses of $ 65 million , driven by incremental growth in headcount and salaries , as well as an increase in third-party professional services costs of $ 16 million , resulting from an increase in demand for technical support and services . equipment , depreciation and facilities costs of $ 12 million , and stock-based compensation expense of $ 25 million , primarily driven by an increase in restricted stock unit awards granted after the first quarter of fiscal 2019 , also contributed to the increase . cost of services revenue increased during fiscal 2019 compared to fiscal 2018. the increase was primarily due to an increase in cash-based employee-related expenses of $ 42 million , driven by incremental growth in headcount and salaries . research and development expenses research and development expenses include the personnel and related overhead associated with the development of our product software and service offerings . we continue to invest in our key growth areas , including nsx and vmware vsan , while also investing in areas that we expect to be significant growth drivers in future periods , such as vmware cloud on aws . research and development expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_10_th research and development expenses increased in fiscal 2020 compared to fiscal 2019. the increase was primarily due to growth in cash-based employee-related expenses of $ 227 million , driven by incremental growth in salaries and headcount , both organic and through acquisitions .
| results of operations approximately 70 % of our sales are denominated in the united states ( “ u.s. ” ) dollar , however , in certain countries , we also invoice and collect in various foreign currencies , principally euro ; british pound ; japanese yen ; australian dollar ; and chinese renminbi . in addition , we incur and pay operating expenses in currencies other than the u.s. dollar . as a result , our financial statements , including our revenue , operating expenses , unearned revenue and the resulting cash flows derived from the u.s. dollar equivalent of foreign currency transactions , are affected by foreign exchange fluctuations . revenue our revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_5_th revenue from our subscription offerings consisted primarily of vmware 's vcpp cloud offerings that are billed to customers on a consumption basis and revenue from pivotal and other offerings that are billed on a subscription basis . revenue from our saas offerings consisted primarily of our unified endpoint management mobile solution within workspace one and newer saas offerings , such as vmware carbon black cloud platform , cloudhealth and vmware sd-wan by velocloud . license revenue relating to the sale of perpetual licenses that are part of a multi-year contract is generally recognized upon delivery of the underlying license , whereas revenue derived from our subscription and saas offerings is recognized on a consumption basis or over a period of time . license revenue license revenue increased during fiscal 2020 compared to fiscal 2019 and during fiscal 2019 as compared to fiscal 2018. license revenue continued to benefit from broad-based growth across our diverse product portfolio and across our u.s. and international geographies .
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these statements speak only as of the date of this document , and the company undertakes no obligation to update or revise the statements , except as may be required by law . lamar advertising company the following is a discussion of the consolidated financial condition and results of operations of the company for the years ended december 31 , 2013 , 2012 and 2011. this discussion should be read in conjunction with the consolidated financial statements of the company and the related notes . adjustment to previously reported amounts immaterial correction of an error . during the fourth quarter of 2013 , the company identified an error in its revenue recognition . the company determined that its policy of recognizing revenue on a monthly basis was in error and that revenue should be recognized on a daily basis over the term of the advertising contract . the result of the error is an immaterial understatement of deferred income liability and net revenue as of and for the year ended december 31 , 2013. in accordance with staff accounting bulletin ( sab ) no . 99 , materiality , and sab no . 108 , considering the effects of prior year misstatements when quantifying misstatements in current year financial statements , management evaluated the materiality of the error from both qualitative and quantitative perspectives , and concluded the error was immaterial to the current and prior periods . consequently , the company revised its historical financial statements for fiscal 2012 , fiscal 2011 herein , and will revise the quarters within fiscal 2013 , when they are published in future filings . for more information see note ( 1 ) ( c ) of the notes to consolidated financial statements . overview the company 's net revenues are derived primarily from the rental of advertising space on outdoor advertising displays owned and operated by the company . revenue growth is based on many factors that include the company 's ability to increase occupancy of its existing advertising displays ; raise advertising rates ; and acquire new advertising displays and its operating results are therefore affected by general economic conditions , as well as trends in the advertising industry . advertising spending is particularly sensitive to changes in general economic conditions , which affect the rates the company is able to charge for advertising on its displays and its ability to maximize advertising sales or occupancy on its displays . historically , the company made strategic acquisitions of outdoor advertising assets to increase the number of outdoor advertising displays it operates in existing and new markets . the company continues to evaluate and pursue strategic acquisition opportunities as they arise . the company has financed its historical acquisitions and intends to finance any future acquisition activity from available cash , borrowings under its senior credit facility or the issuance of debt or equity securities . see liquidity and capital resources below . during the year ended december 31 , 2013 , the company completed acquisitions for a total cash purchase price of approximately $ 92 million . the company 's business requires expenditures for maintenance and capitalized costs associated with the construction of new billboard displays , the entrance into and renewal of logo sign and transit contracts , and the purchase of real estate and operating equipment . the following table presents a breakdown of capitalized expenditures for the past three years : replace_table_token_4_th we expect our capital expenditures to be approximately $ 100 million in 2014 . 20 story_separator_special_tag in 2011. there was an $ 18.3 million increase in operating expenses related to the operations of our outdoor advertising assets and a $ 6.6 million increase in corporate expenses . depreciation and amortization expense decreased $ 3.6 million for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 , primarily due to a reduction in the number of non-performing structures that were dismantled during the period as compared to the year ended december 31 , 2012. the company recorded a gain on disposition of assets of $ 13.8 million for the year ended december 31 , 2012 , which includes a gain of $ 9.8 million related to two asset swap transactions during the year . due to the above factors , operating income increased $ 30.9 million to $ 214.5 million for the year ended december 31 , 2012 compared to $ 183.6 million for the same period in 2011. during the year ended december 31 , 2012 , the company recognized a $ 41.6 million loss on debt extinguishment related to the early extinguishment of lamar media 's 6 5/8 % senior subordinated notes due 2015 , 6 5/8 % senior subordinated notes due 2015series b and 6 5/8 % senior subordinated notes due 2015series c ( collectively , the 6 5/8 % senior subordinated notes ) and the prepayment of $ 295 million of the term b loan under lamar media 's senior credit facility . approximately $ 23.2 million of the loss is a non-cash expense attributable to the write off of unamortized debt issuance fees and unamortized discounts associated with the retired debt . see uses of cash tender offers and debt repayment for more information . 22 interest expense decreased approximately $ 14.0 million from $ 171.1 million for the year ended december 31 , 2011 to $ 157.1 million for the year ended december 31 , 2012 , due to the reduction in total debt outstanding as well as a decrease in interest rates resulting from the company 's refinancing transactions . see uses of cash tender offers and debt repayment for more information . the increase in operating income and decrease in interest expense offset by the loss on extinguishment of debt discussed above resulted in a $ 3.7 million increase in net income before income taxes . story_separator_special_tag on january 10 , 2014 , lamar media completed an institutional private placement of $ 510 million aggregate principal amount of its 5 3/8 % senior notes due 2024. the institutional private placement resulted in net proceeds to lamar media , after payment of fees and expenses , of approximately $ 502.3 million . lamar media used the proceeds of this offering to repay $ 502.1 million of indebtedness , including all outstanding term loans , outstanding under its senior credit facility . on october 30 , 2012 , lamar media completed an institutional private placement of $ 535 million aggregate principal amount of 5 % senior subordinated notes due 2023. the institutional private placement resulted in net proceeds to lamar media , after the payment fees and expenses , of approximately $ 527.1 million . lamar media used the proceeds of this offering to ( i ) repurchase in full its remaining 6 5/8 % senior subordinated notes due 2015series b and remaining 6 5/8 % senior subordinated notes due 2015series c , ( ii ) to fund the acquisition of nextmedia outdoor , inc. , which closed on october 31 , 2012 and ( iii ) to repay $ 295 million of the term b loan outstanding under our senior credit facility . on february 9 , 2012 , lamar media completed an institutional private placement of $ 500 million aggregate principal amount of 5 7/8 % senior subordinated notes , due 2022. the institutional private placement resulted in net proceeds to lamar media , after payment of fees and expenses , of approximately $ 489 million . the company used the proceeds of this offering together with approximately $ 99 million of term loan borrowings under its senior credit facility to repurchase $ 583.1 million of its outstanding 6 5/8 % senior subordinated notes , as described below under the heading uses of cash tender offers and debt repayment . 24 factors affecting sources of liquidity internally generated funds . the key factors affecting internally generated cash flow are general economic conditions , specific economic conditions in the markets where the company conducts its business and overall spending on advertising by advertisers . credit facilities and other debt securities . lamar must comply with certain covenants and restrictions related to the senior credit facility and its outstanding debt securities . restrictions under debt securities . lamar must comply with certain covenants and restrictions related to its outstanding debt securities . currently lamar media has outstanding $ 400 million 7 7/8 % senior subordinated notes issued in april 2010 ( the 7 7/8 % senior subordinated notes ) , $ 500 million 5 7/8 % senior subordinated notes issued in february 2012 ( the 5 7/8 % senior subordinated notes ) , $ 535 million 5 % senior subordinated notes issued in october 2012 ( the 5 % senior subordinated notes ) and $ 510 million 5 3/8 % senior notes issued in january 2014 ( the 5 3/8 % senior notes ) . the indentures relating to lamar media 's outstanding notes restrict its ability to incur additional indebtedness but permit the incurrence of indebtedness ( including indebtedness under the senior credit facility ) , ( i ) if no default or event of default would result from such incurrence and ( ii ) if after giving effect to any such incurrence , the leverage ratio ( defined as the sum of ( x ) total consolidated debt plus ( y ) the aggregate liquidation preference of any preferred stock of lamar media 's restricted subsidiaries to trailing four fiscal quarter ebitda ( as defined in the indentures ) ) would be less than 7.0 to 1. currently , lamar media is not in default under the indentures of any of its outstanding notes and , therefore , would be permitted to incur additional indebtedness subject to the foregoing provision . in addition to debt incurred under the provisions described in the preceding paragraph , the indentures relating to lamar media 's outstanding notes permit lamar media to incur indebtedness pursuant to the following baskets : up to $ 1.5 billion of indebtedness under the senior credit facility ; indebtedness outstanding on the date of the indentures or debt incurred to refinance outstanding debt ; inter-company debt between lamar media and its restricted subsidiaries or between restricted subsidiaries ; certain purchase money indebtedness and capitalized lease obligations to acquire or lease property in the ordinary course of business that can not exceed the greater of $ 50 million or 5 % of lamar media 's net tangible assets ; and additional debt not to exceed $ 75 million . restrictions under senior credit facility . lamar media is required to comply with certain covenants and restrictions under the senior credit facility . if the company fails to comply with these tests , the lenders under the senior credit facility will be entitled to exercise certain remedies , including the termination of the lending commitments and the acceleration of the debt payments under the senior credit facility . at december 31 , 2013 , and currently , we were in compliance with all such tests under the senior credit facility . lamar media must maintain a senior debt ratio , defined as total consolidated debt ( other than subordinated indebtedness ) of lamar advertising and its restricted subsidiaries , minus the lesser of ( x ) $ 100,000,000 and ( y ) the aggregate amount of unrestricted cash and cash equivalents of lamar advertising and its restricted subsidiaries to ebitda , as defined below , for the period of four consecutive fiscal quarters then ended , of less than or equal to 3.50 to 1.00. lamar media is also restricted from incurring additional indebtedness under certain circumstances unless , after giving to the incurrence of such indebtedness , it is in compliance with the senior debt ratio covenant and its total debt ratio , defined as ( a ) total consolidated debt of lamar advertising company and its restricted subsidiaries as of any date minus the
| results of operations the following table presents certain items in the consolidated statements of operations as a percentage of net revenues for the years ended december 31 , 2013 , 2012 and 2011 : replace_table_token_5_th year ended december 31 , 2013 compared to year ended december 31 , 2012 net revenues increased $ 66.1 million or 5.6 % to $ 1.25 billion for the year ended december 31 , 2013 from $ 1.18 billion for the same period in 2012. this increase was attributable primarily to an increase in billboard net revenues of $ 52.1 million or 5.0 % over the prior period , an increase in logo sign revenue of $ 6.0 million , which represents an increase of 9.5 % over the prior period , and an $ 8.0 million increase in transit revenue , which represents an increase of 11.8 % over the prior period . for the year ended december 31 , 2013 , there was a $ 26.9 million increase in net revenues as compared to acquisition-adjusted net revenue for the year ended december 31 , 2012. the $ 26.9 million increase in revenue primarily consists of a $ 19.4 million increase in billboard revenue , a $ 3.6 million increase in logo revenue and a $ 4.0 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2012. this increase in revenue represents an increase of 2.2 % over the comparable period in 2012. see reconciliations below . operating expenses , exclusive of depreciation and amortization and gain on sale of assets , increased $ 42.7 million or 6.2 % to $ 725.6 million for the year ended december 31 , 2013 , which includes a $ 10.5 million increase in non-cash compensation .
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the 2017 successor period reflects the $ 310.6 million fair value downward adjustment to the depletable asset base upon adoption of fresh-start accounting . impairment of oil and gas properties . there were no impairment of oil and gas properties during the 2017 successor and 2017 predecessor periods . during the 2016 predecessor period , we incurred a $ 10.0 million impairment charge on our mid-continent assets based on the most current bid for the assets received during the first quarter of 2016 , when they were held for sale . please refer to note 1 - summary of significant accounting policies in part ii , item 8 of this annual report on form 10-k for additional discussion on our impairment policy and practice . abandonment and impairment of unproved properties . there were no abandonment and impairment of unproved properties during the 2017 successor and 2017 predecessor periods . during the 2016 predecessor period , we incurred an abandonment and impairment of unproved properties charge of $ 24.7 million due to non-core leases expiring within the wattenberg field . unused commitments . there were no unused commitments during the 2017 successor period . during the 2017 predecessor period , we incurred $ 1.0 million in unused commitment fees on a water supply contract in the wattenberg field . during the 2016 predecessor period , we incurred unused commitment fees of $ 7.7 million , made up of $ 4.3 million water commitment deficiency payments and $ 3.4 million purchase and transportation deficiency payments . please refer to note 8 - commitments and contingencies in part ii , item 8 of this annual report on form 10-k for additional discussion . contract settlement expense . there were no contract settlement expenses during the 2017 successor and 2017 predecessor periods . during the 2016 predecessor period , we incurred a $ 21.0 million loss to settle our crude oil purchase agreement with silo energy , llc as part of our bankruptcy process . please see note 8 - commitments and contingencies in part ii , item 8 of this annual report on form 10-k for additional discussion . general and administrative expense . our general and administrative expense per boe was $ 11.34 , $ 7.28 and $ 9.71 for the 2017 successor period , 2017 predecessor period , and 2016 predecessor period , respectively . the 2017 successor period reflects a one-time cash and non-cash $ 9.6 million or $ 2.55 per boe severance charge primarily related to the company 's former chief executive officer 's separation from the company . the 2016 predecessor period includes $ 13.3 million , or $ 1.68 per boe , more in advisor fees than the comparable period in 2017. excluding those two items , the per boe metrics were commensurate between the periods presented . derivative gain ( loss ) . our derivative loss for the 2017 successor period was $ 15.4 million . we had no derivative contracts during the 2017 predecessor period . during the 2017 successor period , we entered into several oil and gas costless collar and swap contracts . our derivative loss was mainly due to fair market value adjustments caused by market prices being higher than our contracted hedge prices . our derivative loss for the 2016 predecessor period was $ 11.2 million . due to the company being in default on the predecessor credit facility , all of these derivative contracts in the 2016 predecessor period were terminated during the fourth quarter of 2016. please see note 13 - derivatives in part ii , item 8 of this annual report on form 10-k for additional discussion . interest expense . our interest expense for the 2017 successor period , 2017 predecessor period , and 2016 predecessor period was $ 0.8 million , $ 5.7 million , and $ 62.1 million , respectively . upon filing its petition for chapter 11 , the company ceased accruing interest expense on its senior notes . the company incurred $ 0.7 million in commitment fees on the available borrowing base under the successor credit facility during the 2017 successor period . interest expense on the senior notes was $ 1.0 million and $ 52.3 million for the 2017 predecessor period and 2016 predecessor period , respectively , with the remaining interest expense relating to the predecessor credit facility . the company had no outstanding debt during the 2017 successor period . average debt outstanding for the 2017 predecessor period and 2016 predecessor period was $ 991.7 million and $ 1.0 billion , respectively . 65 liquidity and capital resources the company 's anticipated sources of liquidity include cash from operating activities , borrowings under the credit facility , proceeds from sales of assets , and potential proceeds from equity and or debt capital markets . our cash flows from operating activities are subject to significant volatility due to changes in commodity prices , as well as variations in our production . the prices for these commodities are driven by a number of factors beyond our control , including global and regional product supply and demand , weather , product distribution , refining and processing capacity , regulatory constraints , and other supply chain dynamics , among other factors . to mitigate some of the pricing risk , we have approximately 54 % and 59 % of our average 2019 guided production hedged as of december 31 , 2018 and as of the filing date of this report , respectively . as of december 31 , 2018 , our liquidity was $ 312.9 million , consisting of cash on hand of $ 12.9 million and $ 300.0 million of available borrowing capacity on our current credit facility . as of the date of filing , we had $ 65.0 million outstanding on our credit facility . story_separator_special_tag the following table summarizes our cash flows and other financial measures for the periods indicated ( in thousands ) . replace_table_token_20_th cash flows ( used in ) provided by operating activities the current successor and 2017 successor periods include cash receipts and disbursements attributable to our normal operating cycle . the 2017 and 2016 predecessor period contained reorganization costs along with our normal operating receipts and disbursements . see results of operations above for more information on the factors driving these changes . cash flows used in investing activities expenditures for development of oil and natural gas properties are the primary use of our capital resources . the company spent $ 267.1 million , $ 81.8 million , $ 5.6 million , and $ 52.4 million for the current successor period , 2017 successor period , 2017 predecessor period , and 2016 predecessor period , respectively . the fluctuation in cash flows in investing activities is a direct result of the company 's current strategic emphasis on growing operational capability as well as its entrance and emergence from bankruptcy . cash flows ( used in ) provided by financing activities net cash provided by financing activities for the current successor period primarily consisted of net draws of $ 50.0 million on our current credit facility . net cash used by financing activities for the 2017 successor period consisted of employee tax withholdings in exchange for the return of common stock ( in conjunction with the vesting of equity awards ) . net cash provided by financing activities for the 2017 predecessor period consisted of proceeds from the rights offering of $ 207.5 million net of the $ 191.7 million repayment to the predecessor credit facility . net cash provided by financing activities for the year ended december 31 , 2016 consisted primarily of net proceeds from the predecessor credit facility of $ 112.7 million . credit facility current credit facility on december 7 , 2018 , the company entered into a reserve-based revolving facility , as the borrower , with jpmorgan chase bank , n.a. , as the administrative agent , and a syndicate of financial institutions as lenders ( the “ current credit 66 facility ” ) . the current credit facility has an aggregate original commitment amount of $ 750.0 million and matures on december 7 , 2023. the initial borrowing base in respect of the current credit facility is $ 350.0 million . the first borrowing base redetermination will occur on may 1 , 2019 with subsequent semi-annual redeterminations thereafter . borrowings under the current credit facility will bear interest at a per annum rate equal to , at the option of the company , either ( i ) a london interbank offered rate ( “ libor ” ) , subject to a 0 % libor floor plus a margin of 1.75 % to 2.75 % , based on the utilization of the current credit facility ( the “ eurodollar rate ” ) or ( ii ) a fluctuating interest rate per annum equal to the greatest of ( a ) the rate of interest publicly announced by jpmorgan chase bank , n.a . as its prime rate , ( b ) the rate of interest published by the federal reserve bank of new york as the federal funds effective rate , ( c ) the rate of interest published by the federal reserve bank of new york as the overnight bank funding rate and ( d ) a one month libor , subject to a 0 % libor floor plus a margin of 0.75 % to 1.75 % , based on the utilization of the current credit facility ( the “ reference rate ” ) . interest on borrowings that bear interest at the eurodollar rate shall be payable on the last day of the applicable interest period selected by the company , which shall be one , two , three , or six months , and interest on borrowings that bear interest at the reference rate shall be payable quarterly in arrears . the current credit facility is guaranteed by all wholly owned domestic subsidiaries of the company ( each , a “ guarantor ” and , together with the company , the “ credit parties ” ) , and is secured by first priority security interests on substantially all assets of each credit party , subject to customary exceptions . the current credit facility contains customary representations and affirmative covenants . the current credit facility also contains customary negative covenants , which , among other things , and subject to certain exceptions , include restrictions on ( i ) liens , ( ii ) indebtedness , guarantees and other obligations , ( iii ) restrictions in agreements on liens and distributions , ( iv ) mergers or consolidations , ( v ) asset sales , ( vi ) restricted payments , ( vii ) investments , ( viii ) affiliate transactions , ( ix ) change of business , ( x ) foreign operations or subsidiaries , ( xi ) name changes , ( xii ) use of proceeds , letters of credit , ( xiii ) gas imbalances , ( xiv ) hedging transactions , ( xv ) additional subsidiaries , ( xvi ) changes in fiscal year or fiscal quarter , ( xvii ) operating leases , ( xviii ) prepayments of certain debt and other obligations , and ( xix ) sales or discounts of receivables . the credit parties are subject to certain financial covenants under the current credit facility , including , without limitation , tested on the last day of each fiscal quarter , ( i ) a maximum ratio of the company 's consolidated indebtedness ( subject to certain exclusions ) to adjusted ebitdax of 4.00 to 1.00 and ( ii ) a current ratio , as defined in the agreement , inclusive of the unused commitments then available to be borrowed , to not be less
| financial and operating results our 2018 financial and operational results include : wattenberg field lease operating expense decreased 18 % on a per boe basis for the year ended december 31 , 2018 when compared to the same period in 2017 ; net cash provided by operating activities was $ 116.6 million as of december 31 , 2018 ; total liquidity of $ 312.9 million at december 31 , 2018 , consisting of our year-end cash balance plus funds available under the current credit facility ; wattenberg field sales volumes increased by 24 % for the year ended december 31 , 2018 when compared to the same period in 2017 ; rapidly improving well performance yielded over 1,000 srl equivalent economic drilling locations in wattenberg field ; secured our $ 750.0 million current credit facility with a borrowing base of $ 350.0 million on december 7 , 2018 ; wattenberg field proved reserves of 116.8 mmboe as of december 31 , 2018 increased 29 % when compared to the same period in 2017 ; pv-10 reserve value increased by 60 % to $ 955.0 million as of december 31 , 2018 when compared to the same period in 2017 ; divested of our mid-continent assets for net proceeds of $ 102.9 million and our north park basin assets for minimal net proceeds and full release of all current and future obligations ; invested $ 275.3 million to drill 78 gross wells and turning to sales 42 gross wells ; continued to increase our takeaway capacity utilizing four gas processors via eleven interconnects . chief executive officer appointment effective april 11 , 2018 , the company appointed eric t. greager as the new president and chief executive officer of the company . mr. greager has over 20 years of experience in the oil and gas industry , including exposure to both the operating and technical aspects of the industry .
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forfeitures are recognized as they occur . advertising costs advertising costs are charged story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this annual report on form 10-k. the following discussion contains forward-looking statements that reflect our plans , estimates , and beliefs . our actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in “ risk factors. ” overview we are a leading global provider of cloud-based services for video . we were incorporated in delaware in august 2004. with our emmy ® -winning technology and award-winning services , we help our customers realize the potential of video to address business-critical challenges . customers rely on our suite of products , services , and expertise to reduce the cost and complexity associated with publishing , distributing , measuring and monetizing video across devices . we sell five core video products that help our customers use video to further their businesses in meaningful ways : ( 1 ) video cloud , our flagship product and the world 's leading online video platform , enables our customers to quickly and easily distribute high-quality video to internet-connected devices ; ( 2 ) brightcove live , our industry-leading solution for live streaming , delivers high-quality viewer experiences at scale ; ( 3 ) brightcove beacon , a purpose-built application that enables companies to launch premium ott video experiences quickly and cost effectively , across devices and with the flexibility of multiple monetization models ; ( 4 ) brightcove player , an exceptionally fast , cloud-based technology for creating and managing video experiences ; and ( 5 ) zencoder , a powerful , cloud-based video encoding technology . customers can complement their use of our core products with modular technologies that provide enhanced capabilities such as ( 1 ) innovative ad insertion and video stitching through brightcove ssai ; ( 2 ) efficient publication of videos to facebook , twitter , and youtube through brightcove social ; ( 3 ) an app for creating marketing campaigns with insightful data and industry benchmarks through brightcove campaign ; ( 4 ) simple streaming of video communications to an app through brightcove engage ; and ( 5 ) create branded video experience by accessing templates with built-in best practices through brightcove gallery . we have also brought to market several video solutions , which are comprised of a suite of video technologies that address specific customer use-cases and needs : ( 1 ) virtual events experience helps brands to transform events into customized virtual experiences ; ( 2 ) brightcove video marketing suite , enables marketers to use video to drive brand awareness , engagement and conversion ; and ( 3 ) brightcove enterprise video suite , provides an enterprise-class platform for internal communications , employee training , live streaming , marketing and ecommerce videos . our philosophy for the next few years will continue to be to invest in our product strategy and development , sales , and go-to-market activities to support our long-term revenue growth . we believe these investments will help us address some of the challenges facing our business such as demand for our products by existing and potential customers , rapid technological change in our industry , increased competition and resulting price sensitivity . these investments include support for the expansion of our infrastructure within our hosting facilities , the hiring of additional technical and sales personnel , the innovation of new features for existing products and the development of new products . we believe this strategy will help us retain our existing customers , increase our average annual subscription revenue per premium customer and lead to the acquisition of new customers . additionally , we believe customer growth will enable us to achieve economies of scale which will reduce our cost of goods sold , research and development and general and administrative expenses as a percentage of total revenue . as of december 31 , 2020 , and 2019 we had 623 and 610 employees , respectively . 38 we generate revenue by offering our products to customers on a subscription-based , software as a service , or saas , model . our revenue grew from $ 184.5 million in the year ended december 31 , 2019 to $ 197.4 million in the year ended december 31 , 2020 , primarily related to an increase in revenue from our subscription-based saas . our consolidated net loss was $ 5.8 million and $ 21.9 million for the years ended december 31 , 2020 and 2019 , respectively . included in consolidated net loss for the year ended december 31 , 2020 was merger-related expense , stock-based compensation expense and amortization of acquired intangible assets of $ 5.8 million , $ 8.8 million and $ 3.4 million , respectively . included in consolidated net loss for the year ended december 31 , 2019 was merger-related expenses , stock-based compensation expense and amortization of acquired intangible assets of $ 11.4 million , $ 9.3 million , and $ 3.2 million , respectively . for the years ended december 31 , 2020 and 2019 , our revenue derived from customers located outside north america was 45 % and 47 % , respectively . we expect the percentage of total net revenue derived from outside north america to increase in future periods as we continue to expand our international operations . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . the following table includes our key metrics for the periods presented : replace_table_token_2_th number of customers . story_separator_special_tag the second product line is comprised of our volume product edition . our volume editions target small and medium-sized businesses , or smbs . the volume editions provide customers with the same basic functionality that is offered in our premium product editions but have been designed for customers who have lower usage requirements and do not typically require advanced features and functionality . we discontinued the lower level pricing options for the express edition of our volume offering and expect the total number of customers using the express edition to continue to decrease . customers who purchase the volume editions generally enter into month-to-month agreements . volume customers are generally billed on a monthly basis and pay via a credit card . virtual events experience , brightcove live and brightcove player are offered to customers on a subscription basis . customer arrangements are typically one-year contracts , which include a subscription to virtual events experience , brightcove live or the brightcove player , basic support and a pre-determined amount of video streams , bandwidth , transcoding , and storage and only video streams for brightcove player . we also offer gold , platinum , and platinum plus support to our virtual events experience , brightcove live and brightcove player customers for an additional fee . the pricing for these products is based on the value of our software , as well as , the number of users , accounts and usage . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . zencoder is offered to customers on a subscription basis , with either committed contracts or pay-as-you-go contracts . the pricing is based on usage , which is comprised of minutes of video processed . the committed contracts include a fixed number of minutes of video processed . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements . zencoder customers are considered premium customers other than zencoder customers on month-to-month contracts or pay-as-you-go contracts , which are considered volume customers . brightcove beacon and brightcove campaign are each offered to customers on a subscription basis , with varying levels of functionality , usage entitlements and support based on the size and complexity of a customer 's needs . customer arrangements are typically one-year contracts . video marketing suite and enterprise video suite are offered to customers on a subscription basis in starter , pro and enterprise editions . the pro and enterprise customer arrangements are typically one-year contracts , which typically include a subscription to video cloud , gallery , brightcove social ( for video marketing suite customers ) or brightcove live ( for enterprise video suite customers ) , basic support and a pre-determined amount of video streams or plays ( for video marketing suite customers ) , viewers ( for enterprise video suite customers ) , bandwidth and storage or videos . we also generally offer gold support or platinum support to these customers for an additional fee , which includes extended phone support . the pricing for our pro and enterprise editions is based on the number of users , accounts and usage , which is comprised of video streams or plays , viewers , bandwidth and storage or videos . should a customer 's usage exceed the contractual entitlements , the contract will provide the rate at which the customer must pay for actual usage above the contractual entitlements , or will require the customer to upgrade its package upon renewal . the starter edition provides customers with the same basic functionality that is offered in our pro and enterprise editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and 41 functionality . customers who purchase the starter edition may enter into one-year agreements or month-to-month agreements . starter customers with month-to-month agreements are generally billed on a monthly basis and pay via a credit card . all brightcove beacon , ott flow , brightcove campaign , brightcove live , ssai , player , virtual events experience , video marketing suite and enterprise video suite customers are considered premium customers . professional services and other revenue — professional services and other revenue consists of services such as implementation , software customizations and project management for customers who subscribe to our premium editions . these arrangements are priced either on a fixed fee basis with a portion due upon contract signing and the remainder due when the related services have been completed , or on a time and materials basis . cost of revenue cost of subscription , support and professional services revenue primarily consists of costs related to supporting and hosting our product offerings and delivering our professional services . these costs include salaries , benefits , incentive compensation and stock-based compensation expense related to the management of our data centers , our customer support team and our professional services staff . in addition to these expenses , we incur third-party service provider costs such as data center and content delivery network , or cdn , expenses , allocated overhead , depreciation expense and amortization of capitalized internal-use software development costs and acquired intangible assets . we allocate overhead costs such as rent , utilities and supplies to all departments based on relative headcount . as such , general overhead expenses are reflected in cost of revenue in addition to each operating expense category . the costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscription and support services due to the labor costs of providing professional services . cost of revenue increased in absolute dollars from 2019 to 2020. in future periods we expect our cost of revenue will increase in absolute dollars as our revenue increases .
| results of operations the following tables set forth our results of operations for the periods presented . replace_table_token_3_th overview of results of operations for the years ended december 31 , 2020 and 2019 total revenue increased by 7 % , or $ 12.9 million , in 2020 compared to 2019 due to an increase in subscription and support revenue of 8 % , or $ 13.5 million , primarily related to the continued growth of our customer base for our premium offerings including sales to both new and existing customers . this increase was offset by a decrease in professional services and other revenue of 6 % , or $ 625,000. professional services and other revenue will vary from period to period depending on the number of implementations and other projects that are in process . in addition , our revenue from premium offerings grew by $ 13.1 million , or 7 % , in 2020 compared to 2019. our ability to continue to provide the product functionality and performance that our customers require will be a major factor in our ability to continue to increase revenue . our gross profit increased by $ 12.3 million , or 11 % , in 2020 compared to 2019 , primarily due to an increase in subscription and support revenue . our ability to continue to maintain our overall gross profit will depend primarily on our ability to continue controlling our costs of delivery . loss from operations was $ 5.3 million in 2020 compared to $ 21.1 million in 2019. our ability to decrease operating loss will depend primarily on greater revenue from both new and existing customers and from 47 improved efficiencies .
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for a period of 5 years , franklin advisers have the right to purchase up to an aggregate of 20 % of the securities offered by the company in any subsequent private placement . series a preferred stock the company entered into subscription agreements for the private placement of shares of its series a preferred stock and warrants with 47 accredited investors during 2014 whereby the company sold an aggregate of 4,207,987 shares of series a preferred stock at a per share price of $ 1.85 for gross proceeds of $ 7.5 million and issued to the investors for no additional consideration warrants to purchase in the aggregate 2,042,589 shares of common stock , with an exercise price of $ 3.70 per share . the allocated fair value of the warrants related to these subscription agreements was determined to be $ 845,000 and was recorded as additional paid-in capital . the fair value was computed using the black-scholes pricing model with the following assumptions : dividend rate of 0 % , risk-free rate of 1.6 % to 4.0 % , contractual term of 5 years and expected volatility of 88.8 % . in connection with the uplisting to the nyse mkt , the series a preferred stock , including accrued and unpaid interest , converted into 4,319,426 shares of common stock . in march and april 2015 , the company amended certain of the warrants issued in connection with the series a preferred financing to reduce the exercise price of such warrants from $ 3.70 to $ 2.50 per share with a corresponding increase in the number of shares of common stock exercisable under the warrants so that the aggregate exercise value of such warrants remained the same . as of january 31 , 2016 , certain holders had exercised such warrants for an aggregate of 564,662 shares of common stock for an aggregate cash exercise price of $ 1,411,655 . the company recorded a charge for the incremental fair value of $ 436,000 in other expense related to the amended warrants in the first quarter of fiscal year 2016. the fair value of the warrants exercised was computed as of the date of modification using the following assumptions : dividend rate of 0 % , risk-free rate of 1.6 % , contractual term of 4 to 5 years and expected volatility of 85.9 % . as of january 31 , 2016 , of the warrants issued in connection with the series a preferred stock financing , warrants to purchase 1,661,055 shares of common stock remain outstanding . the warrant exercise agreements included a provision such that if the public offering price related to the offering was less than $ 3.125 per share , then immediately prior to the closing of the offering , additional shares of common stock would be issued at no additional consideration to each holder equal to : ( i ) the product of ( a ) the difference between $ 2.50 per share and 80 % of the public offering price and ( b ) such holder 's shares of common stock received pursuant to exercise of the amended warrants , divided by ( ii ) 80 % of the public offering price in the offering . based on a public offering price of $ 2.75 per share , 77,006 shares of common stock were issued pursuant to this provision . f-18 biopharmx corporation notes to consolidated financial statements ( continued ) 6. convertible redeemable preferred stock and stockholders ' equity ( continued ) warrants in addition to the warrants issued in conjunction with the subscription agreements , the company issued warrants on may 15 , 2014 , to a service provider for 316,395 shares of common stock at an exercise price of $ 2.035 per share , which were valued at $ 99,000 and expensed . as of january 31 , 2016 , all were outstanding . on may 14 , 2014 , the company also issued warrants valued at $ 105,000 for 343,559 shares of common stock at an exercise price of $ 1.85 per share to a qualified investor as a part of his convertible loan package . these warrants expire five years after the date of issuance . these warrants are immediately exercisable , and in june 2015 , a portion of the warrants were exercised for 54,054 shares of common stock . as of january 31 , 2016 , warrants exercisable for 289,505 shares of common stock remain outstanding . in connection with the offering , 109,091 warrants were story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations , or 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 financial statements and the accompanying notes to the financial statements and other disclosures included in this annual report on form 10-k. our financial statements have been prepared in accordance with u.s. generally accepted accounting principles and are presented in u.s. dollars . overview we are a specialty pharmaceutical company focused on utilizing our proprietary drug delivery technologies to develop and commercialize novel prescription and over-the counter , or otc , products that address large markets in women 's health and dermatology . our objective is to develop products that treat health or age-related conditions that : ( 1 ) are not presently being addressed or treated or ( 2 ) are currently treated with drug therapies or drug delivery approaches that are sub-optimal . story_separator_special_tag net cash used for operating activities for the month ended january 31 , 2015 was $ 844,000 , which was primarily due to a net loss of $ 1.1 million , partially offset by changes in operating assets and liabilities of $ 199,000 and stock-based compensation of $ 99,000. net cash used for operating activities for the year ended december 31 , 2014 was $ 6.0 million , which was primarily due to a net loss of $ 7.8 million , partially offset by changes in operating assets and liabilities of $ 413,000 , non-cash interest expense of $ 76,000 , warrants issued for $ 99,000 and stock-based compensation of $ 1.2 million . changes in operating assets and liabilities were primarily attributable to purchases of inventory and timing of payments to vendors . net cash used for investing activities for the year ended january 31 , 2016 was $ 38,000 , which was for the purchase of property and equipment . no cash was used in investing activities during the month of january 31 , 2015. net cash used for investing activities for the year ended december 31 , 2014 was $ 263,000 , which was primarily for the acquisition of intellectual property and purchase of property and equipment . net cash provided by financing activities for the year ended january 31 , 2016 was $ 15.4 million , which was due to $ 7.8 million of net proceeds from the sale of common stock in our public offering , $ 5.5 million of net proceeds from the sale of common stock in a private placement , $ 1.6 million from the exercise of stock options and warrants and $ 0.5 million from the issuance of a convertible note . net cash provided by financing activities for the month ended january 31 , 2015 was $ 38,000 , which included proceeds from the exercise of stock options . net cash provided by financing activities for the year ended december 31 , 2014 was $ 8.4 million , which was primarily due to net proceeds of $ 7.3 million from issuing series a preferred stock , $ 1.0 million from issuing convertible notes payable and $ 0.1 million from the exercise of stock options . subsequent events in april 2016 , we raised net proceeds of approximately $ 3.6 million , after expenses of approximately $ 0.7 million , excluding any proceeds for warrant exercises , from the issuance of 3,600,000 shares of common stock and 1,952,000 warrants to purchase common stock in an equity offering under shelf registration statement . going concern as reflected in the accompanying financial statements , the financial statements have been prepared assuming we will continue as a going concern . we have a limited operating history and our prospects are subject to risks , expenses and uncertainties frequently encountered by companies in the industry . our ability to generate income in the short-run will depend greatly on the rate of adoption and ability to establish a sustainable market for vi 2 olet . we plan to continue our research and development efforts for our products , which will require significant funding . if revenues fall short of expectations or research and development efforts require higher than anticipated capital , then there may be a negative impact on the financial viability of the company . we have incurred recurring losses and negative cash flows from operations since inception and have funded our operating losses through the sale of common stock in public offerings and the issuance 72 of convertible notes , series a convertible redeemable preferred stock and warrants . in june 2015 , we raised net proceeds of $ 7.8 million in a public offering of our common stock . in december 2015 , we raised net proceeds of $ 5.5 million in a private offering of our common stock and , in april 2016 , we raised net proceeds of approximately $ 3.6 million , from an issuance of common stock and warrants to purchase common stock in a public offering . we plan to increase working capital by managing our cash flows and expenses , securing financing and increasing revenue . we continue to pursue additional channel distribution expansion for vi 2 olet to provide even broader access to consumers . risks include , but are not limited to , the uncertainty of availability of additional financing and the uncertainty of achieving future profitability . we intend to raise additional funds through the issuance of equity securities . we have an effective shelf registration statement on file with the sec to allow us to sell up to approximately $ 100 million of our securities from time to time prior to february 2019 , subject to regulatory limitations . for example , pursuant to general instruction i.b.6 of form s-3 , in no event will we sell securities pursuant to the shelf registration statement with a value of more than one-third of the aggregate market value of our common stock held by non-affiliates in any 12-month period , so long as the aggregate market value of our common stock held by non-affiliates is less than $ 75.0 million . there can be no assurance that such financing will be available or on terms which are favorable to us . failure to generate sufficient cash flows from operations , raise additional capital or reduce certain discretionary spending could have a material adverse effect on our ability to achieve our intended business objectives . these factors raise substantial doubt about our ability to continue as a going concern . the consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties .
| results of operations change in fiscal year end on march 26 , 2015 , our board of directors approved a change in our fiscal year end from december 31 to january 31. as a result of this change we previously filed a transition report on form 10-kt for the one-month transition period ended january 31 , 2015. references to any previous fiscal years mean the fiscal years ending on december 31 . 68 fiscal years ended january 31 , 2016 and december 31 , 2014 , months ended january 31 , 2015 and 2014 revenue replace_table_token_2_th * not meaningful we recognize revenue on a sell-through basis if we do not have sufficient historical information to estimate product returns , pricing discounts or other concessions . if sufficient historical information is available , we recognize revenue upon shipment net of reserves . we shipped our first product to an online retailer in december 2014 and recognized our first revenue in january 2015. during 2016 , our revenues increased as we expanded into retail pharmacies , specialty pharmacy and grocery chain outlet stores in the united states and increased adoption by consumers . cost of goods sold replace_table_token_3_th * not meaningful cost of goods sold includes direct costs related to the sale of vi 2 olet , our iodine dietary supplement , which began in january 2015 , write-downs of excess and obsolete inventories and amortization of our intangible assets . the increase in cost of goods sold of $ 237,000 for the year ended january 31 , 2016 compared to the year ended december 31 , 2014 is primarily related to the increase in recognized revenue related to our product , inventory reserves and other manufacturing costs . research and development expenses replace_table_token_4_th research and development expenses primarily include headcount-related costs , stock-based compensation and both internal and external research and development expenses . research and development expenses are expensed as incurred .
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the hma also provides for interstate to advance a key money incentive fee to the hotel for capital improvements in the amount of $ 2,000,000 under certain terms and conditions described in a separate key money agreement . the key money contribution shall be amortized in equal monthly amounts over an eight ( 8 ) year period commencing on the second ( 2 nd ) anniversary of the takeover date . the $ 2,000,000 is included in restricted cash and related party note payable balances in the condensed consolidated balance sheets as of june 30 , 2017. in february 2017 , interstate was hired to manage the hotel . during the year ended june 30 , 2017 , interstate management fees were $ 372,000 . during the year ended june 30 , 2016 , gmp management fees were $ 1,219,000 . note 13 – concentration of credit risk as of june 30 , 2017 , all accounts receivables are related to hotel customers . as of june 30 , 2016 , approximately 45 % of accounts receivable is related to legal settlement receivables . the hotel had one customer that accounted for 27 % , or $ 390,000 of accounts receivable at june 30 , 2017 , and four customers that accounted for 26 % , or $ 811,000 of accounts receivable at june 30 , 2016. the partnership maintains its cash and cash equivalents and restricted cash with various financial institutions that are monitored regularly for credit quality . at times , such cash and cash equivalents holdings may be in excess of the federal deposit insurance corporation ( “ fdic ” ) or other federally insured limits . note 14 – income taxes the provision for the company 's income tax ( expense ) benefit is comprised of the following : replace_table_token_26_th 47 the provision for income taxes differs from the amount of income tax computed by applying the federal statutory income tax rate to loss before taxes as a result of the following differences : replace_table_token_27_th the components of the deferred tax asset and liabilities are as follows : replace_table_token_28_th as of june 30 , 2017 , the company had estimated net operating losses ( nols ) of $ 35,246,000 and $ 27,112,000 for federal and state purposes , respectively . below is the break-down of the nols for intergroup , santa fe and portsmouth . the carryforward expires in varying amounts through the year 2037. federal state intergroup $ - $ 1,478,000 santa fe 8,180,000 2,951,000 portsmouth 27,066,000 22,683,000 $ 35,246,000 $ 27,112,000 utilization of the net operating loss carryover may be subject a substantial annual limitation if it should be determined that there has been a change in the ownership of more than 50 percent of the value of the company 's stock , pursuant to section 382 of the internal revenue code of 1986 and similar state provisions . the annual limitation may result in the expiration of net operating loss carryovers before utilization . assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “ more-likely-than-not ” threshold based on the technical merits of the positions . as of june 30 , 2017 , it has been determined there are no uncertain tax positions likely to impact the company . 48 the partnership files tax returns as prescribed by the tax laws of the jurisdictions in which it operates and is subject to examination by federal , state and local jurisdictions , were applicable . as of june 30 , 2017 , tax years beginning in fiscal 2011 remain open to examination by the major tax jurisdictions , and are subject to the statute of limitations . note 15 – segment information the company operates in three reportable segments , the operation of the hotel ( “ hotel operations ” ) , the operation of its multi-family residential properties ( “ real estate operations ” ) and the investment of its cash in marketable securities and other investments ( “ investment transactions ” ) . these three operating segments , as presented in the financial statements , reflect how management internally reviews each segment 's performance . management also makes operational and strategic decisions based on this information . information below represents reported segments for the years ended june 30 , 2017 and 2016. segment income ( loss ) from hotel operations consists of the operation of the hotel and operation of the garage . segment income from real estate operations consists of the operation of the rental properties . loss from investments consists of net investment loss , dividend and interest income and investment related expenses . replace_table_token_29_th replace_table_token_30_th note 16 – stock-based compensation plans the company follows the statement of financial accounting standards 123 ( revised ) , `` share-based payments `` ( `` sfas no . 123r `` ) , which was primarily codified into asc topic 718 “ compensation – stock compensation ” , which addresses accounting for equity-based compensation arrangements , including employee stock options and restricted stock units . the company currently has three equity compensation plans , each of which has been approved by the company 's stockholders . the intergroup corporation 2008 restricted stock unit plan ( the “ 2008 rsu plan ” ) , the intergroup corporation 2007 stock compensation plan for non-employee directors ( the “ 2007 stock plan ” ) and the intergroup 2010 omnibus employee incentive plan are described below . story_separator_special_tag however , the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value . for a more detailed description of the composition of the company 's marketable securities see the marketable securities section below . during the years ended june 30 , 2017 and 2016 , the company performed an impairment analysis of its other investments and determined that its investments had an other than temporary impairment and recorded impairment losses of $ 178,000 and $ 673,000 , respectively the company and its subsidiaries , portsmouth and santa fe , compute and file income tax returns and prepare discrete income tax provisions for financial reporting . the income tax ( expense ) benefit during the year ended june 30 , 2017 and 2016 represents primarily the combined income tax effect of portsmouth 's pretax income ( loss ) which includes its share in net income ( loss ) from the hotel and the pre-tax income ( loss ) from intergroup ( standalone ) . marketable securities and other investments as of june 30 , 2017 , and 2016 , the company had investments in marketable equity securities of $ 17,177,000 and $ 14,282,000 , respectively . the following table shows the composition of the company 's marketable securities portfolio by selected industry groups as : 25 replace_table_token_6_th replace_table_token_7_th the company 's investment portfolio is diversified with 69 different equity positions the company holds two equity securities that comprised more than 10 % of the equity value of the portfolio . the largest security position represents 27.6 % of the portfolio and consists of the common stock of comstock which is included in the basic materials industry group . the significant increase in the company 's investment in comstock was due to the conversion of the $ 13,231,000 ( 13,231 preferred shares ) held in comstock mining , inc. ( “ comstock ” – otcbb : lode ) 7 1/2 % series a-1 convertible preferred stock ( the “ a-1 preferred ” ) to common stock on august 27 , 2015. the a-1 preferred was previously included in other investments prior to its conversion . the following table shows the net gain or loss on the company 's marketable securities and the associated margin interest and trading expenses for the respective years . replace_table_token_8_th financial condition and liquidity the company 's cash flows are primarily generated from its hotel operations , and general partner management fees and limited partnership distributions from justice investors , its real estate operations and from the investment of its cash in marketable securities and other investments . 26 on december 18 , 2013 , the partnership completed an offer to redeem any and all limited partnership interests not held by portsmouth . as a result , portsmouth , which prior to the offer to redeem owned 50 % of the then outstanding limited partnership interests now controls approximately 93 % of the voting interest in justice and is now its sole general partner . to fund redemption of limited partnership interests and to repay the prior mortgage , justice obtained a $ 97,000,000 mortgage loan and a $ 20,000,000 mezzanine loan . the mortgage loan is secured by the partnership 's principal asset , the hotel . the mortgage loan initially bears an interest rate of 5.275 % per annum and matures in january 2024. as additional security for the mortgage loan , there is a limited guaranty executed by the company in favor of mortgage lender . the mezzanine loan is a secured by the operating membership interest held by mezzanine and is subordinated to the mortgage loan . the mezzanine loan initially bears interest at 9.75 % per annum and matures in january 2024. as additional security for the mezzanine loan , there is a limited guaranty executed by the company in favor of mezzanine lender . effective as of may 12 , 2017 , intergroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for justice investors limited partnership 's $ 97,000,000 mortgage loan and the $ 20,000,000 mezzanine loan . management believes that its cash , securities assets , real estate and the cash flows generated from those assets and from partnership distributions and management fees , will be adequate to meet the company 's current and future obligations . additionally , management believes there is significant appreciated value in the hotel and other real estate properties to support additional borrowings if necessary . material contractual obligations the following table provides a summary of the company 's material financial obligations which also includes interest . replace_table_token_9_th off-balance sheet arrangements the company has no material off balance sheet arrangements . impact of inflation hotel room rates are typically impacted by supply and demand factors , not inflation , since rental of a hotel room is usually for a limited number of nights . room rates can be , and usually are , adjusted to account for inflationary cost increases . since prism has the power and ability under the terms of its management agreement to adjust hotel room rates on an ongoing basis , there should be minimal impact on partnership revenues due to inflation . partnership revenues are also subject to interest rate risks , which may be influenced by inflation . for the two most recent fiscal years , the impact of inflation on the company 's income is not viewed by management as material . the company 's residential rental properties provide income from short-term operating leases and no lease extends beyond one year . rental increases are expected to offset anticipated increased property operating expenses . critical accounting policies critical accounting policies are those that are most significant to the portrayal of our financial position and results of operations and require judgments by management in order to make estimates about
| results of operations as of june 30 , 2017 , the company owned approximately 81.9 % of the common shares of its subsidiary , santa fe and santa fe owned approximately 68.8 % of the common shares of portsmouth square , inc. intergroup also directly owns approximately 13.4 % of the common shares of portsmouth . the company 's principal sources of revenue continue to be derived from the general and limited partnership interests of its subsidiary , portsmouth , in the justice investors limited partnership ( “ justice ” or the “ partnership ” ) , rental income from its investments in multi-family real estate properties and income received from investment of its cash and securities assets . justice owns a 543 room hotel property located at 750 kearny street , san francisco , california 94108 , known as the “ hilton san francisco financial district ” ( the “ hotel ” or the “ property ” ) and related facilities , including a five-level underground parking garage . the financial statements of justice have been consolidated with those of the company . 22 the hotel is operated by the partnership as a full-service hilton brand hotel pursuant to a franchise license agreement ( the “ license agreement ” ) with hlt franchise holding llc ( “ hilton ” ) . the partnership entered into the license agreement on december 10 , 2004. the term of the license agreement was for an initial period of 15 years commencing on the opening date , with an option to extend the license agreement for another five years , subject to certain conditions .
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the company is required to pay a commitment fee of 0.5 % per year on the undrawn portion available under the revolving credit facility , subject to stepdowns based on the company 's net leverage ratio , and variable fees on outstanding letters story_separator_special_tag you should read the following discussion of our financial condition and results of operations together with the audited consolidated financial statements and notes to the financial statements included elsewhere in this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . the forward-looking statements are not historical facts , but rather are based on current expectations , estimates , assumptions and projections about our industry , business and future financial results . our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors , including those discussed under 1a.—risk factors and other sections in this annual report . executive overview 2015 is live nation 's 10 th anniversary since becoming a publicly-traded company and the year included many exciting milestones . our total revenue for the year was $ 7.2 billion , a record level for the company . all of our segments reported revenue growth for the fifth consecutive year as a result of both our highest level of attendance at our concerts and record ticket sales in our ticketing business . more than ever , we are seeing the unique power of the live concert experience and the importance of technology to enable fans around the world to connect with artists and each other . our overall revenue in 2015 increased by $ 378.8 million on a reported basis as compared to last year , or $ 738.3 million , an 11 % increase , without the impact of changes in foreign exchange rates . while all our segments contributed to this success , the increase was largely driven 26 by growth in our concerts segment due to an increase in the number of events and fans . ticketing increased as well , with growth in concerts and sporting event ticket sales globally as well as the continued expansion of our resale business . additionally , sponsorship & advertising again delivered strong growth over 2014 due to higher sales for our festivals as well as new partnerships in australia and asia . higher artist management commissions and sports-related revenue in artist nation led to an increase in overall revenue for that segment as well . as the leading global live event and ticketing company , we believe that we are well-positioned to provide the best service to artists , teams , fans and venues and therefore drive growth across all our businesses . we believe that by leveraging our leadership position in the entertainment industry to reach fans through the live concert experience , we will sell more tickets and uniquely engage more advertising partners . by advancing innovation in ticketing technology , we will continue to improve the fan experience by offering increased and more diversified choices in an expanded ticketing marketplace . this gives us a compelling opportunity to grow our fan base and our results . our concerts segment was the largest contributor to our overall revenue growth , with an increase of $ 238.1 million on a reported basis as compared to last year , or $ 498.7 million , an 11 % increase , without the impact of changes in foreign exchange rates . the higher revenue was partially due to additional arena shows globally and an overall increase in attendance at arena shows this year . some of the artists driving this increase included u2 , madonna , maroon 5 and ariana grande . in addition , the ongoing expansion of our festival portfolio in north america drove growth in attendance for festival events with such well-known brands as lollapalooza and bonnaroo joining our roster . we continue to see great success in our european festivals such as rock werchter and reading , as well as electronic events including electric daisy carnival and creamfields . over 15 million fans attended our amphitheater shows throughout the year which is a record for live nation where kid rock , luke bryan and 5 seconds of summer played to sold out audiences over the summer . our efforts to enhance our amphitheater onsite business got off to a great start in 2015 with our new food and beverage and point of sale partners offering more selections and a faster transaction process . in our international business , we saw growth in our new asian markets - thailand , taiwan and indonesia - while large tours by the popular korean act bigbang as well as fleetwood mac in australia grew ticket revenue in our pan-asian business . this growth more than offset a decline in stadium activity in both north america and europe which is a function of the mix of artists touring in the year . our operating income for the year improved over 2014 largely due to the impact of the goodwill impairment in 2014 which was partially offset by higher depreciation and amortization in 2015. we will continue to look for expansion opportunities , both domestically and internationally , as well as ways to market our events more effectively , in order to continue to expand our fan base and geographic reach and to sell more tickets and onsite products . our ticketing segment revenue for the year increased by $ 82.3 million on a reported basis as compared to last year , or $ 156.3 million , a 10 % increase , without the impact of changes in foreign exchange rates . this increase was largely due to a 4 % growth in primary ticket sales globally , driven by increased sales for concert and sporting events . as we continued to improve our platform and provide consumers with a broader range of secure ticketing options , visits to our websites increased by 10 % in 2015 with nearly 60 % of these visits occurring on mobile devices . story_separator_special_tag in addition , we review the number of visits to our websites , the overall number of customers in our database , the number of tickets sold via mobile , the number of app installs and gross transaction value and fees related to secondary ticket sales . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates . artist nation our artist nation segment primarily provides management services to music artists and other clients in exchange for a commission on the earnings of these artists . our artist nation segment also creates and sells merchandise for music artists at live performances , to retailers and directly to consumers via the internet . revenue earned from our artist nation segment is impacted to a large degree by the touring schedules of the artists we represent and generally we experience higher revenue during the second and third quarters as the period from may through october tends to be a popular time for touring events . to judge the health of our artist nation segment , we primarily review the number of major clients represented . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of foreign exchange rates . sponsorship & advertising our sponsorship & advertising segment employs a sales force that creates and maintains relationships with sponsors through a combination of strategic , international , national and local opportunities that allow businesses to reach customers through our concerts , venue , artist relationship and ticketing assets , including advertising on our websites . we drive increased advertising scale to further monetize our concerts platform through rich media offerings including advertising associated with live streaming and music-related original content . we work with our corporate clients to help create marketing programs that drive their business goals and connect their brands directly with fans and artists . we also develop , book and produce custom events or programs for our clients ' specific brands which are typically experienced exclusively by the clients ' consumers . these custom events can involve live music events with talent and media , using both online and traditional outlets . we typically 28 experience higher revenue in the second and third quarters , as a large portion of sponsorships are associated with shows at our outdoor amphitheaters and festivals which primarily occur from may through october . to judge the health of our sponsorship & advertising segment , we primarily review the revenue generated through sponsorship arrangements , the percentage of expected revenue under contract and online advertising revenue through our websites . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates . 29 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; text-indent:32px ; font-size:10pt ; '' > in 2014 , goodwill impairments of $ 117.0 million and $ 17.9 million were recorded in conjunction with our annual impairment tests related to the international concerts reporting unit in the concerts segment and the artist services ( non-management ) reporting unit in the artist nation segment , respectively . see “ —critical accounting policies and estimates —goodwill ” for further discussion of the factors impacting this impairment . there were no impairment charges in 2015. loss ( gain ) on disposal of operating assets gain on disposal of operating assets for the year ended december 31 , 2014 was $ 4.5 million consisting primarily of a gain recognized in our concerts segment in connection with the final insurance recovery received for storm damage to an amphitheater in new york during hurricane sandy in 2012. gain on disposal of operating assets for the year ended december 31 , 2013 was $ 38.3 million consisting primarily of a $ 24.8 million gain recognized in our concerts segment from the may 2013 sale of a theater in new york . in addition , we recognized a gain in our concerts segment of $ 14.1 million in connection with insurance recoveries for storm damage sustained to an amphitheater as discussed above . loss on extinguishment of debt we recorded a loss on extinguishment of debt of $ 36.3 million for the year ended december 31 , 2013 in connection with the refinancing of the term loans under our senior secured credit facility and the redemption of our 8.125 % senior notes in august 2013. these obligations were paid with proceeds from incremental term loans under our senior secured credit facility and the issuance of additional 7 % senior notes . there were no significant gains or losses on extinguishment of debt recorded in 2015 and 2014. other expense , net other expense , net was $ 27.2 million , $ 8.3 million and $ 2.8 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively , and includes net foreign exchange rate losses of $ 35.3 million , $ 28.9 million and $ 2.8 million , respectively , primarily from revaluation of certain foreign currency denominated net assets or liabilities held internationally . the 2015 net loss was partially offset by remeasurement gains of $ 9.1 million recorded in connection with the consolidation of a festival promotion business , a ticketing company and an artist management business that were all previously accounted for as equity investments , due to the acquisition of additional interests in the companies . the 2014 net loss was partially offset by a remeasurement gain of $ 17.1 million recorded in connection with the consolidation of an artist management business that had been previously accounted for as an equity investment , due to a change in the governing agreements .
| consolidated results of operations replace_table_token_6_th _ * percentages are not meaningful . 30 key operating metrics replace_table_token_7_th _ ( 1 ) events generally represent a single performance by an artist . fans generally represent the number of people who attend an event . festivals are counted as one event in the quarter in which the festival begins , but the number of fans is based on the days the fans were present at the festival and thus can be reported across multiple quarters . events and fan attendance metrics are estimated each quarter . ( 2 ) the number of tickets sold includes primary tickets only . this metric includes tickets sold during the year regardless of event timing except for our own events where our concert promoters control ticketing which are reported as the events occur . the total number of tickets sold reported above for 2015 , 2014 and 2013 excludes approximately 297 million , 300 million and 301 million , respectively , of estimated tickets sold using our ticketmaster systems , through season seat packages and our venue clients ' box offices , for which we do not receive a fee . 31 revenue our revenue increased $ 378.8 million , or 6 % , during the year ended december 31 , 2015 as compared to the prior year . the overall increase in revenue was primarily due to increases in our concerts , ticketing , artist nation and sponsorship & advertising segments of $ 238.1 million , $ 82.3 million , $ 44.8 million and $ 33.4 million , respectively . excluding the decrease of approximately $ 359.5 million related to the impact of changes in foreign exchange rates , revenue increased $ 738.3 million , or 11 % . our revenue increased $ 388.4 million , or 6 % , during the year ended december 31 , 2014 as compared to the prior year .
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factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the section titled “ risk factors ” included elsewhere in this annual report on form 10-k. throughout this discussion , unless the context specifies or implies otherwise , the terms “ sarepta ” , “ we ” , “ us ” and “ our ” refer to sarepta therapeutics , inc. and its subsidiaries . overview we are a biopharmaceutical company focused on the discovery and development of unique rna-targeted therapeutics for the treatment of rare , infectious and other diseases . applying our proprietary , highly-differentiated and innovative platform technologies , we are able to target a broad range of diseases and disorders through distinct rna-targeted mechanisms of action . we are primarily focused on rapidly advancing the development of our potentially disease-modifying duchenne muscular dystrophy ( “ dmd ” ) drug candidates , including our lead dmd product candidate , eteplirsen , designed to skip exon 51. we are also developing therapeutics using our technology for the treatment of drug resistant bacteria and infectious , rare and other human diseases . our rna-targeted technologies work at the most fundamental level of biology and potentially could have a meaningful impact across a broad range of human diseases and disorders . our lead program focuses on the development of disease-modifying therapeutic candidates for dmd , a rare genetic muscle-wasting disease caused by the absence of dystrophin , a protein necessary for muscle function . currently , there are no approved disease-modifying therapies for dmd in the u.s. eteplirsen is our lead therapeutic candidate for dmd . if we are successful in our development efforts , eteplirsen will address an unmet medical need . we are in the process of conducting or starting several studies for product candidates designed to skip exons 45 , 51 and 53 in the u.s. and in europe . these are comprised of ( i ) studies to further evaluate eteplirsen that include an open label extension of our phase iib study , a confirmatory trial in ambulatory patients , a study on participants with advanced stage dmd and a study with participants with early stage dmd , ( ii ) a dose-ranging study for our product candidate designed to skip exon 45 , ( iii ) a two-part randomized , double-blind , placebo-controlled , dose titration safety , tolerability and pharmacokinetics study ( part i ) followed by an open label efficacy and safety study ( part ii ) with a product candidate designed to skip exon 53 and ( iv ) a placebo-controlled confirmatory study with product candidates designed to skip exons 45 and 53 for which we have satisfactorily addressed fda inquiries on preclinical data relating to the exon 53-skipping product candidate . on august 25 , 2015 , we announced the filing by the food and drug administration ( “ fda ” ) of our new drug application ( “ nda ” ) for eteplirsen and it is under priority review with a current prescription drug user fee act ( “ pdufa ” ) action date of may 26 , 2016. we have also leveraged the capabilities of our rna-targeted technology platforms to develop therapeutic candidates for the treatment of infectious diseases such as influenza , marburg and ebola under prior contracts with the department of defense ( “ dod ” ) , however , further development of these product candidates would be conditioned , in part , on obtaining additional funding , collaborations or emergency use . our discovery and research programs include collaborations with various third parties and focus on developing therapeutics in rare , genetic , anti-bacterial , neuromuscular and central nervous system diseases amongst other diseases . we are exploring the application of our proprietary phosphorodiamidate morpholino oligomer ( “ pmo ” ) platform technology in various diseases . we believe we have developed proprietary state-of-the-art manufacturing and scale-up techniques that allow synthesis and purification of our product candidates to support clinical development as well as potential commercialization . we have entered into certain manufacturing and supply arrangements with third-party suppliers which will in part utilize these techniques to support production of certain of our product candidates and their components . we currently do not have any of our own internal mid-to-large scale manufacturing capabilities to support our product candidates . the basis of our novel rna-targeted therapeutics is the pmo . our next generation pmo-based chemistries include pmo-x ® , pmo plus ® and ppmo . pmo and pmo-based compounds are highly resistant to degradation by enzymes , potentially enabling robust and sustained biological activity . in contrast to other rna-targeted therapeutics , which are usually designed to down-regulate protein expression , our technologies are designed to selectively up-regulate or down-regulate protein expression , and more importantly , create novel proteins . pmo and pmo-based compounds have demonstrated inhibition of messenger rna ( “ mrna ” ) translation and alteration of pre-mrna splicing . pmo and pmo-based compounds have the potential to reduce off-target effects , such as the immune stimulation often observed with ribose-based rna technologies . we believe that our highly differentiated , novel , proprietary and innovative rna-targeted pmo-based platforms may represent a significant improvement over other rna-targeted technologies . in addition , pmo and pmo-based compounds are highly adaptable molecules : with minor structural modifications , they can potentially -40- be rapidly designed to target specific tissues , genetic sequences , or pathogens , and therefore , we believe they could potentially be applied to treat a broad spectrum of diseases . we have not generated any revenue from product sales to date and there can be no assurance that revenue from product sales will be achieved . even if we do achieve revenue from product sales , we are likely to continue to incur operating losses in the near term . story_separator_special_tag -41- all participants in study 201 were enrolled in an open-label extension study 4658-us-202 ( “ study 202 ” ) , following the completion of study 201 and all participants , including those from the placebo group in study 201 , are receiving either 30.0 mg/ kg or 50.0 mg/kg for the duration of study 202. the purpose of study 202 is to evaluate the ongoing safety , efficacy and tolerability of eteplirsen . the primary efficacy endpoint was the change from baseline at week 48 in the percentage of dystrophin-posit ive fibers in muscle biopsy tissue as measured by immunohistochemistry . the primary clinical outcome measure was the change from baseline to week 48 on the six-minute walk test ( “ 6mwt ” ) . study 202 is now in a long-term extension phase in which patients wer e followed for safety and clinical outcomes approximately every 12 weeks through week 108 ( which includes the original 28 weeks of study 201 ) . in july 2012 , we announced interim results from study 202 which indicated that treatment with eteplirsen over 36 weeks achieved a significant clinical benefit on the primary clinical outcome measure , the 6mwt , over a placebo/delayed treatment cohort . eteplirsen administered once weekly at 50mg/kg over 36 weeks resulted in a 69.4 meter benefit compared to patients who received placebo for 24 weeks followed by 12 weeks of treatment with eteplirsen . in the predefined prospective analysis of the study 's intent-to-treat ( “ itt ” ) population on the primary clinical outcome measure , the change in 6mwt distance from baseline , eteplirsen-treated patients who received 50mg/kg of the drug weekly demonstrated a decline of 8.7 meters in distance walked from baseline ( mean=396.0 meters ) , while patients who received placebo/delayed-eteplirsen treatment for 36 weeks showed a decline of 78.0 meters from baseline ( mean=394.5 meters ) , for a statistically significant treatment benefit of 69.4 meters over 36 weeks ( p < 0.019 ) . there was no statistically significant difference in the 6mwt between the cohort of patients who received 30mg/kg weekly of eteplirsen and the placebo/delayed treatment cohort . the safety profile of eteplirsen was evaluated across all subjects through the 36 weeks eteplirsen was administered and there were no treatment-related adverse events , no serious adverse events and no discontinuations . furthermore , no treatment-related changes were detected on any safety laboratory parameters , including several biomarkers for renal function . in october 2012 , we announced 48-week results from study 202 which indicated that treatment with eteplirsen met the predefined primary efficacy endpoint , increased in the measurement taken of novel dystrophin , and achieved a significant clinical benefit on the predefined primary clinical outcome measure , the 6mwt , over the placebo/delayed treatment cohort . eteplirsen administered once weekly at either 30 mg/kg or 50 mg/kg for 48 weeks ( n=8 ) resulted in a statistically significant increase ( p < 0.001 ) in the measurement taken of dystrophin-positive fibers to 47.0 % of normal . the placebo/delayed treatment cohort , which had received 24 weeks of eteplirsen at either 30 mg/kg or 50 mg/kg following 24 weeks of placebo ( n=4 ) , also showed a statistically significant increase in the measurement taken of dystrophin-positive fibers to 38.3 % of normal ( p < 0.009 ) . in the predefined analysis of the study 's itt population on the primary clinical outcome measure , the change in 6mwt distance from baseline at week 48 , eteplirsen-treated patients who received 50 mg/kg of the drug weekly ( n=4 ) demonstrated an increase of 21.0 meters in distance walked from baseline ( mean=396.0 meters ) , while patients who received placebo/delayed-eteplirsen treatment ( n=4 ) showed a decline of 68.4 meters from baseline ( mean=394.5 meters ) , for a statistically significant treatment benefit of 89.4 meters over 48 weeks ( p=0.016 , using analysis of covariance for ranked data using mixed model repeated measures ) . there was no statistically significant difference between the cohort of patients who received 30 mg/kg weekly of eteplirsen and the placebo/delayed treatment cohort . the safety profile of eteplirsen was evaluated across all subjects through 48 weeks and there were no treatment-related adverse events , no serious adverse events , and no discontinuations . furthermore , no clinically significant treatment-related changes were detected on any safety laboratory parameters , including several biomarkers for renal function . in december 2012 , we announced updated data from study 202 which showed that patients treated with eteplirsen and evaluable on ambulatory measures in a modified intent-to-treat population ( “ mitt population ” ) for 62 weeks maintained a statistically significant clinical benefit on the primary clinical outcome measure , the 6mwt , compared to patients who received placebo for 24 weeks followed by 38 weeks of eteplirsen treatment . in the mitt population , which includes evaluable patients from both the 30mg/kg and 50mg/kg dose cohorts , patients treated with eteplirsen for 62 weeks demonstrated a statistically significant benefit ( p < 0.007 ) of 62 meters over the placebo/delayed-treatment cohort using a mixed-model repeated measure statistical test . the mitt population utilized for the 62 week analysis consisted of 10 of the enrolled 12 patients ( four eteplirsen-treated patients receiving 50 mg/kg weekly , 2 eteplirsen-treated patients receiving 30 mg/kg weekly , and 4 placebo/delayed-treatment patients ) , and excluded two patients who showed signs of rapid disease progression and lost ambulation by week 24. the eteplirsen treatment cohort ( n=6 ) continued to show disease stabilization with less than a 5 % decline in walking distance on the 6mwt from baseline . the placebo/delayed-treatment cohort ( n=4 ) also demonstrated stability in walking distance from week 36 through week 62 with a less than 10 meter change over this timeframe , the period in which dystrophin was likely produced , with confirmation of significant dystrophin levels at week 48 through analysis of muscle biopsies in these patients .
| results from the mitt popula tion , which combines the evaluable eteplirsen-treated patients across the 30mg/kg and 50mg/kg cohorts , have been previously reported and will be used as the primary assessment of ambulatory clinical measures for the remainder of study 202. given there was no significant difference between the 30 mg/kg and 50 mg/kg arms on the production of dystrophin through 48 weeks based on the measurements taken , we believe this mitt population is the most appropriate to assess dystrophin production and its potential pre dictive benefits on ambulatory clinical outcomes , such as the 6mwt . in april 2013 , we announced that , after 74 weeks , patients in the 30 mg/kg and 50 mg/kg dose cohorts in the mitt population ( n=6 ) showed a statistically significant treatment benefit of 65.2 meters ( p < 0.004 ) when compared to the placebo/delayed-treatment cohort ( n=4 ) . the eteplirsen-treated patients in the mitt population demonstrated less than 13.4 meters , or 5 percent decline from baseline in walking ability . after experiencing a substantial decline earlier in the study , the placebo/delayed-treatment cohort also demonstrated stabilization in walking ability from week 36 through 74 , the period in which meaningful levels of dystrophin were likely produced , with a less than 10 meter decline over this timeframe . through 74 weeks , eteplirsen was well tolerated and there were no clinically significant treatment-related adverse events , serious adverse events , hospitalizations or discontinuations . as previously reported at 62 weeks , one patient had a transient elevation of urine protein on a laboratory urine dipstick test , which resolved and resulted in no clinical symptoms .
| 1,908 |
products produced from processed citrus oil include ( 1 ) high value compounds used as additives by companies in the flavors and fragrances markets and ( 2 ) environmentally friendly chemistries for use in numerous industries around the world , specifically the o & g industry . flotek operates in over 20 domestic and international markets , including the gulf coast , southwest , rocky mountains , northeastern , and mid-continental regions of the u.s. , canada , mexico , central america , south america , europe , africa , middle east , and asia-pacific . customers include major integrated o & g companies , oilfield services companies , independent o & g companies , pressure-pumping service companies , national and state-owned oil companies , and international supply chain management companies . the company also serves customers who purchase non-energy-related citrus oil and related products , including household and commercial cleaning product companies , fragrance and cosmetic companies , and food manufacturing companies . the operations of the company are categorized into four reportable segments : energy chemistry technologies , consumer and industrial chemistry technologies , drilling technologies , and production technologies . energy chemistry technologies designs , develops , manufactures , packages , and markets specialty chemistries used in o & g well drilling , cementing , completion , stimulation , and production . in addition , the company 's chemistries are used in specialized enhanced and improved oil recovery markets ( “ eor ” or “ ior ” ) . activities in this segment also include construction and management of automated material handling facilities and management of loading facilities and blending operations for oilfield services companies . consumer and industrial chemistry technologies designs , develops , and manufactures products that are sold to companies in the flavor and fragrance industries and specialty chemical industry . these technologies are used by beverage and food companies , fragrance companies , and companies providing household and industrial cleaning products . drilling technologies rents , sells , inspects , manufactures , and markets down-hole drilling equipment used in energy , mining , and industrial drilling activities . production technologies assembles and markets production-related equipment , including the petrovalve ® product line of rod pump components , hydraulic pumping units ( “ hpu ” ) , electric submersible pumps ( “ esp ” ) , gas separators , valves , and services that support natural gas and oil production activities . market conditions the company 's success is sensitive to a number of factors , which include , but are not limited to , drilling activity , customer demand for its advanced technology products , market prices for raw materials , and governmental actions . drilling activity levels are influenced by a number of factors , including the number of rigs in operation , the geographical areas of rig activity , and drill rig efficiency ( rig days required per well ) . additional factors that influence the level of drilling activity include : historical , current , and anticipated future o & g prices , federal , state , and local governmental actions that may encourage or discourage drilling activity , customers ' strategies relative to capital funds allocations , weather conditions , and technological changes to drilling methods and economics . historical north american drilling activity is reflected in “ table a ” on the following page . customers ' demand for advanced technology products and services provided by the company are dependent on their recognition of the value of : 20 chemistries that improve the economics of their o & g operations , drilling products that improve drilling operations and efficiencies , chemistries that are economically viable , socially responsible , and ecologically sound , and production technologies that improve production and production efficiencies in maturing wells . market prices for citrus oils can be influenced by : historical , current , and anticipated future production levels of the global citrus ( primarily orange ) crop , weather related risks , health and condition of citrus trees ( e.g. , disease and pests ) , and international competition and pricing pressures resulting from natural and artificial pricing influences . governmental actions may restrict the future use of hazardous chemistries , including , but not limited to , the following industrial applications : o & g drilling and completion operations , o & g production operations , and non-o & g industrial solvents . replace_table_token_4_th source : rig count : baker hughes , inc. ( www.bakerhughes.com ) ; rig counts are the annual average of the reported weekly rig count activity . 21 as crude oil prices peaked at approximately $ 106/barrel in june 2014 and began the descent to the current levels ranging between $ 30 to $ 40 per barrel , total u.s. rig count decreased from 1,929 rigs on november 21 , 2014 , to 698 rigs as of december 31 , 2015 , representing a 63.8 % drop . as the total u.s. rig count dropped , the horizontal rig count declined 60.0 % , the directional rig count decreased by 70.7 % , and the vertical rig count fell by 74.7 % . horizontal rigs now represent 78.7 % of the total working u.s. rig count , versus 71.1 % at the peak u.s. drilling activity level in november 2014. the canadian rig count had a similar response , lagging normal levels by almost 200 rigs during peak drilling seasons . during year ended 2015 , total north american active drilling rig count significantly decreased when compared to the comparable periods of 2014 and 2013 , primarily in oil drilling rigs . average north american oil drilling rig activity decreased by 52.1 % in 2015 compared to 2014 , while it increased by 8.7 % from 2013 to 2014 . north american natural gas drilling rig count decreased by 32.5 % in 2015 compared to 2014 and decreased by 2.4 % from 2013 to 2014 . story_separator_special_tag as part of this strategic repositioning , in january 2015 , the company acquired 100 % of the assets from ial , a development-stage company that specializes in the design , manufacturing , and service of next-generation hpus that serve to increase and maximize production for oil and natural gas wells . additionally , the company is developing a line of esps . the company expects hpus and esps to be important expansions to its production technologies product lines during 2016 and beyond . the outlook for the company 's consumer and industrial chemistries will be driven by the availability and demand for citrus oils and other bio-based raw materials . although current inventory and crop expectations are sufficient to meet the company 's needs to supply its flavor and fragrance business , as well as the industrial markets , the market supply of citrus terpene has declined in recent years due to the reduction in citrus crops caused by the citrus greening disease . this reduced supply has resulted in higher citrus terpene prices and increased price volatility . the company expects its strong market position to enable it to maintain a stable supply of citrus terpenes for internal use and external sales . in response to the current market environment , the company has been proactive in reducing costs to reflect current market conditions while , at the same time , remaining focused on preserving appropriate functions and capacity , which allows the company to be opportunistic as market conditions improve . cost reductions to date include : headcount reductions and hiring restrictions that have not impacted customer service nor production output ; vendor price reductions that have partially mitigated gross margin erosion ; the consolidation of certain operating bases which reduced lease and other expenses ; and other cost controls that have reduced overall operating costs of our business . the company regularly evaluates its cost structure based on market conditions with a focus on continuous efficiency improvements . the company expects capital spending to be between $ 20 million and $ 25 million in 2016 , inclusive of approximately $ 7 million for completion of its global research & innovation headquarters . changes to geopolitical , global economic , and industry trends could have an impact , either positive or negative , on the company 's business . in the event of significant adverse changes to the demand for oil and gas production and or the market price for oil and gas , the market conditions affecting the company could change rapidly and materially . should such adverse changes to market conditions occur , management believes the company has adequate liquidity to withstand the impact of such changes while continuing to make strategic capital investments and acquisitions , if opportunities arise . in addition , management believes the company is well-positioned to take advantage of significant increases in demand for its products should market conditions improve dramatically in the near term . 23 results of operations ( in thousands ) : replace_table_token_5_th results for 2015 compared to 2014 —consolidated consolidated revenue for the year ended december 31 , 2015 decreased $ 114.8 million , or 25.6 % , from 2014 . the decrease in revenue was primarily due to the drop in oilfield market activity as indicated by the 47.8 % decrease in the average north american active rig count from 2014 to 2015. this resulted in significant reductions in customer demand and price concessions in our drilling technologies segment . our energy chemistry technologies segment experienced a less significant decline in revenues due to increased year over year cnf ® sales volumes and only marginally declining cnf ® revenues . consolidated gross profit for the year ended december 31 , 2015 decreased $ 67.8 million , or 37.1 % , from 2014 . gross margin as a percentage of revenue decreased to 34.4 % for the year ended december 31 , 2015 from 40.7 % in 2014 , primarily attributable to incentive pricing structures in energy chemistry technologies , significant price concessions in drilling technologies , and product mix in production technologies , partially offset by reductions in direct costs in drilling technologies . selling , general and administrative ( “ sg & a ” ) expenses are not directly attributable to products sold or services provided . sg & a costs as a percentage of revenue rose from 19.4 % to 28.6 % for the year ended december 31 , 2015 compared to 2014 , as sg & a costs grew while revenues declined . sg & a costs increased $ 8.3 million , or 9.6 % , for the year ended december 31 , 2015 from 2014 primarily due to higher stock compensation expense and professional fees , increased head count in the energy chemistry technologies sales staff , increased bad debt expense , and a civil penalty related to an environmental matter assessed in the first quarter of 2015 , partially offset by cost reduction actions taken throughout 2015. depreciation and amortization expense not included in gross profit for the year ended december 31 , 2015 increased by $ 1.3 million , or 13.0 % , from 2014 . this increase was primarily attributable to the depreciation of improvements to facilities and equipment that were added during the later portion of 2014. research and innovation ( “ r & i ” ) expense for the year ended december 31 , 2015 increased $ 2.5 million , or 49.8 % , from 2014 . the increase in r & i is primarily attributable to flotek 's commitment to remaining responsive to customer needs , increased demand and continued growth of our existing chemistry product lines , the new houston r & i facility , and product development originating from the acquisition of ial . during the second quarter of 2015 , as a result of decreased rig activity and its impact on management 's expectations for future market activity , the company refocused the drilling technologies segment to businesses and markets that have the best opportunity for profitable growth in the future .
| results for 2014 compared to 2013 —consumer and industrial chemistry technologies cict revenue for the year ended december 31 , 2014 increased $ 8.2 million , or 19.0 % , from 2013 , as the segment was created in the second quarter of 2013 upon the acquisition of florida chemical . 26 cict gross profit for the year ended december 31 , 2014 increased $ 2.2 million , or 21.0 % , from 2013 primarily due to the segment being created in the second quarter of 2013 upon the acquisition of florida chemical . gross margin as a percentage of revenue increased to 25.2 % for the year ended december 31 , 2014 compared to 24.8 % from 2013. income from operations for the cict segment increased $ 0.3 million , or 4.8 % , for the year ended december 31 , 2014 from 2013 primarily due to the increased revenue between the two periods . replace_table_token_8_th results for 2015 compared to 2014 —drilling technologies drilling technologies revenue for the year ended december 31 , 2015 decreased $ 61.2 million , or 54.0 % , from 2014 due to a 64.0 % decrease in domestic revenue primarily from lower activity levels and significant pricing reductions partially offset by an increase in teledrift international revenue . drilling technologies gross profit for the year ended december 31 , 2015 decreased $ 28.9 million , or 63.4 % , from 2014 . gross margin as a percentage of revenue decreased to 32.1 % compared to 40.3 % in 2014 . this was primarily due to pricing decreases , partially offset by a 38 % reduction in direct costs including personnel and freight costs . during the second quarter of 2015 , as a result of decreased rig activity and its impact on management 's expectations for future market activity , the company refocused the drilling technologies segment to businesses and markets that have the best opportunity for profitable growth in the future .
| 1,909 |
bad debt expense is included in general and administrative expenses , if any . pursuant to paragraph 310-10-50-2 of the fasb accounting standards codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . the company has adopted paragraph 310-10-50-6 of the fasb accounting standards codification and determine when receivables are past due or delinquent based on how recently payments have been received . inventories inventories consists of products purchased and are valued at the lower of cost or net realizable value . cost is determined on the weighted average cost method . the company reduces inventories for the diminution of value , resulting from product obsolescence , damage or other issues affecting marketability , equal to the difference between the cost of the inventory and its estimated net realizable value . factors utilized in the determination of estimated net realizable value include ( i ) current sales data and historical return rates , ( ii ) estimates of future demand , ( iii ) competitive pricing pressures , ( iv ) new product introductions , ( v ) product expiration dates , and ( vi ) component and packaging obsolescence . the company evaluates its current level of inventories considering historical sales and other factors and , based on this evaluation , classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to paragraph 420-10-s99 of the fasb accounting standards codification to adjust inventories to net realizable value . these markdowns are estimates , which could vary significantly from actual requirements if future economic conditions , customer demand or competition differ from expectations . revenue recognition the company 's revenue recognition policies are in compliance with asc 605 ( originally issued as staff accounting bulletin ( sab ) 104 ) . revenue is recognized at the date of shipment to customers when a formal arrangement exists , the price is fixed or determinable , the delivery is completed , no other significant obligations of the company exist and collectability is reasonably assured . payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue . discounts provided to customers by the company at the time of sale are recognized as a reduction in sales as the products are sold . sales taxes are not recorded as a component of sales . 9 the company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise . persuasive evidence of an arrangement is demonstrated via sales invoice or contract ; product delivery is evidenced by warehouse shipping log as well as a signed acknowledgement of receipt from the customers or a signed bill of lading from the third party trucking company and title transfers upon shipment , based on free on board ( “ fob ” ) warehouse terms ; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate , discount , or volume incentive . when the company recognizes revenue , no provisions are made for returns because , historically , there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues . net sales of products represent the invoiced value of goods , net of value added taxes ( “ vat ” ) . the company is subject to vat which is levied on all of the company 's products at the rate of 5 % on the invoiced value of sales . sales or output vat is borne by customers in addition to the invoiced value of sales and purchase or input vat is borne by the company in addition to the invoiced value of purchases to the extent not refunded for export sales . foreign currency translation the company follows section 830-10-45 of the fasb accounting standards codification ( “ section 830-10-45 ” ) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency , generally the local currency , into u.s. dollars . section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity ( including of a foreign entity in a highly inflationary economy ) , re-measures the books of record ( if necessary ) , and characterizes transaction gains and losses . the assets , liabilities , and operations of a foreign entity shall be measured using the functional currency of that entity . an entity 's functional currency is the currency of the primary economic environment in which the entity operates ; normally , that is the currency of the environment , or local currency , in which an entity primarily generates and expends cash . the functional currency of each foreign subsidiary is determined based on management 's judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary . generally , the currency in which the subsidiary transacts a majority of its transactions , including billings , financing , payroll and other expenditures , would be considered the functional currency , but any dependency upon the parent and the nature of the subsidiary 's operations must also be considered . if a subsidiary 's functional currency is deemed to be the local currency , then any gain or loss associated with the translation of that subsidiary 's financial statements is included in accumulated other comprehensive income . however , if the functional currency is deemed to be the u.s. dollar , then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of comprehensive income ( loss ) . if the company disposes of foreign subsidiaries , then any cumulative translation gains or losses would be recorded into the story_separator_special_tag bad debt expense is included in general and administrative expenses , if any . pursuant to paragraph 310-10-50-2 of the fasb accounting standards codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote . the company has adopted paragraph 310-10-50-6 of the fasb accounting standards codification and determine when receivables are past due or delinquent based on how recently payments have been received . inventories inventories consists of products purchased and are valued at the lower of cost or net realizable value . cost is determined on the weighted average cost method . the company reduces inventories for the diminution of value , resulting from product obsolescence , damage or other issues affecting marketability , equal to the difference between the cost of the inventory and its estimated net realizable value . factors utilized in the determination of estimated net realizable value include ( i ) current sales data and historical return rates , ( ii ) estimates of future demand , ( iii ) competitive pricing pressures , ( iv ) new product introductions , ( v ) product expiration dates , and ( vi ) component and packaging obsolescence . the company evaluates its current level of inventories considering historical sales and other factors and , based on this evaluation , classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to paragraph 420-10-s99 of the fasb accounting standards codification to adjust inventories to net realizable value . these markdowns are estimates , which could vary significantly from actual requirements if future economic conditions , customer demand or competition differ from expectations . revenue recognition the company 's revenue recognition policies are in compliance with asc 605 ( originally issued as staff accounting bulletin ( sab ) 104 ) . revenue is recognized at the date of shipment to customers when a formal arrangement exists , the price is fixed or determinable , the delivery is completed , no other significant obligations of the company exist and collectability is reasonably assured . payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue . discounts provided to customers by the company at the time of sale are recognized as a reduction in sales as the products are sold . sales taxes are not recorded as a component of sales . 9 the company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of merchandise . persuasive evidence of an arrangement is demonstrated via sales invoice or contract ; product delivery is evidenced by warehouse shipping log as well as a signed acknowledgement of receipt from the customers or a signed bill of lading from the third party trucking company and title transfers upon shipment , based on free on board ( “ fob ” ) warehouse terms ; the sales price to the customer is fixed upon acceptance of the signed purchase order or contract and there is no separate sales rebate , discount , or volume incentive . when the company recognizes revenue , no provisions are made for returns because , historically , there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues . net sales of products represent the invoiced value of goods , net of value added taxes ( “ vat ” ) . the company is subject to vat which is levied on all of the company 's products at the rate of 5 % on the invoiced value of sales . sales or output vat is borne by customers in addition to the invoiced value of sales and purchase or input vat is borne by the company in addition to the invoiced value of purchases to the extent not refunded for export sales . foreign currency translation the company follows section 830-10-45 of the fasb accounting standards codification ( “ section 830-10-45 ” ) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency , generally the local currency , into u.s. dollars . section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity ( including of a foreign entity in a highly inflationary economy ) , re-measures the books of record ( if necessary ) , and characterizes transaction gains and losses . the assets , liabilities , and operations of a foreign entity shall be measured using the functional currency of that entity . an entity 's functional currency is the currency of the primary economic environment in which the entity operates ; normally , that is the currency of the environment , or local currency , in which an entity primarily generates and expends cash . the functional currency of each foreign subsidiary is determined based on management 's judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary . generally , the currency in which the subsidiary transacts a majority of its transactions , including billings , financing , payroll and other expenditures , would be considered the functional currency , but any dependency upon the parent and the nature of the subsidiary 's operations must also be considered . if a subsidiary 's functional currency is deemed to be the local currency , then any gain or loss associated with the translation of that subsidiary 's financial statements is included in accumulated other comprehensive income . however , if the functional currency is deemed to be the u.s. dollar , then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of comprehensive income ( loss ) . if the company disposes of foreign subsidiaries , then any cumulative translation gains or losses would be recorded into the
| results of operations years ended december 31 , 2017 and 2016 revenue the company recognized $ 30,000 of revenue from continuing operation during the year ended december 31 , 2017 , as compared to $ 0 for the year ended december 31 , 2016. as we discussed above , the company sold off the wholly-owned subsidiary jinchih on september 30 , 2017 , we presented the revenue for the year ended december 31 , 2016 as revenue from discontinued operation on consolidated statements of comprehensive loss . our revenue from continuing operation were generated from the i.t . management consulting services . general and administrative expenses : general and administrative expenses from continuing operations were $ 185,449 and $ 209,347 for the years ended december 31 , 2017 and 2016 , respectively . the decrease was primarily due to decrease in salary expense and travel expense . interest expense interest expense from continuing operation was $ 96,188 for the year ended december 31 , 2017 which included the interest on the convertible promissory notes issued for $ 1,188 and the amount of beneficial conversion feature for $ 95,000. there was no interest expense from continuing operation for the year ended december 31 , 2016. loss from continuing operations the company generated loss from continuing operations of $ 251,637 and $ 209,347 for the years ended december 31 , 2017 and 2016 , respectively . loss from discontinued operations the company 's operating subsidiary in taiwan was sold to one of the company 's directors on september 30 , 2017. hence the company has presented results of the taiwan subsidiary operations as a discontinued operation in the consolidated statements of comprehensive loss . during the years ended december 31 , 2017 and 2016 , loss from discontinued operation were $ 547,872 and $ 104,655 respectively .
| 1,910 |
this md & a begins with the company 's consolidated financial highlights followed by segment highlights and consolidated results of operations , an outlook for future performance , details about critical accounting estimates and the results of operations by segment . the company 's strategy is described in item 1 of this report . as discussed in item 1 , horace mann educators corporation ( hmec ) is an insurance holding company . through its subsidiaries , hmec markets and underwrites personal lines of property and casualty insurance , annuities and life insurance in the u.s. the company markets its products primarily to k-12 teachers , administrators and other employees of public schools and their families . on december 10 , 2018 , the company entered into a definitive agreement ( agreement ) to acquire all of the equity interests in nta life enterprises , llc and ellard enterprises , inc. ( collectively , nta ) , holding companies and their supplemental insurance subsidiaries . the agreement provides , among other things , that , upon the terms and subject to the conditions set forth in the agreement , the company will acquire all of the equity interests in nta for $ 405 million . the agreement and the consummation of the transactions contemplated by the agreement have been approved by the company 's board of directors ( board ) . the closing of the acquisition is expected to occur in mid-2019 , subject to the satisfaction or waiver of applicable closing conditions as well as approval by certain regulators . on october 30 , 2018 , the company entered into a definitive agreement ( agreement ) to acquire all of the equity interests in benefit consultants group , inc. ( bcg ) , a retirement plan provider and subsidiary broker-dealer . the agreement provides , among other things , that , upon the terms and subject to the conditions set forth in the agreement , the company will acquire all of the outstanding capital stock of bcg for $ 25 million . the agreement and the consummation of the transactions contemplated by the agreement were approved by the company 's board and subsequent to receiving regulatory approvals , closed on january 2 , 2019. the company provides projections and other forward-looking information in the following discussions that are not historical in nature and are forward-looking within the meaning of the private securities litigation reform act of 1995. the company 's actual results could differ materially from those projected in the forward-looking statements due to the number of risks and uncertainties inherent in the company 's business . horace mann undertakes no obligation to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . for additional information regarding risk and uncertainties , see item 1a of this report . 40 consolidated financial highlights replace_table_token_15_th _ n.m. - the company defines increases or decreases greater than or equal to 150 % as `` n.m. '' or not meaningful . net income the company 's 2018 net income decreased compared to 2017 primarily due to the tax benefit recognized in 2017 from the passage of the tax cuts and jobs act of 2017 ( tcja ) , an elevated level of catastrophe costs and increased net investment losses in 2018. in 2017 , the company 's net income benefited/ ( decreased ) $ 99.0 million ( $ 0.6 million in property and casualty , $ 39.5 million in retirement , $ 60.3 million in life and $ ( 1.4 ) million in corporate and other ) from the re-measurement of its net deferred tax liability ( dtl ) attributed to tcja . after tax net investment losses of $ 10.1 million in 2018 were $ 8.4 million higher than $ 1.7 million of after tax net investment losses a year earlier . the company 's 2017 net income increased compared to 2016 primarily due to the re-measurement of the company 's dtl in 2017 which offset after tax net investment losses of $ 1.7 in 2017 compared to after tax net investment gains of $ 2.3 million a year earlier . segment highlights net income ( loss ) by segment is as follows : replace_table_token_16_th _ n.m. - not meaningful . 41 property and casualty replace_table_token_17_th _ n.m. - not meaningful . for 2018 , written premiums * increased compared to 2017 , driven primarily by rate increases and somewhat offset by $ 6.7 million of reinsurance reinstatement premiums . for 2017 , written premiums increased compared to 2016 , reflecting increases in average written premium per policy for both property and automobile . policy retention continued to be stable . for 2018 , net income decreased $ 32.1 million compared to 2017 , driven primarily by elevated catastrophe costs which were $ 49.9 higher than the prior year . for 2017 , net income decreased $ 7.8 million compared to 2016 , driven primarily by elevated weather-related losses . excluding the effects of catastrophe costs and prior years ' reserve development , the underlying combined ratio * has improved since 2016. retirement replace_table_token_18_th for 2018 , sales deposits * increased compared to 2017 , driven by strong growth in fee-based deposits . for 2017 , sales deposits decreased compared to 2016 , reflecting a decrease in spread-based deposits partially offset by an increase in fee-based deposits . for 2018 , total assets under management were comparable to a year ago . for 2017 , total assets under management increased compared to 2016 , primarily due to market appreciation on variable account annuities . total cash value persistency remained strong . 42 for 2018 , net income excluding deferred policy acquisition costs ( dac ) unlocking decreased $ 44.3 million compared to 2017 , primarily due to the benefit of a $ 39.5 million dtl re-measurement occurring in 2017 , a $ 7.0 million pretax decrease in net interest margin and higher operating expenses to support long-term retirement infrastructure . story_separator_special_tag depending on the security , the priority of the use of inputs may change or some market inputs may not be relevant . for some securities , additional inputs may be necessary . the company gains assurance that its fixed maturity securities portfolio is appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies , including inputs and assumptions , and compliance with accounting standards . the company 's processes and controls are designed to ensure ( 1 ) the valuation methodologies are appropriate and consistently applied , ( 2 ) the inputs and assumptions are reasonable and consistent with the objective of determining fair value , and ( 3 ) the fair values are accurately recorded . for example , on a continuing basis , the company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers . the company performs procedures to understand and assess the methodologies , processes and controls of valuation service providers . in addition , the company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or broker-dealers to other third party valuation sources for selected securities . at december 31 , 2018 , level 3 invested assets comprised 3.0 % of the company 's total investment portfolio fair value . invested assets are classified as level 3 when fair value is determined based on unobservable inputs that are supported by little or no market activity and those inputs are significant to the determination of fair value . evaluation of other-than-temporary impairments the company 's methodology of assessing otti for fixed maturity securities is based on security-specific facts and circumstances as of the reporting date . the company has a policy and process to evaluate fixed maturity securities ( at the cusip/issuer level ) on a quarterly basis to assess whether there has been otti . these reviews , in conjunction with the company 's investment managers ' monthly credit reports and relevant factors such as ( 1 ) the financial condition and near-term prospects of the issuer , ( 2 ) the length of time and extent to which the fair value has been less than the amortized cost basis , ( 3 ) the company 's intent to sell a security or whether it is more likely than not the company will be required to sell the security before the anticipated recovery of the amortized cost basis , ( 4 ) the market leadership position of the issuer , ( 5 ) the debt ratings of the issuer , and ( 6 ) the cash flows and liquidity of the issuer or the underlying cash flows for asset-backed securities , are all considered in the impairment assessment . 48 when otti is deemed to have occurred , the investment is written-down to fair value at the trade lot level and the credit-related loss portion is recognized as a net investment loss during the period . the amount of total otti related to non-credit factors for fixed maturity securities is recognized in other comprehensive income ( oci ) , net of applicable taxes , in which the company has the intent to sell the security or if it is more likely than not the company will be required to sell the security before the anticipated recovery of the amortized cost basis . also , see item 8 , note 1 of the consolidated financial statements in this report . evaluation of goodwill for impairment goodwill represents the excess of the amounts paid to acquire a business over the fair value of its net assets at the date of acquisition . goodwill is not amortized , but is tested for impairment at the reporting unit level at least annually or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . if the carrying amount of the reporting unit goodwill exceeds the implied goodwill value , an impairment loss would be recognized in an amount equal to that excess ; the charge could have a material adverse effect on the company 's results of operations . the company 's reporting units , for which goodwill has been allocated , are equivalent to the company 's operating segments . as of december 31 , 2018 , the company 's allocation of goodwill by reporting unit/segment was as follows : $ 28.0 million , retirement ; $ 9.9 million , life ; and $ 9.5 million , property and casualty . also see item 8 , note 1 of the consolidated financial statements in this report . the process of evaluating goodwill for impairment requires management to make multiple judgments and assumptions to determine the fair value of each reporting unit , including discounted cash flow calculations , the level of the company 's own share price and assumptions that market participants would make in valuing each reporting unit . fair value estimates are based primarily on an in-depth analysis of historical experience , projected future cash flows and relevant discount rates , which consider market participant inputs and the relative risk associated with the projected cash flows . other assumptions include levels of economic capital , future business growth , earnings projections and assets under management for each reporting unit . estimates of fair value are subject to assumptions that are sensitive to change and represent the company 's reasonable expectation regarding future developments . the company also considers other valuation techniques such as peer company price-to-earnings and price-to-book multiples . the assessment of goodwill recoverability requires significant judgment and is subject to inherent uncertainty . the use of different assumptions , within a reasonable range , could cause the fair value of a reporting unit to be below carrying value .
| consolidated results of operations replace_table_token_20_th _ n.m. - not meaningful . 43 insurance premiums and contract charges earned for 2018 , insurance premiums and contract charges earned increased compared to 2017 , primarily due to increases in average premium per policy for both property and automobile . for 2017 , insurance premiums and contract charges earned increased compared to 2016 for the same reason . net investment income for 2018 , net investment income was comparable to 2017 as increased prepayment activity and returns on alternative investments offset the reduction in yields from a movement up in quality of the portfolio . average invested assets increased 2.2 % in 2018. for 2017 , net investment income increased compared to 2016 reflecting growth in asset balances and an increase in prepayment activity , partially offset by the impact of the current low interest rate environment . average investment assets increased 4.2 % in 2017. the annualized yield on the total investment portfolio is listed in the following table : replace_table_token_21_th during 2018 , management continued to identify and purchase investments , including a modest level of alternative investments , with attractive risk-adjusted yields relative to market conditions without venturing into asset classes or individual securities that would be inconsistent with the company 's overall conservative investment guidelines . net investment gains ( losses ) - pretax for 2018 , net investment losses increased compared to 2017. effective january 1 , 2018 , with the adoption of new accounting guidance for recognition and measurement of financial instruments , equity securities are reported at fair value with changes in fair value recognized in net investment gains ( losses ) . the changes in fair value of equity securities accounted for the increase in net investment losses over 2017. in 2017 , net investment losses as compared to net investment gains in 2016 were realized primarily from ongoing investment portfolio management activity and , when determined , the recognition of other-than-temporary impairments ( otti ) .
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time-vest restricted stock awards generally vest based on continuous employment over a two or story_separator_special_tag overview we manage our business and report revenue and operating income ( loss ) in three segments : ( 1 ) realplayer group , ( 2 ) mobile entertainment , and ( 3 ) games . within our realplayer group , revenue is derived from the sale of our realplayer media player software and related products , , our new realplayer cloud service , and our superpass service . our mobile entertainment business generates revenue from the sale of its saas services , which include ringback tones , music on demand , and intercarrier messaging , and our listen product . our games business , through its slingo , gamehouse and zylom brands , derives revenue from sales of games licenses , online games subscription services , advertising on games sites and social networks , microtransactions within online and social games , and sales of mobile games . we allocate certain corporate expenses which are directly attributable to supporting our businesses , including but not limited to a portion of finance , legal , human resources and headquarters facilities , to our reportable segments . the allocation of these costs to our business units ensures accountability for financial and operational performance within each of our reportable segments . our most significant expenses relate to cost of revenue , compensating employees , and selling and marketing our products and services . in 2014 our consolidated revenue declined by $ 50.0 million compared with 2013 , due to a decrease of $ 36.0 million in realplayer group revenue , a $ 12.7 million decrease in games revenue , and a $ 1.3 million decrease in mobile entertainment revenue . revenue from our legacy products continues to decline as a result of certain changes in our businesses and market-driven factors . our saas business within mobile entertainment continues to be negatively impacted by the proliferation of smartphone applications and services , some of which do not depend on our carrier customers for distribution to consumers . in addition , we are still experiencing pricing pressure from carriers for our intercarrier messaging services . furthermore , we are no longer investing in our helix product . in our games segment , our business continues to be challenged as consumer game play continues to shift from downloadable pc games to social networks and mobile devices . since 2011 , we have been focusing on developing social and mobile games and monetizing those game play experiences . in our realplayer group segment , revenue is being negatively impacted as a result of our transition to a new third party distribution partner at significantly lower rates compared to our previous partner , lower distribution in our licensing business and due to our focus towards realplayer cloud and away from our legacy products . over the past several quarters , we have developed a growth plan , implemented strategic initiatives , and executed certain restructuring efforts , all in an effort to grow our businesses , move towards profitability , and streamline our operations . in line with our growth plan , we continue to invest in each of our three business units . during the first half of 2014 , we released realplayer cloud worldwide . this global roll out allows us to reach our base of over ten million active realplayer users around the world . in our mobile entertainment business we continue our efforts to roll out our new listen product . in our games business , we launched slingo adventure worldwide on facebook and on mobile platforms during the second half of 2014. we expect to continue to invest heavily in our growth initiatives , including further development and marketing efforts around our products . these investments have negatively impacted our recent operating results , which may continue until the expected revenue growth materializes . in addition to our revenue growth plans , we have continued to better align our operating expenses with our revenue profile through various restructuring actions , as described below in consolidated operating expenses . these actions drove the $ 38.3 million decline in our operating expenses during 2014 compared to 2013 of which $ 11.5 million of the decline was due to a litigation settlement in 2013 . 19 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > . the decrease was primarily due to reductions in personnel and related costs of $ 4.9 million , and reductions in marketing expense of $ 4.3 million . 2013 compared with 2012 in the quarter ended june 30 , 2013 , we acquired slingo , a social casino games company based in the u.s. , for total cash consideration of $ 15.6 million . this acquisition is intended to enhance our footprint in the social casino games arena . associated with this are incremental costs for investment in new products , which have directly impacted our operating loss before taxes . games revenue decreased by $ 17.2 million , or 26 % . lower revenue from license sales , subscription products , and advertising contributed $ 8.3 million , $ 5.8 million , and $ 4.3 million , respectively , to the decline during the period . slightly offsetting these decreases was an increase of $ 2.1 million in games revenue as a result of the acquisition of slingo . cost of revenue decreased by $ 8.5 million , or 39 % . the decrease was due to the decrease in partner royalties expense , which has a direct correlation with the decrease in games revenue . gross margin increased due to lower margin projects that occurred in the prior year periods , in addition to lower personnel and related costs in the current period resulting from our ongoing expense alignment efforts . operating expenses decreased by $ 4.7 million , or 9 % . the decrease was primarily due to reductions in personnel and related costs of $ 5.5 million , and reductions in marketing expense of $ 1.9 million . story_separator_special_tag the 2013 gain on sale of equity investments , net , was due to a $ 21.4 million gain on the sale of all of our remaining shares of common stock in loen entertainment , inc. the 2012 gain on sale of equity investments , net , was driven by the sale of a portion of our shares in loen and a gain on the sale of our film.com assets , totaling $ 5.3 million . for additional details on the j-stream and loen transactions see note 5 , fair value measurements . income taxes during the years ended december 31 , 2014 , 2013 , and 2012 , we recognized income tax expense of $ 1.3 million , $ 4.9 million and $ 12.5 million , respectively , related to u.s. and foreign income taxes . the tax expense for the year ended december 31 , 2014 was largely the result of foreign withholding taxes and income taxes in foreign jurisdictions . the tax expense for the year ended december 31 , 2013 was largely the result of valuation allowances we recorded in certain foreign jurisdictions . the tax expense for the year ended december 31 , 2012 was largely the result of the sale of certain patent assets and other technology assets to intel corporation for gross cash consideration of $ 120 million in 2012. we assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors , including the current economic climate , our expectations of future taxable income , our ability to project such income , and the appreciation of our investments and other assets . we maintain a partial valuation allowance of $ 149.5 million for our deferred 24 tax assets due to uncertainty regarding their realization as of december 31 , 2014. the net increase in the valuation allowance since december 31 , 2013 of $ 20.6 million was the result of an increase in current year deferred tax assets for which the company maintains a valuation allowance . we generate income in a number of foreign jurisdictions , some of which have higher tax rates and some of which have lower tax rates relative to the u.s. federal statutory rate . changes to the blend of income between jurisdictions with higher or lower effective tax rates than the u.s. federal statutory rate could affect our effective tax rate . for the year ended december 31 , 2014 , decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the u.s. federal statutory rate were offset by increases in tax expense from income generated in foreign jurisdictions having comparable , or higher tax rates in comparison to the u.s. federal statutory rate . as of december 31 , 2014 and 2013 , we had $ 3.5 million and $ 4.5 million of unrecognized tax benefits , respectively . the decrease in unrecognized tax benefits is due to the expiration of statute of limitations . as of december 31 , 2014 , there are no unrecognized tax benefits remaining that would affect our effective tax rate if recognized , as the offset would increase the valuation allowance . the total amount of unrecognized tax benefits that would affect our effective tax rate if recognized was $ 0.4 million as of december 31 , 2013 . we file numerous consolidated and separate income tax returns in the u.s. including federal , state and local , as well as foreign jurisdictions . with few exceptions , we are no longer subject to u.s. federal income tax examinations for tax years before 2008 or state , local , or foreign income tax examinations for years before 1993. we are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993. we are currently under audit for united states federal returns for the consolidated group ( realnetworks , inc. and subsidiaries ) for the year ended december 31 , 2012. geographic revenue revenue by geographic region was as follows ( dollars in thousands ) : replace_table_token_10_th revenue in the u.s. decreased by $ 28.6 million , or 32 % , in the year-ended 2014 , compared with 2013. the decline was mainly due to a reduction in revenue from the distribution of our third party software products of $ 14.9 million , a decline in revenue from our games business of $ 3.6 million , a decline of $ 4.7 million relating to our superpass subscriptions offering , a decrease in revenue from our realplayer plus product of $ 2.4 million , and a decline in our saas revenue of $ 1.9 million . revenue in the u.s. declined by $ 27.6 million , or 23 % , in the year-ended 2013 , compared with 2012. the decline was primarily due to reductions in revenue generated from our saas offerings of $ 13.0 million , lower sales of realplayer group subscriptions , mainly including our superpass product , of $ 8.3 million , and lower sales of games subscriptions and licenses of $ 5.8 million . revenue in europe decreased by $ 11.6 million , or 30 % , in the year-ended 2014 , compared with 2013. the decrease was primarily due to lower revenue from our games segment of $ 7.7 million , lower revenue generated from sales of realplayer plus totaling $ 1.9 million and a $ 1.3 million decrease in revenue from the distribution of our third party software products . revenue in europe decreased by $ 18.3 million , or 32 % , in the year-ended 2013 , compared with 2012. the decrease was primarily due to lower revenue from our games segment of $ 9.3 million , reductions in revenue generated from our saas offerings of $ 3.3 million , and lower intellectual property license revenue of $ 2.8 million .
| summary of results consolidated results of operations were as follows ( dollars in thousands ) : replace_table_token_3_th 2014 compared with 2013 revenue decreased by $ 50.0 million , or 24 % . the reduction in revenue resulted from a decline of $ 36.0 million in our realplayer group segment , a decline of $ 12.7 million in our games segment , and a decline of $ 1.3 million in our mobile entertainment segment , due to the factors described above . gross margin decreased to 58 % from 62 % , primarily as a result of our transition to a new third party distribution arrangement at significantly lower rates compared to our previous partner in our realplayer business , and to declining sales in our storefront business in games . these decreases in gross margin were partially offset by the extinguishment in q1 2014 of certain accrued royalty liabilities of $ 10.6 million associated with our historical music business , which had been originally recorded based on statutory rates . operating expenses decreased by $ 38.3 million primarily due to reductions in personnel and related costs of $ 10.9 million , reductions in marketing costs of $ 10.4 million and lower costs related to our 2013 headquarters relocation of $ 5.7 million , which resulted from our ongoing expense re-alignment efforts , as well as litigation settlement costs of $ 11.5 million in the prior year . 2013 compared with 2012 revenue decreased by $ 52.6 million , or 20 % . the reduction in revenue resulted from a decline of $ 19.1 million in our mobile entertainment segment , a decline of $ 17.2 million in our games segment , and a decline of $ 16.3 million in our realplayer group segment , due to the factors described above .
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we anticipate that our operations will begin to generate revenue approximately 18 to 24 months following the date of filing of this form 10-k. since we are presently in the development stage of our business , we can provide no assurance that we will successfully sell any products or services related to our planned activities . 14 to date , we have been in contact with professional advisors regarding legal compliance , accounting disclosure statements and financial reporting . we have also begun our planning for developing a website and searching for a contractor to develop that website . we will retain such a contractor only after we secure further funding . we intend to launch our “ information only ” web site during the first quarter of the 2014 calendar year . our business activities during the next 12 months following will be focused on raising funds , the development of our website , the development of our product , the development of a network of resellers and the establishment of our brand name . we do not expect to earn any sales revenue during this time . we anticipate that our revenue will come from two primary sources : first , from the placement of advertising on our website and phone software , second , from paid calls by our customers , and third from licensing or selling our software . we anticipate that our operations will begin to generate revenue approximately 18 to 24 months following the date of filing of this form 10-k. we are however running low on funding and our directors provided the company with a $ 15,243 loan to continue operation . story_separator_special_tag website , their portal and the software phone . we have made our estimated projections ourselves . we believe that our estimates are reasonable . by way of comparison , according to http : //www.reelseo.com/video- advertising-vs-banners-cpms/ : * the average ad network inventory is : $ 0.60 to $ 1.10 cpm ; * the publisher sold display advertising is : $ 10 to $ 20 cpm ; and * video advertising is : $ 40 to $ 50 cpm 17 we may never achieve the revenues we are projecting because the basis upon which we are making our revenue projections is subjective , and our reliance on third-party data which is more than two years old may be unreliable because the veracity of the third-party data can not be verified . while we will be focusing on video advertising , we may have display advertising and network inventory . year 1 will be spent on developing our products and services and we expect zero revenue during that period . in year 2 , we anticipate revenues of $ 153,750. we anticipate that we will start generating revenue in month 13 after we have completed the share sale outline . we expect that revenue will continue to increase and exceed expenses by month 19. we anticipate that we will sustain $ 15,105 in losses between months 13-24. in year 3 , we anticipate revenues of $ 460,000 and a profit of $ 105,884 between months 25-36 , and only at this point will our revenues exceed our costs . we make the following assumptions in our projections above for year 2 : * we anticipate we will earn $ 20 cpm ( $ 0.02 every time a customer views an advertising ) on the basis of estimating 2 million impressions , which represents approximately 167,000 impression per month . * we anticipate we will earn $ 0.3 every time a customer clicks on advertising , on the basis of estimating 200,000 clicks or approximately 16,700 clicks per month . * when a customer fills in a form or takes a survey or clicks through and purchases a product , we will earn revenue . we are estimating a $ 1 per action and assuming that we will have 50,000 completions per year or approximately 4,200 completions per month . * we anticipate that many calls outside north america will incur cost to the customer . we are estimating 750,000 minutes , which is approximately 2000 customers making 300 chargeable minutes per month . since we are planning to provide this service as cheaply as possible to customers , we are only assuming $ 0.005 ( half a cent ) per minute profit . while going to make a phone call , a customer is likely to see multiple advertisements which will include a combination of banners and videos on the web site , the advertiser 's portal and our software phone . as well , people investigating our service , but not necessarily register , will earn us revenue because they will be viewing advertising . we can offer no assurance that we will be successful in developing and offering our products and services . any number of factors may impact our ability to develop our products and services , including our ability to obtain financing if and when necessary ; the availability of skilled personnel ; market acceptance of our products , if they are developed ; and our ability to gain market share . our business will fail if we can not successfully implement our business plan or if we can not develop or successfully market our products and services . since there is no minimum amount of shares that must be sold by the company , we may receive no proceeds or very minimal proceeds from the offering and potential investors may end up holding shares in a company that : * has not received enough proceeds from the offering to begin operations ; and * has no market for its shares . 18 our independent registered public accountant has issued a going concern opinion . this means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills . this is story_separator_special_tag we anticipate that our operations will begin to generate revenue approximately 18 to 24 months following the date of filing of this form 10-k. since we are presently in the development stage of our business , we can provide no assurance that we will successfully sell any products or services related to our planned activities . 14 to date , we have been in contact with professional advisors regarding legal compliance , accounting disclosure statements and financial reporting . we have also begun our planning for developing a website and searching for a contractor to develop that website . we will retain such a contractor only after we secure further funding . we intend to launch our “ information only ” web site during the first quarter of the 2014 calendar year . our business activities during the next 12 months following will be focused on raising funds , the development of our website , the development of our product , the development of a network of resellers and the establishment of our brand name . we do not expect to earn any sales revenue during this time . we anticipate that our revenue will come from two primary sources : first , from the placement of advertising on our website and phone software , second , from paid calls by our customers , and third from licensing or selling our software . we anticipate that our operations will begin to generate revenue approximately 18 to 24 months following the date of filing of this form 10-k. we are however running low on funding and our directors provided the company with a $ 15,243 loan to continue operation . story_separator_special_tag website , their portal and the software phone . we have made our estimated projections ourselves . we believe that our estimates are reasonable . by way of comparison , according to http : //www.reelseo.com/video- advertising-vs-banners-cpms/ : * the average ad network inventory is : $ 0.60 to $ 1.10 cpm ; * the publisher sold display advertising is : $ 10 to $ 20 cpm ; and * video advertising is : $ 40 to $ 50 cpm 17 we may never achieve the revenues we are projecting because the basis upon which we are making our revenue projections is subjective , and our reliance on third-party data which is more than two years old may be unreliable because the veracity of the third-party data can not be verified . while we will be focusing on video advertising , we may have display advertising and network inventory . year 1 will be spent on developing our products and services and we expect zero revenue during that period . in year 2 , we anticipate revenues of $ 153,750. we anticipate that we will start generating revenue in month 13 after we have completed the share sale outline . we expect that revenue will continue to increase and exceed expenses by month 19. we anticipate that we will sustain $ 15,105 in losses between months 13-24. in year 3 , we anticipate revenues of $ 460,000 and a profit of $ 105,884 between months 25-36 , and only at this point will our revenues exceed our costs . we make the following assumptions in our projections above for year 2 : * we anticipate we will earn $ 20 cpm ( $ 0.02 every time a customer views an advertising ) on the basis of estimating 2 million impressions , which represents approximately 167,000 impression per month . * we anticipate we will earn $ 0.3 every time a customer clicks on advertising , on the basis of estimating 200,000 clicks or approximately 16,700 clicks per month . * when a customer fills in a form or takes a survey or clicks through and purchases a product , we will earn revenue . we are estimating a $ 1 per action and assuming that we will have 50,000 completions per year or approximately 4,200 completions per month . * we anticipate that many calls outside north america will incur cost to the customer . we are estimating 750,000 minutes , which is approximately 2000 customers making 300 chargeable minutes per month . since we are planning to provide this service as cheaply as possible to customers , we are only assuming $ 0.005 ( half a cent ) per minute profit . while going to make a phone call , a customer is likely to see multiple advertisements which will include a combination of banners and videos on the web site , the advertiser 's portal and our software phone . as well , people investigating our service , but not necessarily register , will earn us revenue because they will be viewing advertising . we can offer no assurance that we will be successful in developing and offering our products and services . any number of factors may impact our ability to develop our products and services , including our ability to obtain financing if and when necessary ; the availability of skilled personnel ; market acceptance of our products , if they are developed ; and our ability to gain market share . our business will fail if we can not successfully implement our business plan or if we can not develop or successfully market our products and services . since there is no minimum amount of shares that must be sold by the company , we may receive no proceeds or very minimal proceeds from the offering and potential investors may end up holding shares in a company that : * has not received enough proceeds from the offering to begin operations ; and * has no market for its shares . 18 our independent registered public accountant has issued a going concern opinion . this means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills . this is
| results of operations years ended september 30 , 2014 and 201 3 we did not earn any revenues during the years ended september 30 , 2014 and 2013. we incurred operating expenses in the amount of $ 19,125 and $ 16,466 for the years ended september 30 , 2014 and 2013 , respectively . operating expenses for the year ended september 30 , 2014 , were comprised of $ 15,727 in professional fees and $ 3,398 of general and administrative expenses . operating expenses for the year ended september 30 , 2013 , were comprised primarily of $ 9,925 of professional fees and office and $ 6,541 of general and administrative expenses . since inception we have incurred operating expenses of $ 92,549. from inception ( march 11 , 2010 ) through the year ended september 30 , 2013 we had no revenues and a net loss of $ 92,549. the following table provides selected financial data about our company for the years ended september 30 , 2014 and 2013. replace_table_token_1_th going concern we currently have no operations . our independent auditor has issued an audit opinion for first american group inc. , which includes a statement raising substantial doubt as to our ability to continue as a going concern . 15 liquidity and capital resources at september 30 , 2014 , we had a cash balance of $ 2,662. management does not believe that this amount will satisfy our cash requirements for the next twelve months . the directors of the company have been providing the company with shareholder loans in order to sustain the company . management believes that if subsequent private placements are successful , we will be able to generate sales revenue within the following twelve months thereof . however , additional equity financing may not be available to us on acceptable terms or at all , and thus we could fail to satisfy our future cash requirements .
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topic 606 story_separator_special_tag overview pros provides ai solutions that power commerce in the digital economy by providing fast , frictionless and personalized buying experiences . pros solutions enable dynamic buying experiences for both b2b and b2c companies across industry verticals . companies can use our dynamic pricing optimization , sales effectiveness , revenue management and commerce solutions to assess their market environments in real time to deliver customized prices and offers . our solutions enable buyers to move fluidly across our customers ' direct sales , online , mobile and partner channels with personalized experiences regardless of which channel those customers choose . our decades of data science and ai expertise are infused into our solutions and are designed to reduce time and complexity through actionable intelligence . we provide standard configurations of our software based on the industries we serve and offer professional services to configure these solutions to meet the specific needs of each customer . story_separator_special_tag to customers , expand our customer base , grow our revenues and increase our overall value . backlog we have aligned our backlog definition with the concepts and requirements of accounting standards update no . 2014-09 , `` revenue from contracts with customers ( topic 606 ) `` . see note 10 of our notes to consolidated financial statements for additional information regarding our performance obligations . 24 factors affecting our performance key factors and trends that have affected and we believe will continue to affect our operating results include : buying preferences driving technology adoption . buyers are increasingly demanding the same type of digital buying experience that they enjoy as consumers . for example , buyers increasingly prefer to buy online when they have already decided what to buy , and often prefer not to interact with a sales representative as their primary source of research . in response , we believe that businesses are increasingly looking to modernize their sales process to compete in digital commerce by adopting technologies which provide fast , frictionless , and personalized buying experiences across sales channels . we believe we are uniquely positioned to help power these buying experiences with our ai-powered solutions that enable buyers to move fluidly across our customers ' direct sales , online , mobile and partner channels and have personalized experiences however they choose to buy . continued investments . we are focused on creating awareness for our solutions , expanding our customer base and growing our recurring revenues . while we incurred losses in 2018 , we believe our market is large and underpenetrated and therefore we intend to continue investing to expand our ability to sell our and renew subscription offerings globally through investments in sales , marketing , customer success , cloud support , security , privacy , infrastructure and other long-term initiatives . we also plan to continue to invest in product development to enhance our existing technologies and develop new applications and technologies . cloud transition . in 2015 , we began our transition to a cloud business to help accelerate adoption of our solutions and drive recurring revenue . our cloud strategy has resulted in more sales of subscription-based solutions and very few on-premise license sales since we began our transition in 2015 , and we expect this trend to continue . this increase in the sales of subscription-based solutions has resulted in an increase in our subscription revenue . cloud migrations . we expect that over time , additional sales of our cloud-based solutions will result in a decrease in our maintenance and support revenue , particularly as existing customers continue to migrate from our licensed solutions to our cloud solutions . sales mix impacts subscription revenue recognition timing . the mix of subscription services and professional services can create revenue variability in given periods based on the nature and scope of services sold together . professional services that are deemed to be distinct from the subscription services are accounted for as a separate performance obligation and revenue is recognized as the services are performed . if determined that the professional services are not considered distinct , the professional services and the subscription services are determined to be a single performance obligation and all revenue is recognized over the contractual term of the subscription beginning on the date that subscription services are made available to the customer , resulting in a deferral of revenue and revenue recognized over a shorter period of time , which would have a negative near-term financial impact . description of key components of our operating results revenue we derive our revenues primarily from recurring revenue , which includes subscription and maintenance and support services . recurring revenues accounted for 81 % of our total revenue in 2018 . subscription services . subscription services revenue primarily consists of fees that give customers access to one or more of our cloud applications with routine customer support . subscription services revenue is generally recognized ratably over the contractual term of the arrangement beginning on the date that our service is made available to the customer . our subscription contracts do not provide customers with the right to take possession of the software supporting the applications and , as a result , are accounted for as service contracts . our subscription contracts are generally two to five years in length , billed annually in advance , and are generally non-cancelable . maintenance and support . maintenance and support revenue includes post-implementation customer support for our on-premise software and the right to unspecified software updates and enhancements . we recognize revenue from maintenance arrangements ratably over the period in which the services are provided . our maintenance and support contracts are generally one year in length , billed annually in advance , and non-cancelable . 25 license . licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer . license revenue from distinct on-premises licenses is recognized at the point in time when the software is made available to the customer . story_separator_special_tag the decrease in 2018 was also impacted by the timing of certain cash collections from maintenance contracts that we only recognize on a cash basis during the same period in 2017. we expect maintenance revenue to continue to decline over time as we sell fewer licenses and related maintenance and support , sell more subscription services and migrate existing maintenance customers to our cloud solutions . license revenue . license revenue decreased primarily due to a smaller number of customers licensing our software as a result of our strategy to sell fewer licenses and more subscription services and due to the completion of several large perpetual license projects related to agreements executed prior to our cloud transition , which were recognized over time based upon our efforts to satisfy the performance obligation . services revenue . services revenue remained relatively consistent during the year ended december 31 , 2018 as compared to the same period in 2017. services revenue varies from period to period depending on different factors , including the level of professional services required to implement our solutions , the timing of services revenue recognition on certain subscription contracts and any additional professional services requested by our customers during a particular period . 27 cost of revenue and gross profit . replace_table_token_6_th cost of subscription . cost of subscription increased primarily as a result of an increase in infrastructure cost to support our current and anticipated subscription customer base , which included $ 4.3 million related to the acquisition of vayant . our subscription gross profit percentage was 63 % and 54 % , respectively , for the years ended december 31 , 2018 and 2017 . cost of maintenance and support . the cost of maintenance and support declined primarily due to a decrease in personnel cost mainly due to efficiencies in employee related costs . maintenance and support gross profit percentages for the years ended december 31 , 2018 and 2017 , were 82 % and 83 % , respectively . cost of license . cost of license consists of third-party fees for licensed software and remained relatively consistent year-over-year . license gross profit percentages for the years ended december 31 , 2018 and 2017 , were 93 % and 95 % , respectively . cost of services . the increase in cost of services was primarily attributable to a $ 1.5 million increase in personnel cost to staff our customer implementation engagements , partially offset by a $ 0.3 million decrease in travel , facility , it-related and other costs . services gross profit percentages for the years ended december 31 , 2018 and 2017 , were 11 % and 14 % , respectively . services gross profit percentages vary period to period depending on different factors , including the level of professional services required to implement our solutions , our effective man-day rates and the utilization of our professional services personnel . we plan to add additional employees in our professional services organization to support our anticipated growth in the number of customers purchasing our subscription services . gross profit . the increase in overall gross profit for the year ended december 31 , 2018 was principally attributable to an increase of 17 % in total revenue as compared to the same period in 2017 mainly due to an increase in our subscription revenue . operating expenses : replace_table_token_7_th selling and marketing . the increase was primarily attributable to a $ 3.1 million increase in personnel cost mainly due to our continued investments in sales and marketing as we focus on adding new customers and increasing penetration within our existing customer base . in addition , there was an increase of $ 0.8 million in non-personnel cost , which included $ 0.9 million intangible amortization related to our acquisition of vayant and an increase of $ 0.6 million for sales and marketing events , partially offset by a decrease of $ 0.7 million in travel expenses . 28 general and administrative expenses . the increase in general and administrative expenses was primarily attributable to a $ 0.5 million increase associated with the acquisition of vayant , a $ 0.3 million increase in other personnel cost and a $ 0.2 million increase in bad debt expense . research and development expenses . the decrease in research and development expenses was mainly attributable to an increase in capitalized internal-use software cost of $ 2.1 million and a decrease of share-based compensation cost of $ 0.7 million . the decrease was partially offset by an increase of $ 2.0 million in personnel cost primarily due to higher headcount associated with the vayant acquisition and a $ 0.4 million increase in facility and other non-personnel cost . acquisition-related expenses . acquisition-related expenses were $ 0.1 million and $ 0.7 million , respectively , for the years ended december 31 , 2018 and 2017 , consisting primarily of advisory , legal , accounting and other professional fees , and retention bonuses related to our acquisition and integration of vayant . other income , net : replace_table_token_8_th convertible debt interest and amortization . convertible debt interest and amortization expense for each of the years ended december 31 , 2018 and 2017 relates to coupon interest and amortization of debt discount and issuance costs attributable to our 2019 notes and our 2047 notes . the increase in convertible debt interest and amortization primarily relates to our 2047 notes issued in june 2017. other income , net . the increase in other income , net during the year ended december 31 , 2018 , was primarily due to an increase in interest income partially offset by foreign currency exchange rate fluctuations during the periods .
| executive summary in 2018 , we continued to achieve important milestones in our cloud transformation efforts which began in 2015 , while continuing to enable our customers to leverage our ai-driven solutions to help them compete in modern commerce . in 2018 , we surpassed our pre-cloud transition total revenue and approached free cash flow breakeven . o ther notable items for the year included : subscription revenue increased by 57 % in 2018 over 2017 , and accounted for 48 % , 36 % and 25 % of total revenue for the years ended december 31 , 2018 , 2017 and 2016 , respectively ; recurring revenue , which consists of maintenance and subscription revenue , accounted for 81 % of our total revenue and grew by 23 % in 2018 over 2017 ; annual recurring revenue ( `` arr '' ) was $ 190.5 million on a constant currency basis ( $ 189.3 on an as reported basis ) as of december 31 , 2018 , up 19 % ( 18 % as reported ) year-over-year ; and completed a follow-on public offering of 4,370,000 primary shares of common stock generating $ 142.0 million in net proceeds . arr is one of our key performance metrics to assess the health and trajectory of our overall business . arr , a non-gaap financial measure , is defined , as of a specific date , as contracted recurring revenue , including contracts with a future start date , together with annualized overage fees incurred above contracted minimum transactions , and excluding perpetual and term license agreements recognized as license revenue in accordance with gaap . arr should be viewed independently of revenue , deferred revenue and other gaap measures , and is not intended to be combined with any of these items . we adjust our reported arr on an annual basis to reflect any material exchange rate changes .
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overview we are a global , commercial-stage biotechnology company focused on discovering , developing , manufacturing , and commercializing innovative medicines to improve treatment outcomes and expand access for patients worldwide . our research organization has delivered ten molecules into the clinic in our first ten years , including our two lead commercial medicines , brukinsa ® , a small molecule inhibitor of bruton 's tyrosine kinase ( “ btk ” ) for the treatment of various blood cancers , and tislelizumab , an anti-pd-1 antibody immunotherapy for the treatment of various solid tumor and blood cancers . we are marketing brukinsa ® in the world 's two largest pharmaceutical markets , the united states and china , and tislelizumab in china , with an established , science-based commercial organization . we have built state-of-the-art biologic and small molecule manufacturing facilities in china to support the potential future demand of our products , and we also work with high quality contract manufacturing organizations ( “ cmos ” ) to manufacture our internally developed clinical and commercial products . we are a leader in china-inclusive global clinical development , which we believe can facilitate faster and more cost-effective development of innovative medicines . our internal clinical development capabilities are deep , including a more than 1,600-person global clinical development team that is running more than 60 ongoing or planned clinical trials . this includes more than 25 pivotal or registration-enabling trials for three product candidates that have enrolled more than 12,000 patients and healthy volunteers , of which approximately one-half have been outside of china , as of january 2021. we have over 45 products and product candidates in commercial stage or clinical development , including 7 approved medicines , 5 pending approval , and over 30 in clinical development . supported by our development and commercial capabilities , we have entered into collaborations with world-leading biopharmaceutical companies such as amgen and novartis to develop and commercialize innovative medicines globally . since our inception in 2010 in beijing , we have become a fully integrated global organization of over 5,300 employees in 14 countries and regions , including china , the united states , europe and australia . recent developments on february 17 , 2021 , we announced that the u.s. food and drug administration ( `` fda '' ) accepted a supplemental new drug application ( `` snda '' ) for brukinsa ® for the treatment of adult patients with waldenström 's macroglobulinemia ( `` wm '' ) . the prescription drug user fee act ( `` pdufa '' ) target action date is october 18 , 2021. on january 29 , 2021 , we announced that the shanghai stock exchange ( the `` sse '' ) had accepted our listing application for a proposed public offering of our ordinary shares and listing of such shares on the science and technology innovation board ( the “ star market ” ) of the sse ( the “ star offering ” ) . the consummation of the star offering is subject to , among other things , market conditions , shareholder approval , and applicable regulatory approvals . on january 13 , 2021 , we announced that our anti-pd-1 antibody tislelizumab received approval from the china national medical products administration ( `` nmpa '' ) for use in combination with chemotherapy as a first-line treatment for patients with advanced squamous non-small cell lung cancer ( `` nsclc '' ) . this is the third approval in china for tislelizumab , and its first in a lung cancer indication . on january 11 , 2021 , we announced a collaboration and license agreement with novartis pharma ag ( `` novartis '' ) to develop , manufacture and commercialize tislelizumab in the united states , canada , mexico , member countries of the european union , united kingdom , norway , switzerland , iceland , liechtenstein , russia , and japan . we have agreed to jointly develop tislelizumab with novartis in these licensed countries , with novartis responsible for regulatory submissions after a transition period and for commercialization upon regulatory approvals . in addition , both companies may conduct clinical trials globally to explore combinations of tislelizumab with other cancer treatments , and we have an option to co-detail the product in north america , funded in part by novartis . the transaction is expected to close in the first quarter of 2021 , subject to expiration or early termination of the waiting period under the hart-scott-rodino antitrust improvements act . 115 on december 27 , 2020 , we announced that three of our innovative oncology medicines were included in the updated national reimbursement drug list ( `` nrdl '' ) by the china national healthcare security administration ( nhsa ) , including our internally-developed anti-pd1 antibody tislelizumab , our internally-developed btk inhibitor brukinsa ® ( zanubrutinib ) , and xgeva ® ( 120-mg denosumab ) from our strategic collaboration with amgen . on december 7 , 2020 , we announced that the nmpa approved blincyto ® ( blinatumomab ) for injection for the treatment of adult patients with relapsed or refractory ( `` r/r '' ) b-cell precursor acute lymphoblastic leukemia ( all ) . the biologics license application ( `` bla '' ) had been submitted by amgen and received priority review by the center for drug evaluation ( `` cde '' ) of the nmpa . developed by amgen and licensed to us in china under a strategic collaboration commenced earlier in 2020 , this is the first approval for blincyto ® in china and our first product licensed from amgen to be newly approved . with this approval , blincyto ® has become the first bispecific immunotherapy approved in china . on november 19 , 2020 , we announced that the nmpa approved xgeva ® ( denosumab ) for the prevention of skeletal-related events ( `` sres '' ) in patients with bone metastases from solid tumors and in patients with multiple myeloma ( `` mm '' ) . story_separator_special_tag our total cost share obligation to amgen is split between r & d expense and a reduction to the r & d cost share liability ; sitravatinib , an investigational , spectrum-selective kinase inhibitor , licensed from mirati therapeutics , inc. ( `` mirati '' ) ; zanidatamab ( zw25 ) and zw49 , two investigational bispecific antibody-based product candidates targeting her2 , licensed from zymeworks inc. ( `` zymeworks '' ) ; 117 ba3071 , an investigational cab-ctla-4 antibody , licensed from bioatla , inc. ( `` bioatla '' ) ; bat1706 , an investigational biosimilar to avastin ® ( bevacizumab ) , licensed from bio-thera solutions , ltd. ( `` bio-thera '' ) ; and dxp-593 and dxp-604 , investigational anti-covid-19 antibodies , licensed from singlomics ( beijing danxu ) biopharmaceuticals co. , ltd. ( `` singlomics '' ) . we expense research and development costs when we incur them . we record costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information our vendors provide to us . we expense the manufacturing costs of our internally developed products that are used in clinical trials as they are incurred as research and development expense . we do not allocate employee‑related costs , depreciation , rental and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and , as such , are separately classified as unallocated research and development expenses . at this time , it is difficult to estimate or know for certain , the nature , timing and estimated costs of the efforts that will be necessary to complete the development of our internally developed medicines and drug candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales of our medicines and drug candidates , if approved . this is due to the numerous risks and uncertainties associated with developing such medicines and drug candidates , including the uncertainty of : successful enrollment in and completion of clinical trials ; establishing an appropriate safety and efficacy profile ; establishing commercial manufacturing capabilities or making arrangements with third‑party manufacturers ; receipt of marketing and other required approvals from applicable regulatory authorities ; successfully launching and commercializing our medicines and drug candidates , if and when approved , whether as monotherapies or in combination with our internally developed medicines and drug candidates or third‑party products ; market acceptance , pricing and reimbursement ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our medicines and drug candidates ; continued acceptable safety and efficacy profiles of the products following approval ; sufficient supply of the products following approval ; competition from competing products ; and retention of key personnel . a change in the outcome of any of these variables with respect to the development of any of our medicines and drug candidates would significantly change the costs , timing and viability associated with the commercialization or development of that medicine or drug candidate . research and development activities are central to our business model . we expect research and development costs to increase significantly for the foreseeable future as our development programs progress , as we continue to support the clinical trials of our medicines and drug candidates as treatments for various cancers and as we move these medicines and drug candidates into additional clinical trials , including potential pivotal trials . there are numerous factors associated with the successful commercialization of any of our medicines and drug candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control may impact our clinical development and commercial programs and plans . selling , general and administrative expenses selling , general and administrative expenses consist primarily of product promotion costs , distribution costs , salaries and related benefit costs , including share-based compensation for selling , general and administrative personnel . other selling , 118 general and administrative expenses include professional fees for legal , consulting , auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities , travel costs , insurance and other supplies used in selling , general and administrative activities . we anticipate that our selling , general and administrative expenses will increase in future periods to support planned increases in commercialization activities with respect to tislelizumab , brukinsa ® , xgeva ® and blincyto ® and the preparation for potential launch and commercialization of additional in-licensed products from our collaborations and internally developed products , if approved . we also expect selling , general and administrative expenses to increase in future periods to support our research and development efforts , including the continuation of the clinical trials of our treatments for various cancers and the initiation of clinical trials for potential new indications or drug candidates . these cost increases will likely be due to increased promotional costs , increased headcount , increased share-based compensation expenses , expanded infrastructure and increased costs for insurance . we also incur significant legal , compliance , accounting , insurance and investor and public relations expenses associated with being a public company with our adss and ordinary shares listed for trading on the nasdaq global select market and the hong kong stock exchange , respectively . interest income ( expense ) , net interest income interest income consists primarily of interest generated from our cash and short-term investments in money market funds , time deposits , u.s. treasury securities and u.s. agency securities . interest expense interest expense consists primarily of interest on our bank loans and shareholder loan .
| results of operations comparison of the years ended december 31 , 2020 and 2019 the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_11_th revenue total revenue decreased by $ 119.3 million to $ 308.9 million for the year ended december 31 , 2020 , from $ 428.2 million for the year ended december 31 , 2019 , primarily due to the cessation of collaboration revenue following the termination of the bms collaboration agreement in the second quarter of 2019 , and the related $ 150.0 million termination fee that was recognized as revenue . the following table summarizes the components of our revenue for the year ended december 31 , 2020 and 2019 , respectively : replace_table_token_12_th 120 net product revenue consisted of the following : replace_table_token_13_th net product revenue was $ 308.9 million for the year ended december 31 , 2020 , compared to $ 222.6 million in the prior year , primarily due to increased sales of our internally-developed products , brukinsa ® and tislelizumab , as well as initial sales of amgen 's xgeva ® , offset by decreased sales of the bms products in china .
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the amendments in this update will be effective for interim and annual reporting periods beginning on or after december 15 , 2011. the amendments will be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date and early adoption is permitted . the adoption of this guidance is not expected to have a material impact on our financial condition or results of operations . in may 2011 , fasb issued asu 2011-04 , fair story_separator_special_tag overview . we strive to remain a leader in meeting the financial service needs of the local community and to provide quality service to the individuals and businesses in the market areas that we have served since 1853. historically , we have been a community-oriented provider of traditional banking products and services to business organizations and individuals , including products such as residential and commercial real estate loans , consumer loans and a variety of deposit products . we meet the needs of our local community through a community-based and service-oriented approach to banking . we have adopted a growth-oriented strategy that has focused on increasing commercial lending . our strategy also calls for increasing deposit relationships and broadening our product lines and services . we believe that this business strategy is best for our long-term success and viability , and complements our existing commitment to high quality customer service . in connection with our overall growth strategy , we seek to : ● grow our commercial and industrial and commercial real estate loan portfolio by targeting businesses in our primary market area and in northern connecticut as a means to increase the yield on and diversify our loan portfolio and build transactional deposit account relationships ; ● focus on expanding our retail banking franchise and increase the number of households served within our market area ; and ● to supplement the commercial focus , grow the residential loan portfolio to diversify risk and deepen customer relationships . we will maintain our arrangement with a third-party mortgage company which assists in originating and servicing residential real estate loans . by doing this , we reduce the overhead costs associated with these loans . you should read the following financial results for the year ended december 31 , 2011 in the context of this strategy . ● net income was $ 5.9 million , or $ 0.22 per diluted share , for the year ended december 31 , 2011 , compared to $ 3.0 million , or $ 0.11 per diluted share for the same period in 2010. the results for the year ended december 31 , 2011 showed a decrease in the provision for loan losses compared to the same period in 2010 ; however , this was partially offset by a decrease in noninterest income and an increase in noninterest expense . ● we provided $ 1.2 million for loan losses for the year ended december 31 , 2011 , compared to $ 8.9 million for the same period in 2010. the decrease in the provision for loan losses occurred because the 2010 period included the reserve for and subsequent charge-off of $ 7.2 million on a single commercial real estate loan . the allowance was $ 7.8 million , or 1.40 % of total loans at december 31 , 2011 and $ 6.9 million , or 1.36 % of total loans at december 31 , 2010. in 2011 , total loans increased $ 44.0 million , with the increase primarily in residential real estate loans which contain less credit risk and market risk than both commercial real estate and commercial and industrial loans . ● noninterest income decreased $ 3.6 million to $ 3.8 million for the year ended december 31 , 2011 , compared to $ 7.4 million for the same period in 2010. the decrease was primarily the result of a decrease in net gains on the sale of securities of $ 3.6 million for the year ended december 31 , 2011 . ● noninterest expense increased $ 1.2 million to $ 26.0 million at december 31 , 2011 , compared to $ 24.8 million at december 31 , 2010. the increase in noninterest expense for the year ended december 31 , 2011 was due to an increase in salaries and benefits of $ 845,000 related to regular annual adjustments as well as salaries and benefits related to the hiring of additional personnel . general . our consolidated results of operations are comprised of earnings on investments and loans and the net income recorded by the bank . our consolidated results of operations depend primarily on net interest and dividend income . net interest and dividend income is the difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities . interest-earning assets consist primarily of securities , commercial real estate loans , commercial and industrial loans and residential real estate loans . interest-bearing liabilities consist primarily of certificates of deposit and money market account , now account and savings account deposits , borrowings from the federal home loan bank of boston and securities sold under repurchase agreements . the consolidated results of operations also depend on the provision for loan losses , noninterest income , and noninterest expense . noninterest expense includes salaries and employee benefits , occupancy expenses and other general and administrative expenses . noninterest income includes service fees and charges , income on bank-owned life insurance , and gains ( losses ) on securities . 36 critical accounting policies . our accounting policies are disclosed in note 1 to the consolidated financial statements . given our current business strategy and asset/liability structure , the more critical policies are accounting for nonperforming loans , the allowance for loan losses and provision for loan losses , other than temporary impairment of securities , and the valuation of deferred taxes . story_separator_special_tag the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets . 38 replace_table_token_21_th ( 1 ) loans , including non-accrual loans , are net of deferred loan origination costs , and unadvanced funds . ( 2 ) securities income , loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 34 % . the tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported in the statements of income . ( 3 ) short-term investments include federal funds sold . ( 4 ) net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities . ( 5 ) net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets . 39 rate/volume analysis . the following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated . information is provided in each category with respect to : ( 1 ) interest income changes attributable to changes in volume ( changes in volume multiplied by prior rate ) ; ( 2 ) interest income changes attributable to changes in rate ( changes in rate multiplied by prior volume ) ; and ( 3 ) the net change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_22_th ( 1 ) securities and loan income and net interest income are presented on a tax-equivalent basis using a tax rate of 34 % . the tax-equivalent adjustment is deducted from tax-equivalent net interest income to agree to the amount reported in the statements of income . 40 comparison of financial condition at december 31 , 2011 and december 31 , 2010 total assets increased $ 23.8 million to $ 1.3 billion at december 31 , 2011. net loans increased by $ 44.0 million to $ 546.4 million at december 31 , 2011 from $ 502.4 million at december 31 , 2010. cash and cash equivalents increased $ 9.5 million to $ 21.1 million at december 31 , 2011 from $ 11.6 million at december 31 , 2010. securities decreased $ 24.7 million to $ 630.0 million at december 31 , 2011 from $ 654.7 million at december 31 , 2010 , as funds were reinvested into the loan portfolio . the securities portfolio is primarily comprised of mortgage-backed securities , which totaled $ 540.7 million at december 31 , 2011 and $ 576.2 million at december 31 , 2010 , the majority of which were issued by government-sponsored enterprises such as the federal national mortgage association . privately issued mortgage-backed securities comprised $ 1.6 million and $ 7.6 million , or 0.29 % and 1.32 % of the mortgage-backed securities portfolio at december 31 , 2011 and 2010 , respectively . debt securities issued by government-sponsored enterprises increased $ 6.9 million to $ 24.8 million at december 31 , 2011 from $ 17.9 million at december 31 , 2010. securities issued by government-sponsored enterprises consist entirely of bonds issued by the federal national mortgage association and the federal home loan mortgage corporation . we also invest in municipal bonds issued by cities and towns in massachusetts that are rated as investment grade by moody 's , standard & poor 's or fitch , and the majority of which are also independently insured . municipal bonds were $ 45.9 million at december 31 , 2011 and $ 43.1 million at 2010. in addition , we have investments in fhlbb stock , common stock and mutual funds that invest only in securities allowed by the occ . in august 2010 , we transferred all of our held-to-maturity securities to the available-for-sale category . we determined that we no longer had the positive intent to hold our securities classified as held-to-maturity for an indefinite period of time because of our desire to have more flexibility in managing the investment portfolio . the securities transferred had a total amortized cost of $ 287.1 million , fair value of $ 299.7 million and a net unrealized gain of $ 12.6 million which was recorded as other comprehensive income at the time of transfer . net loans increased by $ 44.0 million to $ 546.4 million at december 31 , 2011 from $ 502.4 million at december 31 , 2010. the increase in net loans was primarily the result of an increase in residential real estate loans and commercial real estate loans , partially offset by a decrease in commercial and industrial loans . residential real estate loans increased $ 43.7 million to $ 192.5 million at december 31 , 2011 from $ 148.8 million at december 31 , 2010. through our long standing relationship with a third-party mortgage company , we originated and purchased a total of $ 58.2 million in residential loans within and contiguous to our market area as a means of diversifying our loan portfolio and improving net interest income . commercial real estate loans increased $ 10.9 million to $ 232.5 million at december 31 , 2011 from $ 221.6 million at december 31 , 2010. owner occupied commercial real estate loans totaled $ 109.7 million at december 31 , 2011 and $ 107.0 million at december 31 , 2010 , while non-owner occupied commercial real estate loans totaled $ 122.8 million at december 31 , 2011 and $ 114.6 million at december 31 , 2010. commercial and industrial loans decreased $ 9.6 million to $ 125.7 million at december 31 , 2011 from $ 135.3 million at december 31 , 2010. while we continue to originate commercial and industrial loans , new originations were offset by customers decreasing their balances on lines of credit and normal loan payments and payoffs .
| general . net income for the year ended december 31 , 2011 was $ 5.9 million , or $ 0.22 per diluted share , compared to $ 3.0 million , or $ 0.11 per diluted share , for the same period in 2010. interest and dividend income . total interest and dividend income decreased $ 1.1 million to $ 45.0 million for the year ended december 31 , 2011 , compared to $ 46.1 million for the same period in 2010. the decrease in interest income was primarily the result of a decrease in the average yield on interest-earning assets for the year ended december 31 , 2011 , which was partially offset by an increase in the average balance of interest-earning assets for the same period . the average yield on interest-earning assets , on a tax-equivalent basis , decreased 21 basis points to 3.90 % for the year ended december 31 , 2011 from 4.11 % for the same period in 2010. interest income on securities decreased $ 1.8 million to $ 19.6 million for the year ended december 31 , 2011 from $ 21.4 million for the year ended december 31 , 2010. the tax-equivalent yield on securities decreased 12 basis points from 3.48 % for the year 2010 to 3.29 % for the same period in 2011. the decrease in interest income and tax-equivalent yield on securities for the year ended december 31 , 2011 was due to cash flows from securities pay downs being subsequently reinvested in products having a lower yield , which is reflective of the current market rate environment .
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deferred tax assets and liabilities are composed of the following ( in thousands ) : replace_table_token_34_th in evaluating the realizability of kforce 's deferred tax assets , management assesses whether it is more likely than not that some portion , or all , of the deferred tax assets , will be realized . management considers , among other things , the ability to generate future taxable income ( including reversals of deferred tax liabilities ) during the periods in which the related temporary differences will become deductible . in 2019 , management elected to treat foreign taxes paid as a deduction on our tax return and , accordingly , reversed the deferred tax asset and corresponding valuation allowance during story_separator_special_tag this md & a should be read in conjunction with our consolidated financial statements and the accompanying notes thereto contained in item 8. financial statements and supplementary data of this report , as well as item 1. business of this report , for an overview of our operations and business environment . story_separator_special_tag technology talent and solutions provided an important level of resilience to our revenues in 2020. in addition , the covid-19 business provided an important level of support to overall fa revenues , which were more acutely impacted at the beginning of this crisis . our strategic positioning and execution resulted in what we believe is strong financial performance in 2020 and provides us confidence moving forward . the following table presents certain items in our consolidated statements of operations and comprehensive income as a percentage of revenue for the years ended : replace_table_token_2_th 15 revenue . the following table presents revenue by type for each segment and percentage change from the prior period for the years ended december 31 ( in thousands ) : replace_table_token_3_th our quarterly operating results are affected by the number of billing days in a quarter . the following table presents the year-over-year revenue growth rates , on a billing day basis , for the last five quarters ( in thousands , except billing days ) : replace_table_token_4_th flex revenue . the key drivers of flex revenue are the number of consultants on assignment , billable hours , the bill rate per hour and , to a limited extent , the amount of billable expenses incurred by kforce . flex revenue for our largest segment , tech , decreased 0.4 % ( 0.8 % on a billing day basis ) during the year ended december 31 , 2020 , as compared to the same period in 2019. the decline was primarily driven by assignment ends with clients in industries that were most significantly impacted by the covid-19 economic and health crisis and lower overall demand for our services as a result of the crisis . the number of consultants on assignment in tech flex have grown 15 % since early june 2020 and new assignment starts in the fourth quarter of 2020 increased 16 % from the third quarter of 2020. additionally , lower billable hours in our tech business were partially offset by higher average bill rates , which increased 4.3 % on a year-over-year basis in 2020. this increase was primarily due to our clients retaining our more highly skilled consultants given the scarcity of talent and the assignments that were ended at the onset of this pandemic were lower skilled areas that were less capable of working remotely . we believe that the crisis has exponentially elevated the imperative for companies to rapidly digitize their businesses , transform business models and drive productivity gains through technology investment . we expect growth in our tech flex business in 2021 as covid-19 related restrictions ease and economic momentum builds . our fa segment experienced an increase in flex revenue of 26.3 % during the year ended december 31 , 2020 , as compared to the same period in 2019 , primarily driven by the covid-19 business that contributed approximately $ 114.7 million in revenue during the year ended december 31 , 2020. this positively impacted fa flex revenue growth rates by 43.7 % for 2020. similar to our tech flex business , we have been successful at growing the number of consultants on assignment in our fa business ( excluding the covid-19 business ) by 33 % since early june 2020. as we move into 2021 , we expect overall revenues in fa flex to decline as a result of expected declines in revenues from our covid-19 business as well as the strategic migration of our fa business towards more highly-skilled roles that are less susceptible to technological change location and automation . 16 the following table presents the key drivers for the change in flex revenue by segment over the prior period ( in thousands ) : replace_table_token_5_th the following table presents total flex hours billed by segment and percentage change over the prior period for the years ended december 31 ( in thousands ) : replace_table_token_6_th direct hire revenue . the key drivers of direct hire revenue are the number of placements and the associated placement fee . direct hire revenue also includes conversion revenue , which may occur when a consultant initially assigned to a client on a temporary basis is later converted to a permanent placement for a fee . direct hire revenue decreased 29.6 % during the year ended december 31 , 2020 , as compared to the same period in 2019 , primarily driven by a significant decline in the volume of placements due to the economic environment . story_separator_special_tag the firm continues to focus on improving the productivity of our associates and generating increased operating leverage as revenues grow . depreciation and amortization . the following table presents depreciation and amortization expense and percentage change over the prior period by major category for the years ended december 31 ( in thousands ) : replace_table_token_14_th other expense , net . other expense , net was $ 5.0 million in 2020 , $ 3.4 million in 2019 and $ 4.5 million in 2018 , and consisted primarily of interest expense related to outstanding borrowings under our credit facility . during the years ended december 31 , 2020 and 2019 , other expense , net also included our proportionate share of the loss from workllama , llc ( “ workllama ” ) , equity method investment of $ 1.7 million and $ 0.8 million , respectively . although the impact of the covid-19 economic and health crisis remains highly uncertain , it could have a material adverse effect on the fair value of our equity method investment in workllama . if the fair value falls below the book value of the equity method investment , we would be required to evaluate whether an other-than-temporary impairment has occurred . refer to note 1 - “ summary of significant accounting policies ” in the notes to consolidated financial statements , included in item 8. financial statements and supplementary data of this report , for a more detailed discussion on our equity method investment . income tax expense . income tax expense as a percentage of income from continuing operations , before income taxes ( our “ effective tax rate ” for continuing operations ) for the years ended december 31 , 2020 , 2019 and 2018 were 25.5 % , 23.6 % and 25.1 % , respectively . the 2020 effective tax rate was negatively impacted by a lower work opportunity tax credit in 2020 versus 2019. the 2019 effective tax rate was favorably impacted primarily by a greater tax benefit from the vesting of restricted stock and favorable tax adjustments compared to 2018. income from discontinued operations , net of tax . during 2019 , we completed the sale of the gs segment , which consisted of kgs and traumafx® solutions , inc. ( “ tfx ” ) , our federal government product business . kforce did not have significant continuing involvement in the operations of kgs or tfx after the sale and reported the gs segment as discontinued operations in the consolidated statements of operations for all years presented . refer to note 2 - “ discontinued operations ” in the notes to consolidated financial statements , included in item 8. financial statements and supplementary data of this report , for a more detailed discussion . on april 1 , 2019 , kforce completed the sale of all of the issued and outstanding stock of kforce government holdings , inc. , including its wholly-owned subsidiary , kgs , to mantech international corporation for a cash purchase price of $ 115.0 million . our gain on the sale of kgs , net of transaction costs , was $ 72.3 million . total transaction costs were $ 9.6 million , which 19 primarily includes legal and broker fees , transaction bonuses and accelerated stock-based compensation expense for kgs management triggered by a change in control of kgs . on june 7 , 2019 , kforce completed the sale of all of the issued and outstanding stock of tfx to an unaffiliated third party for a cash purchase price of $ 18.4 million less a post-closing working capital adjustment of $ 0.7 million . our gain on the sale of tfx , net of transaction costs , was $ 7.0 million . total transaction costs were $ 2.2 million , which primarily includes legal and broker fees and transaction bonuses . due to the sale of tfx , we finalized the settlement of a contingent consideration liability related to the acquisition of tfx in 2014 and paid $ 0.6 million during the year ended december 31 , 2019. the effective tax rates for discontinued operations , including the gain on sale of discontinued operations , for the years ended december 31 , 2019 and 2018 were 4.4 % and 23.4 % , respectively . there was no activity relating to discontinued operations in 2020. the gs effective tax rate for 2019 was low because of the minimal income tax obligation for the sale of kgs due to the efficient tax structure of the transaction . the gs effective tax rate for 2018 was positively impacted by the tcja . the gs effective tax rate for 2017 was unfavorably impacted by the revaluation of our net deferred tax assets as a result of the tcja . non-gaap financial measures free cash flow . “ free cash flow ” , a non-gaap financial measure , is defined by kforce as net cash provided by operating activities determined in accordance with gaap , less capital expenditures . management believes this provides 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 and is useful information to investors as it provides a measure of the amount of cash generated from the business that can be used for strategic opportunities including investing in our business , making acquisitions , repurchasing common stock or paying dividends . free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures . therefore , we believe it is important to view free cash flow as a complement to our consolidated statements of cash flows . free cash flows includes results from discontinued operations for the years ended december 31 , 2020 , 2019 and 2018. the following table presents free cash flow ( in thousands ) : replace_table_token_15_th adjusted ebitda .
| executive summary the following is an executive summary of what kforce believes are highlights for 2020 , which should be considered in the context of the additional discussions herein and in conjunction with the consolidated financial statements and notes thereto . revenue for the year ended december 31 , 2020 increased 3.3 % , on a billing day basis , to $ 1.40 billion in 2020 from $ 1.35 billion in 2019. revenue decreased 0.8 % for tech and increased 20.2 % for fa . flex revenue increased 4.5 % on a billing day basis , to $ 1.36 billion in 2020 from $ 1.30 billion in 2019. flex revenue decreased 0.8 % , on a billing day basis , for tech and increased 25.8 % , on a billing day basis , for fa . during 2020 , we secured contracts to support government-sponsored covid-19 related initiatives that benefited fa flex with $ 114.7 million in revenues for the year ended december 31 , 2020. excluding revenues from the covid-19 business , our fa flex business would have declined 17.5 % in 2020 on a year-over-year basis . direct hire revenue decreased 29.6 % to $ 33.6 million in 2020 from $ 47.7 million in 2019. gross profit margin decreased 100 basis points to 28.3 % in 2020 due primarily to lower direct hire revenue mix . flex gross profit margin decreased 10 basis points to 26.6 % in 2020 from 26.7 % in 2019. flex gross profit margin increased 10 basis points for tech and decreased 140 basis points for fa . sg & a expenses as a percentage of revenue for the year ended december 31 , 2020 decreased to 22.2 % from 23.3 % in 2019 . the decrease is primarily related to leverage from our revenue growth , continued improvements in associate productivity , reductions in certain areas such as travel and office related expenses given pandemic restrictions and overall tight management of spend .
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in accordance with the terms and provisions of the executive agreement : ( i ) the executive shall provide services and perform all duties typical of the offices held by the executive ; ( ii ) we shall pay to the executive a base salary of $ 10,000 per month , payable in form of cash or shares of our common stock as agreed upon , ( ii ) we shall pay to the executive an incentive bonus to be determined by the board of directors based upon our performance and the results achieved by the executive in his job performance ; ( iii ) we shall issue stock options to the executive to purchase shares of our common stock , such stock options to accrue and vest in accordance with a set schedule to be decided by the board of directors ; ( iv ) we shall pay to the executive a per annum payment of at least 1,600,000 shares of common stock and additionally whatever the board of directors may give as a bonus at their discretion in exchange for the non-compete provisions contained therein ; and ( v ) in the event of a change in control of the board of directors or a buyout or a takeover or substantial change of management , we shall pay to the executive a minimum of three years salary plus 4,800,000 shares of s-8 common stock or the equivalent in cash at the executive 's discretion . in further accordance with the terms and provisions of the executive agreement , in consideration of the payment specified above in subparagraph ( iv ) , and for so long as the executive is employed by us , and for one calendar year following termination of this executive agreement , the executive shall not directly or indirectly own an interest in , manage , operate , join , control , lend money or render financial or other assistance to or participate in or be connected with as an officer , employee , partner , stockholder , consultant or otherwise , any individual , partnership , firm , corporation or other business entity that materially competes with us . the term of the executive agreement shall commence january 1 , 2014 and continue in effect unless terminated by either party upon ninety days written notice . however , in the event the executive 's employment is terminated by us at our discretion and is without cause , for a period of three years following such termination , the executive shall be paid his base salary and a bonus for each of the three years equivalent in value to the bonus received in the year prior to his termination . in the event the executive terminates his employment , we shall pay the executive the compensation the executive has earned to the termination date . lastly , in the event we are acquired or the non-surviving party in a merger or sell all or substantially all of our assets , this executive agreement shall not be deemed terminated as a result thereof . 45 issuance of preferred stock during fiscal year ended december 31 , 2015 , we issued 1,000,000 shares of series a preferred stock valued at $ 75,000 , all of which was for payment of unpaid salary accrued for periods prior to 2015. directors compensation no director received compensation for services rendered in any capacity to us during the fiscal years ended december 31 , 2014 and december 31 , 2013. indemnification of directors and officers our articles of incorporation , as amended and restated , and our bylaws provide for mandatory indemnification of our officers and directors , except where such person has been adjudicated liable by reason of his negligence or willful misconduct toward the company or such other corporation in the performance of his duties as such officer or director . our bylaws also authorize the purchase of director and officer liability insurance to insure them against any liability asserted against or incurred by such person in that capacity or arising from such person 's status as a director , officer , employee , fiduciary , or agent , whether or not the corporation would have the power to indemnify such person under the applicable law . compensation committee interlocks and insider participation we have not established a compensation committee . we are not currently subject to any law , rule or regulation requiring that we establish a compensation committee . during the last fiscal year , mr. gunther than , an executive officer , participated in our board of directors ' deliberations concerning executive officer compensation . item 12. security ownership of certain beneficial owners and management and related stockholder matters . the following tables set forth information as of november 14 , 2015 regarding the beneficial ownership of our common and preferred stock ( series a ) , ( a ) each stockholder who is known by the company to own beneficially in excess of 5 % of our outstanding common stock ; ( b ) each story_separator_special_tag the following analysis of our consolidated financial condition and results of operations for the years ended december 31 , 2017 and 2016 should be read in conjunction with the consolidated financial statements and other information presented elsewhere in this annual report . story_separator_special_tag style= '' text-align : center '' > 23 as of december 31 , 2017 , our total assets were $ 1,479 comprised of : ( i ) $ 82 in current assets ; ( ii ) and property and equipment ( net ) of $ 1,397. the decrease in total assets during fiscal year ended december 31 , 2017 from fiscal year ended december 31, 2016 was primarily due to the substantial decrease in cash and receivables . story_separator_special_tag as of december 31 , 2017 , our total liabilities were $ 2,022,346 comprised of current liabilities . the increase in liabilities during fiscal year ended december 31 , 2017 from fiscal year ended december 31 , 2016 was primarily due to the increase in accounts payable and accrued expenses and loans from stockholders . stockholders ' deficit increased from ( $ 1,818,189 ) for fiscal year ended december 31 , 2016 to ( $ 2,020,867 ) for fiscal year ended december 31 , 2017. cash flows from operating activities we have not generated positive cash flows from operating activities . cash flows from investing activities for fiscal year ended december 31 , 2017 , net cash flows used in investing activities was $ 45,826 compared to $ 15,410 for fiscal year ended december 31 , 2016 , which related to additions to fixed assets . cash flows from financing activities for the fiscal year ended december 31 , 2017 , net cash flows provided from financing activities was $ 0 compared to $ 0 for fiscal year ended december 31 , 2016. plan of operation and funding we have incurred losses for the past two fiscal years and had a net loss of $ 202,678 at fiscal year ended december 31 , 2017. our revenues from several product sales have been decreasing and are not sufficient to cover all of our operating expenses . our auditors have expressed substantial doubt that we can continue as a going concern . we are continuing to push sales and control costs . management intends to finance our 2018 operations primarily with the revenue from service revenue and any cash short falls will be addressed through equity or debt financing , if available . management expects revenues will continue to decrease in the short term . we will need to continue to raise additional capital , both internally and externally , to cover cash shortfalls and to compete in our markets . at our current revenue levels management believes we will require an additional $ 350,000 in equity financing during the next 12 months to satisfy our cash requirements of approximately $ 25,000 per month for operations and to facilitate our new business plans . these operating costs include cost of sales , general and administrative expenses , salaries and benefits and professional fees related to contracting engineers . we have insufficient financing commitments in place to meet our expected cash requirements for 2018 and we can not assure the company we will be able to obtain financing on favorable terms . if we can not obtain financing to fund our operations in 2018 , then we will be required to reduce our expenses and scale back our operations . 24 going concern the market price of our common stock has fallen below the fixed price of our registered stock offering , as in prior years we may again have insufficient financing commitments in place to meet our expected cash requirements for 2018. we can not assure you that we will be able to obtain financing on favorable terms . if we can not obtain financing to fund our operations in 2018 , then we may be required to further reduce our expenses and scale back our operations . these factors raise substantial doubt of our ability to continue as a going concern . footnote 2 to our financial statements provides additional explanation of management 's views on our status as a going concern . the audited financial statements contained in this annual report do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts of liabilities that may result should we be unable to continue as a going concern . our independent registered accounting firm included an explanatory paragraph in their reports on the accompanying financial statements for december 31 , 2017 regarding concerns about our ability to continue as a going concern . our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors . commitments and contingent liabilities we lease 1,480 sq . ft. of office space at 6 park center court , suite 201 , owings mills , maryland which ended on august 30 , 2017. we rent on a month to month basis . our total current liabilities increased to $ 2,025,029 at fiscal year ended december 31 , 2017 compared to $ 1,827,022 at fiscal year ended december 31 , 2016. as of december 31 , 2017 , our short and long term notes payable consist of the following : stockholder demand loan payable with interest at 5 % per month dated september 18 , 2009. the loan is secured by the company 's accounts receivable . the note was payable in full on december 17 , 2009 and is currently in default 50,000 50,000 off balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . contractual obligations as a `` smaller reporting company '' as defined by item 10 of regulation s-k , we are not required to provide this information . critical accounting policies we have one main products , namely the concealed weapons detection system . in all cases revenue is considered earned when the product is shipped to the customer , installed ( if necessary ) and accepted by the customer as a completed sale . each product has an unconditional 30 day warranty , during which time the product can be returned for a complete refund . customers can purchase extended warranties , which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty . warranties can be purchased for various periods but generally they
| overview we have decided to include in our sales efforts other products aside the concealed weapons detection system . currently , customers can purchase extended warranties , which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty . warranties can be purchased for various periods but generally they are for a one year period that begins after any other warranties expire . we have studied a variety of medical services and products and have decided to open medical clinics , which offer specialty products and services as an adjunct to our current activities . in the short term , management plans to self fund through personal investment of time and money . then the next phase of our business plan will be to raise additional funds through common stock offerings to provide working capital to finance several acquisitions . in the past , when possible we have conserved our cash by paying employees , consultants , and independent contractors with our common stock . on june 1 , 2010 , by majority shareholder consent , we adopted our 2010 service provider stock compensation plan . reserved for equity issuances under the service provider stock compensation plan are 50,000,000 shares of our common stock . on july 21 , 2010 , we registered the common stock issuable under the 2010 equity incentive plan and the 2010 service provider stock compensation plan . a total of 100,000,000 shares are reserved for issuances under the two plans . merger or acquisitions in 2017 as of this date , there are no pending acquisitions at the time of this filing . manufacturing we no longer manufacture the viewscan since we have determined a new improved model is needed to continue in the walk through portal security market . since we do not have funds to set up a new manufacturing process we are quiescent in our manufacturing activities .
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the federal , state , story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document . overview we develop and manufacture a broad line of pre-programmed universal remote control products , av accessories , and software that are marketed to enhance home entertainment systems . our customers operate in the consumer electronics market and include subscription broadcasters , oems , international retailers , private labels , and companies in the computing industry . we also sell integrated circuits , on which our software and ir code database , or library , is embedded , to oems that manufacture wireless control devices , cable converters or satellite receivers for resale in their products . since our beginning in 1986 , we have compiled an extensive ir code library that covers over 787,600 individual device functions and approximately 6,400 individual consumer electronic equipment brand names . our library is regularly updated with ir codes used in newly introduced av devices . these ir codes are captured directly from the remote control devices or the manufacturer 's written specifications to ensure the accuracy and integrity of the database . we believe that our universal remote control library contains device codes that are capable of controlling virtually all ir controlled set-top boxes , televisions , audio components , dvd players , blu-ray players , and cd players , as well as most other remote controlled home entertainment devices and home automation control modules worldwide . we operate as one business segment . we have twenty-three subsidiaries located in argentina , cayman islands , france , germany , hong kong ( 6 ) , india , italy , the netherlands , singapore , spain , brazil , british virgin islands ( 3 ) , people 's republic of china ( 3 ) and the united kingdom . to recap our results for 2013 : net sales increased 14.3 % to $ 529.4 million in 2013 from $ 463.1 million in 2012 . our gross margin percentage decreased moderately from 28.8 % in 2012 to 28.6 % in 2013 . operating expenses , as a percent of sales , decreased from 23.2 % in 2012 to 22.5 % in 2013. operating income increased 22.7 % to $ 32.2 million in 2013 from $ 26.2 million in 2012 , and our operating margin percentage increased to 6.1 % in 2013 , compared to 5.6 % in 2012 . our effective tax rate decreased from 32.8 % in 2012 to 20.9 % in 2013. our strategic business objectives for 2014 include the following : continue to develop industry-leading technologies and products with attractive gross margins in order to improve profitability ; continue to increase our market share in newer product categories , such as smart devices and game consoles ; further penetrate the growing asian and latin american subscription broadcasting markets ; acquire new customers in historically strong regions ; increase our share with existing customers ; and continue to seek acquisitions or strategic partners that complement and strengthen our existing business . we intend for the following discussion of our financial condition and results of operations to provide information that will assist in understanding our consolidated financial statements , the changes in certain key items in those financial statements from period to period , and the primary factors that accounted for those changes , as well as how certain accounting principles , policies and estimates affect our consolidated financial statements . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue recognition , allowances for sales returns and doubtful accounts , warranties , inventory valuation , our review for impairment of long-lived assets , intangible assets and goodwill , income taxes and stock-based compensation expense . actual results may differ from these judgments and estimates , and they may be adjusted as more information becomes available . any adjustment may be significant and may have a material impact on our consolidated financial position or results of operations . 25 an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , if different estimates reasonably may have been used , or if changes in the estimate that are reasonably likely to occur may materially impact the financial statements . management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . in addition to the accounting policies mentioned below , see `` item 8. financial statements and supplementary data — notes to consolidated financial statements — note 2 '' for other significant accounting policies . revenue recognition we recognize revenue on the sale of products when title of the goods has transferred , there is persuasive evidence of an arrangement ( such as a purchase order from the customer ) , the sales price is fixed or determinable and collectability is reasonably assured . a provision is recorded for estimated sales returns and allowances and is deducted from gross sales to arrive at net sales in the period the related revenue is recorded . these estimates are based on historical sales returns and allowances , analysis of credit memo data and other known factors . actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates . story_separator_special_tag the impairment is measured as the difference between the net book value of the asset and the asset 's estimated fair value . fair value is estimated utilizing the asset 's projected discounted cash flows . in assessing fair value , we must make assumptions regarding estimated future cash flows , the discount rate and other factors . goodwill we evaluate the carrying value of goodwill on december 31 of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount . such circumstances may include , but are not limited to : ( 1 ) a significant adverse change in legal factors or in business climate , ( 2 ) unanticipated competition or ( 3 ) an adverse action or assessment by a regulator . when performing the impairment review , we determine the carrying amount of each reporting unit by assigning assets and liabilities , including the existing goodwill , to those reporting units . a reporting unit is defined as an operating segment or one level below an operating segment ( referred to as a component ) . a component of an operating segment is deemed a reporting unit if the component constitutes a business for which discrete financial information is available , and segment management regularly reviews the operating results of that component . we have a single reporting unit . to evaluate whether goodwill is impaired , we conduct a two-step quantitative goodwill impairment test . in the first step we compare the estimated fair value of the reporting unit to which the goodwill is assigned to the reporting unit 's carrying amount , including goodwill . we estimate the fair value of our reporting unit based on income and market approaches . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . under the market approach , we estimate the fair value based on market multiples of enterprise value to ebitda for comparable companies . if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit , then we perform the second step of the impairment test in order to determine the implied fair value of the reporting unit 's goodwill . to calculate the implied fair value of the reporting unit 's goodwill , the fair value of the reporting unit is first allocated to all of the other assets and liabilities of that unit based on their fair values . the excess of the reporting unit 's fair value over the amount assigned to its other assets and liabilities is the implied fair value of goodwill . an impairment loss would be recognized equal to the amount by which the carrying value of goodwill exceeds its implied fair value . determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions . these estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows , risk-adjusted discount rates , future economic and market conditions and the determination of appropriate market comparables . in addition , we make certain judgments and assumptions in determining our reporting units . we base our fair value estimates on 27 assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . actual future results may differ from those estimates . income taxes we calculate our current and deferred tax provisions based on estimates and assumptions that may differ from the actual results reflected in our income tax returns filed during the subsequent year . we record adjustments based on filed returns when we have identified and finalized them , which is in the third and fourth quarters of the subsequent year for u.s. federal and state provisions , respectively . we recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which we expect the differences to reverse . we record a valuation allowance to reduce the deferred tax assets to the amount that we are more likely than not to realize . we have considered future market growth , forecasted earnings , future taxable income , the mix of earnings in the jurisdictions in which we operate and prudent tax planning strategies in determining the need for a valuation allowance . in the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future , we would increase the valuation allowance and make a corresponding charge to earnings in the period in which we make such determination . likewise , if we later determine that we are more likely than not to realize the net deferred tax assets , we would reverse the applicable portion of the previously provided valuation allowance . in order for us to realize our deferred tax assets we must be able to generate sufficient taxable income in the tax jurisdictions in which the deferred tax assets are located . our effective tax rate includes the impact of certain undistributed foreign earnings for which we have not provided u.s. taxes because we plan to reinvest such earnings indefinitely outside the united states . the decision to reinvest our foreign earnings indefinitely outside the united states is based on our projected cash flow needs as well as the working capital and long-term investment requirements of our foreign subsidiaries and our domestic operations . material changes in our estimates of cash , working capital and long-term investment requirements in the various jurisdictions in which we do business may impact our effective tax rate .
| results of operations the following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated . replace_table_token_6_th year ended december 31 , 2013 ( `` 2013 '' ) compared to year ended december 31 , 2012 ( `` 2012 '' ) net sales . net sales for 2013 were $ 529.4 million , an increase of 14.3 % compared to $ 463.1 million in 2012 . net sales by our business and consumer lines were as follows : replace_table_token_7_th net sales in our business lines ( subscription broadcasting , oem , and computing companies ) were 89.9 % of net sales in 2013 compared to 88.7 % in 2012 . net sales in our business lines in 2013 increased by 15.8 % to $ 475.7 million from $ 410.9 million in 2012 . the increase was driven primarily by strong demand and increased market share in north american subscription broadcasting and latin american subscription broadcasting , particularly in brazil , as well as growth in net sales to consumer electronic companies in asia . net sales in our consumer lines ( one for all ® retail and private label ) were 10.1 % of net sales in 2013 compared to 11.3 % in 2012 . net sales in our consumer lines in 2013 increased by 2.9 % to $ 53.7 million from $ 52.2 million in 2012 . international retail sales increased 3.8 % from $ 47.8 million in 2012 to $ 49.6 million in 2013 due primarily to increased sales in the u.k , australia and latin america . gross profit . gross profit in 2013 was $ 151.5 million compared to $ 133.4 million in 2012 . gross profit as a percent of sales remained relatively consistent at 28.6 % in 2013 compared to 28.8 % in 2012 .
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the company has performed story_separator_special_tag introduction the following discussion and analysis should be read in conjunction with the `` selected financial data '' and the accompanying consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this section and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties . see the `` cautionary note regarding forward-looking statements '' at the beginning of this annual report on form 10-k. forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in `` items 1 and 2. business and properties - business - operations - environmental matters and regulation ; '' `` items 1 and 2. business and properties - business - operations - other regulation of the oil and gas industry ; '' and `` item 1a . risk factors '' above , all of which are incorporated herein by reference . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we develop oil and natural gas in the rocky mountain region of the united states . we seek to build stockholder value by delivering profitable growth in cash flow , reserves and production through the development of oil and natural gas assets . in order to deliver profitable growth , we allocate capital to our highest return assets , concentrate expenditures on exploiting our core assets , maintain capital discipline and optimize operations while upholding high-level standards for health , safety and the environment . substantially all of our revenues are generated through the sale of oil and natural gas production and ngl recovery at market prices . we were formed in january 2002 and are incorporated in the state of delaware . in december 2004 , we completed our initial public offering . in december 2016 , we completed an additional public offering of our common stock , selling 15,525,000 shares at a price of $ 7.40 per share , par value $ 0.001 per share . the sale included the full exercise by the underwriters of their 37 option to purchase 2,025,000 shares of common stock . net proceeds from the sale , after deducting fees and estimated expenses , were approximately $ 109.8 million . oil prices declined significantly in 2014 and 2015 and remained depressed during 2016. natural gas and ngl prices have experienced decreases of comparable magnitude over the same period . during the last three months of 2016 , commodity prices improved slightly and stabilized at a level that could warrant increased activity , however , we expect to be flexible with our 2017 capital budget as we continue to monitor economic conditions . in 2017 , our priority remains ensuring ample liquidity and adjusting our development plans as necessary to this end . in addition , we expect to pursue opportunities to further improve our liquidity position through capital markets or other transactions , such as additional property dispositions , if we believe conditions to be favorable . on october 28 , 2016 , the borrowing base under our amended credit facility was reduced to $ 300.0 million based on proved reserves in place at july 31 , 2016. our available borrowings under the re-determined borrowing base of $ 300.0 million is reduced by $ 26.0 million to $ 274.0 million due to an outstanding irrevocable letter of credit related to a firm transportation agreement . we are committed to developing and producing oil and natural gas in a responsible and safe manner . our employees work diligently with regulatory agencies , as well as environmental , wildlife and community organizations , to ensure that exploration and development activities meet stakeholders expectations and regulatory requirements . future acquisitions or dispositions could have a material impact on our financial condition and results of operations by increasing or decreasing our reserves , production and revenues as well as expenses and future capital expenditures . we currently anticipate that we would finance any future acquisitions with available borrowings under our amended credit facility , sales of properties , other indebtedness , and or debt , equity or equity-linked securities . our prior acquisitions and capital expenditures were financed with a combination of cash on hand , funding from the sale of our equity securities , our amended credit facility , other debt financing and cash flows from operations . because of our growth through acquisitions and , more recently , development of our properties and sales of properties in 2014 and 2015 , our historical results of operations and period-to-period comparisons of these results and certain financial data may not be meaningful . in addition , past results are not indicative of future results . the following table summarizes the estimated net proved reserves and related standardized measure for the years indicated . the standardized measure is not intended to represent the current market value of our estimated oil and natural gas reserves . replace_table_token_16_th ( 1 ) december 31 , 2016 reserves were based on average prices of $ 42.75 wti per bbl of oil , $ 2.48 henry hub per mcf of natural gas and $ 19.70 per bbl of ngls . december 31 , 2015 reserves were based on average prices of $ 50.28 wti for oil , $ 2.59 henry hub for natural gas and $ 20.37 for ngls . december 31 , 2014 reserves were based on average prices of $ 94.99 wti for oil , $ 4.35 henry hub for natural gas and $ 39.65 for ngls . story_separator_special_tag under successful efforts accounting , depletion expense is calculated on a field-by-field basis with a common geological structure using the unit-of-production method . the capital expenditures for proved properties for each field compared to the proved reserves corresponding to each producing field determine a depletion rate for current production . for the year ended december 31 , 2016 , the relationship of capital expenditures , proved reserves and production from certain producing fields yielded a depletion rate of $ 28.18 per boe compared with $ 31.14 per boe for the year ended december 31 , 2015 . unused commitments . unused commitments were $ 18.3 million for the year ended december 31 , 2016 compared to $ 19.1 million for the year ended december 31 , 2015 . during march 2010 , we entered into two firm natural gas pipeline transportation contracts to provide a guaranteed outlet for production from the west tavaputs area of the uinta basin and the gibson gulch area of the piceance basin . these transportation contracts were not included in the sales of these assets in september 2014 ( see note 4 of the notes to consolidated financial statements for more information related to these divestitures ) . both firm transportation contracts require the pipeline to provide transportation capacity and require us to pay transportation charges regardless of the amount of pipeline capacity utilized . these transportation contracts expire july 31 , 2021 and have a remaining obligation of $ 85.6 million . beginning october 1 , 2014 , and as a result of the previous divestitures of the associated gas assets , these transportation costs were excluded from gathering , transportation and processing expense and included in unused commitments expense in the consolidated statements of operations . in addition , unused commitment expense for the year ended december 31 , 2015 included $ 1.4 million associated with a take-or-pay purchase agreement for the supply of carbon dioxide ( `` co2 '' ) . the agreement imposes a minimum volume commitment to purchase co2 to be used in fracture stimulation operations at a contracted price . since we did not take delivery of the minimum volume required , we were obligated to pay the total deficiency of $ 1.4 million at the end of the contract term , november 30 , 2015. general and administrative expense . general and administrative expense decreased to $ 42.2 million for the year ended december 31 , 2016 from $ 53.9 million for the year ended december 31 , 2015 primarily due to a decrease in employee compensation and benefits . included in general and administrative expense is long-term cash and equity incentive compensation of $ 11.9 million and $ 10.8 million for the years ended december 31 , 2016 and 2015 , respectively . the components of long-term cash and equity incentive compensation for each of the years ended december 31 , 2016 and 2015 are shown in the following table : replace_table_token_22_th ( 1 ) beginning in the second quarter of 2015 , the employer matching contribution to the employees 401 ( k ) account was paid entirely in cash . ( 2 ) the performance cash units will be settled in cash for the performance metrics that are met . 43 interest expense . interest expense decreased to $ 59.4 million for the year ended december 31 , 2016 from $ 65.3 million for the year ended december 31 , 2015 . the decrease for the year ended december 31 , 2016 was primarily due to the debt exchange for common stock to reduce our average debt balance . see note 10 for additional information . our weighted average interest rate for the year ended december 31 , 2016 was 7.9 % compared with 8.1 % for the year ended december 31 , 2015 . commodity derivative gain ( loss ) . commodity derivative gain ( loss ) was a loss of $ 20.7 million for the year ended december 31 , 2016 compared to a gain of $ 104.1 million for the year ended december 31 , 2015 . the change to a loss for the year ended december 31 , 2016 from a gain for the year ended december 31 , 2015 is related to fluctuations of oil and natural gas future pricing compared to actual pricing of commodity hedges in place as of december 31 , 2016 and december 31 , 2015 . the table below summarizes our commodity derivative gains and losses that were recognized in the periods presented : replace_table_token_23_th in 2016 , approximately 71 % of our oil volumes and 24 % of our natural gas volumes were covered by financial hedges , which resulted in increases in oil revenues of $ 92.2 million and natural gas revenues of $ 3.4 million after settlements for all commodity derivatives . in 2015 , approximately 91 % of our oil volumes and 88 % of our natural gas volumes were covered by financial hedges , which resulted in increases in oil revenues of $ 167.8 million and natural gas revenues of $ 11.8 million after settlements for all commodity derivatives . income tax ( expense ) benefit . for the year ended december 31 , 2016 , we continue to record a full valuation allowance against our deferred tax assets , reducing our effective tax rate to zero . for the year ended december 31 , 2015 , the income tax benefit was $ 177.1 million and we had a valuation allowance of $ ( 75.0 ) million , resulting in an effective tax rate of 26.6 % . in regard to the valuation allowance recorded against our deferred tax asset balance , we considered all available evidence in assessing the need for a valuation allowance . such evidence includes the scheduled reversal of deferred tax liabilities , projected future taxable income and tax planning strategies in making this assessment , and judgment is required in considering the relative weight of negative and positive evidence .
| results of operations year ended december 31 , 2016 compared with year ended december 31 , 2015 the following table sets forth selected operating data for the periods indicated : 39 replace_table_token_19_th * not meaningful . ( 1 ) included in general and administrative expense is long-term cash and equity incentive compensation of $ 11.9 million ( or $ 1.96 per boe ) and $ 10.8 million ( or $ 1.64 per boe ) for the years ended december 31 , 2016 and 2015 , respectively . production revenues and volumes . production revenues decreased to $ 178.3 million for the year ended december 31 , 2016 from $ 204.5 million for the year ended december 31 , 2015 . the decrease in production revenues was due to an 8 % decrease in production volumes and a 6 % decrease in the average realized prices per boe before hedging . the decrease in 40 production volumes reduced production revenues by approximately $ 14.7 million , while the decrease in average prices decreased production revenues by approximately $ 11.5 million . total production volumes of 6.1 mmboe for the year ended december 31 , 2016 decreased from 6.6 mmboe for the year ended december 31 , 2015 . the decrease is primarily related to a 43 % decrease in production from the uinta oil program due to natural production declines with no significant drilling or recompletion activities to offset these declines as well as the sale of certain non-core uinta oil program assets during the year ended december 31 , 2016 . the overall production volume decrease was offset by an increase in the dj basin production volumes , which were partially offset by non-core asset sales completed during the year ended december 31 , 2015. additional information concerning production is in the following table : replace_table_token_20_th other operating revenues .
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factors that could cause or contribute to such differences include , but are not limited to , market prices for oil , natural gas and ngl , production volumes , estimates of proved reserves , capital expenditures , economic and competitive conditions , regulatory changes and other uncertainties , as well as those factors discussed below and elsewhere in this annual report , particularly in “ risk factors ” and “ cautionary note regarding forward-looking statements , ” all of which are difficult to predict . in light of these risks , uncertainties and assumptions , the forward-looking events discussed may not occur . we do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law . overview we are an independent oil and gas company focused on the acquisition , development and production of oil , natural gas and ngl reserves in the rocky mountain region , primarily in the wattenberg field of the dj basin . we have developed an oil , natural gas and ngl asset base of proved reserves , as well as a portfolio of development drilling opportunities on high resource-potential leasehold on contiguous acreage blocks in some of the most productive areas of what we consider to be the core of the dj basin . we are focused on growing our proved reserves and production primarily through the development of our large inventory of identified liquids-rich horizontal drilling locations . our properties we have assembled , as of december 31 , 2017 , approximately 171,400 net acres of large , contiguous acreage blocks in some of the most productive areas of what we consider to be the core of the dj basin as indicated by the results of our horizontal drilling program and the results of offset operators . additionally , we hold approximately 183,300 net acres outside of what we consider our core dj basin , which we refer to as our “ other rockies area , ” that we believe is prospective for many of the same formations as our properties in the core dj basin . we operated 94 % of our horizontal production for the year ended december 31 , 2017 , our total estimated proved reserves were approximately 292.7 mmboe , of which approximately 35 % were classified as proved developed reserves . for more information about our properties , please read “ business—our properties. ” financial overview for the year ended december 31 , 2017 , we had a net loss of $ 44.4 million as compared to a net loss of $ 456.0 million for the year ended december 31 , 2016 . the decrease in net loss was driven by an increase in production revenue of $ 326.2 million and a decrease in non-cash compensation expense primarily related to the ipo in 2016 of $ 134.7 million , partially offset by an increase in depletion , depreciation , amortization and accretion expense of $ 109.7 million , associated with an increase in production volumes . for the year ended december 31 , 2017 , crude oil , natural gas and ngl sales , coupled with the impact of settled derivatives , increased to $ 585.7 million as compared to $ 306.7 million in the same prior year period due to an increase in sales volumes of 7,954 mboe and an increase of $ 2.96 in realized price per boe , including settled derivatives . adjusted ebitdax was $ 380.5 million for the year ended december 31 , 2017 , as compared to $ 192.3 million in the same period in 2016 , reflecting a 98 % increase . adjusted ebitdax is a non-gaap financial measure . for a definition of adjusted ebitdax and a reconciliation to our most directly comparable financial measure calculated and presented in accordance with gaap , please read “ adjusted ebitdax. ” operational overview during the year ended december 31 , 2017 , we continued to focus on growing production while at the same time implementing operational efficiencies to reduce drilling and completion costs . we incurred approximately $ 864.5 million , excluding outstanding elections , in drilling 186 gross ( 137.4 net ) wells with an average lateral length of 1.7 miles and completing 198 gross ( 158.9 net ) wells with an average lateral length of 1.7 miles , all of which were horizontal wells in the dj basin . in addition , we incurred approximately $ 73.2 million of leasehold and surface acreage additions , excluding acquisitions , 55 and approximately $ 10.9 million of midstream additions , excluding acquisitions . our 2018 capital budget anticipates a two to three operated rig drilling program . recent developments recent acquisitions and divestitures asset divestitures to date , we have received multiple agreements to divest various properties for approximately $ 70.0 million . these sales are not expected to have a material impact to our previously announced 2018 guidance and are projected to close during the second quarter of 2018. november 2017 acquisition on november 15 , 2017 , we acquired an unaffiliated oil and gas company 's interest in approximately 36,600 net acres of leasehold and primarily non-producing properties located in arapahoe county , colorado , ( the `` november 2017 acquisition '' ) . upon closing the seller received $ 214.3 million in cash , subject to customary purchase price adjustments . we also recorded a liability of $ 12.2 million for the final settlement payment due in april 2018 in conjunction with the november 2017 acquisition for total consideration of $ 226.5 million . the acquisition provides new development opportunities in the dj basin . july 2017 acquisition on july 7 , 2017 , we acquired an unaffiliated oil and gas company 's interest in approximately 12,500 net acres of leasehold and primarily non-producing properties located in adams county , colorado , along with various other related rights , permits , contracts , equipment , rights of way , gathering systems and other assets . upon closing the seller received total consideration of $ 84.0 million in cash . story_separator_special_tag many of the provisions in the tcja have an effective date for years beginning after december 31 , 2017 , including the lowering of the u.s. corporate rate from 35 % to 21 % . however , as a result of the enactment date of december 22 , 2017 , we are required to remeasure the deferred tax assets and liabilities at the rate in which they are expected to reverse . we provisionally recorded an income tax benefit in the amount of $ 23.4 million related to the remeasurement of the net deferred tax liability . we are currently evaluating other potential impacts of the tcja . in connection with the ipo in october 2016 , our accounting predecessor , extraction oil & gas holdings , llc ( `` holdings '' ) was merged into the company . prior to this corporate reorganization , we were not subject to federal or state income taxes . accordingly , the financial data attributable to us prior to such corporate reorganization contain no provision for federal or state income taxes because the tax liability with respect to holdings ' taxable income was passed through to our members . beginning october 12 , 2016 , we began to be taxed as a c corporation under the code and subject to federal and state income taxes at a blended statutory rate of approximately 38 % of pretax earnings . how we evaluate our operations we use a variety of financial and operational metrics to assess the performance of our oil and gas operations , including : sources of revenue ; 57 sales volumes ; realized prices on the sale of oil , natural gas and ngl , including the effect of our commodity derivative contracts ; lease operating expenses ( “ loe ” ) ; capital expenditures ; and adjusted ebitdax ( a non-gaap measure ) . sources of our revenues our revenues are derived from the sale of our oil and natural gas production , as well as the sale of ngl that are extracted from our natural gas during processing . our oil , natural gas and ngl revenues do not include the effects of derivatives . for the year ended december 31 , 2017 , our revenues were derived 70 % from oil sales , 15 % from natural gas sales and 15 % from ngl sales . for the year ended december 31 , 2016 , our revenues were derived 70 % from oil sales , 17 % from natural gas sales and 13 % from ngl sales . for the year ended december 31 , 2015 , our revenues were derived 79 % from oil sales , 13 % from natural gas sales and 8 % from ngl sales . our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices . sales volumes the following table presents historical sales volumes for our properties for the periods indicated : replace_table_token_9_th as reservoir pressures decline , production from a given well or formation decreases . growth in our future production and reserves will depend on our ability to continue to add or develop proved reserves in excess of our production . accordingly , we plan to maintain our focus on adding reserves through organic growth as well as acquisitions . our ability to add reserves through development projects and acquisitions is dependent on many factors , including takeaway capacity in our areas of operation and our ability to raise capital , obtain regulatory approvals , procure contract drilling rigs and personnel and successfully identify and consummate acquisitions . please read “ risks related to the oil , natural gas and ngl industry and our business ” in item 1a . of this annual report for a further description of the risks that affect us . realized prices on the sale of oil , natural gas and ngl our results of operations depend upon many factors , particularly the price of oil , natural gas and ngl and our ability to market our production effectively . oil , natural gas and ngl prices are among the most volatile of all commodity prices . for example , during the period from january 1 , 2014 to december 31 , 2017 , average daily prices for nymex west texas intermediate oil prices ranged from a high of $ 107.26 per bbl to a low of $ 26.21 per bbl . average daily prices for nymex henry hub gas ranged from a high of $ 6.15 per mmbtu to a low of $ 1.64 per mmbtu during the same period . declines in , and continued depression of , the price of oil and natural gas occurring during 2015 and continuing during 2017 are due to a combination of factors including increased u.s. supply , global economic concerns and geopolitical risks . these price variations can have a material impact on our financial results and capital expenditures . oil pricing is predominately driven by the physical market , supply and demand , financial markets and national and international politics . the nymex wti futures price is a widely used benchmark in the pricing of domestic and imported oil in the united states . the actual prices realized from the sale of oil differ from the quoted nymex wti price as a result of quality and location differentials . in the dj basin , oil is sold under various purchase contracts with monthly pricing provisions based on nymex pricing , adjusted for differentials . 58 natural gas prices vary by region and locality , depending upon the distance to markets , availability of pipeline capacity and supply and demand relationships in that region or locality . the nymex henry hub price of natural gas is a widely used benchmark for the pricing of natural gas in the united states . similar to oil , the actual prices realized from the sale of natural gas differ from the quoted nymex henry hub price as a result of quality and location differentials .
| general and administrative expenses decreased by $ 122.2 million to $ 110.2 million for the year ended december 31 , 2017 as compared to $ 232.4 million for the year ended december 31 , 2016 . this decrease was comprised of a decrease in unit and stock-based compensation of $ 134.7 million , offset by an increase in other general and administrative expenses of $ 12.5 million . on a per unit basis , g & a expenses decreased from $ 21.24 per boe sold for the year ended december 31 , 2016 to $ 5.83 per boe sold for the year ended december 31 , 2017 . our g & a expenses includes the non-cash expense for unit and stock-based compensation for equity awards granted to our employees , directors , officers and non-employee consultants . for the year ended december 31 , 2017 , stock-based compensation expense was $ 65.6 million as compared to unit and stock-based compensation expense of $ 200.3 million for the year ended december 31 , 2016 . on a per unit basis , unit and stock-based compensation decreased $ 14.84 per boe from $ 18.31 per boe sold for the year ended december 31 , 2016 to $ 3.47 per boe sold for the year ended december 31 , 2017 . the decrease in unit and stock-based compensation expense was due to accelerated vesting of outstanding holdings ruas in connection with our corporate reorganization and ipo in 2016. additionally , as a result of the ipo in 2016 , holdings incentive 69 units were converted to common stock resulting in the recognition of $ 172.1 million of unit-based compensation expense . also in 2016 , we created a long term incentive plan , which resulted in the granting of rsus , stock options and performance stock awards to certain board members , officers , and employees .
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to reduce risk , the company routinely assesses the financial strength of these payers and , consequently , believes that its accounts receivable credit risk exposure , with respect to these payers , is limited . while the company has receivables due from federal and state governmental agencies , the company does not believe that such receivables represent a credit risk since the related healthcare programs are funded by federal and state governments , and payment is primarily dependent on submitting appropriate documentation . at december 31 , 2014 and 2013 , receivables due from government payers under the medicare and medicaid programs represent approximately 14 % and story_separator_special_tag overview our company diagnostic information services quest diagnostics is the world 's leading provider of diagnostic information services ( `` dis '' ) providing insights through clinical testing and related services that empower and enable patients , physicians , hospitals , accountable care organizations ( `` acos '' ) , integrated delivery networks ( `` idns , '' ) health plans , employers and others to make better healthcare decisions . our dis business makes up over 90 % of our consolidated net revenues . we offer the broadest access in the united states to dis through our nationwide network of laboratories , company-owned patient service centers and phlebotomists in physician offices . we are the leading provider of clinical testing including routine testing , gene-based and esoteric testing , anatomic pathology services , and drugs-of-abuse testing , as well as related services and insights . we provide interpretive consultation throughout our organization , with one of the largest medical and scientific staffs in the industry and hundreds of m.d.s and ph.d.s , many of whom are recognized leaders in their fields . the clinical testing that we perform is an essential element in the delivery of healthcare services . physicians use clinical testing to assist in detection , diagnosis , evaluation , monitoring and treatment of diseases and other medical conditions . the u.s. clinical testing industry consists of two segments . one segment , which we believe makes up approximately 40 % of the total industry , includes hospital inpatient and outpatient testing . the second segment , which we believe makes up approximately 60 % of the total industry , includes testing of persons who are not hospital patients , including testing done in commercial clinical laboratories , physician-office laboratories and other locations , as well as hospital outreach testing . within the second segment , we believe that hospital outreach has been increasing share in the last few years . we believe that hospital-affiliated laboratories account for approximately 60 % of the total industry , commercial clinical laboratories approximately one-third and physician-office laboratories and other locations account for the balance . the clinical testing industry is subject to seasonal fluctuations in operating results and cash flows . typically , testing volume declines during vacation and major holiday periods , reducing net revenues and operating cash flows below annual averages . testing volume is also subject to declines due to severe weather or other events , which can deter patients from having testing performed and which can vary in duration and severity from year to year . additionally , orders for clinical testing generated from physician offices , hospitals and employers can be affected by factors such as changes in the united states economy and regulatory environment , which affect the number of unemployed and uninsured , and design changes in healthcare plans , which affect the number of physician office and hospital visits . diagnostic solutions our diagnostic solutions ( `` ds '' ) business , which represents the balance of our revenues , is comprised of our risk assessment services , clinical trials testing , diagnostic products and healthcare information technology businesses . through our ds businesses , we offer a variety of solutions for life insurers , healthcare providers and others . we are the leading provider of risk assessment services for the life insurance industry . we also are a leading provider of central laboratory testing for clinical trials . in addition , we offer healthcare organizations and clinicians robust information technology solutions and diagnostic products . 2014 highlights our 2014 performance benefited from the acquisitions of solstas lab partners group ( `` solstas '' ) , summit health , inc. ( `` summit health '' ) and the laboratory outreach services business of steward health care systems , llc ( `` steward '' ) ; cost savings associated with our invigorate program ; and a more stable business environment . our total net revenues of $ 7.4 billion were 4.0 % above the prior year . dis revenues of $ 6.9 billion were 4.3 % above the prior year . dis volume increased 6.3 % as compared to the prior year period , with acquisitions contributing approximately 7 % to our overall dis volume . organic volume decreased approximately 1 % primarily due to the harsh winter and our decision to not renew certain business due to strategic reasons during the year . dis revenue per requisition for the year ended december 31 , 2014 decreased 1.8 % from the prior year . our recent acquisitions reduced revenue per requisition by approximately 1 % during the year . ds revenues increased by 0.5 % as compared to the prior year . income from continuing operations attributable to quest diagnostics ' stockholders was $ 551 million , or $ 3.78 per diluted share , for the year ended december 31 , 2014 and benefited from a discrete 45 tax benefit of $ 44 million , or $ 0.30 per diluted share , associated with the favorable resolution of certain tax contingencies . story_separator_special_tag outlook and trends the healthcare system in the united states is evolving ; significant change is taking place in the system . we expect that the evolution of the healthcare industry will continue , and that industry change is likely to be extensive . there are a number of key trends that are having , and that we expect will continue to have , a significant impact on the diagnostic information services business in the united states and on our business . these trends present both opportunities and risks . however , because diagnostic information services is an essential healthcare service and because of the key trends discussed below , we believe that the industry will continue to grow over the long term and that we are well positioned to benefit from the long-term growth expected in the industry . there is a strong focus in the united states on controlling the overall cost of healthcare . healthcare market participants , including governments , are focusing on controlling costs , including potentially by changing reimbursement for healthcare services through means including but not limited to a shift from fee for service to capitation and changes in healthcare benefit designs ( e.g. , changing medical coverage policies or shifting greater cost burden to patients ) . to the extent that health plans and programs require greater levels of patient cost-sharing , this could negatively impact patient collection and adversely impact our bad debt expense . as previously mentioned , there could be a shift to capitation arrangements where we agree to a predetermined monthly reimbursement rate for each member enrolled in a restricted plan , generally regardless of the number or cost of services provided by us . in 2014 and 2013 , we derived approximately 11 % and 12 % , respectively , of our testing volume and 3 % and 4 % , respectively , of our dis net revenues from capitated payment arrangements . part b of the medicare program contains fee schedule payment methodologies for clinical testing services performed for covered patients , including a national ceiling on the amount that carriers could pay under their local medicare clinical testing fee schedules . historically , the medicare clinical laboratory fee schedule and the medicare physician fee schedule established under that program have been subject to change , including each year . for 2015 , each schedule is changing and reimbursement under each schedule will be different in 2015 than 2014 levels . in 2014 , approximately 12 % of our consolidated revenues were reimbursed by medicare under the clinical laboratory fee schedule and approximately 2 % were reimbursed by medicare under the physician fee schedule . the trend of consolidation among physicians , hospitals , employers , healthcare insurers and other intermediaries has continued , resulting in fewer but larger customers and payers with significant bargaining power to negotiate fee arrangements with healthcare providers , including clinical laboratories . the 2014 business environment was more stable as compared to the prior year and we expect to see an improving business environment in 2015. we expect that reimbursement pressure will be moderate from 2015 to 2017. for instance , we expect to see less government pressure on the clinical lab fee schedule in 2015 than we experienced over the past two years . as a result , we expect reimbursement pressure in 2015 to be consistent with 2014. federal healthcare reform legislation adopted in 2010 contained provisions eliminating patient cost-sharing for preventive services , and additional provisions that we believe have increased the number of patients that have health insurance , including through medicaid programs , and thus better access to clinical testing which we expect will result in a net positive impact on our industry over the long term . for additional information on our key trends , see item 1 : `` the united states clinical testing industry . '' critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions and select accounting policies that affect our reported financial results and the disclosure of contingent assets and liabilities . 47 while many operational aspects of our business are subject to complex federal , state and local regulations , the accounting for most of our business is generally straightforward , with net revenues primarily recognized upon completion of the testing process . our revenues are primarily comprised of a high volume of relatively low-dollar transactions , and about one-half of our total costs and expenses consist of employee compensation and benefits . due to the nature of our business , several of our accounting policies involve significant estimates and judgments : revenues and accounts receivable associated with dis ; reserves for general and professional liability claims ; reserves for other legal proceedings ; accounting for and recoverability of goodwill ; and accounting for stock-based compensation expense . revenues and accounts receivable associated with dis the process for estimating the ultimate collection of receivables associated with our dis business involves significant assumptions and judgments . we primarily recognize revenue for services rendered upon completion of the testing process . billings for services reimbursed by third-party payers , including medicare and medicaid , are generally recorded as revenues net of allowances for differences between amounts billed and the estimated receipts from such payers . adjustments to the allowances , based on actual receipts from the third-party payers , are recorded upon settlement as an adjustment to net revenues . we have a standardized approach to estimate and review the collectibility of our receivables based on a number of factors , including the period they have been outstanding . historical collection and payer reimbursement experience is an integral part of the estimation process related to revenues and allowances for doubtful accounts . changes to the allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within selling , general and administrative expenses .
| results for the year ended december 31 , 2014 were affected by certain items that impacted earnings per diluted share by $ 0.32. during the year ended december 31 , 2014 , we recorded pre-tax charges of $ 121 million , or $ 0.53 per diluted share , related to restructuring costs primarily associated with workforce reductions , integration costs associated with acquisitions and professional fees associated with the further restructuring of our business ( $ 50 million in cost of services , $ 69 million in selling , general and administrative expenses and $ 2 million in other operating ( income ) expense , net ) ; a discrete tax benefit of $ 44 million , or $ 0.30 per diluted share , associated with the favorable resolution of certain tax contingencies ; and pre-tax charges of $ 15 million , or $ 0.09 per diluted share , primarily associated with costs related to legal matters , partially offset by a pre-tax gain of $ 9 million associated with a decrease in the fair value of the contingent consideration accrual associated with our summit health acquisition . results for the year ended december 31 , 2013 were affected by certain items that impacted earnings per diluted share by $ 1.31. during the year ended december 31 , 2013 , we recorded a pre-tax gain of $ 474 million , or $ 1.95 per diluted share , associated with the ibrutinib sale ; pre-tax charges of $ 115 million , or $ 0.47 per diluted share , related to restructuring costs primarily associated with workforce reductions , integration costs and professional fees associated with further restructuring and integrating our business ( $ 43 million in cost of services and $ 72 million in selling , general and administrative expenses ) ; and a pre-tax loss of $ 40 million , or $ 0.17 per diluted share , associated with the sale of enterix .
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we believe that the potential future re-emergence of the non-agency rmbs market may represent a significant long-term growth opportunity for our loan review , due diligence and surveillance services . however , the size and timing for the return of this market are uncertain and will be impacted by factors outside our control , including market demand and regulation . in addition , our services segment has recently experienced revenue growth from its products serving the sfr market , including sfr securitizations , which is an emerging market that experienced rapid growth in 2014 . however , there has been a decline in the pace of home purchases by institutional investors and a slowdown in sfr securitizations , which have negatively impacted our revenue in 2015 . this trend is expected to continue in 2016 . 2015 and other recent developments developments subsequent to 2015. subsequent to the end of fiscal year 2015 , we announced and completed a new share repurchase program pursuant to which we purchased an aggregate of $ 100 million of radian group common stock at an average price of $ 10.62 per share , including commissions . as a result of this program , we reduced our diluted shares outstanding by approximately 3.8 % . no further purchase authority remains under this share purchase program . see note 20 of notes to consolidated financial statements for more information . in february 2016 , in order to manage the mix of business in our portfolio and to continue managing radian guaranty 's minimum required assets under the pmiers in a cost-effective manner , we entered into the single premium qsr . the single premium qsr ( including the amount of the benefit to our minimum required assets under pmiers ) remains subject to gse approval , and therefore , we have not yet begun to cede any business under this agreement . assuming we receive gse approval for the single premium qsr , we expect it to reduce the amount of our minimum required assets by between $ 120 million to $ 150 million . we can provide no assurance if and when the gses may approve the single premium qsr , and if it is approved , whether it will be approved in its current form or on alternative terms and conditions that are acceptable to us and the third-party reinsurers . we continue to explore additional alternatives , including commutations and additional external reinsurance , in order to provide financial flexibility while continuing to comply with the pmiers . fourth quarter 2015 transactions for pmiers compliance . radian guaranty currently is in compliance with the pmiers financial requirements , which became effective december 31 , 2015. in order to comply with the pmiers and maximize financial flexibility , radian group executed certain fourth-quarter 2015 actions , including : the transfer of $ 325 million of cash and marketable securities to radian guaranty in exchange for a surplus note issued by radian guaranty ; and a capital contribution of $ 50 million to an exclusive affiliated reinsurer of radian guaranty . in addition , in order to manage radian guaranty 's minimum required assets under the pmiers , radian guaranty chose not to exercise its option to recapture a portion of the risk ceded under its existing second qsr transaction . as a result , radian guaranty received a profit commission of $ 8.0 million based on performance to date and an $ 8.5 million prepaid supplemental ceding commission . see “ liquidity and capital resources— radian group—short-term liquidity needs—capital support for subsidiaries ” for additional information regarding these transactions , and “ regulation—direct federal regulation— gse requirements ” for additional information regarding the pmiers . the implementation of the final pmiers has : ( 1 ) increased the amount of capital that radian guaranty is required to hold , and therefore , may reduce our returns on subsidiary capital ; ( 2 ) imposed higher capital requirements for certain types of mortgage insurance policies , that may potentially impact the type and volume of business that radian guaranty and other private mortgage insurers are willing to write ; ( 3 ) imposed extensive and more stringent operational requirements in areas such as claim processing , loss mitigation , document retention , underwriting , quality control , reporting and monitoring , among others , that may result in additional costs to maintain compliance ; and ( 4 ) imposed a requirement for radian guaranty to receive the consent of the gses prior to taking certain actions such as paying dividends , entering into various intercompany agreements , and commuting or reinsuring risk , among others . 2015 debt and equity transactions . during the second quarter of 2015 , radian group completed a series of transactions to strengthen its capital position , including reducing its overall cost of capital and improving the maturity profile of its debt . this series of transactions had four components : the issuance of $ 350 million aggregate principal amount of senior notes due 2020 ; 73 part ii item 7. management 's discussion and analysis of financial condition and results of operations the purchases of approximately $ 389.1 million aggregate principal amount of convertible senior notes due 2017 ; the termination of a corresponding portion of the capped call transactions related to the purchased convertible senior notes due 2017 ; and the entry into an asr program to repurchase an aggregate of $ 202 million of radian group common stock . story_separator_special_tag in addition , premiums may be paid as a combination of an up-front premium at origination plus monthly renewals , or in some cases , as annual or other periodic premiums paid over multiple years . niw increases our iif and our premiums written and earned . our iif growth over time , as shown in the chart below , is expected to function as one of our primary drivers of increased future revenue . an increase or decrease in iif will generally have a corresponding impact on premiums earned . cancellations of our insurance policies and other reductions of iif , such as rescissions of coverage and claims paid , generally have a negative effect on premiums earned . the measure for assessing the impact of policy cancellations on our iif is our persistency rate , defined as the percentage of iif that remains on our books after any 12-month period . insurance premiums on our monthly premium insurance policies are paid and earned over time ; therefore , higher persistency rates on monthly premium insurance policies enable us to earn more premiums and recover some or all of our policy acquisition costs , which generally would result in increased profitability from these monthly policies . when single premium policies are cancelled by the insured because the loan has been paid off or otherwise , we accelerate the recognition of any remaining unearned premiums . therefore , assuming all other factors remain constant , profitability increases on our single premium business when persistency rates are lower . rescissions , which are discussed in further detail below , result in a full refund of the inception-to-date premiums received , and therefore , premiums earned are negatively affected by any increases in our accrual for estimated rescission refunds . additionally , premiums ceded to third-party reinsurance counterparties decrease premiums written and earned . 77 part ii item 7. management 's discussion and analysis of financial condition and results of operations losses . incurred losses represent the estimated future claim payments on newly defaulted insured loans as well as any change in our claim estimates for existing defaults . our mortgage insurance incurred losses are driven primarily by new defaults and changes in the estimates we use to determine our losses , including estimates with respect to the likelihood , magnitude and timing of anticipated losses , and our estimate of the rate at which we expect defaults will ultimately result in paid claims . other factors influencing incurred losses include : - the product mix of our total direct rif ( loans with higher risk characteristics generally result in more delinquencies and claims ) ; - the average loan size ( higher average loan amounts generally result in higher incurred losses ) ; - the percentage of coverage on insured loans ( higher percentages of insurance coverage generally result in higher incurred losses ) and the presence of structural mitigants such as deductibles or stop losses ; - changes in housing values ( declines in housing values generally make it more difficult for borrowers to sell a home to avoid default or for the property to be sold to mitigate any claim , and also may negatively affect a borrower 's willingness to continue to make mortgage payments when the home value is less than the mortgage balance ) ; - the distribution of claims over the life cycle of a portfolio ( historically , claims are relatively low during the first two years after a loan is originated and then increase over a period of several years before declining ; however , several factors can impact and change this cycle , including the economic environment , the quality of the underwriting of the loan , characteristics of the mortgage loan , the credit profile of the borrower , housing prices and unemployment rates ) ; - our ability to mitigate potential losses through rescissions , claim denials , cancellations and claim curtailments on claims submitted to us . these actions all reduce our incurred losses . however , if these loss mitigation activities are successfully challenged at rates that are higher than expected or we agree to settle disputes related to our loss mitigation activities at levels above our expected losses , our incurred losses will increase . as our legacy portfolio has become a smaller percentage of our overall insured portfolio , there has been a decrease in the amount of loss mitigation activity with respect to the claims we receive , and we expect this trend to continue . as a result , our future loss mitigation activity is not expected to mitigate our losses to the same extent as in prior years ; - the bofa settlement agreement established that radian will limit rescissions , claim denials or claim curtailments on legacy loans . see note 10 of notes to consolidated financial statements for additional information about the bofa settlement agreement ; and - the freddie mac agreement established certain terms for the treatment of the loans subject to that agreement , including claim payments , loss mitigation activity and insurance coverage , and capped radian guaranty 's claim exposure on such loans . see note 10 of notes to consolidated financial statements for additional information . other operating expenses . our other operating expenses are affected by the level of niw , as well as the level of rif . additionally , in recent periods , our operating expenses have been impacted significantly by compensation expense associated with changes in the estimated fair value of certain of our long-term equity-based incentive awards that are settled in cash .
| key factors affecting our results 75 results of operations - consolidated 81 results of operations - mortgage insurance 86 results of operations - services 103 contractual obligations and commitments 105 liquidity and capital resources 106 critical accounting policies 114 overview we provide mortgage insurance on first-lien mortgage loans , and products and services to the real estate and mortgage finance industries . we have two business segments—mortgage insurance and services . our mortgage insurance segment provides credit-related insurance coverage , principally through private mortgage insurance , to mortgage lending institutions nationwide . we provide our mortgage insurance products mainly through our wholly-owned subsidiary , radian guaranty . our services segment provides outsourced services , information-based analytics and specialty consulting for buyers and sellers of , and investors in , mortgage- and real estate-related loans and securities as well as other abs . the primary lines of business in our services segment include : ( 1 ) loan review and due diligence ; ( 2 ) surveillance , including rmbs surveillance , loan servicer oversight , loan-level servicing compliance reviews and operational reviews of mortgage servicers and originators ; ( 3 ) valuation and component services providing outsourcing and technology solutions for the sfr and residential real estate markets ; as well as outsourced solutions for appraisal , title and closing services ; ( 4 ) reo management services ; and ( 5 ) services for the united kingdom and european mortgage markets through our eurorisk operations . these services and solutions are provided primarily through clayton and its subsidiaries , including green river capital , red bell and valuamerica . 70 part ii item 7. management 's discussion and analysis of financial condition and results of operations operating environment and business strategy .
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we had three instruments outstanding with an aggregate notional amount of $ 200.0 million as of december 31 , 2013 and one instrument outstanding with an aggregate notional amount of $ 100.0 million as of december 31 , 2012. these derivatives have maturities ranging from 2015 to 2019. cash flow hedges we use interest rate swaps to convert floating rate debt to fixed story_separator_special_tag overview we lease , operate , manage , and remarket long-lived , widely-used assets , primarily in the rail and marine markets . we also invest in joint ventures that complement our existing business activities . we report our financial results through four primary business segments : rail north america , rail international , american steamship company ( “ asc ” ) , and portfolio management . a more complete description of our business is included in `` item 1. business , '' in part i of this form 10-k. the following discussion and analysis should be read in conjunction with the audited financial statements included in `` item 8. financial statements and supplementary data '' in this form10-k. we based the discussion and analysis that follows on financial data we derived from the financial statements prepared in accordance with gaap and on certain other financial data that we prepared using non-gaap components . for a reconciliation of these non-gaap components to the most comparable gaap components , see “ non-gaap financial measures ” at the end of this item . discussion of operating results the following table shows a summary of our reporting segments and consolidated financial results for years ended december 31 ( in millions , except per share data and percentages ) : replace_table_token_8_th 27 2013 summary net income was $ 169.3 million , or $ 3.59 per diluted share , for 2013 compared to $ 137.3 million , or $ 2.88 per diluted share , for 2012 and $ 110.8 million , or $ 2.35 per diluted share , for 2011 . results included benefits from tax adjustments and other items of $ 4.5 million for 2013 , $ 3.5 million for 2012 , and $ 15.8 million for 2011 ( see `` non-gaap financial measures '' at the end of this item for further details ) . excluding the impact of these items , net income was $ 164.8 million for 2013 , which represented an increase of $ 31.0 million or 23.2 % , compared to 2012. net income was $ 133.8 million for 2012 , which represented an increase of $ 38.8 million or 40.8 % compared to 2011 . at rail north america , higher lease rates and increased asset remarketing income drove an increase in segment profit . these increases were partially offset by higher maintenance costs from increased compliance work and higher depreciation expense as new cars were added to the fleet . at rail international , higher lease revenue , lower maintenance costs , and increased scrapping partially offset by higher depreciation , drove an increase in segment profit . at asc , lower iron ore freight volumes and operating delays caused segment profit to decrease . in addition , the decision to scrap an older vessel resulted in an impairment loss in the current year , which negatively impacted segment results . at portfolio management , higher marine operating results , which reflect 100 % ownership of the former singco and somargas vessels ( collectively the `` norgas vessels '' ) for a portion of the year , and higher affiliate earnings , drove an increase in segment profit compared to the prior year . these increases were partially offset by lower lease revenue . total investment volume was $ 859.6 million in 2013 , compared to $ 770.0 million in 2012 and $ 614.6 million in 2011 . 2014 outlook overall , we are optimistic about the year ahead primarily due to critical steps we took during the recession that have allowed our rail platforms to benefit from favorable current trends that we expect will continue into 2014. we expect higher segment profit at rail north america in 2014 as lease revenue continues to increase . lease rates on most tank car types are at record highs and the environment currently appears stable . we plan to capitalize on this continued high demand by placing railcars on long-term leases . growing lease revenues should more than offset a modest decline in remarketing income and increased maintenance expense as we work through our tank car compliance cycle . separately , recent serious accidents in crude by rail transportation have created uncertainty around how new and existing tank cars must be outfitted for various types of service . as a result , tank car regulations may change and we may incur costs to ensure that our fleet continues to comply with the applicable regulations . it is not possible at this time to estimate the extent or timing of any regulatory changes , or what impact they might have on us . we expect a slight increase in rail international segment profit in 2014 due to slowly improving market conditions . investment volume in the past two years was at the highest levels since we made our initial investment in europe nearly twenty years ago , and we anticipate another strong investment year in 2014. our continued investment in europe is a result of our commitment to assist our customers with the fleet replacement required in the european tank car market . we expect a slight increase in asc 's segment profit in 2014 as shipping volume should improve in 2014 as we expect to recapture some of the tonnage lost during the challenging weather conditions experienced in the fourth quarter of 2013. we believe portfolio management 's segment profit will decrease modestly in 2014. while we expect continued strong performance at the rolls-royce affiliates , aggregate earnings from affiliates and remarketing income will be lower . 28 segment operations segment profit is an internal performance measure used by the chief executive officer to assess the performance of each segment in a given period . story_separator_special_tag net interest expense decreased $ 0.6 million , due to lower interest rates , however , the effects of lower rates were partially offset by higher debt balances . other expense decreased $ 5.0 million , primarily due to the favorable remeasurement of an embedded foreign currency derivative ( related to certain non-functional currency lease contracts ) and higher net remeasurement gains on non-functional currency assets and liabilities in 2013. the decreases to other expense were partially offset by higher legal defense costs . excluding the impact of the aae disposition gain and the impact of the interest rate swaps from each period , share of affiliates ' earnings decreased $ 0.5 million , primarily due to lower operating income at aae , reflective of a partial year of ownership . net gain on asset dispositions in 2012 increased $ 1.7 million compared to 2011 , primarily due to higher scrapping gains as more railcars and wheelsets were scrapped . interest expense decreased $ 0.9 million , as interest income on cash deposits more than offset the effect of higher expenses from increased debt levels . other expense increased $ 13.3 million , of which $ 3.2 million was due to the favorable resolution of a litigation matter in 2011 that reduced other expense . the remaining variance was primarily due to the unfavorable remeasurement of an embedded foreign currency derivative and higher legal defense costs . excluding the impact of the interest rate swaps at aae from each period , affiliates ' earnings increased $ 4.4 million , primarily due to higher operating income at aae , which included lower depreciation expense of $ 6.2 million due to a change in railcar depreciation policy enacted in 2012 that extended depreciable lives and increased estimated salvage values . investment volume investment volume was $ 168.5 million in 2013 , $ 200.1 million in 2012 , and $ 140.8 million in 2011. during 2013 , we acquired approximately 1,500 railcars compared to 1,580 railcars in 2012 , and 840 railcars in 2011. additionally , capitalized wheelset costs were $ 25.7 million in 2013 , $ 30.7 million in 2012 , and $ 38.2 million in 2011. international railcar regulatory matters consistent with changes in european railcar industry practices and regulatory directives announced after the 2009 accident in the city of viareggio , italy , gatx rail austria gmbh ( an indirect subsidiary of the company , “ gatx rail austria ” ) and its subsidiaries implemented a modified wheelset maintenance and inspection program , which included the accelerated installation of new wheelsets in certain cases . gatx rail austria and its subsidiaries have incurred higher maintenance expenses and capital costs during the implementation of this wheelset program , which is now largely completed . going forward , it is expected that lower wheelset maintenance costs will be incurred , but depreciation expense associated with the new wheelsets will be higher . future industry actions and regulatory directives may require further modifications of the maintenance and inspection practices of gatx rail austria and its subsidiaries . the complete scope and cost of any potential future maintenance initiatives are not fully known at this time . we do not currently expect that the costs associated with the modified wheelset maintenance and inspection program and other potential initiatives will be material to our financial position , liquidity or results of operations . 36 asc segment summary shipping volumes in 2013 were modestly lower from prior year levels . additionally , low water levels early in the season and extreme winter conditions late in the year negatively impacted vessel operations . in 2014 , we anticipate tonnage and segment profit to improve marginally . in addition , we expect operating conditions to improve compared to the prior year . however , the severe winter and current ice coverage on the great lakes may hamper the start of the sailing season . asc carried a total of 28.8 million net tons of freight and deployed 13 vessels in 2013 compared to 29.7 million net tons and 14 vessels in 2012 . in mid-2011 , a strike by the licensed crew represented by the american maritime officers ( amo ) union resulted in a work stoppage which caused lost tonnage and incremental expenses for vessel lay-up and redeployment . the following table shows asc 's segment results for the years ended december 31 ( in millions ) : replace_table_token_15_th 37 segment profit segment profit for 2013 was $ 8.6 million lower than 2012 , primarily due to lower iron ore freight volumes and operating delays . in addition , we recognized an impairment loss in 2013 based upon the decision to scrap an older vessel , which negatively impacted segment results . segment profit for 2012 was $ 10.2 million higher than 2011 , primarily due to higher rates and iron ore freight volumes . additionally , results compared to 2011 were impacted by a labor work stoppage that occurred in the prior year . revenues in 2013 , marine operating revenue decreased $ 15.6 million , primarily due to modestly lower freight volume and lower fuel surcharges . the terms of asc 's contracts provide that a portion of fuel costs may be passed on to our customers . lower fuel prices in 2013 resulted in reduced fuel surcharges which were substantially offset by a corresponding decrease in marine operating expenses . in 2012 , marine operating revenue increased $ 26.9 million compared to 2011 primarily due to higher freight volume , particularly iron ore , as well as higher freight rates and fuel surcharges . expenses maintenance expense in 2013 increased $ 1.2 million , due to higher vessel repair work . marine operating expense was $ 9.0 million lower than prior year , primarily due to fewer operating days and lower fuel expense . additionally , we operated one less vessel in the current year .
| segment summary in 2013 , rail north america continued to experience strong demand for tank cars , which led to historically high lease rate pricing and longer lease terms . the weighted average lease renewal rate on cars in our lease price index ( the “ lpi , ” see definition below ) increased 34.5 % from the weighted average expiring lease rate , compared to an increase of 25.6 % in 2012 and 6.9 % in 2011 . lease terms on renewals for cars in the lpi averaged 62 months in 2013 , compared to 60 months in 2012 and 45 months in 2011 . during 2013 , an average of 107,721 railcars were on lease compared to 107,255 in 2012 . utilization was 98.5 % at the end of 2013 , compared to 97.9 % at the end of 2012 . in 2014 , we expect higher lease revenue , a modest decline in remarketing income , and increased maintenance expense as we work through the tank car compliance cycle . leases for approximately 20,000 railcars will expire in 2014 , and we expect strong renewal success at attractive rates , particularly for tank cars . however , cars that serve the coal markets , including 2,750 cars that have leases expiring in 2014 , are experiencing relatively weak demand , and we expect that utilization and lease pricing for these cars will remain below historical norms . in 2011 , we entered into a purchase agreement for 12,500 railcars , which was the largest such commitment in our history . under this agreement , we have taken delivery of 5,900 railcars as of december 31 , 2013 , and expect to take delivery of 2,500 railcars in 2014. we also expect to acquire an additional 900 new railcars outside of this agreement in 2014. we may add other selected assets to our fleet , although rising asset prices may impact our investment spending .
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if actual results differ from our estimates , our net operating loss and credit carryforwards could be materially impacted in the period which such determination is made . the company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority . an uncertain income tax position will not be recognized if it has less than a 50 % likelihood of being sustained . recognition or measurement is reflected in the period in which the likelihood changes . any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statements of net income ( loss ) and comprehensive income ( loss ) . accrued interest and penalties are included in accounts payable and other liabilities in the consolidated balance sheets . ( p ) share-based compensation as described in more detail below , the company has five share-based compensation plans under which awards have been made : the 2020 omnibus plan ( as defined below ) , the 2018 stock option plan ( as defined below ) , the 2015 stock option plan ( as defined below ) , the employment inducement award plan # 1 ( the “ employment inducement award plan ” ) and a cash-settled deferred share unit ( “ dsu ” ) plan for non-executive directors . share-based compensation consists of equity-settled share-based awards such story_separator_special_tag you should read the following discussion and analysis together with our consolidated financial statements and the related notes to those statements , which are included in item 8 of this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth in item 1a “ risk factors , ” of this annual report and elsewhere in this annual report , our actual results may differ materially from those anticipated in these forward-looking statements . business overview cronos group is an innovative global cannabinoid company with international production and distribution across five continents . we are committed to building disruptive intellectual property by advancing cannabis research , technology and product development and are seeking to build an iconic brand portfolio . cronos group 's brand portfolio includes peace naturals , a global wellness platform ; two adult-use brands , cove and spinach ; and three u.s. hemp-derived consumer products brands , lord jones , happy dance and peace+ . strategy cronos group seeks to create value for shareholders by focusing on four core strategic priorities : growing a portfolio of iconic brands that responsibly elevate the consumer experience ; developing a diversified global sales and distribution network ; establishing an efficient global supply chain ; and creating and monetizing disruptive intellectual property . business segments cronos group reports through two segments : “ united states ” and “ rest of world. ” these two segments represent the geographic regions in which the company operates and the different product offerings within each geographic region . on september 5 , 2019 , as a result of the redwood acquisition , the company established the united states segment , which includes only the results of redwood since the date of acquisition . redwood manufactures , markets and distributes u.s. hemp-derived supplements and cosmetic products through e-commerce , retail and hospitality partner channels in the united states ( “ u.s. ” ) under the brands lord jones and happy dance . recent developments in december 2019 , an outbreak of a novel strain of coronavirus , covid-19 , was identified in wuhan , china . since then , covid-19 has spread across the globe , including the u.s. , canada and israel , and other countries in which the company or its affiliates operate ( including australia and colombia ) and was recognized as a pandemic by the world health organization . the covid-19 pandemic has resulted in a sharp contraction in many areas of the global economy and increased volatility and uncertainty in the capital markets . in response to the pandemic , the governments of many countries , provinces , states , cities , and other geographic regions took preventative or protective actions , including closures of certain businesses , mandatory quarantines , limits on individuals ' time outside of their homes , travel restrictions and social distancing or other preventative measures . such measures were eased or lifted in varying degrees by different governments of various countries , states and cities throughout 2020 , but the continued spread of covid-19 and increased infection rates has caused , and may continue to cause , some jurisdictions to roll back reopening plans that had been underway and re-impose quarantines , border closures , closure of certain businesses and stay-at-home orders . it is possible that jurisdictions in which the company or its affiliates operate may reintroduce more stringent preventative or protective actions which could result in further closures of businesses . governments in certain countries such as the u.s. , canada , and those in europe have responded to the acute economic and market consequences with certain monetary and fiscal policy actions . impact on operating results during the second quarter of 2020 , the effects of the covid-19 pandemic on retail stores and the increase of costs in production and sales in the u.s. had a material impact on the rate of growth of revenue in the u.s. segment , with revenue for the segment remaining flat from the first quarter of 2020. as a result of these impacts and the expectation of future impacts , for the three months ended june 30 , 2020 , the company recorded $ 35 million of impairment charges on its u.s. reporting unit and $ 5 million on the lord jones brand ( refer to note 11 of the company 's consolidated financial statements for more information regarding intangibles assets and goodwill ) . story_separator_special_tag the slowdown or disruption faced by retailers , in addition to quarantine measures and travel restrictions , impacts the ability of customers to be able to access the company 's products . these restrictions on retail stores are mandated by , and differ across , each state , province or territory and continue to change and evolve , which creates uncertainty in forecasting customer demand and sales velocity . in the u.s. , while online sales have continued despite facing pressure , certain beauty and other retailers have temporarily closed physical boutiques . state specific limitations on retail capacity has also reduced the ability of larger retailers to offer in-store brand education for the company 's products . in canada , retailers have implemented a combination of measures from closing stores , offering curbside delivery ( to the extent permitted by a province ) and online sales only , reduced store opening hours and a reduction in the number of customers permitted in stores in light of social distancing measures . suspensions of the ability of private retailers to offer click-and-collect or curbside delivery in certain provinces in canada may further impact customer demand for products . provincial purchasers have also similarly , among other things , reduced staff on-site leading to a decrease in delivery time slots for producers to deliver products or reduced frequency or size of their purchase orders . while various provinces in canada have continued to increase the number of retail stores during the covid-19 pandemic , we expect that the expansion of retail stores in various provinces in canada will be delayed or slowed down in light of continued increases in covid-19 cases . we anticipate that uncertainty created by these measures on forecasting customer demand and sales will continue as long as such measures are in place . demand for the company 's products could also be negatively impacted should the effects of covid-19 lead to changes in consumer behavior , including as a result of a potential decline in the level of demand for vaporizer products or in discretionary spending as result of a general economic slowdown . macroeconomic impacts the impacts of these current restrictions and measures on certain strategic projects continue to be uncertain . while facility design and expansion projects and product development initiatives are currently expected to proceed as planned , requirements and restrictions on the operation of businesses and workforces continue to evolve as governmental and health authorities respond to the spread of the virus and changes may result in delays or suspensions if authorities require such activities to be suspended . in addition , a recession or market correction resulting from the spread of covid-19 would likely materially affect the company 's business and the value of its common shares . collectively , the effects of the covid-19 pandemic have adversely affected the company 's results of operations and , if the effects continue unabated , could continue to do so as long as measures to combat the covid-19 pandemic remain in effect . at this time , neither the duration nor scope of the disruption can be predicted ; therefore , the ultimate impact to the company 's business can not be reasonably estimated but such impact could materially adversely affect the company 's business and financial results . liquidity and capital resource impact despite the impacts of the covid-19 pandemic , the company believes that its significant cash on hand and short-term investments will be adequate to meet liquidity and capital requirements for at least the next twelve months . the impact of reduced interest rates has inhibited the company 's ability to generate interest income in the short-term , but this has not , and is not expected to have , a material impact on the liquidity or capital resources of the company . 2020 business highlights cronos fermentation in the second quarter of 2020 , cronos fermentation successfully fermented cbga , one of the company 's target cannabinoids under the ginkgo strategic partnership , at research scale . cronos fermentation has and will continue to optimize downstream processing and scale up procedures in advance of receiving the final strains and commercial processing license , both of which are required for commercialization . management appointments on september 9 , 2020 , cronos group expanded its leadership structure to drive its next phase of growth by appointing kurt schmidt as president and chief executive officer . this move coincided with mike gorenstein 's appointment to executive chairman . mr. schmidt brings deep experience in consumer products with decades of leadership experience in the u.s. and overseas . on august 31 , 2020 , the company added shannon buggy as senior vice president , global head of people . with over 25 years of experience , ms. buggy has a proven track record of leading and managing global human resources teams and driving excellence in talent acquisition , development , retention , employee relations , compensation , benefits , talent management and labor relations . on july 20 , 2020 , summer frein was named general manager usa . ms. frein joined cronos group in january of 2020 ; however , she has worked with cronos group in various capacities since 2018. under ms. frein 's leadership , the company plans to further expand 53 its u.s. hemp-derived business , including introducing new product formats under both lord jones and happy dance , that will target different retail channels and consumers . cronos research labs in the third quarter of 2020 , cronos device labs expanded its scope for cannabinoid research and the r & d center was renamed to cronos research labs . cronos group engages in both understanding the fundamental science behind the interactions of cannabinoids with each other and how those interactions can be leveraged to best deliver on the consumer 's needs . additionally , the company partners with leading scientific institutions engaged in fundamental cannabis science to augment and accelerate its internal efforts .
| summary of financial results – u.s. replace_table_token_12_th ( i ) see “ non-gaap measures ” for information related to non-gaap measures . 58 net revenue – u.s. ( in thousands of u.s. dollars ) year ended december 31 , change 2020 2019 $ % net revenue $ 9,495 $ 3,364 $ 6,131 182 % for fy 2020 , the u.s. segment reported net revenue of $ 9.5 million , representing an increase of $ 6.1 million from fy 2019. the increase was primarily due to : an increase in sales due to a full year of u.s. segment results in fy 2020 as opposed to 117 days in fy 2019. the growth in existing product lines and introductions of new u.s. hemp-derived cbd products during fy 2020. a significant amount of the u.s. segment 's fy 2020 revenue was earned during the fourth quarter as a result of increased sales in the direct-to-consumer channel driven by holiday sales . cost of sales and gross profit – u.s. replace_table_token_13_th for fy 2020 , the u.s. segment reported gross profit of $ 4.2 million representing an increase in gross profit of $ 2.3 million from fy 2019. this was primarily due to : the increase in net revenue , as described above . partially offset by an increase in cost of sales primarily driven by a full year of u.s. segment results in fy 2020 as opposed to 117 days in the same period in 2019. adjusted ebitda – u.s. ( in thousands of u.s. dollars ) year ended december 31 , change 2020 2019 $ % adjusted ebitda $ ( 28,019 ) $ ( 1,703 ) $ ( 26,316 ) 1,545 % ( i ) see “ non-gaap measures ” for information related to non-gaap measures .
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these standards were effective upon issuance and allowed application to contract changes as early as january 1 , 2020. these provisions may impact the company as contract modifications and other story_separator_special_tag vontier corporation ( “ vontier ” , the “ company , ” “ we , ” “ us , ” or “ our ” ) is a global industrial technology company that focuses on critical technical equipment , components , software and services for manufacturing , repair and servicing in the mobility infrastructure industry worldwide . we supply a wide range of solutions , spanning advanced environmental sensors , fueling equipment , field payment hardware , remote management and workflow software , vehicle tracking and fleet management software , solutions for traffic light control and vehicle mechanics ' and technicians ' equipment . we market our products and services to retail and commercial fueling operators , commercial vehicle repair businesses , municipal governments and public safety entities and fleet owners/operators on a global basis . this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide a reader of our financial statements with a narrative from the perspective of management and is intended to help the reader understand the results and operations and financial condition of the company . our md & a should be read in conjunction with our consolidated financial statements and the accompanying notes to the financial statements included elsewhere in this annual report . basis of presentation the accompanying consolidated and combined financial statements present our historical financial position , results of operations , changes in equity and cash flows in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the combined financial statements for periods prior to the separation were derived from fortive 's consolidated financial statements and accounting records and prepared in accordance with gaap for the preparation of carved-out combined financial statements . through the date of the separation , all revenues and costs as well as assets and liabilities directly associated with vontier have been included in the combined financial statements . prior to the separation , the combined financial statements also included allocations of certain general , administrative , sales and marketing expenses from fortive 's corporate office and from other fortive businesses to the company and allocations of related assets , liabilities , and the former parent 's investment , as applicable . following the separation , the consolidated financial statements include the accounts of vontier and those of our wholly-owned subsidiaries and no longer include any allocations from fortive . accordingly : the consolidated balance sheet as of december 31 , 2020 consists of our balances , while the combined balance sheet as of december 31 , 2019 consists of the combined balances of the vontier businesses . the consolidated and combined statement of earnings and comprehensive income for the year ended december 31 , 2020 consist of our results from the date of the separation through december 31 , 2020 and the combined results of the vontier businesses from january 1 , 2020 through the date of the separation . the combined statements of earnings and comprehensive income for the years ended december 31 , 2019 and 2018 , consist of the combined results of the vontier businesses . the consolidated and combined statement of changes in stockholders ' equity for the year ended december 31 , 2020 consists of our consolidated activity from the date of the separation through december 31 , 2020 and the combined activity of the vontier businesses from january 1 , 2020 through the date of the separation . the combined statements of changes in stockholders ' equity for the years ended december 31 , 2019 and 2018 , consist of the combined activity of the vontier businesses . the consolidated and combined statement of cash flows for the year ended december 31 , 2020 consists of our consolidated activity from the date of the separation through december 31 , 2020 and the combined activity of the vontier businesses from january 1 , 2020 through the date of the separation . the combined statements of cash flows for the years ended december 31 , 2019 and 2018 , consist of the combined activity of the vontier businesses . our consolidated and combined financial statements may not be indicative of our results had we been a separate stand-alone entity throughout the periods presented , nor are the results stated herein indicative of what our financial position , results of operations and cash flows may be in the future . 28 table of contents all significant transactions between the company and fortive have been included in the accompanying consolidated and combined financial statements for all periods presented . cash transactions with fortive prior to the separation are reflected in the accompany consolidated and combined statements of changes in stockholders ' equity as “ net transfers to former parent ” and “ consideration to former parent in connection with the separation ” and in the accompanying consolidated and combined balance sheets within “ former parent 's investment ” . former parent 's investment , which included retained earnings ( accumulated deficit ) prior to the separation , represents fortive 's interest in our recorded net assets prior to the separation . in addition , the accumulated net effect of intercompany transactions between us and fortive or fortive affiliates for periods prior to the separation are included in former parent 's investment . on october 9 , 2020 , in connection with the separation , former parent 's investment was redesignated within stockholders ' equity . the agreements include a “ wrong-pockets provision ” that allows the parties to make adjustments to ensure the separation-related transactions were executed in accordance with the agreements . in periods subsequent to the separation , we may make adjustments to balances transferred at the separation date in accordance with the wrong-pockets provision . any such adjustments are recorded through stockholders ' equity . story_separator_special_tag given the nature of our business , covid-19 impacted our businesses and operating results during the year ended december 31 , 2020 , directly with reduced demand from customers operating in non-essential end markets and indirectly with reduced demand created by macroeconomic disruption or disruption in adjacent end markets . covid-19 impacted our businesses and operating results broadly across all geographies , as virus control measures were deployed in most regions during the year ended december 31 , 2020. our business was impacted less in the second half of the year by the virus control measures as restrictions eased and demand returned . while differences exist among our businesses , on an overall basis , demand for our hardware and software products and services decreased during the first half of the year and increased during the second half of the year ended december 31 , 2020. as compared to the comparable period of 2019 , aggregate year-over-year total sales decreased 2.4 % for the year ended december 31 , 2020. sales from existing businesses declined 1.2 % during the year ended december 31 , 2020 , as compared to the comparable period of 2019. the decrease in total sales and sales from existing businesses during the year ended december 31 , 2020 was primarily driven by the direct and indirect impacts of covid-19 which was partially offset by strong demand for and shipments of fuel management systems in north america related to the enhanced credit card security requirements for outdoor payment systems based on the europay , mastercard and visa ( “ emv ” ) global standards and mexico regulatory demand . our diagnostics and repair portfolio also experienced periods of strong demand across most product categories , most notably specialty and hardline tools . changes in foreign currency exchange rates and other items negatively impacted our sales growth by 1.0 % during the year ended december 31 , 2020 compared to the comparable period in 2019. geographically , year-over-year total sales and sales from existing businesses for the year ended december 31 , 2020 , increased by an insignificant amount in developed markets and declined at a rate in the high-single digits in high-growth markets . these movements were primarily driven by a decline in western europe at a high-single digit rate and a decline in asia of more than 20 % which was partially offset by a low-single digit increase in north america . 30 table of contents outlook while we expect overall sales and sales from existing businesses to be relatively flat on a year-over-year basis in 2021 , we continue to monitor macro-economic and geopolitical developments including global uncertainties related to governmental policies toward international trade , monetary and fiscal policies and the impacts of covid-19 . we will also continue to monitor the other factors identified above in “ item 1a . risk factors ” we are closely monitoring the health of our employees , and have implemented safety protocols at our facilities to ensure the health and safety of our employees . in addition , we are continuing to monitor the financial health of our suppliers and customers , and their ability to maintain production capacity and meet our operational requirements . individuals contracting or being exposed to covid-19 , or who are unable to report to work due to future virus control measures , may significantly disrupt production throughout our supply chain and negatively impact our sales channels . further , our customers may be directly impacted by business curtailments or weak market conditions , and may not be willing or able to accept shipments of products , may cancel orders , and may not be able to pay us on a timely basis . despite the virus control measures in place in geographies critical to our supply chain , we have successfully implemented solutions to support our operations and have not experienced significant production material shortages , supply chain constraints , or distribution limitations impacting our operations as of the date of this report . to mitigate the impact of the economic conditions from the covid-19 pandemic as well as geopolitical uncertainties related to governmental policies toward international trade , monetary and fiscal policies , we will continue applying and deploying the vontier business system to actively manage our supply chain and drive operating efficiencies , and continue to collaborate with our customers and suppliers to minimize disruption to their businesses . additionally , we will continue actively managing our working capital with a focus on maximizing cash flows and cost efficiency . we continue to assess market conditions and take actions as we deem necessary to appropriately position our businesses in light of the economic environment and geopolitical uncertainties . although recent volatility in the financial markets has not had a significant impact on our financial position , liquidity , and ability to meet our debt covenants as of the filing date of this report , we continue to monitor the financial markets and general global economic conditions . if further changes in financial markets or other areas of the economy adversely affect our access to the capital markets , we would expect to rely on a combination of available cash and existing available capacity under our credit facilities to provide short-term funding . refer to the “ liquidity and capital resources ” section for additional discussion . 31 table of contents story_separator_special_tag from broad cost reduction efforts that reduced labor expenses to better align with reductions in demand , primarily through the use of furloughs and reductions in salaried compensation costs , as well as other reductions in discretionary spending , and to a lesser extent , year-over-year cost savings associated with restructuring and productivity improvement initiatives . sg & a expenses decreased $ 8.0 million , or 100 basis points as a percentage of sales , during 2019 as compared to 2018. the decrease in sg & a was due primarily to savings from productivity improvement initiatives and changes in foreign currency exchange rates . r & d expenses ( consisting principally of internal and contract engineering personnel costs ) decreased by $ 10.2
| results of operations comparison of results of operations replace_table_token_2_th components of sales growth replace_table_token_3_th 2020 compared to 2019 total sales and sales from existing businesses within our mobility technologies platform decreased at a low-single digit rate during the year ended december 31 , 2020 as compared to the comparable period of 2019. the year-over-year results during the year ended december 31 , 2020 were primarily driven by the direct and indirect impacts of covid-19 across most product categories and significant geographies which was partially offset by strong demand for and shipments of fuel management systems in north america related to the enhanced credit card security requirements for outdoor payment systems based on the europay , mastercard and visa ( “ emv ” ) global standards and mexico regulatory demand . total sales and sales from existing businesses within our diagnostics and repair technologies platform decreased at a low-single digit rate during the year ended december 31 , 2020 as compared to the comparable period in 2019. the results in the year ended december 31 , 2020 were primarily driven by decreased demand across most product categories due to covid-19 virus control measures early in the second quarter , which were partially offset by improvements in demand as the year progressed and virus control measures began to lift in certain jurisdictions . price increases are reflected as a component of the change in sales from existing businesses , and year-over-year price increases contributed 0.1 % to sales growth during 2020 as compared to 2019 . 2019 compared to 2018 total sales increased $ 106.2 million , or 4.0 % , during 2019 as compared to 2018. sales from existing businesses within our mobility technologies portfolio grew 7.1 % during 2019 as compared to 2018 due primarily to broad-based demand for fuel management systems , specifically in north america , latin america , and western europe , as well as increased demand for payment solutions .
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such statements are any statements other than those of historical fact and relate to our intent , belief or current expectations primarily with respect to our future operating , financial and strategic performance . any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties . actual results may differ from those contained in or implied by the forward-looking statements as a result of various factors . for more information , see `` cautionary statement regarding forward-looking statements '' within item 1a , `` risk factors . '' for additional information about certain of the matters discussed and described in the following management 's discussion and analysis of financial condition and results of operations , including certain defined terms used herein , see the notes to the accompanying audited consolidated financial statements included elsewhere in this form 10-k. our business and operating overview cumulus media is a leading audio-first media and entertainment company delivering premium content to over a quarter billion people every month - wherever and whenever they want it . cumulus media engages listeners with high-quality local programming t hrough 415 owned and operated stations across 86 markets ; delivers nationally-syndicated sports , news , talk , and entertainment programming from iconic brands including the nfl , the ncaa , the masters , cnn , the ap , the academy of country music awards , and many other world-class partners across nearly 7,300 affiliated stations through westwood one , the largest audio network in america ; and inspires listeners through its rapidly growing network of original podcasts that are smart , entertaining and thought-provoking . cumulus media provides advertisers with personal connections , local impact and national reach through broadcast and on-demand digital , mobile , social , and voice-activated platforms , as well as integrated digital marketing services , powerful influencers , full-service audio solutions , industry-leading research and insights , and live event experiences . cumulus media is the only audio media company to provide marketers with local and national advertising performance guarantees . our primary source of revenue is the sale of advertising time . our sales of advertising time are primarily affected by the demand from local , regional and national advertisers , which also impacts the advertising rates we charge . advertising demand and rates are based primarily on the ability to attract audiences in the demographic groups targeted by such advertisers , as measured principally by various ratings agencies on a periodic basis . we endeavor to provide compelling programming and form connections between our on-air talent and listeners in order to develop strong listener loyalty , and we believe that the diversification of our formats and programs , including non-music formats and proprietary content , helps to insulate us from the effects of changes in the musical tastes of the public with respect to any particular format . we strive to maximize revenue by managing our on-air inventory of advertising time and adjusting prices based on supply and demand . the optimal number of advertisements available for sale depends on the programming format of a particular radio program . each program has a general target level of on-air inventory available for advertising . this target level of advertising inventory may vary at different times of the day but tends to remain stable over time . we seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across each cluster of stations , thereby providing potential advertisers with an effective means to reach a targeted demographic group . our advertising contracts are generally short-term . we generate revenue across the following three major revenue streams : broadcast radio revenue . most of our revenue is generated through the sale of terrestrial , broadcast radio advertising time to local , regional , and national clients . local spot and regional spot advertising is sold by cumulus employed sales personnel . national spot advertising for our owned and operated stations is marketed and sold by katz media group , inc. in an outsourced arrangement as well as our own internal national sales team . 25 t a b l e o f c o n t e n t s in addition to local , regional and national spot advertising revenues , we monetize our available inventory in the network sales marketplace . to effectively deliver network advertising for our customers , we distribute content and programming through third party affiliates in order to reach a broader national audience . typically , in exchange for the right to broadcast radio network programming , third party affiliates remit a portion of their advertising time to us , which is then aggregated into packages focused on specific demographic groups and sold by us to our advertiser clients that want to reach those demographic groups on a national basis . network advertising airing across our owned , operated and affiliated stations is sold by our internal sales team located across the u.s. to predominantly national and regional advertisers . digital revenue . we generate digital advertising revenue from the sale of advertising and promotional opportunities across our streaming audio network , podcasting network , websites , mobile applications and digital marketing services . we operate one of the largest streaming audio advertising networks in the u.s. , including owned and operated internet radio simulcasted stations with either digital ad-inserted or simulcasted ads . we sell display ads across more than 400 local radio station websites , mobile applications , and ancillary custom client microsites . we also sell premium advertising adjacent to , or embedded in , podcasts through our network of owned and distributed podcasts . in addition , we sell an array of digital marketing services such as , email marketing , geo-targeted display and video solutions , website and microsite building and hosting , social media management , reputation management and search engine marketing and optimization within our cumulus c-suite digital marketing solutions portfolio to existing and new advertisers . other . story_separator_special_tag for the year ended december 31 , 2019 , we recorded income tax expense of $ 22.3 million on pre-tax book income of $ 83.5 million . the income tax expense recorded for the year ended december 31 , 2019 was primarily the result of federal , state and local income taxes . adjusted ebitda as a result of the factors described above , adjusted ebitda for the year ended december 31 , 2020 compared to adjusted ebitda for the year ended december 31 , 2019 decreased . 29 t a b l e o f c o n t e n t s reconciliation of non-gaap financial measure the following table reconciles adjusted ebitda to net ( loss ) income ( the most directly comparable financial measure calculated and presented in accordance with gaap ) as presented in the accompanying consolidated statements of operations ( dollars in thousands ) : replace_table_token_5_th segment results of operations the company has one reportable segment and presents the comparative periods on a consolidated basis to reflect the one reportable segment . liquidity and capital resources as of december 31 , 2020 and 2019 , we had $ 271.8 million and $ 17.0 million , respectively , of cash and cash equivalents , including restricted cash . we generated cash from operating activities of $ 33.2 million and $ 104.3 million , respectively , for the years ended december 31 , 2020 and 2019. historically , our principal sources of funds have been cash flow from operations and borrowings under credit facilities in existence from time to time . our cash flow from operations remains subject to factors such as fluctuations in advertising media preferences and changes in demand caused by shifts in population , station listenership , demographics and audience tastes , some of which may be exacerbated by the covid-19 pandemic . in addition , our cash flows may be affected if customers are not able to pay , or delay payment of , accounts receivable that are owed to us , which risks may also be exacerbated in challenging or otherwise uncertain economic periods . in certain periods , the company has experienced reductions in revenue and profitability from prior historical periods because of market revenue pressures and cost escalations built into certain contracts . notwithstanding this , we believe that our national platform and extensive station portfolio representing a broad diversity in format , listener base , geography , and advertiser base help us maintain a more stable revenue stream by reducing our dependence on any single demographic , region or industry . however , future reductions in revenue or profitability are possible and could have a material adverse effect on the company 's business , results of operations , financial condition or liquidity . although there is uncertainty related to the anticipated impact of the covid-19 pandemic on the company 's future results , we believe our business model , our current cash reserves and the recent steps we have taken to strengthen our balance sheet , such as the tower sale ( as defined below ) , sale of the dc land and $ 60 million draw under our 2020 revolving credit facility ( as defined below ) , will help us manage our business and anticipated liquidity needs . see note 2 , `` acquisitions and dispositions , '' in the notes to the accompanying audited consolidated financial statements included elsewhere in the form 10-k for further discussion of the tower sale and the sale of the dc land . 30 t a b l e o f c o n t e n t s we continually monitor our capital structure , and from time to time , we have evaluated , and expect that we will continue to evaluate , opportunities to obtain additional capital from the divestiture of radio stations or other assets , when we determine that it would further our strategic and financial objectives , as well as from the issuance of equity and or debt securities , in each case , subject to market and other conditions in existence at that time . there can be no assurance that any such financing would be available on commercially acceptable terms , or at all . future volatility in the capital and credit markets , caused by covid-19 or otherwise , may increase costs associated with issuing debt instruments or affect our ability to access those markets . in addition , it is possible that our ability to access the capital and credit markets could be limited at a time when we would like , or need , to do so , which could have an adverse impact on our ability to refinance maturing debt on terms or at times acceptable to us , or at all , and or react to changing economic and business conditions . refinanced credit agreement ( term loan due 2026 ) on september 26 , 2019 , the company entered into a new credit agreement by and among cumulus new holdings inc. , a delaware corporation and an indirectly wholly-owned subsidiary of the company ( `` holdings '' ) , certain other subsidiaries of the company , bank of america , n.a. , as administrative agent , and the other banks and financial institutions party thereto as lenders ( the `` refinanced credit agreement '' ) . pursuant to the refinanced credit agreement , the lenders party thereto provided holdings and its subsidiaries that are party thereto as co-borrowers with a $ 525.0 million senior secured term loan ( the `` term loan due 2026 '' ) , which was used to refinance the remaining balance of the then outstanding term loan ( the `` term loan due 2022 '' ) .
| consolidated results of operations analysis of consolidated statements of operations the following selected data from our audited consolidated statements of operations and other supplementary data provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition . this discussion should be read in conjunction with our audited consolidated statements of operations and notes thereto appearing elsewhere herein ( dollars in thousands ) . replace_table_token_3_th year ended december 31 , 2020 compared to the year ended december 31 , 2019 net revenue net revenue for the year ended december 31 , 2020 compared to net revenue for the year ended december 31 , 2019 decreased primarily as broadcast advertising revenue and trade and barter revenue were negatively impacted by covid-19 . these reductions were slightly offset by increases in political revenue resulting from the election cycle and digital revenue growth . content costs content costs consist of all costs related to the licensing , acquisition and development of our programming . content costs for the year ended december 31 , 2020 compared to content costs for the year ended december 31 , 2019 decreased primarily as a result of the reduction in personnel costs , both internally and externally , related to cost-saving actions and station 27 t a b l e o f c o n t e n t s dispositions , the cancellation or postponement of sporting events resulting from covid-19 and a reduction in our music licensing fees attributed to lower revenue . selling , general & administrative expenses selling , general and administrative expenses consist of expenses related to our sales efforts and distribution of our content across our platform and overhead in our markets .
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forward-looking statements may be identified by the use of forward-looking words such as “ anticipate , ” “ believe , ” “ may , ” “ will , ” “ continue , ” “ seek , ” “ estimate , ” “ intend , ” “ hope , ” “ predict , ” “ could , ” “ should , ” “ would , ” “ project , ” “ plan , ” “ expect ” or the negative or plural of these words or similar 40 expressions , although not all forward-looking statements contain these words . forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements . factors that might cause such differences include , but are not limited to , those discussed in the subsection entitled item 1a : “ risk factors ” above , which are incorporated herein by reference . the following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in item 8 : “ financial statements and supplementary data ” of this annual report on form 10-k. all information presented herein is based on our fiscal calendar . unless otherwise stated , references in this report to particular years or quarters refer to our fiscal years ended december 31 and the associated quarters of those fiscal years . we assume no obligation to revise or update any forward-looking statements for any reason , except as required by law . overview we provide cloud-based enterprise work management software . we define enterprise work management software as software applications that enable organizations to plan , manage and execute projects and work . our family of applications enables users to manage their projects , professional workforce and it investments , automate document-intensive business processes and effectively engage with their customers , prospects and community via the web and mobile technologies . the continued growth of an information-based economy has given rise to a large and growing group of knowledge workers who operate in dynamic work environments as part of geographically dispersed and virtual teams . we believe that manual processes and legacy on- premise enterprise systems are insufficient to address the needs of the modern work environment . in order for knowledge workers to be successful , they need to interact with intuitive enterprise work systems in a collaborative way , including real-time access . today , legacy processes and systems are being disrupted and replaced by cloud-based enterprise work management software that improves visibility , collaboration and productivity . in response to these changes , we are providing organizations and their knowledge workers with software applications that better align resources with business objectives and increase visibility , governance , collaboration , quality of customer experience and responsiveness to changes in the business environment . this results in increased work capacity , higher productivity , better execution and greater levels of customer engagement . our applications are easy-to-use , scalable and offer real-time collaboration for knowledge workers distributed on a local or global scale . our applications address enterprise work challenges in the following categories : project & information technology ( it ) management . enables users to manage their organization 's projects , professional workforce and it costs . workflow automation . enables users to automate document-intensive workflow business processes across their enterprise and supply chain . digital engagement . enables users to effectively engage with their customers , prospects and community via the web and mobile technologies . we sell our software applications primarily through a direct sales organization comprised of inside sales and field sales personnel . in addition to our direct sales organization , we have an indirect sales organization , which sells to distributors and value-added resellers . we employ a land-and-expand go-to-market strategy . after we demonstrate the value of an initial application to a customer , our sales and account management teams work to expand the adoption of that initial application across the customer , as well as cross-sell additional applications to address other enterprise work management needs of the customer . our customer success organization supports our direct sales efforts by managing the post-sale customer lifecycle . our subscription agreements are typically sold either on a per-seat basis or on a minimum contracted volume basis with overage fees billed in arrears , depending on the application being sold . we service customers ranging from large global corporations and government agencies to small- and medium-sized businesses . we have more than 2,500 customers with over 250,000 users across a broad range of industries , including financial services , retail , technology , manufacturing , education , consumer goods , media , telecommunications , government , food and beverage , healthcare and life sciences . 41 through a series of acquisitions and integrations , we have established a diverse family of software applications under the upland brand , each of which addresses a specific enterprise work management need . our revenue has grown from $ 22.8 million in fiscal 2012 to $ 74.8 million in fiscal 2016 , representing a 228 % period-over-period growth rate . see note 15 of the notes to consolidated financial statements for more information regarding our revenue as it relates to domestic and foreign operations . our operating results in a given period can fluctuate based on the mix of subscription and support , perpetual license and professional services revenue . for the years ended december 31 , 2016 , 2015 and 2014 , our subscription and support revenue accounted for 88 % , 82 % , and 75 % , respectively of our total revenue in both periods . historically , we have sold certain of our applications under perpetual licenses , which also are paid in advance . for the years ended december 31 , 2016 , 2015 and 2014 , our perpetual license revenue accounted for 2 % , 4 % , and 4 % of our total revenue , respectively . story_separator_special_tag on november 13 , 2015 , the company acquired 100 % of the outstanding capital of ultriva , inc. ( ultriva ) for total purchase consideration of $ 7.2 million , which included cash of $ 5.6 million , net of $ 0.4 million of cash acquired , 179,298 shares of the company 's common stock with a fair value of $ 1.4 million , and an additional $ 200,000 in shares of common stock held in escrow , subject to indemnification claims , one year from the date of the acquisition . in november 2016 , the company issued 24,587 shares of common stock valued at approximately $ 200,000 as a result of the escrow release . ultriva provides cloud-based supply chain collaboration software . 2016 acquisitions leadlander . on january 7 , 2016 , upland completed its purchase of substantially all of the assets of leadlander , inc. ( leadlander ) , a website analytics provider . the purchase price consideration paid was approximately $ 8.0 million in cash payable at closing ( net of $ 0.4 million of cash acquired ) and a $ 1.2 million cash holdback payable in 12 months ( subject to indemnification claims ) . the foregoing excludes additional potential earnout payments tied to performance-based conditions . in addition to the cash consideration described above , the asset purchase agreement included a contingent share consideration component pursuant to which upland issued an aggregate of $ 2.4 million common stock in july 2016. hipcricket . on march 14 , 2016 , upland completed its purchase of substantially all of the assets of hipcricket , inc. , a cloud-based mobile messaging software provider . the consideration paid to the seller consisted of our issuance of one million shares of our common stock and the transfer of our epm live product business . the value of the shares on the closing date of the transaction was approximately $ 5.7 million and the fair value of our epm live product business was approximately $ 5.9 million . prior to the transaction , hipcricket was owned by an affiliate of esw capital , llc , which is a shareholder of upland . raymond james & co. provided a fairness opinion to upland in connection with the transaction . 43 advanced processing & imaging , inc. on april 27 , 2016 , upland acquired advanced processing & imaging , inc. , a content management platform driving workflow in governments and schools . the purchase price consideration consisted of $ 4.0 million in cash payable at closing ( net of $ 0.2 million of cash acquired ) , and a $ 0.8 million cash holdback payable in 12 months ( subject to indemnification claims ) . 2017 acquisitions omtool . on january 11 , 2017 , upland completed its acquisition of omtool , ltd. , an enterprise document capture , fax , and workflow solution company . the purchase price paid for omtool was $ 19.2 million ( net of cash acquired ) . our acquisitions may have a material adverse impact on our results of operations , including a potential material adverse impact on our cost of revenue in the short term , as we seek to integrate our acquired businesses over the following six to twelve months in order to achieve additional operating efficiencies . in addition , as we grow our business , we continue to face many challenges and risks . we might encounter difficulties identifying , acquiring and integrating complementary products , technologies and businesses . over time , as competition increases we may experience pricing pressure . we also may experience seat downgrades or a reduction in minimum contracted volume that could negatively impact our business . seat downgrades or reductions in minimum contracted volume could occur for several reasons , including dissatisfaction with our prices or features relative to competitive offerings , reductions in our customers ' spending levels , unused seats or minimum contracted volume or limited adoption by our customers of our applications . our strategic initiatives will require expenditure of capital and the attention of management , and we may not succeed in executing on our growth plan . key metrics in addition to the gaap financial measures described below in “ —components of operating results , ” we regularly review the following key metrics to evaluate and identify trends in our business , measure our performance , prepare financial projections and make strategic decisions : replace_table_token_9_th ( 1 ) annualized recurring revenue value at year-end . the value as of december 31 equals the monthly value of our recurring revenue contracts measured as of december 31 multiplied by 12. this measure excludes the revenue value of certain uncontracted overage fees and on-demand service fees . see “ management 's discussion and analysis of financial condition and results of operations-key metrics ” for additional discussion of this key metric . ( 2 ) annual net dollar retention rate . we define annual net dollar retention rate as of december 31 as the aggregate annualized recurring revenue value at december 31 from those customers that were also customers as of december 31 of the prior fiscal year , divided by the aggregate annualized recurring revenue value from all customers as of december 31 of the prior fiscal year . see “ management 's discussion and analysis of financial condition and results of operations-key metrics ” for additional discussion of this key metric . 44 ( 3 ) adjusted ebitda . we monitor our adjusted ebitda to help us evaluate the effectiveness and efficiency of our operations . adjusted ebitda is a non-gaap financial measure . we define adjusted ebitda as net income ( loss ) , calculated in accordance with gaap , plus net income ( loss ) from discontinued operations , depreciation and amortization expense , interest expense , net , other expense ( income ) , net , provision for income taxes , stock-based compensation expense , acquisition-related expenses , non-recurring litigation costs , and purchase accounting adjustments for deferred revenue .
| results of operations consolidated statements of operations data the following tables set forth our results of operations for the specified periods , as well as our results of operations for the specified periods as a percentage of revenue . the period-to-period comparisons of results of operations are not necessarily indicative of results for future periods . replace_table_token_11_th ( 1 ) includes stock-based compensation . ( 2 ) includes depreciation and amortization of $ 3,916,000 , $ 3,147,000 , and $ 1,640,000 in 2015 , 2014 , and 2013 , respectively . ( 3 ) see note 8 to our consolidated financial statements included elsewhere in this 10-k for a discussion and reconciliation of historical net loss attributable to common stockholders and weighted average shares outstanding for historical basic and diluted net loss per share calculations . 50 comparison of fiscal years ended december 31 , 2016 and 2015 revenue replace_table_token_12_th total revenue was $ 74.8 million in 2016 , compared to $ 69.9 million in 2015 , an increase of $ 4.9 million , or 7 % . of the increase in total revenue , $ 11.7 million was due to the acquisitions we closed in 2015 and 2016 . total revenue also declined by $ 6.0 million due to the divestiture of the epm live product line at the end of february 2016 and by $ 0.7 million from organic total revenues , or 1 % in 2016 compared to 2015 due the change in the foreign currency exchange rate between the canadian dollar versus the u.s. dollar for those periods of $ 0.6 million . therefore , on a constant currency basis , our organic total revenue decreased by $ 0.1 million . subscription and support revenue was $ 65.6 million in 2016 , compared to $ 57.2 million in 2015 , an increase of $ 8.4 million , or 15 % .
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58 unique fabricating , inc. notes to consolidated financial statements long term debt consists of the following : december 30 , 2018 december 31 , 2017 new us term loan , payable to lenders in quarterly installments of $ 337,500 through september 30 , 2020 , $ 575,000 through september 30 , 2021 , and $ 812,500 through november 7 , 2023 , with a lump story_separator_special_tag this management 's discussion and analysis of financial condition and results of operation is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition , results of operations , liquidity , and certain other factors that may affect our future results . you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the accompanying consolidated financial statements and the related notes to consolidated financial statements for the fifty-two weeks ended december 30 , 2018 , december 31 , 2017 and january 1 , 2017 included in this annual report on form 10-k. some of the information contained in this discussion and analysis include forward-looking statements . our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below as well as in other sections of this annual report on form 10-k , particularly in “ business , ” “ risk factors ” and “ special note regarding forward-looking statements. ” we make no guarantees regarding outcomes , and assume no obligation to update the forward-looking statements herein , except as may be required by law . basis of presentation the company 's policy is that fiscal years end on the sunday closest to the end of the calendar year end . our 2018 fiscal year ended on december 30 , 2018 , the 2017 fiscal year ended on december 31 , 2017 , and our 2016 fiscal year ended on january 1 , 2017. the company 's operations are classified in one reportable business segment . although we have expanded the products that we manufacture and sell to include components used in the appliance , hvac and water heater industries , products for these industries are manufactured at facilities that also manufacture or are capable of manufacturing products for the automotive industries . all of our manufacturing locations have similar capabilities , and most plants serve multiple markets . the manufacturing operations for our automotive , appliance , hvac and water heater products share management and labor forces and use common personnel and strategies for new product development , marketing and the sourcing of raw materials . we qualify as an “ emerging growth company ” under the jobs act . as a result , we are permitted to , and intend to , rely on exemptions from certain disclosure requirements . for so long as we are an emerging growth company , we will not be required to : have an auditor report on our internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act ; comply with any requirement that may be adopted by the public company accounting oversight board regarding a supplement to the auditor 's report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis ) ; submit certain executive compensation matters to shareholder advisory votes , such as “ say-on-pay ” and “ say-on-frequency ” ; and disclose certain executive compensation and related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act provides that an emerging growth company can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . we will remain an “ emerging growth company ” for up to five years from our initial public offering , or until the earliest to occur of ( 1 ) the last day of the first fiscal year in which our total annual gross revenues exceed $ 1.1 billion , ( 2 ) the date that we become a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , which would occur if the market value of our common stock that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter or ( 3 ) the date on which we have issued more than $ 1.0 billion in non-convertible debt during the preceding three year period . our emerging growth status will expire on the first day of fiscal year 2020 , and as such at that time we will no longer be able to take advantage of the exemptions noted above . 26 story_separator_special_tag ceased operations at the port huron facility in june of 2018 and 7 positions were eliminated as a result of the closure . the company 's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of its facilities . as such , the company moved existing port huron production to our manufacturing facilities in london , ontario , auburn hills , michigan , and louisville , kentucky . the company provided the affected employees severance pay , health benefits continuation and job search assistance . story_separator_special_tag the amended and restated credit agreement , among other things increases the principal amount of us term loan borrowings to $ 26.0 million , creates a two year line to fund capital expenditures of up to $ 2.5 million through november 8 , 2019 and $ 5.0 million thereafter through november 8 , 2020 , and extends the maturity dates of all borrowings from april 28 , 2021 to november 7 , 2023. the amended and restated credit agreement provides for borrowings of up to $ 30.0 million under the revolver , subject to availability , and left the principal amount on the ca term loan the same as at september 30 , 2018 , approximately $ 12.0 million , and the same as it was under the previous credit agreement . the amended and restated credit agreement combined the previous us term loan and us term loan ii ( the “ new us term loan ” ) into one term loan , and increases the aggregate principal amount to $ 26.0 million dollars from $ 15.9 million . the increase in the principal amount effected by the new u.s. term loan replaced and termed-out outstanding borrowings under the revolver . the amended and restated credit agreement changes the quarterly principal payments of the new us term loan to $ 337,500 through september 30 , 2020 , $ 575,000 thereafter through september 30 , 2021 , and $ 812,500 thereafter though maturity . finally , the agreement made certain changes to the company 's covenants and financial covenant ratios . acquisition of intasco on april 29 , 2016 , unique-intasco canada , inc. ( the “ canadian buyer ” ) , a newly formed subsidiary , acquired the business and substantially all of the assets of intasco corporation , a canadian based tape manufacturer , for a purchase price of $ 21.03 million , net of cash acquired , with a portion being held in escrow to fund the obligations of intasco corporation and its stockholders to indemnify unique against certain claims , losses and liabilities . on the same date , unique fabricating na , inc. ( the “ us buyer ” ) , an existing subsidiary of the company , purchased 100 % of the outstanding capital stock of intasco usa , inc. , a united states based tape manufacturer , for a purchase price of $ 0.89 million paid by the issuance of 70,797 shares of the company 's common stock , par value $ 0.001 per share . the shares issued were “ restricted shares ” issued in reliance on an exemption from the registration requirements of the securities act of 1933 , as amended . the cash purchase price was paid with borrowings under a new credit facility which replaced the company 's then existing facility as described above . intasco is a material converter of pressure sensitive products such as film , label stock , foams and adhesives primarily provided to the automotive industry in the united states and canada . intasco specializes in interior and exterior attachment tape systems . this acquisition has significantly broadened the company 's solution offerings , production capabilities , and potentially expands its reach into new markets . comparison of results of operations for the fifty-two weeks ended december 30 , 2018 and the fifty-two weeks ended december 31 , 2017 fifty-two weeks ended december 30 , 2018 and fifty-two weeks ended december 31 , 2017 net sales fifty-two weeks ended december 30 , 2018 fifty-two weeks ended december 31 , 2017 ( in thousands ) net sales $ 174,910 $ 175,288 net sales for the fifty-two weeks ended december 30 , 2018 were approximately $ 174.91 million compared to $ 175.29 million for the fifty-two weeks ended december 31 , 2017 . the relatively flat net sales for the fifty-two weeks ended december 30 , 2018 is in alignment with north american vehicle production which slightly decreased during the fifty-two weeks ended december 30 , 2018 period from production during the fifty-two weeks ended december 31 , 2017 . cost of sales the major components of cost of sales are raw materials purchased from third parties , direct labor and benefits , and manufacturing overhead , including facility costs , utilities , supplies , repairs and maintenance , insurance , freight costs of products shipped to customers and depreciation . 29 replace_table_token_5_th cost of sales as a percent of net sales replace_table_token_6_th cost of sales as a percentage of net sales for the fifty-two weeks ended december 30 , 2018 increased to 77.5 % from 77.2 % for the fifty-two weeks ended december 31 , 2017 . the increase in cost of sales as a percentage of net sales was attributable to higher direct labor and benefits costs as a percentage of net sales , partially offset by lower manufacturing overhead costs as a percentage of net sales . material costs as a percentage of net sales slightly increased to 50.5 % for the fifty-two weeks ended december 30 , 2018 from 50.4 % for the fifty-two weeks ended december 31 , 2017 . material costs for the fifty-two weeks ended december 30 , 2018 as a percentage of net sales were higher compared to the fifty-two weeks ended december 31 , 2017 primarily due to higher freight costs in the fifty-two weeks ended december 30 , 2018 , partially offset by favorable product mix shift to more molded products , which are typically lower in material content . direct labor and benefit costs as a percentage of net sales was 15.6 % for the fifty-two weeks ended december 30 , 2018 compared to 15.3 % for the fifty-two weeks ended december 31 , 2017 .
| overview unique is engaged in the engineering and manufacture of multi-material foam , rubber and plastic components utilized in noise , vibration and harshness , acoustical management , water and air sealing , decorative and other functional applications . the company combines a long history of organic growth with some more recent strategic acquisitions to diversify both product capabilities and markets served . unique 's markets served are the north america automotive and heavy duty truck , as well as the appliance , water heater and hvac markets . sales are conducted directly with major automotive and heavy duty truck , appliance , water heater and hvac oems , or indirectly through the tier 1 suppliers of these oems . the company has its principal executive offices in auburn hills , michigan and has sales , engineering and production facilities in auburn hills , michigan , concord , michigan , lafayette , georgia , louisville , kentucky , evansville , indiana , bryan , ohio , monterrey , mexico , queretaro , mexico and london , ontario . the company also has an independent client sales representative who maintains offices in baldham , germany . unique derives the majority of its net sales from the sales of foam , rubber plastic , and tape adhesive related automotive products . these products are produced from a variety of manufacturing processes including die cutting , compression molding , thermoforming , reaction injection molding , and fusion molding . we believe unique has a broader array of processes and materials utilized than any of its direct competitors , based on our product offerings . by sealing out air noise and water intrusion , and by providing sound absorption and blocking , unique 's products improve the interior comfort of a vehicle , increasing perceived vehicle quality and the overall experience of its passengers . unique 's products perform similar functions for appliances , water heaters and hvac systems , improving thermal characteristics , reducing noise and prolonging equipment life .
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these forward-looking 32 statements generally can be identified by use of statements that include phrases such as believe , expect , anticipate , intend , plan , foresee , may , will , likely , estimates , potential , continue or other similar words or phrases . similarly , statements that describe our objectives , plans or goals also are forward-looking statements . all of these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated by the relevant forward-looking statement . the principal risk factors that could cause actual performance and future actions to differ materially from the forward-looking statements include , but are not limited to , changes in demand for our services as a result of automation , dependence on attracting and retaining qualified and experienced consultants , maintaining our relationships with customers and suppliers and retaining key employees , maintaining our brand name and professional reputation , the expected timing of the consummation of the plan and the kf merger , the impact of the rebranding on the company 's products and services , the costs of the plan and the kf merger , potential legal liability and regulatory developments , portability of client relationships , global and local political or economic developments in or affecting countries where we have operations , currency fluctuations in our international operations , risks related to growth , restrictions imposed by off-limits agreements , competition , consolidation in industries , reliance on information processing systems , cyber security vulnerabilities , changes to data security , data privacy , and data protection laws , limited protection of our ip , our ability to enhance and develop new technology , our ability to successfully recover from a disaster or business continuity problems , employment liability risk , an impairment in the carrying value of goodwill and other intangible assets , the effects of the tax cuts and jobs act ( the tax act ) on our business and our company , deferred tax assets that we may not be able to use , our ability to develop new products and services , changes in our accounting estimates and assumptions , alignment of our cost structure , risks related to the integration of recently acquired businesses , the utilization and billing rates of our consultants , seasonality and the matters disclosed under the heading risk factors in the company 's exchange act reports , including item 1a included in this annual report on form 10-k. readers are urged to consider these factors carefully in evaluating the forward-looking statements . the forward-looking statements included in this annual report on form 10-k are made only as of the date of this annual report on form 10-k and we undertake no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances . the following presentation of management 's discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this annual report on form 10-k. executive summary korn/ferry international ( referred to herein as the company , korn ferry , or in the first person notations we , our , and us ) is a global organizational consulting firm . our services include executive search , advisory solutions and products through hay group ( formerly known as leadership & talent consulting ( legacy ltc ) which was combined with hg ( luxembourg ) s.à.r.l ( legacy hay ) in december 2015 ) and recruitment for non-executive professionals and recruitment process outsourcing ( rpo ) through futurestep . the company also operates a corporate segment to record global expenses of the company . approximately 69 % of the executive searches we performed in fiscal 2018 were for board level , chief executive and other senior executive and general management positions . our 3,773 search engagement clients in fiscal 2018 included many of the world 's largest and most prestigious public and private companies . we have built strong client loyalty , with 88 % of assignments performed during fiscal 2018 having been on behalf of clients for whom we had conducted assignments in the previous three fiscal years . approximately 62 % of our revenues were generated from clients that utilize multiple lines of business . 33 superior performance comes from having the right conditions for success in two key areasthe organization and its people . organizational conditions encourage people to put forth their best effort and invest their energy towards achieving the organization 's purpose . we can help operationalize a client 's complete strategy or address any combination of five broad categories : organizational strategy we map talent strategy to business strategy by designing operating models and organizational structures that align to them , helping organizations put their plans into action . we make sure they have the right people , in the right roles , engaged and enabled to do the right things . assessment and succession we provide actionable , research-backed insights that allow organizations to understand the true capabilities of their people so they can make decisions that ensure the right leaders are readywhen and where they are neededin the future . talent acquisition from executive search to recruitment process outsourcing , we integrate scientific research with our practical experience and industry-specific expertise to recruit professionals of all levels and functions for client organizations . leadership development we activate purpose , vision and strategy through leaders at all levels and organizations . we combine expertise , science and proven techniques with forward thinking and creativity to build leadership experiences that help entry- to senior-level leaders grow and deliver superior results . rewards and benefits we help organizations align reward with strategy . we help them pay their people fairly for doing the right thingswith rewards they valueat a cost the organization can afford . the company currently operates through three business segments : executive search , hay group and futurestep . story_separator_special_tag million as of april 30 , 2018 and our unvested obligations totaled $ 29.5 million . our working capital increased by $ 70.7 million to $ 455.8 million in fiscal 2018. we believe that cash on hand and funds from operations and other forms of liquidity will be sufficient to meet our anticipated working capital , capital expenditures , general corporate requirements , repayment of the debt obligations incurred in connection with the legacy hay acquisition , the retention pool obligations pursuant to the legacy hay acquisition and dividend payments under our dividend policy in the next twelve months . we had no outstanding borrowings under our revolving credit facility at april 30 , 2018 and 2017. as of april 30 , 2018 and 2017 , there was $ 2.9 million and $ 3.0 million , respectively , of standby letters of credit issued under our long-term debt arrangements . we had a total of $ 7.4 million and $ 8.1 million of standby letters of credits with other financial institutions as of april 30 , 2018 and 2017 , respectively . on june 12 , 2018 , the company 's board of directors approved a plan ( the plan ) to go to market under a single , master brand architecture and to simplify the company 's organizational structure by eliminating and or consolidating certain of the company 's legal entities and implementing a rebranding of the company to offer the company 's current products and services using the korn ferry name , branding and trademarks . in connection with the plan , the company intends to sunset all sub-brands , including futurestep , hay group and lominger , among others . the company is harmonizing under one brand to help accelerate the firm 's positioning as the preeminent organizational consultancy and bring more client awareness to its broad range of talent management solutions . the hay group back office was fully integrated as of the beginning of fiscal 2018 and the company then focused on its integrated go-to-market activities . this integrated go-to-market approach was a key driver in the 13 % fee revenue growth in fiscal 2018 , which led to the decision to further integrate our go-to-market activities under one master brand korn ferry . in the near term the company will discontinue the use of all sub-brands . while the rebranding will not impact the company 's segment financial reporting , starting in the first quarter of fiscal 35 2019 , the company will rename its hay group segment as korn ferry advisory and its futurestep segment as korn ferry rpo and professional search. the company 's executive search segment will remain unchanged . in connection with the plan , the company also intends to pursue a holding company reorganization which is discussed in further detail in item 1. business in this annual report on form 10-k. critical accounting policies the following discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements . preparation of our periodic filings requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates and assumptions and changes in the estimates are reported in current operations as new information is learned or upon the amounts becoming fixed and determinable . in preparing our consolidated financial statements and accounting for the underlying transactions and balances , we apply our accounting policies as disclosed in the notes to our consolidated financial statements . we consider the policies discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on management 's judgment and estimates . specific risks for these critical accounting policies are described in the following paragraphs . senior management has discussed the development , selection and key assumptions of the critical accounting estimates with the audit committee of the board of directors . revenue recognition . substantially all fee revenue is derived from fees for professional services related to executive search performed on a retained basis , recruitment for non-executive professionals , recruitment process outsourcing , people and organizational advisory services and the sale of product services . fee revenue from executive search activities and recruitment for non-executive professionals is generally one-third of the estimated first year compensation of the placed executive or non-executive professional , as applicable , plus a percentage of the fee to cover indirect engagement related expenses . we generally recognize such revenue on a straight-line basis over a three-month period , commencing upon client acceptance , as this is the period over which the recruitment services are performed . fees earned in excess of the initial contract amount are recognized upon completion of the engagement , which reflect the difference between the final actual compensation of the placed executive and the estimate used for purposes of the previous billings . since the initial contract fees are typically not contingent upon placement of a candidate , our assumptions primarily relate to establishing the period over which such service is performed . these assumptions determine the timing of revenue recognition and profitability for the reported period . any revenues associated with services that are provided on a contingent basis are recognized once the contingency is resolved . in addition to recruitment for non-executive professionals , futurestep provides recruitment process outsourcing services and fee revenue is recognized as services are rendered and or as milestones are achieved . fee revenue from hay group is recognized as services are rendered for consulting engagements and other time-based services , measured by total hours incurred to the total estimated hours at completion . it is possible that updated estimates for the consulting engagement may vary from initial estimates with such updates being recognized in the period of determination .
| results of operations the following table summarizes the results of our operations as a percentage of fee revenue : replace_table_token_9_th the following tables summarize the results of our operations by business segment : ( numbers may not total exactly due to rounding ) replace_table_token_10_th 38 replace_table_token_11_th ( 1 ) margin calculated as a percentage of fee revenue by business segment . replace_table_token_12_th 39 replace_table_token_13_th 40 replace_table_token_14_th fiscal 2018 compared to fiscal 2017 fee revenue fee revenue . fee revenue went up by $ 201.7 million , or 13 % , to $ 1,767.2 million in fiscal 2018 compared to $ 1,565.5 million in fiscal 2017. exchange rates favorably impacted fee revenue by $ 35.3 million , or 2 % , in fiscal 2018 compared to the year-ago period . the higher fee revenue was attributable to organic growth in all lines of business . executive search . executive search reported fee revenue of $ 709.0 million , an increase of $ 91.3 million , or 15 % , in fiscal 2018 compared to $ 617.7 million in the year-ago period . as detailed below , executive search fee revenue was 41 higher in north america , emea and asia pacific , partially offset by lower fee revenue in the latin america region in fiscal 2018 as compared to fiscal 2017. the higher fee revenue in executive search was mainly due to a 9 % increase in the number of engagements billed and a 3 % increase in the weighted-average fees billed per engagement ( calculated using local currency ) during fiscal 2018 compared to the year-ago period . exchange rates favorably impacted fee revenue by $ 12.3 million , or 2 % , in fiscal 2018 , compared to the year-ago period . north america reported fee revenue of $ 408.1 million , an increase of $ 51.5 million , or 14 % , in fiscal 2018 compared to $ 356.6 million in the year-ago period .
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42 because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements of our financial statements . projections of any evaluation of the effectiveness on internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions , or that the degree of compliance with the policies or procedures may deteriorate . management , with the participation of our principal executive officer and principal financial officer conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in the internal control – integrated framework issued by the committee of sponsoring organizations ( coso ) of the treadway commission ( 2013 ) . based on this assessment , our management concluded that as of march 31 , 2016 , the end of our fiscal year , our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the united states . attestation report of independent registered public accounting firm this annual report on form 10-k does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by our independent registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in section 404 of the sarbanes-oxley act of 2002. changes in internal control over financial reporting during the quarter ended march 31 , 2016 , there were no changes in our internal control over financial reporting that materially affected , or are reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information none . part iii item 10. directors , executive officers and corporate governance the following table sets forth our directors and executive officers , their ages , and all offices and positions held . directors are elected for a period of three years and thereafter serve until their successor is duly elected by the stockholders and qualified . 43 replace_table_token_4_th a brief description of the background and business experience of each of the above listed individuals follows . timur turlov . mr. turlov graduated from russia state technic university ( named after tsialkovskiy ) in 2009 with a bachelor of science degree in economics and management . mr. turlov has more than 10 years of experience in various areas in the international securities industry . since july 2013 , mr. turlov has served as the advisor to the chairman of the board of freedom finance jsc . in that capacity , mr. turlov has been primarily responsible for strategic management , public and investor relations events , investment strategy , sales strategy , and government relations . he has also served as the general director of investment company freedom finance llc , since august 2001. as the general director , mr. turlov is responsible for establishing the company 's strategic goals , including acquisition and retention of large clients , sales strategy and company development . from may 2012 through january 2013 , mr. turlov served as the chairman of the board of directors of nomad finance jsc where he oversaw business set up and acquisition of large clients . from may 2011 to december 2011 , mr. turlov served as the general director and chief accountant of investment company duntonse llc , where he was tasked with overseeing business set up , operations with the firm 's intermediary broker and sales . from july 2010 through august 2011 , mr. turlov was employed as the vice director of the international sales department of nettrade llc . in this capacity , his major responsibilities included consulting to set up access to foreign markets , trading , back office , and internal accounting functions . mr. turlov is not currently , and has not been in the past five years , a nominee or director of any other sec registrant or registered investment company . in concluding that mr. turlov should serve as our chairman , we considered his in depth knowledge of the businesses of the freedom companies , his professional experience and his educational background in economics and management . 44 jason m. kerr . mr. kerr earned his bachelor of science degree in economics in 1995 and a juris doctorate in 1998 from the university of utah , where he was named the william h. leary scholar . in 2011 , mr. kerr founded the law firm price , parkinson & kerr , where he practices commercial litigation . from 2006 to 2011 , mr. kerr was the associate general counsel of basic research , llc , concentrating in intellectual property litigation . before joining basic research , mr. kerr was a partner with the law firm of plant , christensen & kanell in salt lake city , utah . mr. kerr was employed with plant , christensen & kanell from 1996 through 2001 and from 2004 to 2006. from 2001 through 2004 , mr. kerr was employed as a commercial litigator with the las vegas office of lewis and roca . mr. kerr became our director in may 2008. mr. kerr is not currently , and has not been in the past five years , a nominee or director of any other sec registrant or registered investment company . in concluding that mr. kerr should serve as our director , we considered his educational background in economics and his professional experience as an attorney . arkady rakhilkin . story_separator_special_tag mr. lawson has served as the chief compliance officer of ffin securities since october 2014. in this capacity , initially mr. lawson will be principally responsible for guiding ffin through the broker-dealer registration process . if and when licensure it received , mr. lawson will be responsible to ensure the operations of ffin are conducted in compliance with the laws , rules , and regulations applicable to a broker-dealer licensed in the united states . from august 2009 through march 2014 , mr. lawson served as the president , chief compliance officer , and chief financial officer of vertical capital asset management , llc , an sec registered investment advisory and vertical capital securities , llc , a finra registered broker-dealer . mr. lawson created and formed these affiliated companies . among other things , his principal responsibilities included due diligence and investment analysis on all products , ensuring written supervisory policies and procedures remained current , overseeing aml compliance , supervising and registration of all licensed personnel , working closely with finop and accounting personnel , and coordinating all regulatory and annual financial audits . mr. lawson graduated with a bba in finance and a minor in economics from the university of new mexico in 1994. family relationships there are no family relationships among our directors , executive officers and or nominees . 46 involvement in certain legal proceedings none of our executive officers or directors have been , during the past 10 years , subject to or involved in any of the following events that could be material to an evaluation of his ability or integrity , including : ( 1 ) a petition under the federal bankruptcy laws or any state insolvency law being filed against , or a receiver , fiscal agent or similar officer being appointed by a court for the business or property of such person , or any partnership in which he was a general partner at or within two years before the time of such filing , or any corporation or business association of which he was an executive officer at or within two years before the time of such filing ; ( 2 ) been convicted in a criminal proceeding or being subject to a pending criminal proceeding ( excluding traffic violations and other minor offenses ) ; ( 3 ) being subject to any order , judgment , or decree , not subsequently reversed , suspended or vacated , of any court of competent jurisdiction , permanently or temporarily enjoining him from , or otherwise limiting the following activities : ( i ) acting as a futures commission merchant , introducing broker , commodity trading advisor , commodity pool operator , floor broker , leverage transaction merchant , any other person regulated by the commodity futures trading commission ( “ cftc ” ) , or an associated person of any of the foregoing , or as an investment adviser , underwriter , broker or dealer in securities , or as an affiliated person , director or employee of any investment company , bank savings and loan association or insurance company , or engaging in or continuing any conduct or practice in connection with such activity ; ( ii ) engaging in any type of business practice ; or ( iii ) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws ; ( 4 ) being subject to any order , judgment or decree , not subsequently reversed , suspended or vacated , of any federal or state authority barring , suspending or otherwise limiting for more than 60 days the rights of such person to engage in any activity described in ( 3 ) ( i ) above , or to be associated with persons engaged in any such activity ; ( 5 ) being found by a court of competent jurisdiction in a civil action or by the commission to have violated any federal or state securities law , and the judgment in such civil action or finding by the commission has not been subsequently reversed , suspended or vacated ; ( 6 ) being found by a court of competent jurisdiction in a civil action or by the cftc to have violated any federal commodities law , and the judgment in such civil action or finding by the cftc has not been subsequently reversed , suspended , or vacated ; ( 7 ) being the subject of , or a party to any federal or state judicial or administrative order , judgment , decree or finding , not subsequently reversed , suspended or vacated , relating to an alleged violation of : 47 ( i ) any federal or state securities or commodities law or regulation ; ( ii ) any law or regulation regarding financial institutions or insurance companies including , but not limited to , a temporary or permanent injunction , order of disgorgement or restitution , civil money penalty or temporary or permanent cease-and-desist order , or removal or petition order ; or ( iii ) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity ; or ( 8 ) being the subject of , or a party to , any sanction or order , not subsequently reversed , suspended or vacated , of any self-regulatory organization ( as defined in section 3 ( a ) ( 26 ) of the exchange act ( 15 u.s.c . 78c ( a ) ( 26 ) ) ) , any registered entity ( as defined in section 1 ( a ) ( 29 ) of the commodity exchange act ( 7 u.s.c . 1 ( a ) ( 29 ) ) ) , or any equivalent exchange , association , entity or organization that has disciplinary authority over its members or persons associated with a member
| results of operations the year ended march 31 , 2016 and the period from august 25 , 2014 ( inception ) to march 31 , 2015. revenue we did not generate any revenue during the year ended march 31 , 2016 , or during the period from inception to march 31 , 2015. expenses operating expenses . during the fiscal year ended march 31 , 2016 and the period from inception to march 31 , 2015 , operating expenses included professional fees of $ 222,511 and $ 96,149 , general and administrative expenses of $ 268,018 and $ 41,869 , and depreciation expenses of $ 3,305 and $ 278 , respectively . professional services mainly included legal fees , consulting , and accounting fees . general and administrative expenses were comprised of payroll and related payments , rent expenses , and office supplies . operating expenses were higher in the fiscal year ended march 31 , 2016 compared to the period from inception to march 31 , 2015 , primarily because the period from inception to march 31 , 2015 was only seven months . we anticipate operating expenses during fiscal 2017 to remain relatively constant in comparison to the 2016 fiscal year or until such time as we close the acquisitions of one or more of the freedom companies and or ffin reapplies for and receives licensure and commences operations as a licensed u.s. securities broker-dealer . loss from operations . during the fiscal year ended march 31 , 2016 and the period from inception to march 31 , 2015 , we recognized losses from operations of $ 493,834 and $ 138,296 , respectively .
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the company determines whether an arrangement is or contains a lease at the inception date , based on whether there is an identified asset and whether the company controls the use of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates , beliefs and expectations that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in the sections of this report titled “ risk factors ” and “ special note regarding forward-looking statements. ” overview we provide a leading suite of cloud-based solutions that help businesses of all types and sizes comply with transaction tax requirements worldwide . our avalara compliance cloud offers a broad and growing suite of compliance solutions that enable businesses to address the complexity of transaction tax compliance , process transactions in real time , produce detailed records of transaction tax determinations , and reduce errors , audit exposure and total transaction tax compliance costs . we sell our solutions primarily through our sales force , which focuses on selling to qualified leads provided by our marketing efforts and by partner referrals . our marketing investments and related activities generate awareness from many businesses , both large and small , and enhance communications with our existing customers . we focus on maintaining and expanding our partner network , which has been an essential part of our growth . we continue to increase the available number of partner integrations , which are designed to link our tax compliance solutions to a wide variety of business applications , including accounting , erp , ecommerce , pos , recurring billing , and crm systems . partners also improve our sales efficiency by bringing us qualified leads and provide for a better onboarding process and customer experience . during 2019 , we continued to benefit from the adoption of economic nexus legislation by many u.s. states following the june 2018 u.s. supreme court decision in south dakota v. wayfair , inc. , which requires certain out-of-state retailers to collect and remit sales taxes on sales into south dakota . since that decision , many u.s. states have adopted similar economic nexus legislation . these developments have increased awareness of transaction tax issues and increased the sense of urgency among many businesses to comply with new laws . we believe we are well-positioned to continue to benefit from these changes in 2020 and beyond . during 2019 , we continued our acquisition strategy to provide new solutions and expand our market opportunity . we acquired a provider of u.s. compliance services , technology , and software to the beverage alcohol industry , an artificial intelligence company to expand and maintain our tax content database , and a provider of harmonized system classifications and outsourced customs brokerage support services to expand our cross-border solutions . in addition to acquisitions , we continued to invest organically by devoting significant resources to continuous improvement of our existing solutions , by adding new features and functionalities , building technology to support new content , and improving our customers ' experience with our products . we expect to continue to make significant investments , both organically and through acquisitions , to gain new and relevant content , technology , and expertise that best serve the transaction tax needs of our customers . we also will continue making significant investments to improve our existing solutions and customer experience . total revenue for 2019 was $ 382.4 million , an increase of 41 % from $ 272.1 million in 2018. most of our revenue comes from subscriptions and returns , with approximately 93 % in both 2019 and 2018. our revenue growth was attributable to adding new customers and expanding service offerings to existing customers . while only 6 % of total revenue for 2019 was generated outside the u.s. , we are aggressively targeting and investing internationally , including in europe and latin america . we added approximately 2,890 core customers during 2019 and delivered a net revenue retention rate of 111 % on average over the past four quarters . we use core customers , which represent more than 80 % of our total revenue , as a metric to focus our customer count reporting on the mid-market segment , which is our primary market . we use net revenue retention rate to reflect the stability of our revenue base and to provide insight into our ability to grow existing customer revenues . 37 despite improved revenue during 2019 , our gross margin declined to 70 % compared to 71 % in 2018. the decline in gross margin was due primarily to higher software hosting costs and , to a lesser extent , higher costs to support our international products and operations . operating expenses increased to $ 323.0 million in 2019 from $ 269.5 million in 2018 , as we continued to make significant investments in our future growth . sales and marketing expenses were $ 168.6 million in 2019 , or 44 % of total revenue , compared to $ 168.8 million in 2018 , or 62 % of total revenue . the decrease in sales and marketing expenses as a percentage of revenue in 2019 is partially due to the deferral of sales commission and partner commission expense resulting from our adoption of asc 606. excluding these deferrals , sales and marketing expenses were $ 187.8 million , or 49 % of total revenue during 2019 , reflecting strong improvement in our sales and marketing efficiency from the prior year . story_separator_special_tag unused transactions are not carried over to the customer 's next subscription term , and our customers are not entitled to any refund of fees paid or relief from fees due if they do not use the allotted number of transactions . if a subscription plan customer exceeds the selected maximum transaction level , we will generally upgrade the customer to a higher tier or , in some cases , charge overage fees on a per transaction or return basis . customers primarily purchase tax return preparation on a subscription basis for an allotted number of returns . our standard subscription contracts are generally non-cancelable after the first 60 days of the contract term . cancellations under our standard subscription contracts are not material , and do not have a significant impact on revenue recognized . we generally invoice our subscription customers for the initial term at contract signing and upon renewal . our initial terms generally range from twelve to eighteen months , and renewal periods are typically one year . amounts that have been invoiced are initially recorded as deferred revenue or contract liabilities . subscription revenue is recognized on a straight-line basis over the service term of the arrangement beginning on the date that our solution is made available to the customer and ending at the expiration of the subscription term . we adopted the new revenue recognition accounting standard asc 606 effective january 1 , 2019 on a modified retrospective basis . the new revenue recognition standard impacts the way we recognize subscription and returns revenues related to non-refundable upfront fees charged to new customers . see note 2 in the accompanying notes to the consolidated financial statements for additional information related to our adoption of the new revenue recognition standard . 39 subscription and returns revenue also includes interest income generated on funds held for customers . in order to provide tax remittance services to customers , we hold funds from customers in advance of remittance to tax authorities . these funds are held in trust accounts at fdic-insured institutions . prior to remittance , we earn interest on these funds . professional services . we generate professional services revenue from providing tax analysis , configurations , data migrations , integration , training and other support services . we bill for service arrangements on a fixed fee , milestone , or time and materials basis , and we recognize the transaction price allocated to professional services performance obligations as revenue as services are performed and are collectable under the terms of the associated contracts . costs and expenses cost of revenue . cost of revenue consists of costs related to providing the avalara compliance cloud and supporting our customers and includes employee-related expenses , including salaries , benefits , bonuses , and stock-based compensation . in addition , cost of revenue includes direct costs associated with information technology , such as data center and software hosting costs , tax content maintenance , and certain services provided by third parties . cost of revenue also includes allocated costs for certain information technology and facility expenses , along with depreciation of equipment and amortization of intangibles such as acquired technology from acquisitions . we plan to continue to significantly expand our infrastructure and personnel to support our future growth , including through acquisitions , which we expect to result in higher cost of revenue in absolute dollars . research and development . research and development expenses consist primarily of employee-related expenses for our research and development staff , including salaries , benefits , bonuses , and stock-based compensation , and the cost of third-party developers and other independent contractors . research and development costs , other than software development expenses qualifying for capitalization , are expensed as incurred . capitalized software development costs consist primarily of employee-related costs . research and development expenses also include allocated costs for certain information technology and facility expenses , along with depreciation of equipment . we devote substantial resources to enhancing and maintaining the avalara compliance cloud , developing new and enhancing existing solutions , conducting quality assurance testing , and improving our core technology . we expect research and development expenses to increase in absolute dollars . sales and marketing . sales and marketing expenses consist primarily of employee-related expenses for our sales and marketing staff , including salaries , benefits , bonuses , sales commissions , and stock-based compensation , as well as integration and referral partner commissions , costs of marketing and promotional events , corporate communications , online marketing , solution marketing , and other brand-building activities . sales and marketing expenses include allocated costs for certain information technology and facility expenses , along with depreciation of equipment and amortization of intangibles such as customer databases from acquisitions . we defer the portion of sales commissions that is considered a cost of obtaining a new contract with a customer in accordance with the new revenue recognition standard and amortize these deferred costs over the period of benefit , currently six years . we expense the remaining sales commissions as incurred . sales commissions are earned when a sales order is completed . for most sales orders , deferred revenue is recorded when a sales order is invoiced , and the related revenue is recognized ratably over the subscription term . the rates at which sales commissions are earned varies depending on a variety of factors , including the nature of the sale ( new , renewal , or add-on service offering ) , the type of service or solution sold , and the sales channel . at the beginning of each year we set group and individual sales targets . sales commissions are generally earned based on achievement against these targets . 40 we defer the portion of partner commissions costs that are considered a cost of obtaining a new contract with a customer in accordance with the new revenue recognition standard and amortize these deferred costs over the period of benefit .
| results of operations the comparability of periods covered by our financial statements is impacted by acquisitions and the impact of the adoption of new accounting standards . in may 2018 , we acquired developed technology to facilitate cross-border transactions ( e.g. , tariffs and duties ) . in january 2019 , we acquired substantially all the assets of compli and in february 2019 , we acquired substantially all the assets of indix . in july 2019 , we acquired substantially all the assets of portway . we adopted the new revenue recognition standard asc 606 effective january 1 , 2019 on a modified retrospective basis . our results of operations presented in the following tables include financial results for reporting periods during 2019 , which are reported in compliance with the new revenue recognition standard . historical financial results for reporting periods prior to 2019 have not been retroactively restated and are presented in conformity with amounts previously disclosed under the prior revenue recognition standard asc 605. we have included additional information regarding the impacts from the adoption of the new revenue recognition standard for the year ended december 31 , 2019 and included financial results during 2019 under asc 605 for comparison to the prior year . see note 2 to the accompanying notes to the consolidated financial statements for additional information related to our adoption of the new revenue recognition standard . the following sets forth our results of operations for the periods presented . replace_table_token_8_th ( 1 ) the stock-based compensation expense included above was as follows : 42 replace_table_token_9_th the amortization of acquired intangibles included above was as follows : replace_table_token_10_th the following sets forth our results of operations as a percentage of our total revenue for the periods presented .
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the selection of the u.s. plan 's assumption for the expected long-term rate of return on plan assets is based upon the plan 's target allocation of 60 % equities and story_separator_special_tag s please refer to page 1 of this annual report on form 10 ‑k for a cautionary statement regarding forward ‑looking information . overview of business the company is one of the world 's largest producers of high ‑performance nickel ‑ and cobalt ‑based alloys in flat product form , such as sheet , coil and plate . the company is focused on developing , manufacturing , marketing and distributing technologically advanced , high ‑performance alloys , which are used primarily in the aerospace , chemical processing and land ‑based gas turbine industries . the global specialty alloy market consists of three primary sectors : stainless steel , general purpose nickel alloys and high ‑performance nickel ‑ and cobalt ‑based alloys . the company competes primarily in the high ‑ performance nickel ‑ and cobalt ‑based alloy sector , which includes high ‑ temperature resistant alloys , or hta products , and corrosion ‑resistant alloys , or cra products . the company believes it is one of the principal producers of high ‑performance alloy flat products in sheet , coil and plate forms . the company also produces its products as seamless and welded tubulars and in bar , billet and wire forms . the company has manufacturing facilities in kokomo , indiana ; arcadia , louisiana ; and mountain home , north carolina . the kokomo facility specializes in flat products , the arcadia facility specializes in tubular products and the mountain home facility specializes in wire products . the company distributes its products primarily through its direct sales organization , which includes 14 service and or sales centers in the united states , europe and asia . all of these centers are company ‑operated . overview of markets the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . 34 replace_table_token_9_th ( 1 ) other revenue consists of toll conversion , royalty income , scrap sales and revenue recognized from the timet agreement ( see note 15 in the notes to the consolidated financial statements ) . other revenue does not have associated shipment pounds . ( 2 ) total product price per pound excludes “ other revenue ” . aerospace sales improved over fiscal 2015 after decreasing in fiscal 2013 and 2014. the declines in fiscal 2013 and 2014 were due to aerospace demand being negatively impacted by customer destocking within the supply chain . this period of low demand began to recover in the latter half of fiscal 2014 , and the recovery continued into fiscal 2015. demand for aerospace products is increasing in line with the forecasted increase in commercial aircraft builds . both boeing and airbus have reported sizeable backlog increases along with forecasted increases in production schedules and continued emphasis on accelerating production . demand for more fuel ‑efficient engines with fewer emissions is driving new engine builds . management also anticipates that the maintenance , repair and overhaul business will continue at a steady to increasing pace due to required maintenance schedules for the rising number of engines in use year ‑over ‑year . sales to the chemical processing industry have declined over fiscal 2013 , 2014 and 2015. the project ‑oriented nature of this market can create inconsistent sales levels . sales to this market in fiscal 2015 included some high-value special application projects with high average selling price per pound , but overall volumes were lower in fiscal 2015 compared to the prior year . demand for large-volume , project ‑based orders has been at relatively low levels during fiscal 2013 , 2014 and 2015. the main driver of demand in this market is capital spending in the chemical processing sector driven by end ‑user demand for housing , automotive , energy and agricultural products . the chemical processing market is sensitive to fiscal policies as well as world economic conditions and gdp growth . potential for increased sales to the chemical processing industry in fiscal 2016 will be dependent on improvement in global spending in the chemical processing sector . an additional driver of demand in this market is the increase in north american production of natural gas liquids and the further downstream processing of those chemicals that may utilize equipment that requires high ‑performance alloys . sales to the land ‑based gas turbine market peaked in fiscal 2012 and have decreased over fiscal 2013 , 2014 and 2015. however , fiscal 2012 and 2013 were two of the company 's best years for land ‑based gas turbine sales volume . subject to global economic conditions , management believes that long ‑term demand in this market will increase due to 35 higher activity in power generation and alternative power systems . land ‑based gas turbines are favored in electric generating facilities due to low capital cost at installation , fewer emissions than the traditional fossil fuel ‑fired facilities and favorable natural gas prices provided by availability of unconventional ( shale ) gas supplies . as governmental policy shifts away from coal ‑fired facilities , demand for land ‑based gas turbines is expected to increase . sales into the other markets category increased in fiscal 2015 after decreasing in fiscal 2013 and 2014. sales to this market in fiscal 2015 included some high-value special application projects with high average selling price per pound . the industries in this category focus on upgrading overall product quality , improving product performance through increased efficiency , prolonging product life and lowering long ‑term costs . companies in these industries are looking to achieve these goals through the use of “ advanced materials ” which supports the increased use of high ‑performance alloys in an expanding number of applications . story_separator_special_tag this compression occurred in the third and fourth quarter and will likely continue to negatively impact gross margins into fiscal 2016. the company values inventory utilizing the first-in , first-out ( “ fifo ” ) inventory costing methodology . in a period of decreasing raw material costs , the fifo inventory valuation normally results in higher costs of sales as compared to the last-in , first out method . in addition , falling nickel can cause customers to delay orders for the company 's products in order to receive a lower price in the future . gross profit margin trend performance the following tables show net revenue , gross profit margin and gross profit margin percentage for fiscal 2014 and fiscal 2015. replace_table_token_10_th replace_table_token_11_th 1 average selling price per pound for product sales differs from aggregate selling price per pound , as reported in previous filings , due to the exclusion of other revenue not associated with pounds shipped . as an example , revenue generated from lcmp from toll conversion is not included in calculating average selling price per pound for product sales . during the third and fourth quarters of fiscal 2015 , gross margin slightly declined sequentially but still represented a recovery from the prior year . gross margin was 18.3 % in the fourth quarter of fiscal 2015 compared to a 15.8 % gross 37 margin percentage in the same period last year . as mentioned above , a stronger mix of high-value specialty and proprietary alloys in high-value product forms contributed to this improvement . the compression in the third and fourth quarters of fiscal 2015 primarily relates to falling nickel prices . working capital controllable working capital , which includes accounts receivable , inventory , accounts payable and accrued expenses , was $ 277.5 million at september 30 , 2015 , an increase of $ 6.2 million or 2.3 % from $ 271.3 million at september 30 , 2014. this increase of $ 6.2 million includes a decrease in accounts payable and accrued expenses of $ 9.2 million and an increase in accounts receivable of $ 3.2 million , partially offset by a decrease in inventory of $ 6.2 million . dividends declared on november 19 , 2015 , the company announced that the board of directors declared a regular quarterly cash dividend of $ 0.22 per outstanding share of the company 's common stock . the dividend is payable december 15 , 2015 to stockholders of record at the close of business on december 1 , 2015. the aggregate cash payout based on current shares outstanding will be approximately $ 2.7 million , or approximately $ 11.0 million on an annualized basis . backlog set forth below is selected data relating to the company 's backlog , the 30 ‑day average nickel price per pound as reported by the london metals exchange , as well as a breakdown of net revenues , pounds shipped and average selling prices to the markets served by the company for the periods shown . this data should be read in conjunction with the consolidated financial statements and related notes thereto and the remainder of the “ management 's discussion and analysis of financial condition and results of operations ” included in this annual report on form 10 ‑k . replace_table_token_12_th ( 1 ) represents the average price for a cash buyer as reported by the london metals exchange for the 30 days ending on the last day of the period presented . backlog was $ 185.8 million at september 30 , 2015 , a decrease of approximately $ 7.1 million , or 3.7 % , from $ 192.9 million at june 30 , 2015. the backlog dollars decreased during the fourth quarter of fiscal 2015 due to a 5.2 % decrease in backlog average selling price partially offset by a 1.6 % increase in backlog pounds . on a year ‑to ‑date basis , the backlog has decreased by $ 35.5 million , or 16.1 % , from $ 221.3 million at september 30 , 2014. the backlog dollars decreased during fiscal 2015 due to a 15.8 % decrease in backlog pounds combined with a 0.3 % decrease in backlog average selling price . management believes that the decline in the backlog is due to the continued shipping of some major projects in fiscal 2015 and reduced order entry levels over the past few quarters driven presumably by the falling price of nickel , impacting both volume and average selling price per pound . 38 quarterly market information replace_table_token_13_th 39 story_separator_special_tag leveltek-laporte operations . cost of sales . cost of sales was $ 394.0 million , or 80.8 % of net revenues , in fiscal 2015 compared to $ 408.1 million , or 89.6 % of net revenues , in fiscal 2014. cost of sales in fiscal 2015 decreased by $ 14.1 million as compared to fiscal 2014 primarily due to lower volume , partially offset by a higher-value product mix sold . gross profit . as a result of the above factors , gross margin was $ 93.7 million for fiscal 2015 , an increase of $ 46.4 million from $ 47.3 million in fiscal 2014. gross margin as a percentage of net revenue increased to 19.2 % in fiscal 2015 as compared to 10.4 % in fiscal 2014. the increase in gross profit as a percentage of net revenue is primarily attributable to increased average selling prices and increased volumes of higher-value products , including proprietary and specialty alloy products related to specialty application projects in fiscal 2015. selling , general and administrative expense . selling , general and administrative expense was $ 42.6 million for fiscal 2015 , an increase of $ 3.9 million , or 10.0 % , from $ 38.7 million in fiscal 2014. selling , general and administrative expenses as a percentage of net revenues increased to 8.7 % for fiscal 2015 , compared to 8.5 % for fiscal 2014. higher incentive compensation and commissions as compared to the prior year were partially offset by foreign currency gains .
| results of operations year ended september 30 , 2015 compared to year ended september 30 , 2014 ( $ in thousands , except per share figures ) replace_table_token_14_th 40 the following table includes a breakdown of net revenues , shipments and average selling prices to the markets served by the company for the periods shown . by market replace_table_token_15_th net revenues . net revenues were $ 487.6 million in fiscal 2015 , an increase of 7.1 % from $ 455.4 million in fiscal 2014 , due to an increase in average selling price per pound partially offset by a decrease in volume . the average product selling price was $ 22.75 per pound in fiscal 2015 , an increase of 12.1 % , or $ 2.45 , from $ 20.30 per pound in fiscal 2014. volume was 20.3 million pounds in fiscal 2015 , a decrease of 6.5 % from 21.7 million pounds in fiscal 2014 with reductions primarily in the chemical processing and land-based gas turbines markets . average product selling price increased due to a combination of the following factors : a change to a higher-value product mix , which represented approximately $ 2.79 per pound of an increase ; increased customer demand due to the end of supply chain destocking , representing approximately $ 0.49 per pound of an increase , partially offset by lower raw material market prices , which represented a decrease of approximately $ 0.83 per pound . sales to the aerospace market were $ 215.1 million in fiscal 2015 , an increase of 10.2 % from $ 195.2 million in fiscal 2014 , due to a 4.7 % increase in volume combined with a 5.3 % , or $ 1.17 , increase in the average selling price per pound . the increase in volume reflects the better flow of inventory in the aerospace supply chain which was more reflective of end-use demand than in prior periods .
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liquidity and capital resources this section provides an analysis of our liquidity and cash flows , as well as our discussion of our debts and other commitments . critical accounting policies and estimates this section discusses those accounting policies that are considered to be both important to our financial condition and results of operations , and require us to exercise subjective or complex judgments in their application . in addition , all of our significant accounting policies , including our critical accounting policies , are summarized in note 1 to our consolidated financial statements . new accounting pronouncements this section includes a discussion of recently published accounting authoritative literature that may have an impact on our historical or prospective results of operations or financial condition . introduction we were incorporated in florida in 1989. in december 2005 , we began doing business under a new operating name , medavant healthcare solutions . our newly launched corporate identity unites all business units and employees under one brand identity ( medavant ) and is one of several outcomes resulting from a strategic analysis we completed in the third quarter of 2005 following the acquisition of seven companies between 1997 and 2004. since may 2005 , we have experienced a number of changes in our senior management , including changes in our chief executive officer , chief financial officer , and president and chief operating officer . john g. lettko assumed the position of chief executive officer effective may 10 , 2005. douglas o'dowd became our interim chief financial officer effective august 16 , 2005 , and was subsequently appointed as chief financial officer in october 2005. mr. lettko has also been appointed president and mr. o'dowd was appointed treasurer , each as of october 27 , 2005. on june 9 , 2005 , we announced the resignation of nancy j. ham as president and chief operating officer . on january 7 , 2006 , we entered into an agreement with david edward oles pursuant to which mr. oles would resign as general counsel of the company effective january 31 , 2006 , and terminate his employment agreement . we are a healthcare transaction services company providing healthcare transaction processing , medical cost containment services , business process outsourcing solutions and related value-added products to physicians , payers , pharmacies , medical laboratories , and other healthcare suppliers . our broad existing connectivity to payers and providers positions us as the second largest independent medical claims clearinghouse in the industry , serving more than 150,000 providers . our cost containment business has the second largest preferred provider organization in terms of reach with more than 450,000 providers contracted , and currently is sixth in terms of managed care lives accessed through us . our business strategy is to leverage our leadership position in transaction services to establish ourselves as the premier provider of automated financial , clinical , cost containment , business outsourcing and administrative transaction services primarily between healthcare providers and payers , clinical laboratories and pharmacies . 23 our electronic transaction processing services support a broad range of financial , clinical , and administrative transactions . to facilitate these services , we are completing the conversion of all of our non-clinical electronic data interchange clients to phoenix . our cost containment and business outsourcing solutions businesses are included in the transaction services segment since our acquisition of planvista corporation in march 2004 and are directed toward the medical insurance and managed care industries . specifically , we provide integrated national preferred provider organization , also known as ppo , network access , electronic claims repricing , and network and data management to healthcare payers , including self-insured employers , medical insurance carriers , ppos and third party administrators . we believe we are uniquely positioned in the marketplace to make a contribution that our competitors do not . the differentiators include our open electronic network for electronic transactions with no equity ownership in businesses engaged in the front-end ( i.e. , physician practice management software system vendors and other physician desk top vendors ) or in the back-end ( i.e. , payers , laboratories and pharmacies ) . with our neutral position , we believe that we can better attract both front-end and back-end partners who may be more comfortable doing business with a non-competitive partner . another competitive differentiator is our presence in the clinical market . with the nation 's largest clinical laboratories as long-time customers , we have worked in partnership with them to develop customized laboratory communication tools and services that are unparalleled in the industry . we also have the oldest and most established e-prescribing network in the nation , offering connectivity to over 30,000 pharmacies nationwide . our e-prescribing solutions improve efficiency by eliminating the need to process prescriptions and refill authorizations via paper . we offer both a front-end desktop solution , prescribe tm , and online refill authorization via www.medavanthealth.com . combined , we process more than 400,000 prescriptions or refills per month . acquisitions on december 31 , 2002 , we acquired all of the outstanding stock of medunite , inc. for $ 10 million in cash and the issuance of an aggregate of $ 13.4 million principal amount of 4 % convertible promissory notes . in addition , we paid approximately $ 6.7 million in transaction and exit related costs . interest on the convertible promissory notes is payable in cash on a quarterly basis . the convertible promissory notes ( now currently payable at a maturity value of $ 13.1 million after a claim setoff against the escrow in december 2003 ) are payable in full on december 31 , 2008 , and are convertible into an aggregate of 716,968 shares ( originally 731,322 shares before the claim setoff ) of our common stock if our revenues resulting from business with the former medunite owners exceed certain thresholds over a three and one-half year period from the date of acquisition . story_separator_special_tag transaction services includes transaction , cost containment and other value-added services principally between physicians and insurance companies and physicians and pharmacies ; and laboratory communication solutions includes the sale , lease and service of communication devices principally to laboratories and , through june 30 , 2004 , the contract manufacturing of printed circuit boards . commencing in march 2004 , the operations of plan vista are included in our transaction services segment . as a result of a re-alignment of our corporate overhead functions in the second quarter of 2004 , we now report these expenses as part of our transaction services segment . accordingly , our corporate expenses in the comparable periods have been combined with our transaction services segment to facilitate a better comparison between periods in this section . 25 story_separator_special_tag consumable materials , direct manufacturing labor and indirect manufacturing overhead . cost of sales for this segment for 2005 decreased $ 5.5 million , or 47 % , from 2004. this decrease is primarily due to the sale of our contract manufacturing assets . cost of sales as a percentage of revenues in this segment was 55 % for 2005 compared to 62 % for the 2004 year . selling , general and administrative expenses . consolidated sg & a remained flat for 2005 at $ 48.0 million compared , to 2004. consolidated sg & a expenses as a percentage of consolidated revenues increased to 62 % in 2005 from 53 % in 2004. sg & a expenses classified by our reportable segments are as follows : replace_table_token_7_th transaction services segment sg & a expenses for the year ended december 31 , 2005 , increased by $ 1.7 million , or 4 % over 2004. the primary reason for the increase was the inclusion of two additional months of expenses from the planvista acquisition in march 2004 of approximately $ 1.8 million . additionally , the company incurred $ 0.8 million for severance related to the reduction in work force in 2005 partially offset by lower payroll related costs for the remainder of 2005. laboratory communication solutions segment sg & a expenses for 2005 decreased by $ 1.7 million , or 39 % from 2004 and this segment 's sg & a expenses as a percentage of segment net revenues remained steady at 23 % in 2005 from 2004. the current year decrease is primarily due to a reduction in expenses of approximately $ 0.9 million related to the sale of our contract manufacturing assets in june 2004. impairment charges . as a result of our stock price decline , a decrease in our revenues and a restructuring plan we initiated during the third quarter of 2005 , we performed an interim goodwill impairment test as of september 30 , 2005. in accordance with the provisions of sfas no . 142 , we performed a discounted cash flow analysis which indicated that the book value of the transaction services segment exceeded its estimated fair value . step 2 of this impairment test , as prescribed by sfas no . 142 led us to conclude that an impairment of our goodwill had occurred . in addition , as a result of our goodwill analysis , we also performed an impairment analysis of our long-lived assets in our transaction services segment in accordance with sfas no . 144. this impairment analysis indicated that the carrying value of certain finite-lived intangible assets was greater than their expected 27 undiscounted future cash flows . as a result , we concluded that these intangible assets were impaired and adjusted the carrying value of such assets to fair value . in addition , we also reduced the remaining useful lives of these intangible assets based on the foregoing analysis . accordingly , we recorded a non-cash impairment charge of $ 95.7 million at september 30 , 2005 in our transaction services segment . the charges included $ 68.1 million impairment of goodwill and $ 27.6 million impairment of certain other intangibles . no further decline was noted as of our annual testing conducted at december 31 , 2005. in june 2005 , we performed an impairment analysis of certain finite-lived intangible assets in our laboratory communication solutions segment due to substantial decrease in revenues from one of our customers . this impairment analysis indicated that the carrying value of certain finite-lived intangible assets was greater than their expected undiscounted future cash flows . as a result , we concluded that these intangible assets were impaired and adjusted the carrying value of such assets to fair value by approximately $ 0.7 million . depreciation and amortization . consolidated depreciation and amortization expense decreased by $ 0.5 million to $ 9.3 million for 2005 from $ 9.8 million for 2004. depreciation and amortization classified by our reportable segments is as follows : replace_table_token_8_th we anticipate the transaction services segment depreciation will increase in 2006 as we continue to improve and consolidate our platforms . additionally , we believe that the depreciation in the laboratory communication segment will stay at or near 2005 levels . litigation settlement . in september 2005 and december 2004 , we settled outstanding preacquisition contingencies related to planvista for $ 0.2 million , net of insurance reimbursement . both amounts were recorded in our transaction services segment . operating income ( loss ) . as a result of the foregoing , the consolidated operating loss for 2005 was ( $ 103.2 ) million compared to an operating loss of ( $ 2.0 ) million for 2004. operating loss classified by our reportable segments is as follows : replace_table_token_9_th interest expense , net . consolidated net interest expense for 2005 was $ 2.1 million compared to $ 1.9 million for the same period last year . this increase in expense is primarily due to the accelerated amortization of prepaid financing costs on the company 's line of credit facility ( $ 0.1 million ) that was refinanced in december 2005 coupled with higher effective interest charges on the new debt facility .
| results of operations year ended december 31 , 2005 , compared to year ended december 31 , 2004 net revenues . consolidated net revenues for 2005 decreased by $ 12.6 million , or 14 % , to $ 77.6 million from consolidated net revenues of $ 90.2 million for 2004. net revenues classified by our reportable segments are as follows : replace_table_token_4_th net revenues in our transaction services segment for 2005 decreased by $ 5.3 million , or 7 % , over 2004. this decrease is primarily due to declines in volumes of electronic claims , statements and other real-time transactions processed ( decrease $ 1.8 million ) . core transactions were down 5 % compared to the prior year ( see below ) . this negatively impacted our transaction services revenue from our edi business that was partially offset by increased revenue from our cost containment business that was generating revenues for two additional months in 2005 compared to 2004 due to the acquisition of planvista in march 2004. however , our cost containment business has seen a drop in revenue per transaction as competitive pressures have impacted pricing . for 2005 , approximately 85 % of our consolidated revenues came from our transaction services segment compared to 79 % from this segment for 2004. this increase is attributable to the drop in revenue from our laboratory communication solutions as a result of the sale of our manufacturing unit in june 2004. laboratory communication solutions segment net revenues for 2005 decreased by $ 7.5 million , or 39 % , from 2004 primarily as a result of the sale of the contract manufacturing assets in june 2004. this sale resulted in a decrease of $ 4.7 million in this segments revenue in 2005 compared to 2004. additionally , we experienced a drop in revenue from our largest customer of $ 2.8 million as a result of budgeting issues with the customer .
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risk factors ” and elsewhere in this annual report on form 10-k. overview we are a diversified provider of outsourced services and specialty products . we perform a wide range of manufacturing , engineering , design and other technical services , often under sole-source contracts with corporations and government agencies principally in the markets for industrial manufacturing and aerospace and defense electronics . we are organized into two business segments , sypris technologies and sypris electronics . sypris technologies , which is comprised of sypris technologies , inc. and its subsidiaries , generates revenue primarily from the sale of manufacturing services to customers in the market for truck components and assemblies and from the sale of products to the energy and chemical markets . sypris electronics , which is comprised of sypris electronics , llc , generates revenue primarily from the sale of manufacturing and technical services as an outsourced service provider to customers in the market for aerospace and defense electronics . additionally , prior to august 16 , 2016 , sypris electronics also provided trusted solutions for identity management , cryptographic key distribution and cyber analytics and manufactured complex data storage systems . we focus on those markets where we have the expertise , qualifications and leadership position to sustain a competitive advantage . we target our resources to support the needs of industry leaders that embrace technological innovation and flexibility , coupled with multi-year contractual relationships , where possible , as a strategic component of their supply chain management . our leading-edge processes and technologies help our customers remain competitive and the resulting productivity and flexibility offer an important opportunity for differentiating ourselves from our competitors when it comes to cost , quality , reliability and customer service . sypris technologies outlook in north america , production levels for light , medium and heavy duty trucks steadily increased from a low in the depressed economic environment of 2008 and 2009 through 2015. however , demand in the u.s. commercial vehicle industry has softened beginning in the fourth quarter of 2015 along with other durable and non-durable goods sectors in the north america economy . the continued strength of the u.s. dollar , the tightening of margins in certain sectors of the commercial vehicle markets and the generally softening markets have led the company to reevaluate the strategic importance of each of its customers to the company 's long-term success . in connection with this reevaluation process , the company and meritor have determined not to renew their current supply agreement for certain of meritor 's domestic , forged axle shafts , beginning in 2017 , and the company similarly anticipates a reduction in certain portions of its business with eaton . for the year ended december 31 , 2016 , these portions of the meritor and eaton business represented approximately 18 % and 4 % of our consolidated net revenue . however , the company will continue to supply significant volumes of component parts to sistemas , meritor 's joint venture in mexico , and will continue to supply axle shafts to meritor 's brazilian subsidiary going forward . the oil and gas markets , served by our engineered products line of tube turns® products , have been impacted , as some of our customers ' revenues and near term capital expenditures have declined along with oil prices generally . however , the oil and gas outlook appears to be stabilizing as oil prices show signs of recovery and domestic pipeline projects continue to be active . 21 sypris electronics outlook we have faced challenges within sypris electronics , such as the uncertainty in the worldwide macroeconomic climate and its impact on aerospace and defense spending patterns globally , the emergence of new competitors to our product and service offerings , as well as federal government spending uncertainties in the u.s. and the allocation of funds by the u.s. department of defense . sypris electronics ' revenue had declined from 2009 through 2014 primarily due to our inability to replace the declining demand for certain legacy products and services with competitive new offerings . however , revenues for the ems business increased in 2015 and 2016 , as we have begun to generate revenue from the ramp-up of new electronic manufacturing services and other technical service programs . on august 16 , 2016 , the company completed the sale of certain assets , intellectual property , contracts and other assets of sypris electronics ( the “ css sale ” ) comprised principally of its siometrics , cyber range , information security solutions and data systems product lines . revenue from the css business is included in our results of operations until the time of sale since the sale was not classified as a discontinued operation in our consolidated financial statements . the assets were sold for $ 42.0 million in cash consideration , $ 1.5 million of which is to be held in escrow for up to 12 months in connection with certain customary representations , warranties , covenants and indemnifications of the company . the retained portion of the sypris electronics segment will continue to provide electronic manufacturing and design support services to customers in the aerospace , defense , medical and severe environment markets , among others . in connection with the css sale , management prepared a business plan for the ems business retained by sypris electronics after the css sale . this plan includes a continuing effort to grow and diversify its electronic manufacturing service business and the identification of opportunities for cost reductions and cash flow enhancements for the retained portion of the business . strategic actions the company completed a number of strategic actions during 2015 and 2016 , in response to the nonrenewal of its supply agreement with dana holding corporation ( “ dana ” ) effective january 1 , 2015 , the subsequent downturn in the commercial vehicle market beginning in the fourth quarter of 2015 and other economic factors impacting the company during last two years . story_separator_special_tag we also have other policies that we consider to be key accounting policies , such as our policies for revenue recognition for sypris technologies , including cost of sales ; however , these policies do not meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are difficult or subjective . allowance for doubtful accounts . we establish reserves for uncollectible accounts receivable based on overall receivable aging levels , a specific evaluation of accounts for customers with known financial difficulties and evaluation of customer chargebacks , if any . these reserves and corresponding write-offs could significantly increase if our customers experience deteriorating financial results or in the event we receive a significant chargeback , which is deemed uncollectible . net revenue and cost of sales . net revenue of products and services under commercial terms and conditions are recorded upon delivery and passage of title , or when services are rendered . related shipping and handling costs , if any , are included in costs of sales . 23 net revenue on fixed-price contracts is recognized as services are performed . revenue is deferred until all of the following have occurred : ( 1 ) there is a contract in place , ( 2 ) delivery has occurred , ( 3 ) the price is fixed or determinable , and ( 4 ) collectability is reasonably assured . contract profits are taken into earnings based on actual cost of sales for units shipped . amounts representing contract change orders or claims are included in revenue when such costs are invoiced to the customer . long-lived asset impairment . we perform periodic impairment analysis on our long-lived amortizable assets whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable . when indicators are present , we compare the estimated future undiscounted net cash flows of the operations to which the assets relate to their carrying amount . if the operations are unable to recover the carrying amount of their assets , the long-lived assets are written down to their estimated fair value . fair value is determined based on discounted cash flows , third party appraisals or other methods that provide appropriate estimates of value . a considerable amount of management judgment and assumptions are required in performing the impairment test , principally in determining whether an adverse event or circumstance has triggered the need for an impairment review . pension plan funded status . our u.s. defined benefit pension plans are closed to new entrants and only $ 6,000 of service-related costs was recorded in 2016 related to a small number of participants who are still accruing benefits in the louisville hourly and salaried plans . changes in our net obligations are principally attributable to changing discount rates and the performance of plan assets . pension obligations are valued using discount rates established annually in consultation with our outside actuarial advisers using a theoretical bond portfolio , adjusted according to the timing of expected cash flows for our future obligations . plan liabilities at december 31 , 2016 are based upon a discount rate of 4.05 % which reflects the above mean mercer yield curve rate as of december 31 , 2016 rounded to the nearest 5 th basis point . declining discount rates increase the present value of future pension obligations – a 25 basis point decrease in the discount rate would increase our u.s. pension liability by about $ 1.0 million . as indicated above , when establishing the expected long-term rate of return on our u.s. pension plan assets , we consider historical performance and forward looking return estimates reflective of our portfolio mix and investment strategy . based on the most recent analysis of projected portfolio returns , we concluded that the use of 5.40 % for the louisville hourly plan , 6.00 % for the marion plan and 6.75 % for the louisville salaried plan as the expected return on our u.s. pension plan assets for 2016 was appropriate . a change in the assumed rate of return on plan assets of 100 basis points would result in a $ 0.3 million change in the estimated 2017 pension expense . at december 31 , 2016 , we have $ 15.7 million of unrecognized losses relating to our u.s. pension plans . actuarial gains and losses , which are primarily the result of changes in the discount rate and other assumptions and differences between actual and expected asset returns , are deferred in accumulated other comprehensive income and amortized to expense following the corridor approach . we use the average remaining service period of active participants unless almost all of the plan 's participants are inactive , in which case we use the average remaining life expectancy for all active and inactive participants . reserve for excess , obsolete and scrap inventory . we record inventory at the lower of cost , determined under the first-in , first-out method , or market , and we reserve for excess , obsolete or scrap inventory . these reserves are primarily based upon management 's assessment of the salability of the inventory , historical usage of raw materials , historical demand for finished goods and estimated future usage and demand . an improper assessment of salability or improper estimate of future usage or demand , or significant changes in usage or demand could result in significant changes in the reserves and a positive or a negative impact on our consolidated results of operations in the period the change occurs . 24 stock-based compensation . we account for stock-based compensation in accordance with the fair value recognition provisions using the black-scholes option-pricing method , which requires the input of several subjective assumptions .
| results of operations we operate in two segments , sypris technologies and sypris electronics . the table presented below compares our segment and consolidated results of operations from 2016 to 2015. the table presents the results for each year , the change in those results from one year to another in both dollars and percentage change and the results for each year as a percentage of net revenue . ● the first two columns in each table show the absolute results for each period presented . ● the columns entitled “ year-over-year change ” and “ year-over-year percentage change ” show the change in results , both in dollars and percentages . these two columns show favorable changes as positive and unfavorable changes as negative . for example , when our net revenue increases from one period to the next , that change is shown as a positive number in both columns . conversely , when expenses increase from one period to the next , that change is shown as a negative number in both columns . ● the last two columns in each table show the results for each period as a percentage of net revenue . in these two columns , the cost of sales and gross profit for each are given as a percentage of each segment 's net revenue . these amounts are shown in italics . in addition , as used in the table , “ nm ” means “ not meaningful. ” year ended december 31 , 2016 compared to year ended december 31 , 2015 replace_table_token_1_th 26 net revenue . sypris technologies derives its revenue from manufacturing services and product sales .
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we operated 99 critical illness recovery hospitals in 28 states , 30 rehabilitation hospitals in 12 states , and 1,788 outpatient rehabilitation clinics in 37 states and the district of columbia . concentra , a joint venture subsidiary , operated 517 occupational health centers in 41 states as of december 31 , 2020. concentra also provides contract services at employer worksites . our reportable segments include the critical illness recovery hospital segment , the rehabilitation hospital segment , the outpatient rehabilitation segment , and the concentra segment . we had revenue of $ 5,531.7 million for the year ended december 31 , 2020. of this total , we earned approximately 38 % of our revenue from our critical illness recovery hospital segment , approximately 13 % from our rehabilitation hospital segment , approximately 17 % from our outpatient rehabilitation segment , and approximately 27 % from our concentra segment . our critical illness recovery hospital segment consists of hospitals designed to serve the needs of patients recovering from critical illnesses , often with complex medical needs , and our rehabilitation hospital segment consists of hospitals designed to serve patients that require intensive physical rehabilitation care . patients are typically admitted to our critical illness recovery hospitals and rehabilitation hospitals from general acute care hospitals . our outpatient rehabilitation segment consists of clinics that provide physical , occupational , and speech rehabilitation services . our concentra segment consists of occupational health centers that provide workers ' compensation injury care , physical therapy , and consumer health services as well as onsite clinics located at employer worksites that deliver occupational medicine services . non-gaap measure we believe that the presentation of adjusted ebitda , as defined below , is important to investors because adjusted ebitda is commonly used as an analytical indicator of performance by investors within the healthcare industry . adjusted ebitda is used by management to evaluate financial performance and determine resource allocation for each of our operating segments . adjusted ebitda is not a measure of financial performance under accounting principles generally accepted in the united states of america ( “ gaap ” ) . items excluded from adjusted ebitda are significant components in understanding and assessing financial performance . adjusted ebitda should not be considered in isolation or as an alternative to , or substitute for , net income , income from operations , cash flows generated by operations , investing or financing activities , or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity . because adjusted ebitda is not a measurement determined in accordance with gaap and is thus susceptible to varying definitions , adjusted ebitda as presented may not be comparable to other similarly titled measures of other companies . we define adjusted ebitda as earnings excluding interest , income taxes , depreciation and amortization , gain ( loss ) on early retirement of debt , stock compensation expense , acquisition costs associated with physiotherapy and u.s. healthworks , gain ( loss ) on sale of businesses , and equity in earnings ( losses ) of unconsolidated subsidiaries . we will refer to adjusted ebitda throughout the remainder of management 's discussion and analysis of financial condition and results of operations . the table contained within “ selected financial data ” reconciles net income and income from operations to adjusted ebitda and should be referenced when we discuss adjusted ebitda . 51 effects of the covid-19 pandemic on our results of operations the continuing implications of the covid-19 pandemic on our business , results of operations and overall financial performance remain uncertain . we provided monthly revenue and certain operating statistics for each of our segments for the years ended december 31 , 2020 and 2019. see item 1a . “ risk factors ” for further discussion of the possible impact of the covid-19 pandemic on our business . critical illness recovery hospital segment . our critical illness recovery hospitals are a key component of the inpatient hospital continuum of care . beginning in march 2020 , a number of waivers and modifications of certain requirements under the medicare , medicaid and chip programs were authorized , including certain regulations concerning patient length of stay requirements under the medicare program which apply to our critical illness recovery hospitals . the length of stay requirements were suspended in order to facilitate the transfer of patients from general acute care hospitals and expand hospital bed capacity to care for covid-19 patients ( see “ regulatory changes ” for further discussion of the temporary suspension of regulations ) . during the year ended december 31 , 2020 , we played a critical role in caring for patients during the covid-19 pandemic due , in part , to our rapid preparation and implementation of modifications that supported the treatment of covid-19 patients . the following table shows revenue , patient days , and occupancy rates for each of the periods presented , as well as the number of critical illness recovery hospitals we owned at the end of each period . replace_table_token_8_th _ ( 1 ) represents the number of hospitals owned at the end of each period presented . 52 rehabilitation hospital segment . our rehabilitation hospitals receive most of their admissions from general acute care hospitals . beginning in march 2020 , a number of waivers and modifications of certain requirements under the medicare , medicaid and chip programs were authorized , including certain regulations governing admissions into rehabilitation hospitals . this was done in order to facilitate the transfer of patients from general acute care hospitals and critical illness recovery hospitals and to expand hospital bed capacity to care for covid-19 patients ( see “ regulatory changes ” for further discussion of the temporary suspension of regulations ) . our rehabilitation hospitals were affected by the suspension of elective surgeries at hospitals and other facilities at the beginning of the pandemic , which resulted in reduced need for inpatient rehabilitation services . story_separator_special_tag for the year ended december 31 , 2018 , net income included pre-tax losses on early retirement of debt of $ 14.2 million , pre-tax gains on sales of businesses of $ 9.0 million , and pre-tax u.s. healthworks acquisition costs of $ 2.9 million . our adjusted ebitda increased 10.2 % to $ 710.9 million for the year ended december 31 , 2019 , compared to $ 645.2 million for the year ended december 31 , 2018. our adjusted ebitda margin increased to 13.0 % for the year ended december 31 , 2019 , compared to 12.7 % for the year ended december 31 , 2018. the following tables reconcile our segment performance measures to our consolidated operating results : replace_table_token_15_th 57 replace_table_token_16_th the following table summarizes the changes in segment performance measures for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 : replace_table_token_17_th _ n/m — not meaningful . significant events purchases of concentra interest on january 1 , 2020 , february 1 , 2020 and december 31 , 2020 , select , wcas and dhhc consummated the concentra interest purchases , which were in lieu of , and collectively deemed to constitute , the exercises of wcas ' and dhhc 's first and second put rights , pursuant to which select acquired an aggregate amount of approximately 30 % of the outstanding membership interests , on a fully diluted basis , of concentra group holdings parent from wcas , dhhc and the other equity holders of concentra group holdings parent , in exchange for an aggregate payment of approximately $ 576.4 million . upon consummation of the concentra interest purchases , select owns in the aggregate approximately 78.0 % of the outstanding membership interests of concentra group holdings parent on a fully diluted basis and approximately 79.8 % of the outstanding voting membership interests of concentra group holdings parent . 58 regulatory changes the medicare program reimburses healthcare providers for services furnished to medicare beneficiaries , which are generally persons age 65 and older , those who are chronically disabled , and those suffering from end stage renal disease . the program is governed by the social security act of 1965 and is administered primarily by the department of health and human services and cms . revenue generated directly from the medicare program represented approximately 27 % , 26 % , and 25 % of the company 's revenue for the years ended december 31 , 2018 , 2019 , and 2020 , respectively . the medicare program reimburses various types of providers using different payment methodologies . those payment methodologies are complex and are described elsewhere in this report under “ business—government regulations. ” the following is a discussion of some of the more significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report or are likely to affect our financial performance and financial condition in the future . federal health care program changes in response to the covid-19 pandemic on january 31 , 2020 , hhs declared a public health emergency under section 319 of the public health service act , 42 u.s.c . § 247d , in response to the covid-19 outbreak in the united states . the hhs secretary renewed the public health emergency determination for 90-day periods effective on april 26 , 2020 , july 25 , 2020 , and october 23 , 2020. on march 13 , 2020 , president trump declared a national emergency due to the covid-19 pandemic and the hhs secretary authorized the waiver or modification of certain requirements under the medicare , medicaid and chip pursuant to section 1135 of the social security act . under this authority , cms issued a number of blanket waivers that excuse health care providers or suppliers from specific program requirements . the following blanket waivers , while in effect , may impact our results of operations : i. irfs , irf units , and hospitals and units applying to be classified as irfs , can exclude patients admitted solely to respond to the emergency from the calculation of the “ 60 percent rule ” thresholds to receive payment as an irf . ii . ltchs are exempt from the greater-than-25-day average length of stay requirement for all cost reporting periods that include the covid-19 public health emergency period . hospitals seeking ltch classification can exclude patient stays from the greater-than-25-day average length of stay requirement where the patient was admitted or discharged to meet the demands of the covid-19 public health emergency . iii . medicare expanded the types of health care professionals who can furnish telehealth services to include all those who are eligible to bill medicare for their professional services . this allows health care professionals who were previously ineligible to furnish and bill for medicare telehealth services , including physical therapists , occupational therapists , speech language pathologists , and others , to receive payment for medicare telehealth services . iv . medicare will not require out-of-state physician and non-physician practitioners to be licensed in the state where they are providing services when they are licensed in another state , subject to certain conditions and state or local licensure requirements . v. many requirements under the hospital conditions of participation ( “ cops ” ) are waived during the emergency period to give hospitals more flexibility in treating covid-19 patients . vi . hospitals can operate temporary expansion locations without meeting the provider-based entity requirements or certain requirements in the physical environment cop for hospitals during the emergency . this waiver also allows hospitals to change the status of their current provider-based department locations to meet patient needs as part of the state or local pandemic plan . vii . irfs , ltchs and certain other providers did not need to submit quality data to medicare for october 1 , 2019 through june 30 , 2020 to comply with the quality reporting programs . viii . the hhs secretary waived sanctions under the physician self-referral law ( i.e.
| results of operations the following table outlines selected operating data as a percentage of revenue for the periods indicated : replace_table_token_20_th _ ( 1 ) cost of services includes salaries , wages and benefits , operating supplies , lease and rent expense , and other operating costs . 68 the following table summarizes selected financial data by segment for the periods indicated ( in thousands , except percentages ) : replace_table_token_21_th 69 _ ( 1 ) the concentra segment includes the operating results of u.s. healthworks beginning february 1 , 2018 . ( 2 ) other includes our corporate administration and shared services , as well as employee leasing services with our non-consolidating subsidiaries . total assets include certain non-consolidating joint ventures and minority investments in other healthcare related businesses . ( 3 ) for the year ended december 31 , 2020 , we recognized payments received under the provider relief fund for health care related expenses and loss of revenue attributable to the covid-19 pandemic as other operating income . other operating income of $ 1.1 million and $ 88.9 million is included within the operating results of our concentra segment and other activities , respectively . n/m — not meaningful . 70 year ended december 31 , 2020 compared to year ended december 31 , 2019 in the following , we discuss our results of operations related to revenue , operating expenses , other operating income , adjusted ebitda , depreciation and amortization , income from operations , loss on early retirement of debt , equity in earnings of unconsolidated subsidiaries , gain on sale of businesses , interest expense , income taxes , and net income attributable to non-controlling interests . please refer to “ effects of the covid-19 pandemic on our results of operations ” above for further discussion . revenue our revenue increased 1.4 % to $ 5,531.7 million for the year ended december 31 , 2020 , compared to $ 5,453.9 million for the year ended december 31 , 2019. critical illness recovery hospital segment .
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employee stock purchase plan the company 's board of directors adopted , and the company 's stockholders approved , the company 's 2014 employee stock purchase plan , or espp , which became effective in december 2014. the espp initially reserved and authorized the issuance of up to 1,000,000 shares of common stock . the espp provides that the number of shares reserved and available for issuance under the espp will automatically increase each april , beginning on april 1 , 2015 , by the lesser of 500,000 shares , story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this annual report on form 10-k. the following discussion and analysis contains forward-looking statements that involve risks and uncertainties . when reviewing the discussion below , you should keep in mind the substantial risks and uncertainties that could impact our business . in particular , we encourage you to review the risks and uncertainties described in part i , item 1a risk factors included elsewhere in this report . these risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends . forward-looking statements are statements that attempt to forecast or anticipate future developments in our business , financial condition or results of operations . see the section titled special note regarding forward-looking statements in this report . these statements , like all statements in this report , speak only as of their date ( unless another date is indicated ) , and we undertake no obligation to update or revise these statements in light of future developments . overview we are defining a new category of enterprise software we call software analytics . our cloud-based platform and suite of products enables organizations to collect , store , and analyze massive amounts of software data in real time . we design all our products to be highly intuitive and frictionless ; they are easy to deploy , and customers can rapidly , often within minutes , realize benefits and results . technology users can use our products to quickly find and fix performance problems as well as prevent future issues . business users such as product managers can get answers to how their new product launch is being received , or how a pricing change impacted customer retention , without waiting for help from it . software developers can build better applications faster , as they can see how their software will perform and is actually performing for end-users . since our formation in 2007 , we have invested in building an integrated platform that enables organizations to collect , store and analyze massive amounts of data from their software in real time . we launched our first product offering , new relic apm ( application performance management ) for ruby , in 2008. since then , we broadened our product offerings to support a wide variety of programming languages and frameworks , with java in 2009 , php and .net in 2010 , and python in 2011. in 2011 , we released new relic servers to provide server monitoring for the cloud and data centers . in 2013 , we released new relic mobile to support mobile by providing native mobile application performance management for the ios and android mobile operating systems . we also launched support for node.js , a programming language , and new relic plugins ( formerly new relic platform ) to enable third parties to integrate with our platform . in march 2014 , we launched new relic insights to leverage big data analytics . during the quarter ended december 31 , 2014 , we released new relic browser to improve browser-side performance and new relic synthetics to enable our users to test their software through simulated usage . we sell our products primarily through direct sales and marketing channels utilizing a wide range of online and offline sales and marketing activities . the majority of our users visit our website , create an account and deploy our software . upon deployment , most users experience our full-featured products with a 14-day or 30-day free trial , enabling them to realize the benefits of our products , after which they have the option to purchase one or more of our subscription plans . during and after the trial period , our direct sales team engages with the user to convert the user into a paid business account . many users initially subscribe to one of our products to address a particular use case and broaden the usage of our products as they become more familiar with our products . most of our customers to date have been small to medium-sized organizations , and many of our customers to date have made purchasing decisions without interacting with our sales or other personnel . for larger organizations , our sales team focuses on leveraging users in existing accounts to broaden our footprint across the organization . we offer access to our platform and suite of products under subscription plans that also include service and support . we offer a variety of pricing plans based on the particular product purchased by an account , number of servers monitored , number of applications monitored or number of mobile devices monitored . our plans typically have terms of one year , although some of our customers commit for shorter or longer periods . we recognize revenue from 41 subscription fees ratably over the service period . most of our customers pay us on a monthly basis . as a result , our deferred revenue at any given period of time has historically been relatively low . as we begin to sell more to larger organizations , we expect to invoice more of our customers on a less frequent basis , and therefore , we expect our deferred revenue to increase over time . story_separator_special_tag as we improve our existing products and introduce new products , we believe that the demand for our products will generally grow . we also believe that there is a significant opportunity for us to increase the number of subscriptions we sell to our current customers as they become more familiar with our products and adopt our products to address additional business use cases . investment in sales and marketing . we expect to continue to invest aggressively in sales and marketing to drive additional revenue . any investments that we make in sales and marketing will occur in advance of our experiencing any benefits from such investments , so it may be difficult for us to determine if we are efficiently allocating our resources . as we continue to focus sales and marketing investments more heavily towards large organizations , this may require more of our resources . in addition , we expect our sales cycle to be longer and less predictable with respect to larger customers , which may delay realization of future sales . we also intend to increase our sales and marketing investment in international markets , such as europe , and those markets may take longer and be more costly to develop than the u.s. market . key operating metrics we review the following key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans and make strategic decisions : number of paid business accounts . we believe that our ability to increase our number of paid business accounts is one indicator of our market penetration , the growth of our business and our potential future prospects . we define the number of paid business accounts at the end of any particular period as the number of accounts at the end of the period as identified by a unique account identifier for which we have recognized revenue on the last day of the period indicated . a single organization or customer may have multiple paid business accounts for separate divisions , segments , or subsidiaries . the following table summarizes the number of paid business accounts at each quarter end presented : replace_table_token_6_th dollar-based net expansion rate . our ability to generate revenue is dependent on our ability to maintain and grow our relationships with our existing customers . we track our performance in this area by measuring our dollar-based net expansion rate . our dollar-based net expansion rate increases when customers increase their use of our products , use additional products , or upgrade to a higher subscription tier . our dollar-based net expansion rate is reduced when customers decrease their use of our products , use fewer products , or downgrade to a lower subscription tier . our dollar-based net expansion rate compares our recurring subscription revenue from customers from one period to the next . we measure our dollar-based net expansion rate on a monthly basis because many of our customers change their subscriptions more frequently than quarterly or annually . to calculate our annual dollar-based net expansion rate , we first establish the base period monthly recurring revenue from all our customers at the end of a month . this represents the revenue we would contractually expect to receive from those customers over the following month , without any increase or reduction in any of their subscriptions . we then ( i ) calculate 43 the actual monthly recurring revenue from those same customers at the end of that following month ; then ( ii ) divide that following month 's recurring revenue by the base month 's recurring revenue to arrive at our monthly net expansion rate ; then ( iii ) calculate a quarterly net expansion rate by compounding the net expansion rates of the three months in the quarter ; and then ( iv ) calculate our annualized net expansion rate by compounding our quarterly net expansion rate over an annual period . the following table summarizes our annualized dollar-based net expansion rate for each quarter : replace_table_token_7_th the quarterly fluctuations in our dollar-based net expansion rate are primarily driven by transactions within a particular quarter in which certain paid business accounts from larger subscription customers either significantly upgrade or significantly downgrade their subscriptions and by increased sales to existing customers in particular quarters due to sales and marketing campaigns in a particular quarter . in addition , we believe that the composition of our customer base also has an impact on the net expansion rate , such that a relative increase in the number of paid business accounts from larger enterprises versus small to medium-sized organizations will tend to increase our quarterly net expansion rate and a relative increase in the number or paid business accounts from small to medium-sized organizations versus larger enterprises will tend to decrease the quarterly net expansion rate , as smaller businesses tend to cancel subscriptions more frequently than larger enterprises . key components of results of operations revenue we offer access to our products under subscription plans that include service and support for one or more of our products . for our paying customers , we offer a variety of pricing plans based on the particular product purchased by an account , number of servers monitored , number of applications monitored or number of mobile devices monitored . our plans typically have terms of one year , although some of our customers commit for shorter periods . we invoice most of our customers on a monthly basis . as a result , our deferred revenue has historically been relatively low . as we begin to sell more to larger organizations , we expect to invoice more of our customers on a less frequent basis , and therefore , we expect our deferred revenue to increase over time . cost of revenue cost of revenue consists of expenses relating to data center operations , hosting-related costs , payment processing fees , depreciation and amortization , consulting costs and salaries and benefits of operations and global customer support personnel .
| quarterly results of operations the following tables set forth selected unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended march 31 , 2015 , as well as the percentage that each line item represents of our revenue for each quarter . the information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this report and , in the opinion of management , includes all adjustments of a normal , recurring nature that are necessary for the fair presentation of the results of operations for these periods in accordance with generally accepted accounting principles in the united states . this data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this report . these quarterly operating results are not necessarily indicative of our operating results for a full fiscal year or any future period . replace_table_token_18_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_19_th 50 replace_table_token_20_th ( 1 ) includes stock-based compensation expense as follows : replace_table_token_21_th quarterly revenue trends our quarterly revenue increased in each period presented due to increased sales to new customers , as well as increasing sales to existing customers . we can not assure you that this trend will continue , and we believe that we may experience seasonality in our business in the future . quarterly gross margin trends our gross margin has remained relatively consistent over all periods presented , with the fluctuations primarily due to the timing and extent of our investments in our operations and global customer support personnel , and hosting-related costs . quarterly expense trends research and development , sales and marketing , and general and administrative expenses generally increased sequentially over the periods as we increased our headcount to support continued investment in our products .
| 1,937 |
1 , 2018 37,419,070 536 276,730 535,283 ( 3,794 ) — ( 2,894 ) ( 2,736 ) ( 204,558 ) 598,567 net income — — — 51,288 — — — — — 51,288 other comprehensive loss , net of tax — — — — ( 2,738 ) — — — — ( 2,738 ) exercise of stock options , net 57,327 1 1,118 — — — — — ( 165 ) 954 release of shares , net of forfeitures 122,402 — 816 — — — ( 2,253 ) — 1,513 76 stock-based compensation — — — — — — 1,524 — — 1,524 shares received to satisfy distribution of retirement benefits story_separator_special_tag story_separator_special_tag > allowance for loan losses the allowance for loan losses is provided to reflect probable incurred losses inherent in the loan portfolio . management reviews the adequacy of the allowance for loan losses by reviewing all impaired loans on an individual basis . the remaining portfolio is segmented and evaluated on a pooled basis . factors considered in determining the appropriateness of the allowance for loan losses include the bank 's past loan loss experience , known and inherent risks in the portfolio , existing adverse situations which may affect a borrower 's ability to repay , the estimated value of underlying collateral and current economic conditions in the bank 's lending area . judgment is required to determine the appropriate historical loss experience period , as well as the manner in which to quantify probable losses associated with the additional factors noted above . this evaluation is inherently subjective , as estimates are susceptible to significant revisions as more information becomes available . although management uses available information to estimate losses on loans , future additions to , or reductions in , the allowance may be necessary based on changes in economic conditions or other factors beyond management 's control . in addition , the bank 's regulators , as an integral part of their examination processes , periodically review the bank 's allowance for loan losses , and may require the bank to recognize additions to , or reductions in , the allowance based upon judgments different from those of management . the bank 's methods and assumptions utilized to periodically determine its allowance for loan losses are summarized in note 8 to the company 's consolidated financial statements . 33 analysis of net interest income the company 's profitability , like that of most banking institutions , is dependent primarily upon net interest income . net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities , and the interest rate earned or paid on them . the following tables set forth certain information relating to the company 's consolidated statements of operations for the years ended december 31 , 2018 , 2017 and 2016 , and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated . such yields and costs are derived by dividing interest income or expense by the average balance of interest-earning assets or interest-bearing liabilities , respectively , for the periods indicated . average balances are derived from daily balances . the yields and costs include fees and charges that are considered adjustments to yields and costs . all material changes in average balances and interest income or expense are discussed in the section entitled `` net interest income '' in the comparisons of operating results commencing on page 35 . replace_table_token_5_th ( 1 ) in computing the average balance of real estate loans , non-performing loans have been included . interest income on real estate loans includes loan fees . interest income on real estate loans also includes applicable prepayment fees and late charges totaling $ 8.2 million , $ 5.0 million and $ 9.0 million during the years ended december 31 , 2018 , 2017 and 2016 , respectively . ( 2 ) net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities . ( 3 ) net interest margin represents net interest income as a percentage of average interest-earning assets . 34 rate/volume analysis the following table represents the extent to which variations in interest rates and the volume of interest-earning assets and interest-bearing liabilities have affected interest income and interest expense during the periods indicated . information is provided in each category with respect to : ( i ) variances attributable to fluctuations in volume ( change in volume multiplied by prior rate ) , ( ii ) variances attributable to rate ( changes in rate multiplied by prior volume ) , and ( iii ) the net change . variances attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_6_th comparison of operating results for the years ended december 31 , 2018 , 2017 , and 2016 net income was $ 51.3 million in 2018 , compared to $ 51.9 million in 2017 , and $ 72.5 million in 2016 . during 2018 , net interest income decreased $ 6.4 million , the provision for loan losses increased by $ 1.7 million , non-interest income decreased by $ 12.0 million and non-interest expense increased by $ 1.9 million . income tax expense decreased $ 21.4 million in 2018 , as a result of $ 22.0 million of lower pre-tax income primarily as a result of the lower tax rates for 2018 from the tax act enacted in december 2017. during 2017 , net interest income increased $ 9.2 million , the provision for loan losses decreased by $ 1.6 million , non-interest income decreased by $ 54.4 million and non-interest expense increased by $ 1.2 million . story_separator_special_tag the $ 2.1 million provision for loan losses recognized during 2016 resulted mainly from growth in the real estate portfolio in connection with the company 's growth strategy , offset by continued improvement in the overall credit quality of the loan portfolio . the following table sets forth activity in the bank 's allowance for loan losses at or for the dates indicated : replace_table_token_7_th 36 non-interest income total non-interest income was $ 9.5 million in 2018 , $ 21.5 million in 2017 , and $ 75.9 million in 2016 . during 2018 , non-interest income decreased $ 12.0 million from 2017 due primarily to a gain of $ 10.4 million recognized on the sale of real estate during the year ended december 31 , 2017 . during 2017 , non-interest income increased $ 54.4 million from 2016 , due primarily to a gain of $ 68.2 million recognized on the sale of real estate during the year ended december 31 , 2016 . partially offsetting these increases were a $ 2.7 million gain on the sale of pooled bank trust preferred securities and a $ 1.5 million gain on the sale of loans recognized in 2017 . non-interest expense non-interest expense was $ 86.9 million in 2018 , $ 85.0 million in 2017 , and $ 83.8 million in 2016 . during 2018 , the company recognized non-recurring expenses of $ 0.7 million for expenses related to a workforce reduction . during 2017 , the company recognized non-recurring expenses of $ 1.3 million for loss on extinguishment of debt related to the redemption of trust preferred securities and $ 1.7 million related to de-conversion costs associated with the planned change in the bank 's core processor . during 2016 , the company recognized a non-cash , non-tax deductible , and non-recurring expense of $ 11.3 million on the prepayment of the employee stock ownership plan share acquisition loan by the plan ( the `` esop charge '' ) . excluding these items , non-interest expense was $ 86.2 million in 2018 , $ 82.0 million in 2017 , and $ 72.5 million in 2016 . the increase of $ 4.2 million during 2018 compared to 2017 was primarily the result of increases of salaries and benefits expense of $ 7.1 million and occupancy expense of $ 1.0 million , offset by a decrease in marketing expense of $ 2.6 million and a lower fdic insurance premiums of $ 1.0 million . the remaining decrease was experienced in other operating expenses . the $ 7.1 million increase in salaries and benefits expense was attributable to the continued build out of the business banking division , and the residential lending group . the $ 1.0 million increase in occupancy expense was attributable to a full year of expense related to two additional office locations opened during 2017. the $ 2.6 million of lower marketing expense was related to reduced marketing initiatives for dimedirect , our internet banking channel . the lower fdic insurance premiums of $ 1.0 million was mainly the result of lower fdic assessment rates . the increase in non-interest expense of $ 9.5 million during 2017 compared to 2016 was primarily the result of increases of salaries and benefits expense of $ 2.5 million , occupancy expense of $ 2.1 million , data processing expense of $ 3.1 million , marketing expense of $ 1.7 million , accelerated consulting expenses of $ 1.4 million , higher fdic insurance premiums of $ 0.5 million , and recognition of the bank 's first loss guarantee for the loan securitization totaling $ 0.4 million . the remaining increase was experienced in other operating expenses . the $ 2.5 million increase in salaries and benefits expense was attributable to the build out of the business banking division . the $ 2.1 million increase in occupancy expense was attributable to the new corporate office , and the addition of two additional office locations . the $ 3.1 million of additional data processing expense was the result of various technology enhancement initiatives related to customer banking services . the $ 1.7 million of additional marketing expense was related to deposit gathering initiatives as the market continues to experience elevated levels of competition . the additional consulting expense of $ 1.4 million was related to an earlier-than-anticipated completion of such services . non-interest expense as a percentage of average assets was 1.38 % , 1.37 % , and 1.51 % in 2018 , 2017 , and 2016 , respectively . excluding the non-recurring items mentioned above , the ratio was 1.37 % in 2018 , higher than 1.32 % in 2017 , and 1.31 % in 2016 . the increase during 2018 compared to 2017 was primarily due to the growth in non-interest expense outweighing $ 67.8 million of growth in average assets . income tax expense income tax expense was $ 15.4 million in 2018 , $ 36.9 million in 2017 , and $ 60.9 million in 2016 . income tax expense decreased $ 21.4 million during 2018 compared to 2017 primarily as a result of $ 22.0 million of lower pre-tax income during 2018 and lower tax rates as a result of the passage of the tax act . the $ 22.0 million decrease in pre-tax income was attributable to lower net interest income by $ 6.4 million and the $ 10.4 million gain on sale of real estate during 2017 , offset by increases of $ 1.7 million of provision expense and $ 1.9 million of non-interest expense compared to 2017 .
| executive summary the holding company 's primary business is the ownership of the bank . the company 's consolidated results of operations are dependent primarily on net interest income , which is the difference between the interest income earned on interest-earning assets , such as loans and securities , and the interest expense paid on interest-bearing liabilities , such as deposits and borrowings . the bank additionally generates non-interest income such as service charges and other fees , mortgage banking related income , and income associated with bank owned life insurance ( “ boli ” ) . non-interest expense primarily consists of employee compensation and benefits , federal deposit insurance premiums , data processing costs , occupancy and equipment , marketing and other operating expenses . the company 's consolidated results of operations are also significantly affected by general economic and competitive conditions ( particularly fluctuations in market interest rates ) , government policies , changes in accounting standards and actions of regulatory agencies . the bank 's primary deposit strategy is generally to increase its product and service utilization for each depositor , and to increase its household and deposit market shares in the communities that it serves . in recent years , particular emphasis has been placed upon growing individual and small business commercial checking account balances . the bank also actively strives to obtain checking account balances affiliated with the operation of the collateral underlying its real estate and c & i loans , as well as personal deposit accounts from its borrowers . historically , the bank 's primary lending strategy included the origination of , and investment in , real estate loans secured by multifamily and mixed-use properties , and , to a lesser extent , real estate loans secured by commercial real estate properties , primarily located in the greater nyc metropolitan area .
| 1,938 |
+ 10.41 amended and restated employment agreement , dated as of may 9 , 2013 , by and among ifmi , llc , institutional financial markets , inc. , daniel g. cohen , c & co/princeridge holdings lp and c & co/princeridge partners llc ( incorporated by reference to exhibit 10.6 to the company 's current report on form 8-k filed with the sec on story_separator_special_tag “ management 's discussion and analysis of financial condition and results of operations ” is based on our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on a regular basis , we evaluate these estimates , including fair value of financial instruments . these estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . actual results may differ from these estimates . all amounts in this disclosure are in thousands ( except share and per share data ) unless otherwise noted . overview we are a financial services company specializing in credit-related fixed income investments . we were founded in 1999 as an investment firm focused on small-cap banking institutions , but have grown to provide an expanding range of capital markets , investment banking , and asset management solutions to institutional investors , corporations , and other small broker dealers . we are organized into three business segments : capital markets , asset management , and principal investing . capital markets : our capital markets business segment consists primarily of credit-related fixed income sales , trading , and financing , as well as new issue placements in corporate and securitized products , and advisory services . our fixed income sales and trading group provides trade execution to corporate investors , institutional investors , and other smaller broker-dealers . we specialize in a variety of products , including but not limited to : corporate bonds , abs , mbs , rmbs , cdos , clos , cbos , cmos , municipal securities , tbas , sba loans , u.s. government bonds , u.s. government agency securities , brokered deposits and cds for small banks , and hybrid capital of financial institutions including trups , whole loans , and other structured financial instruments . we had offered execution and brokerage services for equity derivative products until december 31 , 2012 , when we sold our equity derivatives brokerage business to a newly formed entity owned by two of our former employees . see note 5 to our consolidated financial statements included in this annual report on form 10-k. as of december 31 , 2013 , we carried out our capital market activities primarily through our subsidiaries : jvb and ccpr in the united states , and ccfl in europe . see the discussion below regarding the merger of jvb and ccpr in 2014. asset management : our asset management business segment manages assets within cdos , permanent capital vehicles , managed accounts , and investment funds ( collectively , “ investment vehicles ” ) . a cdo is a form of secured borrowing . the borrowing is secured by different types of fixed income assets such as corporate or mortgage loans or bonds . the borrowing is in the form of a securitization , which means that the lenders are actually investing in notes backed by the assets . in the event of default , the lenders will have recourse only to the assets securing the loan . our asset management business segment includes our fee-based asset management operations , which include on-going base and incentive management fees . as of december 31 , 2013 , we had approximately $ 5.7 billion in aum of which 94 % , or $ 5.4 billion , was in cdos . principal investing : historically , o ur principal investing business segment has been comprised primarily of our investments in investment vehicles we manage , as well as investments in structured products , and the related gains and losses that they generate . in 2014 , the company sold all of its interest in star asia and star asia special situations fund ( see sale of star asia and other related entities below ) . on a going forward basis , the company 's principal investing activities may include more investments in entities it does not manage . we generate our revenue by business segment primarily through : capital markets : our trading activities , which include execution and brokerage services , securities lending activities , riskless trading activities , as well as gains and losses ( unrealized and realized ) and income and expense earned on securities classified as trading ; new issue and advisory revenue comprised of ( a ) origination fees for corporate debt issues originated by us ; ( b ) revenue from advisory services ; and ( c ) new issue revenue associated with arranging and placing the issuance of newly created debt , equity , and hybrid financial instruments ; 46 asset management : asset management fees for our on-going asset manager services provided to various investment vehicles , which may include fees both senior and subordinate to the securities issued by the investment vehicle ; incentive management fees earned based on the performance of the various investment vehicles ; and income or loss from equity method affiliates . principal investing : gains and losses ( unrealized and realized ) and income and expense earned on securities , primarily in investments in investment vehicles we manage , classified as other investments , at fair value ; and income or loss from equity method affiliates . story_separator_special_tag we may experience reduced trading volumes in the future as a result of market uncertainty surrounding u.s. federal reserve quantitative easing programs . legislation affecting the financial services industry in july 2010 , the federal government passed the dodd-frank wall street reform and consumer protection act ( the “ dodd-frank act ” ) . the dodd-frank act significantly restructures and intensifies regulation in the financial services industry , with provisions that include , among other things , the creation of a new systemic risk oversight body ( i.e . , the financial stability oversight council ) , expansion of the authority of existing regulators , increased regulation of and restrictions on otc derivatives markets and transactions , broadening of the reporting and regulation of executive compensation , expansion of the standards for market participants in dealing with clients and customers , and regulation of fiduciary duties owed by municipal advisors or conduit borrowers of municipal securities . in addition , section 619 of the dodd-frank act ( known as the “ volker rule ” ) and section 716 of the dodd-frank act ( known as the “ swaps push-out rule ” ) limit proprietary trading of certain securities and swaps by certain banking entities . although we are not a banking entity and are not otherwise subject to these rules , some of our clients and many of our counterparties are banks or entities affiliated with banks and will be subject to these restrictions . these sections of the dodd-frank act and the regulations that are adopted to implement them could negatively affect the swaps and securities markets by reducing their depth and liquidity and thereby affect pricing in these markets . further , the dodd- frank act as a whole and the intensified regulatory environment will likely alter certain business practices and change the competitive landscape of the financial services industry , which may have an adverse effect on our business , financial condition and results of operations . we will continue to monitor all applicable developments in the implementation of dodd-frank and expect to adapt successfully to any new applicable legislative and regulatory requirements . recent events investment by mead park capital and cbf on september 25 , 2013 , we issued shares of our common stock and the 8.0 % c onvertible n otes to mead park capital partners llc ( “ mead park capital ” ) and ebc 2013 family trust ( “ ebc ” ) , as assignee of cbf , and raised a total of $ 13,746. see note s 4 and 17 to our consolidated financial statements included in this annual report on form 10-k . repurchase of new notes on october 28 , 2013 , we repurchased $ 5,000 aggregate principal amount of the new notes from an unrelated third party for $ 5,238 , including accrued interest of $ 238. holders of the new notes have the right to require us to repurchase those notes on may 15 , 2014. as a result of this , the outstanding principal amount of new notes has been reduced from $ 8,121 to $ 3,121. consolidation of ccpr and jvb effective january 31 , 2014 , we merged ccpr and jvb . the merged broker-dealer subsidiary will operate going forward under the jvb name . in connection with this merger , we reduced our workforce by approximately 20 % by eliminating certain redundant and non-core business lines . see liquidity and capital resources – consolidation of ccpr and jvb below for additional details relating to the consolidation of ccpr and jvb . 48 sale of star asia and other related entities on february 20 , 2014 , we announced the completion of the sale of all of our ownership interests in star asia , star asia special situations fund , star asia manager , star asia capital management , saa manager , and sap gp ( the “ star asia group ” ) . we received an initial upfront payment of $ 20,043. we will receive contingent payments equal to 15 % of certain revenues generated by star asia manager , saa manager , sap gp , star asia capital management , and certain affiliated entities for a period of at least four years . see note 31 to our consolidated financial statements included in this annual report on form 10-k. story_separator_special_tag > replace_table_token_8_th cdos asset management revenue from company-sponsored cdos decreased by $ 7,501 to $ 14,228 for the year ended december 31 , 2013 , as compared to $ 21,729 for the year ended december 31 , 2012 . the following table summarizes the periods presented by asset class : replace_table_token_9_th asset management fees for trups and insurance company debt – u.s. declined primarily because , e ffective february 23 , 2013 , we no longer provide any services related to the alesco x through xvii securitizations . on july 29 , 2010 , we entered into an agreement with a n unrelated third party whereby we sold the management rights and responsibilities related to the alesco x through xvii securitizations . in connection with this agreement , we entered into a services agreement pursuant to which we provided certain services to the purchaser . this services agreement expired on february 23 , 2013. we will continue to receive certain incentive payments through february 23 , 2017 , if the management fees earned by the third party exceed certain thresholds . we will continue to recognize these incentive payments , if any , as earned . asset management fees for high grade and mezzanine abs declined by $ 257 primarily because the average aum in the deals in t his asset class declined due to defaults of the underlying assets , repayments of the underlying assets , an d liquidations of certain cdos . this decrease was partially offset by an increase of $ 385 primarily related to a final fee earned in conjunction with our resignation as manager of one securitization .
| consolidated results of operations the following section provides a comparative discussion of our consolidated results of operations for the specified periods . the period-to-period comparisons of financial results are not necessarily indicative of future results . year ended december 31 , 2013 compared to the year ended december 31 , 2012 the following table sets forth information regarding our consolidated results of operations for the years ended december 31 , 2013 and 2012 . replace_table_token_5_th revenues revenues decreased by $ 37,723 , or 40 % , to $ 57,517 for the year ended december 31 , 2013 from $ 95,240 for the year ended december 31 , 2012 . as discussed in more detail below , the change was comprised of ( i ) a decrease of $ 30,958 in net trading ; ( ii ) a 49 decrease of $ 3,369 in asset management revenue ; ( iii ) an increase of $ 1,397 in new issue and advisory revenue ; and ( iv ) a decrease of $ 4,793 in principal transactions and other income . net trading net trading revenue decreased by $ 30,958 , or 45 % , to $ 38,528 for the year ended december 31 , 2013 from $ 69,486 for the year ended december 31 , 2012 . the following table provides detail on net trading revenue by operation : replace_table_token_6_th the decline in trading revenue was significant and broad-based . the decline in revenue in jvb was primarily due to the decline in trading revenue earned in the following asset classes : agency securities , treasury securities , and municipal bonds . the decline in revenue in princeridge and other capital markets was primarily due to a decline in trading revenue in agency securities , treasury securities , municipal bonds , high yield corporate bonds , and structured products . the decrease in revenue in ccfl was primarily due to a decrease in overall trading volumes .
| 1,939 |
it contains forward-looking statements including , without limitation , statements relating to the company 's plans , strategies , objectives , expectations and intentions that are made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. the words anticipate , estimate , believe , budget , continue , could , intend , may , plan , potential , predict , seek , should , will , would , expect , objective , projection , forecast , goal , guidance , outlook , effort , target and similar expressions identify forward-looking statements . the company does not undertake to update , revise or correct any of the forward-looking information unless required to do so under the federal securities laws . readers are cautioned that such forward-looking statements should be read in conjunction with the company 's disclosures under the heading : cautionary statement for the purposes of the safe harbor ' provisions of the private securities litigation reform act of 1995 , beginning on page 70. the terms earnings and loss as used in management 's discussion and analysis refer to net income ( loss ) attributable to conocophillips . business environment and executive overview conocophillips is the world 's largest independent exploration and production ( e & p ) company , based on proved reserves and production of liquids and natural gas . headquartered in houston , texas , we have operations and activities in 17 countries . our diverse portfolio primarily includes resource-rich north american tight oil and oil sands assets in canada ; lower-risk conventional assets in north america , europe , asia and australia ; several liquefied natural gas ( lng ) developments ; and an inventory of global conventional and unconventional exploration prospects . at december 31 , 2017 , we employed approximately 11,400 people worldwide and had total assets of $ 73 billion . our common stock is listed on the new york stock exchange under the symbol cop. overview the global oil market is rebalancing . crude oil prices improved in 2017 , particularly during the latter half of the year ; however , we believe prices are likely to remain cyclical in the future . in 2016 , we updated our value proposition to position the company for long-term success , given our expectations . our value proposition principles , namely to maintain financial strength , grow our distributions and pursue disciplined growth , remain essentially unchanged . however , we took steps to improve our competitiveness and resilience by establishing clear priorities for cash allocation . in order , the cash allocation priorities are : invest capital at a level that maintains flat production volumes and pays our existing dividend ; grow our existing dividend ; reduce debt to a level we believe is sufficient to maintain a strong investment grade rating through price cycles ; repurchase shares to provide value to our shareholders ; and strategically invest capital to grow our cash from operations . in 2017 , we took significant actions that allowed us to make substantial progress on our stated priorities . we believe that our commitment to our value proposition , as evidenced by the results discussed below , position the company for success in an environment of price uncertainty and ongoing volatility . 30 key operating and financial summary significant items during 2017 included the following : achieved full-year production excluding libya of 1,356 thousand barrels of oil equivalent per day ( mboed ) ; underlying production excluding the impact of closed and planned dispositions grew 19 percent on a production per debt-adjusted share basis and 3 percent overall . cash provided by operating activities exceeded capital expenditures by $ 2.5 billion , and exceeded capital expenditures and dividends by $ 1.2 billion . paid down $ 7.6 billion of balance sheet debt , ending the year with debt of $ 19.7 billion . generated approximately $ 16 billion from asset dispositions . announced year-end proved reserves of 5.0 billion barrels of oil equivalent ( boe ) . repurchased $ 3 billion of shares ; reduced ending share count by 5 percent year over year . reached settlement on ecuador arbitration for $ 337 million . operationally , we continue to focus on safely executing our capital program and remaining attentive to our costs . production excluding libya was 1,356 mboed in 2017 compared with 1,567 mboed in 2016. our underlying production , which excludes the full-year impact of closed and planned dispositions of 191 mboed in 2017 and 434 mboed in 2016 and libya , increased 32 mboed , or 3 percent year over year . underlying production on a per debt-adjusted share basis grew by 19 percent compared to 2016. production per debt-adjusted share is calculated on an underlying production basis using ending period debt divided by ending share price plus ending shares outstanding . we believe production per debt-adjusted share is useful to investors as it provides a consistent view of production on a total equity basis by converting debt to equity and allows for comparisons across peer companies . we accomplished several strategic milestones in 2017 , including progressing our efforts to optimize our portfolio . our asset dispositions are in line with our strategy , announced in november 2016 , to focus on low cost-of-supply projects in our portfolio that strategically fit our development plans . we generated approximately $ 16 billion in total consideration from the disposition of certain noncore assets which were directed to our stated cash priorities and general corporate purposes . for additional information on our dispositions , see note 4assets held for sale , sold or acquired in the notes to consolidated financial statements . in 2017 , we reduced debt by $ 7.6 billion to $ 19.7 billion at year-end and repurchased 64 million shares of our common stock totaling $ 3 billion . story_separator_special_tag we strive to conduct our business with respect and care for both the local and global environment and systematically manage risk to drive sustainable business growth . our sustainability efforts in 2017 focused on implementing our action plans for climate change , biodiversity , water and human rights , as well as revamping public reporting to be more informative , searchable and responsive to common questions . to demonstrate our commitment to sustainability and environmental stewardship , on november 2017 , we announced our intention to target a 5 to 15 percent reduction in our greenhouse gas emission intensity by 2030. we are committed to building a learning organization using human performance principles as we relentlessly pursue improved health , safety and environment and operational performance . add to our proved reserve base . we primarily add to our proved reserve base in two ways : ¡ successful exploration , exploitation and development of new and existing fields . ¡ application of new technologies and processes to improve recovery from existing fields . proved reserve estimates require economic production based on historical 12-month , first-of-month , average prices and current costs . therefore , our proved reserves generally increase as prices rise and decrease as prices decline . asset dispositions in 2017 reduced our reported year-end proved reserves , but were partly offset by increased commodity prices . in 2017 , our reserve replacement , which included a reduction of 1.9 billion boe from dispositions , was negative 168 percent . our organic reserve replacement , which excludes the impact of sales and purchases , was 200 percent in 2017. in the five years ended december 31 , 2017 , our reserve replacement was negative 24 percent , reflecting the impact of asset dispositions and lower prices . access to additional resources may become increasingly difficult as commodity prices can make projects uneconomic or unattractive . in addition , prohibition of direct investment in some nations , national fiscal terms , political instability , competition from national oil companies , and lack of access to high-potential areas due to environmental or other regulation may negatively impact our ability to increase our reserve base . as such , the timing and level at which we add to our reserve base may , or may not , allow us to replace our production over subsequent years . additionally , as we continue cash conservation efforts , our reserve replacement efforts could be delayed thus limiting our ability to replace depleted reserves . apply technical capability . we leverage our knowledge and technology to create value and safely deliver on our plans . technical strength is part of our heritage , and we are evolving our technical approach to optimally apply best practices . companywide , we continue to evaluate potential solutions to leverage knowledge of technological successes across our operations . such innovations enable us to economically convert additional resources to reserves , achieve greater operating efficiencies and reduce our environmental impact . develop and retain a talented work force . we strive to attract , train , develop and retain individuals with the knowledge and skills to implement our business strategy and who support our values and ethics . to this end , we offer university internships across multiple disciplines to attract the best talent and , as needed , recruit experienced hires to maintain a broad range of skills and experience . we promote continued learning , development and technical training through structured development programs designed to enhance the technical and functional skills of our employees . 33 other factors affecting profitability other significant factors that can affect our profitability include : energy commodity prices . our earnings and operating cash flows generally correlate with industry price levels for crude oil and natural gas . industry price levels are subject to factors external to the company and over which we have no control , including but not limited to global economic health , supply disruptions or fears thereof caused by civil unrest or military conflicts , actions taken by organization of petroleum exporting countries ( opec ) , environmental laws , tax regulations , governmental policies and weather-related disruptions . the following graph depicts the average benchmark prices for west texas intermediate ( wti ) crude oil , dated brent crude oil and u.s. henry hub natural gas : brent crude oil prices averaged $ 61.39 per barrel in the fourth quarter of 2017 , an increase of 24 percent compared with $ 49.46 per barrel in the fourth quarter of 2016. similarly , wti crude oil prices increased 13 percent from $ 49.18 per barrel in the fourth quarter of 2016 to $ 55.35 per barrel in the same period of 2017. global oil prices began to improve at the end of 2016 and continued trending upward in response to stronger global demand and slower production growth . henry hub natural gas prices averaged $ 2.93 per million british thermal units ( mmbtu ) in the fourth quarter of 2017 , a decrease of 2 percent compared with $ 2.98 per mmbtu in the fourth quarter of 2016. however , on an annual basis , henry hub natural gas prices improved 26 percent from $ 2.46 per mmbtu in 2016 , to $ 3.11 per mmbtu in 2017. the price improvement was as a result of growth in domestic demand , increased exports and lower u.s. inventories .
| consolidated results a summary of the company 's net loss attributable to conocophillips by business segment follows : millions of dollars years ended december 31 2017 2016 2015 alaska $ 1,466 319 4 lower 48 ( 2,371 ) ( 2,257 ) ( 1,932 ) canada 2,564 ( 935 ) ( 1,044 ) europe and north africa 553 394 409 asia pacific and middle east ( 1,098 ) 209 ( 463 ) other international 167 ( 16 ) ( 593 ) corporate and other ( 2,136 ) ( 1,329 ) ( 809 ) net loss attributable to conocophillips $ ( 855 ) ( 3,615 ) ( 4,428 ) 2017 vs. 2016 loss attributable to conocophillips decreased $ 2,760 million in 2017. the decrease was mainly due to : higher commodity prices . lower depreciation , depletion and amortization ( dd & a ) expense , mainly due to lower unit-of-production rates from reserve revisions and disposition impacts . higher gains on dispositions , primarily due to a $ 1.6 billion after-tax gain in 2017 on the sale of certain canadian assets . recognition of deferred tax benefits totaling $ 996 million , primarily related to the disposition of certain canadian assets . recognition of deferred tax benefits totaling $ 852 million related to the tax legislation enacted on december 22 , 2017. improved equity earnings , mainly due to higher realized prices , lower dd & a from asset disposition impacts , and the absence of a 2016 deferred tax charge of $ 174 million resulting from the change of the tax functional currency for aplng to the u.s. dollar . these increases were partly offset by lower volumes from the disposition of our interest in the fccl partnership . lower exploration expenses mainly due to reduced leasehold impairment expense , dry hole costs and other exploration expenses . a $ 337 million award from an arbitration settlement with the republic of ecuador .
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driven by our purpose to shape a sustainable world together , we partner with customers in the beverage can , automotive , aerospace , and specialty markets ( including foil packaging , certain transportation products , architectural , industrial , and consumer durables ) to deliver solutions that maximize the benefits of lightweight aluminum throughout north america , europe , asia , and south america . novelis is a subsidiary of hindalco industries limited , an industry leader in aluminum and copper , and the metals flagship company of the aditya birla group , a multinational conglomerate based in mumbai , india . we have recycling operations in many of our plants to recycle both post-consumer aluminum and post-industrial aluminum . as of march 31 , 2021 , we had manufacturing operations in nine countries on four continents , through 33 operating facilities , which include any combination of hot or cold rolling , finishing , casting , or recycling capabilities . we have recycling operations in 15 of these operating facilities . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those discussed below and elsewhere in this form 10-k , particularly in special note regarding forward-looking statements and market data and part i , item 1a . risk factors . discussion and analysis of fiscal 2019 and year-over-year comparisons between fiscal 2020 and fiscal 2019 not included in this form 10-k can be found in part ii , item 7. management 's discussion and analysis of financial condition and results of operations of our annual report on form 10-k for the fiscal year ended march 31 , 2020 , filed with the sec on may 7 , 2020. the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this form 10-k. business and industry climate on april 14 , 2020 , novelis closed its acquisition of aleris corporation and is now integrating the two companies . the acquisition provides a number of strategic benefits , including increasing the company 's footprint as an aluminum rolled products manufacturer and diversifying its product and customer portfolio , including by providing entry into the aerospace market . in addition , more than $ 180 million of run-rate synergies have been identified , through traditional integration cost synergies and strategic synergies created by enhancing and integrating operations in asia . in the months since closing the transaction , $ 79 million of run-rate cost synergies have already been achieved . the results from continuing operations reported for the period ending march 31 , 2021 reflect the aleris acquisition . 27 the early months of fiscal 2021 were negatively impacted by a short-term reduction in demand for aluminum rolled products as a result of the covid-19 pandemic and restrictions put in place to combat the virus . some industries such as automotive , aerospace , and some specialty markets , including heat exchangers and transportation , experienced a sharper demand decline than the more resilient beverage can segment . however , demand strengthened considerably in the second fiscal quarter across most end markets and remained favorable through the remainder of the fiscal year . while aerospace demand is expected to remain muted into fiscal 2022 , some end markets , including automotive and specialties , have returned to pre-covid demand levels due to strong consumer demand . we believe the long-term trends for flat-rolled aluminum products remain strong . economic growth , material substitution , and sustainability considerations , including increased environmental awareness around polyethylene terephthalate ( `` pet '' ) plastics , continue to support long-term increasing global demand for aluminum and rolled products . with the exception of china where can sheet overcapacity and strong competition remains , favorable market conditions and increasing customer preference for sustainable packaging options is driving higher demand for recyclable aluminum beverage cans and bottles . at the end of fiscal 2019 , we began expanding rolling , casting and recycling capability in pindamonhangaba , brazil to support this demand . meanwhile , the long-term demand for aluminum in the automotive industry continues to grow , which drove the investments we made in our automotive sheet finishing capacity in north america , europe , and asia in recent years , and is driving our additional investments in guthrie , kentucky ( u.s. ) , changzhou , china , and zhenjiang , china . this demand has been primarily driven by the benefits that result from using lightweight aluminum in vehicle structures and components , as companies respond to stricter government emissions and fuel economy regulations , while maintaining or improving vehicle safety and performance , resulting in increased competition with high-strength steel . we expect long-term demand for building and construction and other specialty products will grow due to increased customer preference for lightweight , sustainable materials and demand for aluminum plate in asia to grow driven by the development and expansion of industries serving aerospace , semiconductor , rail , and other technically demanding applications . we believe significant aircraft industry order backlogs for key original equipment manufacturers ( `` oems '' ) , including airbus and boeing , will translate into growth in the future , and we believe our multi-year supply agreements have positioned us to benefit from future expected demand . covid-19 response the covid-19 pandemic continues to cause travel and business disruption and economic volatility . government mandates to stay at home or avoid large gatherings of people , as well as infected employees or individuals on-site , have caused some of our customers to temporarily shut down their manufacturing facilities due to lack of demand , government decree , or public health concerns . story_separator_special_tag lme base aluminum prices and local market premiums the average ( based on the simple average of the monthly averages ) and closing prices for aluminum set on the lme for the fiscal years ended march 31 , 2021 , 2020 , and 2019 are as follows . replace_table_token_5_th 29 for the fiscal years ended march 31 , 2021 , 2020 , and 2019 , the weighted average local market premium was as follows . replace_table_token_6_th metal price lag and related hedging activities increases or decreases in the price of aluminum based on the average lme base aluminum prices and local market premiums directly impact net sales , cost of goods sold ( exclusive of depreciation and amortization ) , and working capital . the timing of these impacts varies based on contractual arrangements with customers and metal suppliers in each region . these timing impacts are referred to as metal price lag . metal price lag exists due to : ( i ) the period of time between the pricing of our purchases of metal , holding and processing the metal , and the pricing of the sale of finished inventory to our customers and ( ii ) certain customer contracts containing fixed forward price commitments , which result in exposure to changes in metal prices for the period of time between when our sales price fixes and the sale actually occurs . we use lme aluminum forward contracts to preserve our conversion margins and manage the timing differences associated with the lme base metal component of net sales and cost of goods sold ( exclusive of depreciation and amortization ) . these derivatives directly hedge the economic risk of future lme base metal price fluctuations to better match the purchase price of metal with the sales price of metal . the majority of our local market premium hedging occurs in north america depending on market conditions ; however , exposure there is not fully hedged . in europe , asia , and south america , the derivative market for local market premiums is not robust or efficient enough for us to offset the impacts of lmp price movements beyond a small volume . as a consequence , volatility in local market premiums can have a significant impact on our results of operations and cash flows . we elect to apply hedge accounting to better match the recognition of gains or losses on certain derivative instruments with the recognition of the underlying exposure being hedged in the statement of operations . in connection with the acquisition of aleris , the company acquired a portfolio of derivative financial instruments executed to hedge various price risk exposures . historically , aleris did not designate derivative financial instruments as hedges and therefore , both realized and unrealized gains and losses on derivatives were recorded immediately in the consolidated statement of operations . in fiscal 2021 , the company designated certain aleris lme aluminum forward sales contracts as cash flow hedges of the metal price risk associated with our future metal sales and certain foreign currency exchange contracts designated as hedges of expected future foreign currency transactions . for undesignated metal derivatives , there are timing differences between the recognition of unrealized gains or losses on the derivatives and the recognition of the underlying exposure in the statement of operations . the recognition of unrealized gains and losses on undesignated metal derivative positions typically precedes inventory cost recognition , customer delivery , and revenue recognition . the timing difference between the recognition of unrealized gains and losses on undesignated metal derivatives and cost or revenue recognition impacts income from continuing operations before income tax provision and net income . gains and losses on metal derivative contracts are not recognized in segment income until realized . 30 foreign currency and related hedging activities we operate a global business and conduct business in various currencies around the world . we have exposure to foreign currency risk as fluctuations in foreign exchange rates impact our operating results as we translate the operating results from various functional currencies into our u.s. dollar reporting currency at current average rates . we also record foreign exchange remeasurement gains and losses when business transactions are denominated in currencies other than the functional currency of that operation . global economic uncertainty is contributing to higher levels of volatility among the currency pairs in which we conduct business . the following table presents the exchange rates as of the end of each period and the average of the month-end exchange rates for the fiscal years ended march 31 , 2021 , 2020 , and 2019. replace_table_token_7_th exchange rate movements have an impact on our operating results . in europe , where we have predominantly local currency selling prices and operating costs , we benefit as the euro strengthens but are adversely affected as the euro weakens . for our swiss operations , where operating costs are incurred primarily in the swiss franc and a large portion of revenues are denominated in the euro , we benefit as the swiss franc weakens but are adversely affected as the franc strengthens . in south korea , where we have local currency operating costs and u.s. dollar denominated selling prices for exports , we benefit as the south korean won weakens but are adversely affected as the won strengthens . in brazil , where we have predominately u.s. dollar selling prices and local currency manufacturing costs , we benefit as the brazilian real weakens but are adversely affected as the real strengthens . we use foreign exchange forward contracts and cross-currency swaps to manage our exposure arising from recorded assets and liabilities , firm commitments , and forecasted cash flows denominated in currencies other than the functional currency of certain operations , which include capital expenditures and net investment in foreign subsidiaries . see segment review below for the impact of foreign currency on each of our segments . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > note 14 – debt .
| results of operations for fiscal 2021 , we reported net income attributable to our common shareholder of $ 236 million , which is a decrease compared to $ 420 million in fiscal 2020. this decrease is primarily due to a $ 221 million net loss from discontinued operations . net income from continuing operations was $ 458 million for fiscal 2021 , an increase from $ 420 million in fiscal 2020. this increase is primarily due to an increase of 16 % in segment income to $ 1.7 billion in fiscal 2021 from $ 1.5 billion in fiscal 2020. operational performance was primarily driven by a $ 200 million positive segment income contribution from the acquired aleris business , favorable metal costs , cost containment efforts , and favorable foreign exchange rates , partially offset by negative impacts on volume and product mix resulting from the covid-19 pandemic early in the fiscal year . the favorable factors in net income were partially offset by $ 50 million charitable contribution to support covid-19 relief efforts in the current year , as well as higher depreciation and amortization and interest expense primarily related to the acquired aleris business . in addition , the current year includes $ 11 million of unrealized derivative losses and a $ 29 million purchase price accounting adjustment resulting from the relief of an inventory step-up , both primarily related to the acquired aleris business . as a result of these factors , net cash provided by operating activities was $ 1.1 billion and free cash flow was $ 612 million for fiscal 2021. refer to non-gaap financial measures for our definition of free cash flow .
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the acquisition was funded with $ 4.1 million of existing cash at closing and $ 1.1 million of the company 's common stock transferred in october 2019. the common stock transferred as consideration was reissued from the company 's treasury stock . the former owners of 2get are eligible to receive additional cash consideration , which the company estimates to be between $ 5.0 million and $ 15.0 million , based on the achievement of certain revenue and ebitda milestones for the period from acquisition through 2023. the additional consideration is linked to future service with the company and is accounted for as compensation expense . the company recorded $ 0.7 million of intangible assets , consisting of the trade name of $ 0.4 million and customer relationships of $ 0.3 million , $ 3.8 million of goodwill story_separator_special_tag management 's discussion and analysis of financial condition and results of operations as well as other sections of this annual report on form 10-k contain forward-looking statements . the private securities litigation reform act of 1995 provides a safe harbor for forward-looking statements . forward-looking statements are not historical facts , but instead represent only our beliefs , assumptions , expectations , estimates , forecasts and projections regarding future events , many of which , by their nature , are inherently uncertain and outside our control . these statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results . by identifying these statements for you in this manner , we are alerting you to the possibility that our actual results and financial condition may differ , possibly materially , from the anticipated results and financial condition indicated in these forward-looking statements . important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include , among others , those discussed under the section heading “ risk factors ” in part i , item 1a of this form 10-k. factors that may affect the outcome of the forward-looking statements include , among other things , leadership changes , our ability to attract , integrate , develop , manage and retain qualified consultants and senior leaders ; our ability to prevent our consultants from taking our clients with them to another firm ; our ability to maintain our professional reputation and brand name ; the fact that our net revenue may be affected by adverse economic conditions ; our clients ' ability to restrict us from recruiting their employees ; the aggressive competition we face ; our heavy reliance on information management systems ; the fact that we face the risk of liability in the services we perform ; the fact that data security , data privacy and data protection laws and other evolving regulations and cross-border data transfer restrictions may limit the use of our services and adversely affect our business ; social , political , regulatory and legal risks in markets where we operate ; the impact of foreign currency exchange rate fluctuations ; the fact that we may not be able to align our cost structure with net revenue ; unfavorable tax law changes and tax authority rulings ; our ability to realize our tax losses ; the timing of the establishment or reversal of valuation allowance on deferred tax assets ; any impairment of our goodwill , other intangible assets and other long-lived assets ; our ability to execute and integrate future acquisitions ; the fact that we have anti-takeover provisions that make an acquisition of us difficult and expensive ; our ability to access additional credit ; and the increased cybersecurity requirements , vulnerabilities , threats and more sophisticated and targeted cyber-related attacks that could pose a risk to our systems , networks , solutions , services and data . we undertake no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise . we undertake no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise . the discussion that follows includes a comparison of our results of operations and liquidity and capital resources for years 2019 and 2018. for the discussion of changes from 2017 to 2018 and other financial information related to 2017 , refer to `` item 7 - management 's discussion and analysis of financial condition and results of operations '' of our annual report on form 10-k for the year ended december 31 , 2018. this document was filed with the sec on february 26 , 2019. executive overview our business we are a leadership advisory firm providing executive search and consulting services . we help our clients build leadership teams by facilitating the recruitment , management and development of senior executives . we believe focusing on top-level services offers us several advantages that include access to and influence with key decision makers , increased potential for recurring search consulting engagements , higher fees per search , enhanced brand visibility and a leveraged global footprint , which create added barriers to entry for potential competitors . working at the top of client organizations also allows us to attract and retain high-caliber consultants . in addition to executive search , we provide consulting services including executive leadership assessment , leadership , team and board development , succession planning , talent strategy , people performance , inter-team collaboration , culture shaping and organizational transformation . we provide our services to a broad range of clients through the expertise of over 450 consultants located in major cities around the world . our executive search services are provided on a retained basis . revenue before reimbursements of out-of-pocket expenses ( “ net revenue ” ) consists of retainers and indirect expenses billed to clients . typically , we are paid a retainer for our executive search services equal to approximately one-third of the estimated first-year compensation for the position to be filled . story_separator_special_tag salaries and benefits expense as a percentage of net revenue was 71.0 % in 2019 and 70.7 % in 2018. general and administrative expense as a percentage of net revenue was 19.4 % in 2019 and 19.7 % in 2018. we ended the year with combined cash , cash equivalents , and marketable securities of $ 332.9 million , an increase of $ 53.0 million compared to $ 279.9 million at december 31 , 2018. the increase was primarily due to the strong cash inflows from operations partially offset by acquisition spend and larger bonus payments year-over-year . we pay the majority of bonuses in the first quarter following the year in which they were earned . employee bonuses are accrued throughout the year and are based on the company 's performance and the performance of the individual employee . we expect to pay approximately $ 205.0 million in bonuses related to 2019 performance in march and april 2020. in january 2020 , we paid approximately $ 17.1 million in cash bonuses deferred from prior years . 2020 outlook we are currently forecasting 2020 first quarter net revenue of between $ 165 million and $ 175 million . our 2020 first quarter guidance is based upon , among other things , management 's assumptions for the anticipated volume of new executive search confirmations and leadership consulting and culture shaping projects , the current backlog , consultant productivity , consultant retention , the seasonality of our business and average currency rates from december 2019. our 2020 first quarter guidance is subject to a number of risks and uncertainties , including those disclosed under `` item 1a - risk factors '' and in this `` management 's discussion and analysis of financial condition and results of operations '' . as such , actual results could vary from these projections . 18 story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; text-indent:24px ; font-size:10pt ; '' > restructuring charges . the company incurred approximately $ 4.1 million in restructuring charges during the year ended december 31 , 2019 in connection with initiatives to integrate the company 's legacy brazil operations into the 2get business operation . the expenses are primarily employee-related including the elimination of duplicative positions in the company 's legacy brazil operations . there were no similar restructuring charges during the year ended december 31 , 2018. operating income . consolidated operating income was $ 63.5 million in 2019 , including restructuring charges of $ 4.1 million , compared to $ 68.9 million in 2018. foreign exchange rate fluctuations negatively impacted operating income by $ 1.1 million or 1.6 % . excluding the impact of restructuring charges in 2019 , operating income decreased $ 1.2 million from $ 68.9 million to $ 67.6 million . net non-operating income ( expense ) . net non-operating income was $ 5.8 million in 2019 compared to $ 1.6 million in 2018. net interest income was $ 2.9 million in 2019 , a $ 1.7 million increase from $ 1.1 million in 2018. the increase was primarily due to interest earned on marketable securities , which are primarily comprised of u.s. treasury bills . other , net was income of $ 2.9 million in 2019 compared to $ 0.5 million in 2018. the increase was primarily the result of gains on the deferred compensation plan assets . income taxes . see note 16 , income taxes . executive search americas the americas segment reported net revenue of $ 415.5 million in 2019 , an increase of 2.5 % from $ 405.3 million in 2018. the increase in net revenue was driven by an increase in average revenue per executive search . all industry practice groups contributed to the increased net revenue with the exception of the education and social enterprises , and financial services practice groups . foreign exchange fluctuations negatively impacted net revenue by $ 0.8 million , or 0.2 % . there were 200 executive search consultants in the americas as of december 31 , 2019 , compared to 179 as of december 31 , 2018. salaries and benefits expense decreased $ 0.1 million from 2018. fixed compensation increased $ 14.8 million , primarily due to base salaries and payroll taxes , the deferred compensation plan , stock compensation , and retirement and benefits , partially offset by a decrease in talent acquisition and retention costs . variable compensation decreased $ 14.9 million primarily due to the mix of consultant productivity . included in variable compensation for the year ended december 31 , 2019 is $ 0.6 million of contingent compensation for the former owners of 2get , which is based on the achievement of certain revenue and ebitda milestones for the period from acquisition through 2023 . 22 general and administrative expenses increased $ 2.2 million , or 4.8 % , from 2018 due to increases in bad debt , internal travel , taxes and licenses , office occupancy expenses , and professional fees , partially offset by decreases in research tool expenses and the use of external third-party consultants . the americas segment incurred approximately $ 4.1 million in restructuring charges during the year ended december 31 , 2019 in connection with initiatives to integrate the company 's legacy brazil operations into the 2get business operation . the expenses are primarily employee-related including the elimination of duplicative positions in the company 's legacy brazil operations . there were no similar restructuring charges during the year ended december 31 , 2018. operating income was $ 100.8 million in 2019 , an increase of $ 3.9 million , compared to $ 96.9 million in 2018. excluding the impact of restructuring charges in 2019 , operating income increased $ 8.1 million from $ 96.9 million in 2018 to $ 104.9 million in 2019. europe europe reported net revenue of $ 135.1 million in 2019 , a decrease of 7.1 % from $ 145.3 million in 2018. the decrease in net revenue was due to a 5.1 % decrease in the number of executive search confirmations .
| results of operations the following table summarizes , for the periods indicated , the results of operations ( in thousands , except per share data ) : replace_table_token_4_th ( 1 ) includes impairment charges of $ 50.7 million related to heidrick consulting in 2017 ( see note 9 , goodwill and other intangible assets ) . ( 2 ) includes restructuring charges of $ 4.1 million in 2019 and $ 15.7 million in 2017. the 2019 charges consist primarily of employee-related costs associated with severance arrangements . the 2017 charges consist of $ 13.1 million of employee-related costs associated with severance arrangements , $ 2.3 million in professional fees and other expenses and $ 0.3 million in real estate related expenses ( see note 15 , restructuring ) . 19 the following table summarizes , for the periods indicated , our results of operations as a percentage of revenue before reimbursements ( net revenue ) : replace_table_token_5_th note : totals and subtotals may not equal the sum of individual line items due to rounding . 20 we operate our executive search business in the americas , europe ( which includes africa ) and asia pacific ( which includes the middle east ) , and we operate our heidrick consulting business globally ( see note 18 , segment information ) . the following table sets forth , for the periods indicated , our revenue and operating income by segment ( in thousands ) : replace_table_token_6_th ( 1 ) operating income for the americas includes $ 4.1 million and $ 0.8 million of restructuring charges in 2019 and 2017 , respectively . ( 2 ) operating income for europe includes $ 4.0 million of restructuring charges in 2017 . ( 3 ) operating income for asia pacific includes $ 2.0 million of restructuring charges in 2017 . ( 4 ) operating loss for heidrick consulting includes less than $ 0.1 million of restructuring charges in 2019 , and $ 50.7 million of impairment charges and $ 3.4 million of restructuring charges in 2017 .
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as of january 31 , 2021 , we had $ 47 million of california research and development tax story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report . in addition to historical consolidated financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties , and assumptions . our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors . we discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report , including those set forth under “ risk factors ” and “ special note regarding forward-looking statements. ” overview veeva is the leading provider of industry cloud solutions for the global life sciences industry . we were founded in 2007 on the premise that industry-specific cloud solutions could best address the operating challenges and regulatory requirements of life sciences companies . our solutions span cloud software , data , and business consulting and are designed to meet the unique needs of our customers and their most strategic business functions—from research and development ( r & d ) to commercialization . our solutions help life sciences companies develop and bring products to market faster and more efficiently , market and sell more effectively , and maintain compliance with government regulations . in our fiscal year ended january 31 , 2021 , we derived approximately 51 % and 49 % of our subscription services revenues and 49 % and 51 % of our total revenues from our veeva commercial cloud solutions and veeva vault solutions , respectively . for the fiscal year ended january 31 , 2020 , we derived approximately 52 % and 48 % of our subscription services revenues and 49 % and 51 % of our total revenues from our veeva commercial cloud solutions and veeva vault solutions , respectively . the contribution of subscription services revenues and total revenues associated with our veeva vault solutions are expected to continue to increase as a percentage of subscription services revenues and total revenues in the future . please note that revenues attributable to our crossix and physicians world businesses , which we acquired in november 2019 , are classified under veeva commercial cloud and impacted the mix of revenues between veeva commercial cloud and veeva vault . we also offer certain of our veeva vault solutions to three industries outside the life sciences industry primarily in north america and europe . for our fiscal years ended january 31 , 2021 , 2020 , and 2019 , our total revenues were $ 1,465 million , $ 1,104 million , and $ 862 million , respectively , representing year-over-year growth in total revenues of 33 % in our fiscal year ended january 31 , 2021 , and 28 % in our fiscal year ended january 31 , 2020. for our fiscal years ended january 31 , 2021 , 2020 , and 2019 , our subscription services revenues were $ 1,179 million , $ 896 million , and $ 694 million , respectively , representing year-over-year growth in subscription services revenues of 32 % in our fiscal year ended january 31 , 2021 , and 29 % in our fiscal year ended january 31 , 2020. please note that our total revenues and subscription services revenues for our fiscal year ended january 31 , 2020 only included revenue contribution from the acquired crossix and physicians world businesses in the fourth quarter of that fiscal year . we expect the growth rate of our total revenues and subscription services revenues to decline in the future . we generated net income of $ 380 million , $ 301 million , and $ 230 million for our fiscal years ended january 31 , 2021 , 2020 , and 2019 , respectively . 38 veeva systems inc. | form 10-k as of january 31 , 2021 , 2020 , and 2019 , we served 993 , 861 , and 719 , customers , respectively . as of january 31 , 2021 , 2020 , and 2019 , we had 432 , 390 and 335 veeva commercial cloud customers , respectively , and 852 , 715 , and 574 veeva vault customers , respectively . the combined customer counts for veeva commercial cloud and veeva vault exceed the total customer count in each year because some customers subscribe to products in both areas . veeva commercial cloud customers are those customers that have at least one of the following products : veeva crm , veeva clm , veeva crm approved email , veeva crm engage , veeva align , veeva crm events management ( including services delivered via veeva digital events ) , veeva nitro , veeva andi , veeva opendata , veeva link , veeva network customer master , veeva crossix , or veeva data cloud . veeva vault customers are those customers that have at least one vault product . many of our veeva vault applications are used by smaller , earlier stage pre-commercial companies , some of which may not reach the commercialization stage . thus , the potential number of veeva vault customers is significantly higher than the potential number of veeva commercial cloud customers . on november 1 , 2019 , we completed our acquisition of crossix , a provider of privacy-safe patient data and data analytics . crossix brings veeva additional depth in patient data and data analytics . crossix 's existing data analytics offerings are complementary to our existing commercial cloud offerings , and we are utilizing the crossix data platform to build veeva data cloud , our longitudinal patient and prescriber data offering . further , on november 7 , 2019 , we completed our acquisition of physicians world , a provider of speakers bureau services for healthcare professionals . acquiring physicians world makes it easier for our customers to get industry leading cloud software and services from a single vendor . story_separator_special_tag we expect life sciences companies to reduce the number of sales representatives that they employ by roughly 10 % over the next one to two years , which could negatively impact sales of our solutions , including veeva crm and other commercial cloud applications in particular , but we can not be certain such reductions will happen or of the timing or magnitude of such reductions . at the same time , demand for our products that enable virtual interactions with doctors and clinical trial participants may increase . we can not accurately predict how such changes may impact veeva 's results over the long term . key factors affecting our performance investment in growth we have invested and intend to continue to invest aggressively in expanding the breadth and depth of our product portfolio , including through acquisitions . we expect to continue to invest in research and development to expand existing solutions and build new solutions ; in sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies and industries ; in professional services and business consulting to help ensure customer success ; and in other operational and administrative functions to support our expected growth . we expect that our headcount will increase as a result of these investments . we also expect our total operating expenses will continue to increase over time , which could have a negative impact on our operating margin . adoption of our solutions by existing and new customers most of our customers initially deploy our solutions to a limited number of end users within a division or geography and may only initially deploy a limited set of our available solutions . our future growth is dependent upon our existing customers ' continued success and their renewals of subscriptions to our solutions , expanded deployment of our solutions within their organizations , and their purchase of subscriptions to additional solutions . our growth is also dependent on the adoption of our solutions by new customers . subscription services revenue retention rate a key factor to our success is the renewal and expansion of our existing subscription agreements with our customers . we calculate our annual subscription services revenue retention rate for a particular fiscal year by dividing ( i ) annualized subscription revenue as of the last day of that fiscal year from those customers that were also customers as of the last day of the prior fiscal year by ( ii ) the annualized subscription revenue from all customers as of the last day of the prior fiscal year . annualized subscription revenue is calculated by multiplying the daily subscription revenue recognized on the last day of the fiscal year by 365. this calculation includes the impact on our revenues from customer non-renewals , deployments of additional users or decreases in users , deployments of additional solutions or discontinued use of solutions by our customers , and price changes for our solutions . 40 veeva systems inc. | form 10-k historically , the impact of price changes on our subscription services revenue retention rate has been minimal . for our fiscal years ended january 31 , 2021 , 2020 , and 2019 , our subscription services revenue retention rate was 124 % , 121 % , and 122 % , respectively . components of results of operations revenues we derive our revenues primarily from subscription services fees and professional services fees . subscription services revenues consist of fees from customers accessing our cloud-based software solutions and fees for our data solutions . professional services and other revenues consist primarily of fees from implementation services , configuration , data services , training , and managed services related to our solutions and services related to our veeva business consulting offerings . for the fiscal year ended january 31 , 2021 , subscription services revenues constituted 81 % of total revenues and professional services and other revenues constituted 19 % of total revenues . we generally enter into master subscription agreements with our customers and count each distinct master subscription agreement that has not been terminated or expired and that has orders for which we have recognized revenue in the quarter as a distinct customer for purposes of determining our total number of current customers as of the end of that quarter . we generally enter into a single master subscription agreement with each customer , although in some instances , affiliated legal entities within the same corporate family may enter into separate master subscription agreements . conversely , affiliated legal entities that maintain distinct master service agreements may choose to consolidate their orders under a single master service agreement , and , in that circumstance , our customer count would decrease . divisions , subsidiaries , and operating units of our customers often place distinct orders for our subscription services under the same master subscription agreement , and we do not count such distinct orders as new customers for purposes of determining our total customer count . for purposes of determining customers of veeva crossix that do not contract under a master subscription agreement , we count each entity that has a statement of work or services agreement and a recurring known payment obligation as a distinct customer if such entity is not otherwise a customer of ours . new subscription orders for our core veeva crm application generally have a one-year term . if a customer adds end users or additional veeva commercial cloud applications to an existing order for our core veeva crm application , such additional orders will generally be coterminous with the anniversary date of the core veeva crm order , and as a result , orders for additional end users or additional veeva commercial cloud applications will commonly have an initial term of less than one year . with respect to applications other than our core veeva crm application and particularly with respect to our veeva vault applications , we have entered into a number of orders with multi-year terms .
| results of operations the following tables set forth selected consolidated statements of operations data and such data as a percentage of total revenues for each of the periods indicated : replace_table_token_6_th replace_table_token_7_th fiscal year ended january 31 , 2021 and 2020 the following is a discussion of our results of operations for the year ended january 31 , 2021 compared to the year ended january 31 , 2020. for a discussion of our results of operations for the year ended january 31 , 2020 compared to the year ended january 31 , 2019 , please refer to part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended january 31 , 2020 , which is hereby incorporated by reference . 44 veeva systems inc. | form 10-k revenues replace_table_token_8_th total revenues for the fiscal year ended january 31 , 2021 increased $ 361 million , of which $ 283 million was from growth in subscription services revenues . the increase in subscription services revenues consisted of $ 152 million of subscription services revenue attributable to veeva vault solutions and $ 131 million of subscription services revenue attributable to veeva commercial cloud solutions , which includes the full year contribution from veeva crossix . the geographic mix of subscription services revenues was 56 % from north america and 27 % from europe for the fiscal year ended january 31 , 2021 as compared to subscription services revenues of 54 % from north america and 27 % from europe for the fiscal year ended january 31 , 2020. professional services and other revenues for the fiscal year ended january 31 , 2021 increased $ 78 million .
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accounting standards update 2015-01 , simplifying income statement presentation by eliminating the concept of extraordinary items ( `` update 2015-01 `` ) in january 2015 , the fasb issued update 2015-01 , which eliminated from gaap the concept of an extraordinary item . an extraordinary item is an event or transaction that is both ( 1 ) unusual in nature and ( 2 ) infrequently occurring . under update 2015-01 story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information included in this annual report on form 10-k. in addition to the historical information , certain statements in this discussion are forward-looking statements based on current expectations that involve risks and uncertainties . actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements . executive overview boyd gaming corporation ( the `` company , '' `` boyd gaming , '' `` we '' or `` us '' ) is a multi-jurisdictional gaming company that has been in operation since 1975. we are a diversified operator of 21 wholly-owned gaming entertainment properties and hold a 50 % non-controlling interest in a limited liability company in new jersey . headquartered in las vegas , we have gaming operations in nevada , illinois , indiana , iowa , kansas , louisiana , mississippi and new jersey . we view each operating property as an operating segment . for financial reporting purposes , we aggregate our wholly-owned properties and borgata into the following five reportable segments : las vegas locals gold coast hotel and casino las vegas , nevada the orleans hotel and casino las vegas , nevada sam 's town hotel and gambling hall las vegas , nevada suncoast hotel and casino las vegas , nevada eldorado casino henderson , nevada jokers wild casino henderson , nevada downtown las vegas california hotel and casino las vegas , nevada fremont hotel and casino las vegas , nevada main street station casino , brewery and hotel las vegas , nevada midwest and south sam 's town hotel and gambling hall tunica , mississippi ip casino resort spa biloxi , mississippi par-a-dice hotel and casino east peoria , illinois blue chip casino , hotel & spa michigan city , indiana treasure chest casino kenner , louisiana delta downs racetrack casino & hotel vinton , louisiana sam 's town hotel and casino shreveport , louisiana peninsula diamond jo dubuque dubuque , iowa diamond jo worth northwood , iowa evangeline downs racetrack and casino opelousas , louisiana amelia belle casino amelia , louisiana kansas star casino mulvane , kansas borgata borgata hotel casino & spa atlantic city , new jersey from march 2010 until september 2014 , the equity interest of our joint venture partner in borgata , mgm resorts international ( `` mgm '' ) , was held in a divestiture trust ( the `` divestiture trust '' ) . upon the transfer of mgm 's ownership interest into the divestiture trust , we determined that we had control , as defined in the relevant accounting literature , of borgata and commenced consolidating the business as of that date . after mgm received approval of its application for licensure from the new jersey casino control commission , on september 30 , 2014 , the divestiture trust was dissolved and mgm reacquired its interest in borgata and its substantive participation rights in the management of holding company . as a result , we deconsolidated borgata as of the close of business on september 30 , 2014. our income statement and statement of cash flows for the year ended december 31 , 2014 include borgata 's financial results on a full consolidation basis for the nine months ended september 30 , 2014 , and reflect our accounting for our 50 % ownership interest in borgata by applying the equity method for the remainder of the year . our income 28 statement and statement of cash flows for the year ended december 31 , 2015 reflect our accounting for our 50 % ownership interest in borgata by applying the equity method for the entire year . in addition to these properties , we own and operate a travel agency and a captive insurance company that underwrites travel-related insurance , each located in hawaii . financial results for these operations are included in our downtown las vegas segment , as our downtown las vegas properties concentrate their marketing efforts on gaming customers from hawaii . we operate gaming entertainment properties , most of which also include hotel , dining , retail and other amenities . our main business emphasis is on slot revenues , which are highly dependent upon the number and spending levels of customers at our properties , which affects our operating results . our properties have historically generated significant operating cash flow , with the majority of our revenue being cash-based . while we do provide casino credit , subject to certain gaming regulations and jurisdictions , most of our customers wager with cash and pay for non-gaming services by cash or credit card . our industry is capital intensive and we rely heavily on the ability of our properties to generate operating cash flow in order to fund maintenance capital expenditures , fund acquisitions , provide excess cash for future development , repay debt financing and associated interest costs , repurchase our debt or equity securities , pay income taxes and pay dividends . our primary areas of focus are : ( i ) ensuring our existing operations are managed as efficiently as possible , and remain positioned for growth ; ( ii ) improving our capital structure and strengthening our balance sheet , including paying down debt , improving operations and diversifying our asset base ; and ( iii ) successfully implementing our growth strategy , which is built on identifying development opportunities and acquiring assets that are a good strategic fit and provide an appropriate return to our shareholders . our strategy our overriding strategy is to increase shareholder value . story_separator_special_tag 30 operating revenues we derive the majority of our gross revenues from our gaming operations , which generated approximately 76 % of gross revenues for 2015 and 74 % of gross revenues in both 2014 and 2013 . food and beverage gross revenues represent our next most significant revenue source , generating approximately 13 % of gross revenues for 2015 , 2014 , and 2013 . room revenues and other revenues separately contributed less than 10 % of gross revenues during each year . replace_table_token_7_th for the year ended december 31 , 2015 , boyd gaming recorded the financial results of borgata by applying the equity method . for the year ended december 31 , 2014 , boyd gaming consolidated the financial results of borgata for the first nine months of the period , and recorded the results by applying the equity method for the last three months of the year . for the year ended december 31 , 2013 , boyd gaming consolidated the financial results of borgata . gaming gaming revenues are comprised primarily of the net win from our slot machine operations and to a lesser extent from table games win . gross gaming revenues decreased by $ 460.4 million , or 20.0 % , during 2015 as compared to the prior year due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 507.8 million decrease in the company 's consolidated gross gaming revenues . partially offsetting this decrease were increases in gross gaming revenues in all segments , in particular , $ 18.1 million and $ 11.2 million increases in the midwest and south segment and the las vegas locals segment , respectively , primarily related to increases in slot hold and table game hold percentages . our overall slot hold and table game hold increased 0.1 % and 0.3 % , respectively , from 2014 to 2015. gaming expenses decreased $ 187.0 million , of which $ 199.5 million was due to the deconsolidation of borgata . in 2014 , gross gaming revenues decreased by $ 171.4 million , or 6.9 % , during 2014 as compared to the prior year largely due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 143.7 million decrease in the company 's consolidated gross gaming revenues . additionally , the midwest and south segment and peninsula segment experienced decreases of $ 30.9 million and $ 26.8 million , respectively , primarily related to 5.09 % and 5.91 % decreases in slot handle , respectively . our overall slot handle and slot hold decreased 4.5 % and 3.6 % , respectively , from 2013 to 2014 , while gaming margin remained relatively unchanged . food and beverage food and beverage revenues decreased $ 100.8 million , or 24.7 % , during 2015 as compared to 2014 due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 104.8 million decrease in the company 's consolidated food and beverage 31 revenues . offsetting this decrease were increases of food and beverage revenues of $ 3.2 million and $ 1.9 million in the las vegas locals segment and downtown las vegas segment , respectively , related in increases in average guest check . the deconsolidation of borgata as of september 30 , 2014 , accounted for $ 53.7 million of the $ 54.3 million decrease in food and beverage expense from the prior period . food and beverage revenues decreased $ 38.1 million , or 8.5 % , during 2014 as compared to 2013 primarily due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 32.1 million decrease in the company 's consolidated food and beverage revenues . additionally , food and beverage revenues further decreased due to a 3.1 % decrease in the number of food covers , which was partially offset by a 3.3 % increase in average guest check . the deconsolidation of borgata as of september 30 , 2014 , accounted for $ 16.6 million of the $ 17.7 million decrease in food and beverage expense from the prior period . room room revenues decreased by $ 84.7 million , or 34.1 % , in 2015 compared to 2014 due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 90.8 million decrease in the company 's consolidated room revenues . the decline was offset by a $ 6.4 million increase in the las vegas locals segment due primarily to an 11.0 % average daily rate increase . room revenues decreased by $ 17.1 million , or 6.5 % , in 2014 compared to 2013 due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 26.0 million decrease in the company 's consolidated room revenues in the fourth quarter of 2014. the decline was offset by a $ 7.2 million increase due primarily to a 2.0 % hotel occupancy increase in the midwest and south segment , and a 5.7 % and 3.4 % increase in adr in the las vegas and downtown segments , respectively . other other revenues relate to patronage visits at the amenities at our properties , including entertainment and nightclub revenues , retail sales , theater tickets and other venues . other revenues decreased by $ 30.2 million , or 19.6 % , during 2015 as compared to the prior year due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 31.9 million decrease in the company 's consolidated other revenues . other revenues decreased by $ 11.0 million , or 6.7 % , during 2014 as compared to the prior year largely due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 9.0 million decrease in the company 's consolidated other revenues . other operating margin improved 0.8 percentage points due to our cost containment measures .
| cash flows summary replace_table_token_12_th 37 cash flows from operating activities during 2015 , 2014 and 2013 , we generated net operating cash flow of $ 339.8 million , $ 322.9 million and $ 277.0 million , respectively . generally , operating cash flows increased $ 17.0 million in 2015 compared to 2014 due to the flow through effect of higher revenues and a $ 14.1 million distribution received from our unconsolidated subsidiary , partially offset by the timing of working capital spending . operating cash flows increase $ 45.8 million in 2014 compared to 2013 and was favorably impacted by a decrease in cash interest paid of $ 55.7 million due to a reduction in the weighted average interest rate and long-term debt outstanding ( as discussed above ) . cash flows from investing activities our industry is capital intensive and we use cash flows for acquisitions , facility expansions , investments in future development or business opportunities and maintenance capital expenditures . during 2015 , we incurred net cash outflows for investing activities of $ 126.7 million due to our capital expenditures during the period of $ 131.2 million . during 2014 , we incurred net cash outflows for investing activities of $ 180.0 million due to our capital expenditures during the period of $ 149.4 million , and the $ 26.9 million reduction in cash due to the deconsolidation of borgata on september 30 , 2014. in 2013 , as a result of the disposition of echelon , we generated net cash inflows from investing activities of $ 19.6 million . after consideration of the payment to exercise of the lve option , the sale of echelon generated approximately $ 157.0 million in cash . our capital expenditures for 2013 totaled $ 144.5 million . cash flows from financing activities we rely upon our financing cash flows to provide funding for investment opportunities , repayments of obligations and ongoing operations .
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however , net sales in local currency measures should not be considered in isolation or as an alternative to net sales in u.s. dollar measures that reflect current period exchange rates , or to other financial measures calculated and presented in accordance with u.s. gaap . our “ gross profit ” consists of net sales less “ cost of sales ” , which represents our manufacturing costs , the price we pay to our raw material suppliers and manufacturers of our products as well as shipping and handling costs including duties , tariffs , and similar expenses . while certain members may profit from their activities by reselling our products for amounts greater than the prices they pay us , members that develop , retain , and manage other members may earn additional compensation for those activities , which we refer to as “ royalty overrides ” . royalty overrides are our most significant operating expense and consist of : royalty overrides and production bonuses ; the mark hughes bonus payable to some of our most senior members ; and other discretionary incentive cash bonuses to qualifying members . royalty overrides are compensation to members for the development , retention and improved productivity of their sales organizations and are paid to several levels of members on each sale . royalty overrides are compensation for services rendered to us and as such are recorded as an operating expense . in china , our independent service providers are compensated for marketing , sales support , and other services instead of the distributor allowances and royalty overrides utilized in our global marketing plan . service fees to china independent service providers are included in selling , general and administrative expenses . 46 because of local country regulatory constraints , we may be required to modify our member incentive plans as described above . we also pay reduced royalty overrides with respect to certain products worldwide . consequently , the total royalty override percentage may vary over time and f rom the percentages noted above . our “ contribution margins ” consist of net sales less cost of sales and royalty overrides . “ selling , general and administrative expenses ” represent our operating expenses , which include labor and benefits , service fees to china service providers , sales events , professional fees , travel and entertainment , member promotions , occupancy costs , communication costs , bank fees , depreciation and amortization , foreign exchange gains and losses and other miscellaneous operating expenses . our “ other operating income ” consists of government grant income related to china and the arbitration award in connection with the re-audit of our 2010 to 2012 financial statements after the resignation of kpmg as our independent registered public accounting firm . our “ other ( income ) expense , net ” consists of non-operating income and expenses such as impairments of available-for-sale investments and gains or losses due to subsequent changes in the fair value of the cvr . see note 8 , shareholders ' ( deficit ) equity , to the consolidated financial statements for further information on the cvr . most of our sales to members outside the united states are made in the respective local currencies . in preparing our financial statements , we translate revenues into u.s. dollars using average exchange rates . additionally , the majority of our purchases from our suppliers generally are made in u.s. dollars . consequently , a strengthening of the u.s. dollar versus a foreign currency can have a negative impact on our reported sales and contribution margins and can generate foreign currency losses on intercompany transactions . foreign currency exchange rates can fluctuate significantly . from time to time , we enter into foreign currency derivatives to partially mitigate our foreign currency exchange risk as discussed in further detail in item 7a — quantitative and qualitative disclosures about market risk . results of operations our results of operations for the periods below are not necessarily indicative of results of operations for future periods , which depend upon numerous factors , including our ability to sponsor members and retain sales leaders , further penetrate existing markets , introduce new products and programs that will help our members increase their retail efforts and develop niche market segments . the following table sets forth selected results of our operations expressed as a percentage of net sales for the periods indicated : replace_table_token_9_th ( 1 ) service fees to our independent service providers in china are included in selling , general and administrative expenses while member compensation for all other countries is included in royalty overrides . 47 changes in net sales are directly associated with the retailing of our products , recruitment of new members , and retention of sales leaders . our strategies involve providing quality products , improved dmos , including daily consumption approaches such as nu trition clubs , easier access to product , systemized training and education of members on our products and methods , and continued promotion and branding of herbalife products . management 's role , in-country and at the region and corporate level , is to provide members with a competitive and broad product line , encourage strong teamwork and member leadership and offer leading edge business tools and technology services to make doing business with herbalife simple . management uses the marketing plan , which reflects the rules for our global network marketing organization that specify the qualification requirements and general compensation structure for members , coupled with educational and motivational tools and promotions to encourage members to increase retailing , retention , and recruiting , which in turn affect net sales . story_separator_special_tag such tools include sales events such as extravaganzas , leadership development weekends and world team schools where large groups of members gather , thus allowing them to network with other members , learn retailing , retention , and recruiting techniques from our leading members and become more familiar with how to market and sell our products and business opportunities . accordingly , management believes that these development and motivation programs increase the productivity of the sales leader network . the expenses for such programs are included in selling , general and administrative expenses . we also use event and non-event product promotions to motivate members to increase retailing , retention , and recruiting activities . these promotions have prizes ranging from qualifying for events to product prizes and vacations . a program that we have seen success with and begun to use on a broad basis is the member activation program , under which new members , who order a modest number of volume points in each of their first three months , earn a prize . our objective is to improve the quality of sales leaders by encouraging new members to begin acquiring retail customers before attempting to qualify for sales leader status . the costs of these programs are included in selling , general and administrative expenses . dmos are being generated in many of our markets and are globalized where applicable through the combined efforts of members and country , regional and corporate management . while we support a number of different dmos , one of the most popular dmos is the daily consumption dmo . under our traditional dmo , a member typically sells to its customers on a somewhat infrequent basis ( e.g. , monthly ) which provides fewer opportunities for interaction with their customers . under a daily consumption dmo , a member interacts with its customers on a more frequent basis , including such activities as weekly weigh-ins , which enables the member to better educate and advise customers about nutrition and the proper use of the products and helps promote daily usage as well , thereby helping the member grow his or her business . specific examples of dmos include the nutrition club concept in mexico , the healthy breakfast concept in russia , and the internet/sampling and weight loss challenge in the united states . management 's strategy is to review the applicability of expanding successful country initiatives throughout a region , and where appropriate , support the globalization of these initiatives . the factors described above help members increase their business , which in turn helps drive volume point growth in our business , and thus , net sales growth . the discussion below of net sales details some of the specific drivers of changes in our business and causes of sales fluctuations during the year ended december 31 , 2017 as compared to the same period in 2016 and during the year ended december 31 , 2016 as compared to the same period in 2015 , as well as the unique growth or contraction factors specific to certain geographic regions or significant countries within a region during these periods . net sales fluctuations , both company-wide and within a particular geographic region or country , are primarily the result of changes in volume , changes in prices , and or changes in foreign currency translation rates . the discussion of changes in net sales quantifies the impact of those drivers that are quantifiable such as changes in foreign currency translation rates , and cites the estimated impact of any significant price changes . the remaining drivers , which management believes are the primary drivers of changes in volume , are typically qualitative factors whose impact can not be quantified . we use volume points as an indication for changes in sales volume . management is evaluating our current approach to assigning and maintaining volume point values for certain products or markets . any changes to this approach may have an impact on the use of volume points as a proxy for sales trends in future periods . financial results for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 net sales for the year ended december 31 , 2017 decreased 1.4 % to $ 4,427.7 million as compared to $ 4,488.4 million in 2016. in local currency , net sales for the year ended december 31 , 2017 decreased 1.1 % as compared to the same period in 2016. the decrease in net sales for the year ended december 31 , 2017 was primarily the result of a decrease in sales volume , as indicated by a decrease in volume points , and an unfavorable change in country sales mix , which reduced net sales by 3.6 % and 1.1 % , respectively , partially offset by the impact of price increases , which increased net sales by approximately 3.0 % . 48 net income for the ye ar ended december 31 , 201 7 decreased 17.7 % to $ 213.9 million , or $ 2.58 per diluted share , compared to $ 260.0 million , or $ 3.02 per diluted share , for the same period in 201 6 . the decrease for the year ended december 31 , 2017 was primarily due to the declin e in sales as discussed above ; the $ 29.7 million arbitration award in 2016 related to the re-audit ; higher interest expense related to the new credit facility ; and higher income taxes primarily due to the $ 153.3 million provisional net expense related to the u.s. tax reform ( see note 12 , income taxes , to the consolidated financial statements ) ; partially offset by the $ 203.0 million regulatory settlements in 2016 ; and higher government grant income in china . net income for the year ended december 31 , 2017 included a $ 50.8 million pre-tax favorable impact ( $
| reporting segment results we aggregate our operating segments , excluding china , into a reporting segment , or the primary reporting segment . the primary reporting segment includes the north america , mexico , south & central america , emea , and asia pacific regions . china has been identified as a separate reporting segment as it does not meet the criteria for aggregation . see note 10 , segment information , to the consolidated financial statements for further discussion of our reporting segments . see below for discussions of net sales and contribution margin by our reporting segments . net sales by reporting segment the primary reporting segment reported net sales of $ 3,619.6 million for the year ended december 31 , 2016. net sales for the primary reporting segment decreased $ 3.2 million , or 0.1 % , for the year ended december 31 , 2016 , as compared to the same period in 2015. in local currency , net sales increased 5.7 % for the year ended december 31 , 2016 as compared to the same period in 2015 for the primary reporting segment . the slight decrease in net sales for the year ended december 31 , 2016 was primarily the result of the strong u.s. dollar and the resulting impact of fluctuations in foreign currency rates and an unfavorable change in country sales mix resulting from a lower percentage of our sales volume coming from markets with higher prices which reduced net sales by approximately 5.8 % and 1.1 % , respectively , partially offset by an increase in sales volume , as indicated by an increase in volume points and price increases which increased net sales by approximately 4.3 % and 2.7 % , respectively . for a discussion of china 's net sales for the year ended december 31 , 2016 , as compared to the same period in 2015 , see the china section of the sales by geographic region below .
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this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements . the matters discussed in these forward-looking statements are subject to risk , uncertainties , and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements . please see “ risk factors ” and “ note regarding forward-looking statements ” in this annual report on form 10-k for a discussion of the uncertainties , risks and assumptions associated with these statements . the following discussion compares our results for the year ended november 30 , 2020 to the year ended november 30 , 2019. the discussion comparing our results for the year ended november 30 , 2019 to the year ended november 30 , 2018 is included within management 's discussion and analysis of financial condition and results of operations in our information statement filed as exhibit 99.1 to amendment no . 3 to our registration statement on form 10 filed with the sec on november 4 , 2020 , and is incorporated by reference herein . unless otherwise indicated or except where the context otherwise requires , references to “ we , ” “ our , ” “ us , ” “ the company ” or “ concentrix ” in this management 's discussion and analysis of financial condition and results of operations refer to the combined entities of the customer experience business of synnex corporation ( “ synnex ” or the “ parent ” ) prior to the spin-off . story_separator_special_tag characterized by flat unit prices . approximately 96 % of our revenue is recognized as services are performed , based on staffing hours or the number of client customer interactions handled using contractual rates . remaining revenues from the sale of these solutions are typically recognized as the services are provided over the duration of the contract using contractual rates . our cost of revenue consists primarily of personnel costs related to the delivery of our solutions . the costs of our revenue can be impacted by the mix of client contracts , where we deliver the customer experience solution , additional lead time for programs to be fully scalable and transition and initial set-up costs . our cost of revenue as a percentage of revenue has also fluctuated in the past , based primarily on our ability to achieve economies of scale , the management of our operating expenses , and the timing and costs incurred related to our acquisitions and investments . 30 in fiscal years 2020 and 2019 , approximately 78 % and 76 % , respectively , of our combined revenue was generated from our non-u.s. operations , and approximately 63 % and 66 % , respectively , of our combined revenue was priced in u.s. dollars and we expect this to continue . as a result , we have certain client contracts that are priced in non-u.s. dollar currencies for which a substantial portion of the costs to deliver the services are in other currencies . accordingly , our revenue may be earned in currencies that are different from the currencies in which we incur corresponding expenses . fluctuations in the value of currencies , such as the philippine peso , the indian rupee , and the canadian dollar , against the u.s. dollar or other currencies in which we bill our clients , and inflation in the local economies in which these delivery centers are located , can impact the operating and labor costs in these delivery centers , which can result in reduced profitability . as a result , our revenue growth , costs and profitability has been impacted , and we expect will continue to be impacted , by fluctuations in foreign currency exchange rates . margins our gross margins fluctuate and can be impacted by the mix of client contracts , services provided , shifts in the geography from which our customer experience services are delivered , client volume trends , and the amount of lead time that is required for programs to become fully scaled and transition and set-up costs . our operating margin fluctuates based on changes in gross margins as well as overall volume levels , as we are able to gain scale efficiencies in our selling , general and administrative costs in periods of higher volume . economic and industry trends the customer experience solutions industry in which we operate is competitive . clients ' performance measures are based on competitive pricing terms and quality of services . accordingly , we could be subject to pricing pressure and may experience a decrease in revenue and operating income . our business operates in over 40 countries across 6 continents . we have significant concentrations in the philippines , india , the united states , the united kingdom , throughout europe , china and japan . accordingly , we would be impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to the u.s. dollar . seasonality our revenue and margins fluctuate with the underlying trends in our clients ' businesses and trends in the level of consumer activity . as a result , our revenues and margins are typically higher in the fourth quarter of the year than in any other quarter . critical accounting policies and estimates the discussion and analysis of our combined financial condition and results of operations are based on our combined financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we review and evaluate our estimates and assumptions . story_separator_special_tag if the qualitative analysis is elected , goodwill is tested for impairment at the reporting unit level by performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value . the factors that are considered in the qualitative analysis include macroeconomic conditions , industry and market considerations , cost factors such as increases in labor , or other costs that would have a negative effect on earnings and cash flows ; and other relevant entity-specific events and information . if we elect to perform or are required to perform a quantitative analysis , then the reporting unit 's carrying value is compared to its fair value . the fair value of the reporting unit is estimated using a market approach and an income approach ( discounted cash flows ) . under the market approach , the company utilizes the guideline company method , which involves calculating valuation multiples based on operating data from comparable publicly traded companies . multiples derived from these companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company . these multiples are then applied to the operating data to arrive at an indication of value . under the income approach , the fair value of the reporting unit is based on the present value of estimated future cash flows utilizing a market-based weighted-average cost of capital determined separately for each reporting unit . the assumptions used in the market approach are based on the value of a business through an analysis of revenue and other multiples of guideline companies and recent sales of or offerings by a comparable entity . the assumptions used in the discounted cash flow approach are based on historical and forecasted revenue , operating costs , future economic conditions , a market-based weighted average cost of capital and other relevant factors . goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value and the excess is recognized as an impairment loss . based on our 2020 impairment assessment , we concluded that no impairment charges were necessary . we have not recorded any impairment charges related to goodwill during the years ended november 30 , 2020 and 2019. other intangible assets as of november 30 , 2020 , we had other intangible assets , net of amortization , of $ 799.0 million . this amount consists primarily of $ 794.3 million in client relationship intangible assets . as amortizable intangible assets , we evaluate the intangible assets for recoverability on an annual basis or if events or circumstances indicate a possible inability to recover their carrying value , by comparing estimates of undiscounted future cash flows to the carrying values of the related assets . we have not recorded any impairment charges related to other intangible assets during the years ended november 30 , 2020 and 2019. recently issued accounting pronouncements for a summary of recent accounting pronouncements and the anticipated effects on our combined financial statements , see note 2—summary of significant accounting policies to the combined financial statements included elsewhere in this annual report on form 10-k. 33 results of operations – years ended november 30 , 2020 and 2019 replace_table_token_4_th revenue replace_table_token_5_th we generate revenue by delivering our customer experience solutions to our clients categorized in the above primary industry verticals . these solutions focus on customer engagement , process optimization , and back-office automation . included in our revenue is $ 20.9 million and $ 20.6 million for customer experience solutions that we delivered to synnex during fiscal years 2020 and 2019 , respectively . our revenue increased 0.2 % in fiscal year 2020 , compared to fiscal year 2019 , primarily due to a net increase in volumes across our key verticals . revenue from clients in our technology and consumer electronics vertical increased as a result of increased volumes from several hardware and software manufacturing clients , including our largest client in this vertical . revenue from clients in our communications and media vertical decreased primarily 34 due to a decrease in revenues from several clients in this vertical , including our largest communications client , caused by a combination of lower volumes , more services provided from our offshore locations and covid-19 impacts on our employees ' ability to work productively despite client demand . this decrease in communications and media revenues also represents a continuation of our repositioning of our vertical mix to be less reliant on this vertical . revenue from clients in our retail , travel and ecommerce vertical increased due to increased volume from several retail and ecommerce clients partially offset by reduced volumes from several travel and tourism clients . revenues from clients in the banking , financial services and insurance vertical increased due to increased volumes from several clients in this vertical . revenues from clients in our healthcare vertical increased primarily due to an increase in volumes with a few health insurance clients . revenues from clients in our other vertical decreased , reflecting a decrease in revenues from our largest automotive client and a few other automotive clients , partially offset by growth with a few government clients . the increase in revenues is partially offset by a negative translation effect of foreign currencies of $ 20.7 million . the negative foreign currency translation effect on revenue was primarily due to the weakening of the brazilian real , australian dollar and indian rupee against the u.s. dollar . cost of revenue , gross profit and gross margin percentage replace_table_token_6_th cost of revenue consists primarily of personnel costs . gross margins can be impacted by resource location , client mix and pricing , additional lead time for programs to be fully scalable , and transition and initial set-up costs .
| overview and basis of presentation concentrix is a leading global provider of technology-infused customer experience ( “ cx ” ) solutions that help iconic and disruptive brands drive deep understanding , full lifecycle engagement , and differentiated experiences for their end-customers . we provide end-to-end capabilities , including cx process optimization , technology innovation , front- and back-office automation , analytics and business transformation services to clients in five primary industry verticals . our differentiated portfolio of solutions supports fortune global 500 as well as high-growth companies across the globe in their efforts to deliver an optimized , consistent brand experience across all channels of communication , such as voice , chat , email , social media , asynchronous messaging , and custom applications . we strive to deliver exceptional services globally supported by our deep industry knowledge , technology and security practices , talented people , and digital and analytics expertise . we generate revenue from performing services that are generally tied to our clients ' products and services . any shift in business or the size of the market for our clients ' products or services , or any failure of technology or failure of acceptance of our clients ' products or services in the market may impact our business . the employee turnover rate in our business is high , as is the risk of losing experienced employees . high employee turnover rates may increase costs and decrease operating efficiencies and productivity . on december 1 , 2020 , the previously announced separation ( the “ separation ” ) of concentrix and our technology-infused customer experience solutions business from synnex was completed through a tax-free distribution of all of the issued and outstanding shares of our common stock to synnex stockholders ( the distribution and , together with the separation , the “ spin-off ” ) .
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our actual results may differ materially from those contained in any forward-looking statements . segment level discussion of the results is disclosed in a manner consistent with the organization structure at the end of the presented period . overview berry plastics group , inc. ( `` berry , '' `` we , '' or the `` company '' ) is a leading provider of value-added plastic consumer packaging , nonwoven specialty materials and engineered materials with a track record of delivering high-quality customized solutions to our customers . representative examples of our products include closures , prescription vials , specialty films , adhesives , nonwovens , drink cups , containers , and bottles . we sell our products predominantly into stable , consumer-oriented end-markets , such as healthcare , personal care , and food and beverage . our customers consist of a diverse mix of leading global , national , mid-sized regional and local specialty businesses . the size and scope of our customer network allows us to introduce new products we develop or acquire to a vast audience that is familiar with our business . in fiscal 2016 , no single customer represented more than 5 % of net sales and our top ten customers represented 19 % of net sales . we believe our manufacturing processes and our ability to leverage our scale to reduce expenses positions us as a low-cost manufacturer relative to our competitors . story_separator_special_tag style= '' page-break-after : always '' > fiscal 2014 acquisitions in fiscal 2014 , the company completed 3 acquisitions which included the rexam healthcare containers and closures business ( `` c & c '' ) for a purchase price of $ 133 million , net of cash acquired , graphic flexible packaging llc 's flexible plastics and films business for a purchase price of $ 61 million , net of cash acquired , and a controlling interest ( 75 % ) in qingdao p & b co. , ltd. for a purchase price of $ 35 million , net of cash acquired . the company acquired the remaining non-controlling interest in fiscal 2016. fiscal 2016 acquisitions avintiv inc. in october 2015 , the company acquired 100 % of the capital stock of avintiv inc. ( `` avintiv '' ) for a purchase price of $ 2.26 billion , net of cash acquired . avintiv was one of the world 's leading developers , producers , and marketers of nonwoven specialty materials used in hygiene , infection prevention , personal care , industrial , construction , and filtration applications . with 23 locations in 14 countries , an employee base of over 4,500 people , the broadest range of process technologies in the nonwoven industry , and strategically located manufacturing facilities , avintiv was positioned as a global supplier to many of the same leading consumer and industrial product manufacturers as berry 's existing business . to finance the purchase , the company issued $ 400 million aggregate principal amount of 6.0 % second priority senior secured notes due 2022 and entered into an incremental assumption agreement to increase the commitments under the company 's existing term loan credit agreement by $ 2.1 billion due 2022. the results of avintiv have been included in the consolidated results of the company since the date of the acquisition . providência non-controlling interest at the time of our avintiv acquisition , avintiv owned a 71.25 % controlling interest in providência , their brazilian subsidiary . in the january 2 , 2016 quarter , the company acquired the remaining 28.75 % non-controlling ownership interest of providência for $ 66 million . as a result of this transaction , providência became a wholly-owned subsidiary , and the company recorded $ 3 million to additional paid-in capital . recent developments aep industries inc. in august , 2016 , the company entered into a definitive merger agreement to acquire all of the outstanding shares of aep industries inc. ( `` aep '' ) in a cash and stock merger transaction ( the `` aep transaction '' ) for an estimated aggregate consideration to stockholders of aep of approximately $ 294 million in cash and 6.7 million shares of common stock of the company . an all-cash transaction would imply a purchase price of approximately $ 735 million , including the assumption of approximately $ 147 million of net debt as of july 31 , 2016. aep manufactures and markets an extensive and diverse line of polyethylene and polyvinyl chloride flexible plastic packaging products with consumer , industrial , and agricultural applications . aep 's flexible plastic packaging films are used in the packaging , transportation , beverage , food , automotive , pharmaceutical , chemical , electronics , and textile industries . consummation of the merger is subject to customary regulatory approvals and approval by aep stockholders . aep reported $ 1.1 billion of net sales for its fiscal year ended october 31 , 2015 , and will be operated within the engineered materials segment upon completion of the transaction . the company expects to realize annual cost synergies of approximately $ 50 million from the aep transaction . discussion of results of operations for fiscal 2016 compared to fiscal 2015 consistent with historical presentation , acquisition ( businesses acquired in the last twelve months ) sales and operating income disclosed within this section represents the historical results from acquisitions for the comparable prior year period . the remaining change disclosed represents the changes from the prior period on a combined basis . business integration expenses consist of restructuring and impairment charges , manufacturing inefficiencies associated with cost reduction plans , major innovation start-up and other business optimization costs . the company 's fiscal year is based on fifty-two or fifty-three week periods . fiscal 2016 is a fifty-three week period and fiscal 2015 was a fifty-two week period . tables present dollars in millions . story_separator_special_tag replace_table_token_9_th interest expense increased $ 100 million from fiscal 2015 primarily as the result of the increased borrowings under the term loans and the 6 % second priority senior secured notes issued in october 2015 to finance the avintiv acquisition , partially offset by the net interest savings from the retirement of the 9¾ % second priority senior secured notes and corresponding issuance of the 5 1 / 8 % second priority senior secured notes in june 2015. replace_table_token_10_th the income tax expense increase of $ 36 million from fiscal 2015 is primarily attributed to an increase in income before income taxes . our effective tax rate was 23 % in fiscal 2016. our fiscal 2016 effective tax rate was lower than our statutory rate primarily due to favorable u.s. permanent items , including the adoption of the new share-based compensation guidance related to excess tax benefit deductions , favorable foreign rate differentials and the u.s. research and development credit , partially offset by state taxes and foreign income taxed in the u.s. changes in comprehensive income the $ 197 million increase in comprehensive income from fiscal 2015 is primarily attributed to a $ 150 increase in net income , $ 44 million decrease in currency translation losses , and a $ 12 million favorable change in the fair value of interest rate hedges , net of tax . currency translation losses are primarily related to non-u.s. subsidiaries with a functional currency other than the u.s. dollar whereby assets and liabilities are translated from the respective functional currency into u.s. dollars using period-end exchange rates . the change in currency translation losses were primarily attributed to locations utilizing the euro , pound sterling , and brazilian real as their functional currency . as part of the overall risk management , the company uses derivative instruments to reduce exposure to changes in interest rates attributed to the company 's floating-rate borrowings and records changes to the fair value of these instruments in accumulated other comprehensive income . the change in fair value of these instruments in fiscal 2016 versus fiscal 2015 is primarily attributed to a change in the forward interest curve between measurement dates . discussion of results of operations for fiscal 2015 compared to fiscal 2014 consistent with historical presentation , acquisition ( businesses acquired in the last twelve months ) sales and operating income disclosed within this section represents the historical results from acquisitions for the comparable prior year period . the remaining change disclosed represents the changes from the prior period on a combined basis . business integration expenses consist of restructuring and impairment charges , manufacturing inefficiencies associated with cost reduction plans , major innovation start-up and other business optimization costs . tables present dollars in millions . 18 replace_table_token_11_th the net sales decrease of $ 77 million from fiscal 2014 is primarily attributed to a 3 % base volume decline primarily related to soft customer demand , selling price decreases of 2 % due to the pass through of lower raw material costs , and a 1 % negative impact from foreign currency changes partially offset by net sales from businesses acquired in the last twelve months . the operating income increase of $ 92 million from fiscal 2014 is primarily attributed to a $ 42 million improvement in the relationship of net selling price to raw material and freight costs , $ 6 million of operating income from businesses acquired in the last twelve months , a $ 17 million decrease in depreciation and amortization expense , a $ 19 million improvement in operating performance in manufacturing , and a $ 56 million decrease in business integration expenses . the $ 56 million decrease in business integration expenses primarily consisted of a decrease in restructuring and impairment costs of $ 17 million and a $ 39 million decrease in costs attributed primarily to manufacturing inefficiencies associated with the 2014 cost reduction plan and acquisition integration costs . these improvements were partially offset by $ 26 million from base volume declines , a $ 15 million increase in selling , general and administrative expenses , and a $ 7 million negative impact from foreign currency changes . business integration expenses consist of restructuring and impairment charges , manufacturing inefficiencies associated with cost reduction plans , major innovation start-up and other business optimization costs . replace_table_token_12_th net sales in the consumer packaging segment decreased by $ 34 million from fiscal 2014 primarily due to a 3 % base volume decline and selling price decreases of 2 % due to the pass through of lower raw material costs , partially offset by acquisition volume of 4 % attributed to the united states portion of the healthcare containers and closures business purchased from rexam ( `` c & c '' ) . the base volume decline is primarily related to a decline in dairy container product sales due to soft customer demand and general market softness in our closure product offerings . the operating income increase of $ 65 million from fiscal 2014 primarily is attributed to $ 19 million of improvement in the relationship of net selling price to raw material and freight costs , an $ 8 million improvement in operating performance in manufacturing , a $ 7 million decrease in depreciation and amortization expense , and a $ 53 million decrease in business integration expenses . the $ 53 million decrease primarily consisted of a decrease in restructuring and impairment costs of $ 13 million and a $ 40 million decrease in costs attributed to manufacturing inefficiencies associated with the 2014 cost reduction plan . these improvements were partially offset by $ 20 million in base volume declines .
| executive summary business . in november 2015 , the company reorganized into three operating segments : health , hygiene & specialties , consumer packaging , and engineered materials . the new structure is designed to align us with our customers , provide improved service , drive future growth and to facilitate future cost saving synergies . the consumer packaging segment primarily consists of containers , foodservice items , closures , overcaps , bottles , prescription vials , tubes , and printed films . the health , hygiene & specialties segment primarily consists of nonwoven specialty materials used in hygiene , infection prevention , personal care , industrial , construction , and filtration applications . the company included 100 % of the acquired avintiv business in the health , hygiene & specialties segment in order to maintain management continuity and limit business integration risk . the engineered materials segment primarily consists of pipeline corrosion protection solutions , tapes and adhesives , polyethylene based film products , can liners , and specialty coated and laminated products . the company has recast all prior period amounts to conform to this new reporting structure . 14 raw material trends . our primary raw material is plastic resin . polypropylene and polyethylene account for approximately 90 % of our plastic resin pounds purchased . plastic resins are subject to price fluctuations , including those arising from supply shortages and changes in the prices of natural gas , crude oil and other petrochemical intermediates from which resins are produced . the three month simple average price per pound , as published by market indexes , were as follows : replace_table_token_3_th due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs , segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted in the short term when plastic resin costs decrease . this timing lag in passing through raw material cost changes could affect our results as plastic resin costs fluctuate .
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the asu removes certain exceptions to the general principles in topic 740 and also clarifies and amends existing guidance to improve consistent application . this guidance is effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2020 , with early adoption permitted . the company is currently evaluating the impact of this standard on its financial statements and related disclosures . note 3 - license , clinical trial and sponsored research agreements research and development expenses – all licenses for the years ended december 31 , 2019 and 2018 , the company recorded the following expense in research and development for licenses acquired : replace_table_token_8_th license agreements city of hope cd123 license ( mb-102 ) in february 2017 , the company entered into an amended and restated exclusive license agreement with the city of hope national medical center ( “ coh ” ) to acquire intellectual property rights pertaining to cd123-specific chimeric antigen receptor ( “ car ” ) engineered t cell ( “ car t ” ) technology . pursuant to this agreement , the company and coh acknowledged that an upfront fee was previously paid . in addition , coh is eligible to receive an annual maintenance fee of $ 25,000 and milestone payments totaling $ 14.5 million upon the achievement of certain milestones . royalty payments in the mid-single digits are due on net sales of licensed products . for the year ended december 31 , 2019 , the company expensed a non-refundable milestone payment of $ 0.3 million upon the twelfth patient dosed in a phase 1 clinical study of cd123 . there was no expense recorded for the year ended december 31 , 2018. cs1 license ( mb-104 ) in may 2017 , the company entered into an exclusive license agreement with the coh for the use of cs1-specific car t technology . pursuant to this agreement , the company paid an upfront fee of $ 0.6 million and pays an annual maintenance fee of $ 50,000 . additional payments are due for the achievement of ten development milestones totaling $ 14.9 million , and royalty payments in the mid-single digits are due on net sales of licensed products . for the year ended december 31 , 2019 , the company expensed a non-refundable milestone payment of $ 0.2 million upon the first patient dosed in a phase 1 clinical study of cs1 . there was no expense recorded for the year ended december 31 , 2018. f- 12 psca license ( mb-105 ) in may 2017 , the company entered into an exclusive license agreement with coh for the use of prostate stem cell antigen ( “ psca ” ) car t technology to be used in the treatment of prostate cancer , pancreatic cancer and other solid tumors . pursuant to this agreement , the company paid an upfront fee of $ 0.3 million and pays an annual maintenance fee of $ 50,000 . additional payments are due for the achievement of ten development milestones totaling $ 14.9 million , and royalty payments in the mid-single digits are due on net sales of licensed products . for the year ended december 31 , 2019 , the company expensed a story_separator_special_tag statements in the following discussion and throughout this report that are not historical in nature are “ forward-looking statements. ” you can identify forward-looking statements by the use of words such as “ expect , ” “ anticipate , ” “ estimate , ” “ may , ” “ will , ” “ should , ” “ intend , ” “ believe , ” and similar expressions . although we believe the expectations reflected in these forward-looking statements are reasonable , such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct . actual results could differ from those described in this report because of numerous factors , many of which are beyond our control . these factors include , without limitation , those described under item 1a “ risk factors. ” we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes . please see “ forward-looking statements ” at the beginning of this form 10-k. the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this form 10-k. we undertake no obligation to update any forward-looking statements in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this report or to reflect actual outcomes . overview mustang bio , inc. ( “ mustang , ” “ we , ” “ us ” or the “ company ” ) is a clinical-stage biopharmaceutical company focused on translating today 's medical breakthroughs in cell and gene therapies into potential cures for hematologic cancers , solid tumors and rare genetic diseases . we aim to acquire rights to these technologies by licensing or otherwise acquiring an ownership interest in the technologies , funding their research and development and eventually either out-licensing or bringing the technologies to market . 49 our pipeline is currently focused in three core areas : gene therapy programs for rare genetic disorders , car t therapies for hematologic malignancies and car t therapies for solid tumors . for each therapy we have partnered with world class research institutions . for our gene therapy programs we have partnered with st. jude in the development of a first-in-class ex vivo lentiviral treatment of xscid , and for our car t therapies we have partnered with the coh , fred hutch and nationwide . story_separator_special_tag mb-103 ( her2 car t for gbm & metastatic breast cancer to brain ) in august 2019 , we announced that the california institute for regenerative medicine had awarded a $ 9.3 million grant to dr. saul priceman at coh to conduct a phase 1 clinical trial evaluating the safety and effectiveness of intraventricular delivery of her2-directed car t cells to the brains of patients with her2-positive breast cancer with brain metastases . city of hope exclusively licensed mb-103 to us in 2017. additional information on the phase 1 trial can be found on www.cinicaltrials.gov using identifier nct03696030 . mb-106 ( cd20-targeted car t cell therapy ) in february 2020 , we announced that the first subject treated with the optimized mb-106 ( cd20-targeted , autologous car t cell therapy ) manufacturing process , developed in collaboration between mustang and fred hutch , has achieved a complete response ( cr ) at the lowest starting dose in an ongoing phase 1/2 clinical trial . the phase 1/2 , open-label , dose-escalation trial is evaluating the maximum tolerated dose of mb-106 . secondary endpoints include safety and toxicity , preliminary antitumor activity as measured by overall response rate and complete remission rate , progression-free survival , and overall survival . fred hutch intends to enroll approximately 30 subjects on the trial , which is being led by principal investigator mazyar shadman , m.d. , m.p.h. , assistant member of fred hutch 's clinical research division . additional information on the phase 1/2 trial can be found on www.cinicaltrials.gov using identifier nct03277729 . mb-107 ( ex vivo lentiviral therapy for x-linked severe combined immunodeficiency ( xscid ) ) in april 2019 , the new england journal of medicine published data from st. jude . the data is from a phase 1/2 clinical trial of a lentiviral gene therapy for the treatment of newly diagnosed infants under two years old with xscid , also known as bubble boy disease . the data demonstrates that the lentiviral gene therapy achieved normalization of t-cell numbers in all eight newly diagnosed infants with xscid to date , and disseminated infections resolved completely in all affected infants . seven of the eight infants treated have developed normal igm levels to date . four of those seven infants have discontinued monthly infusions of intravenous immunoglobulin ( “ ivig ” ) therapy to date . three of those four infants who discontinued monthly ivig infusions have responded to vaccines to date . in august 2019 , the company , together with st. jude , announced that mb-107 was granted the regenerative medicine advanced therapy ( “ rmat ” ) designation by the fda . under the rmat designation , the fda will help facilitate the program 's expedited development and review and provide guidance on generating the evidence needed to support the approval of mb-107 for xscid . also in august 2019 , we entered into a license agreement with csl behring ( calimmune ) for the cytegrity tm stable producer cell line developed and used by st. jude . the cytegrity stable producer cell line will be used to produce the viral vector for mb-107 . updated phase 1/2 clinical data for mb-107 were selected for oral and poster presentations at the 61st american society of hematology ( “ ash ” ) annual meeting , which was held in december 2019. data demonstrated that mb-107 preceded by low-dose busulfan conditioning continued to be well tolerated and resulted in the development of a functional immune system in newly diagnosed infants with xscid , as well as in previously transplanted patients with xscid who had experienced declining t cell function and recurrent infections . in this latter population , the enhanced transduction procedure demonstrated faster time to nk cell recovery and faster recovery from chronic norovirus infection . 51 mb-108 ( c134 oncolytic virus for gbm ) in february 2019 , we partnered and entered into an exclusive worldwide license agreement with nationwide children 's hospital to develop an oncolytic virus ( c134 ) , an attenuated herpes simplex virus type 1 , for the treatment of gbm . we intend to combine mb-108 with mb-101 ( il13rα2 car t ) to potentially enhance efficacy in treating gbm . in may 2019 , the fda granted orphan drug designation to mb-108 for the treatment of malignant glioma , a type of brain cancer with a median survival of less than 18 months . in october 2019 , we announced that the first participant was dosed in a phase 1 clinical trial to determine the safety and efficacy of mb-108 in recurrent gbm . additional information on the phase 1 trial can be found on www.cinicaltrials.gov using identifier nct03657576 . shelf registration in august 2019 , we filed a shelf registration statement no . 333-233350 on form s-3 ( the “ 2019 mustang s-3 ” ) , which was declared effective on september 30 , 2019. under the 2019 mustang s-3 , we may sell up to a total of $ 75.0 million of our securities . as of december 31 , 2019 , no sales were made under the 2019 mustang s-3 . term loan on march 29 , 2019 ( the “ closing date ” ) , the company entered into a $ 20.0 million loan agreement with horizon , the proceeds of which will provide the company with additional working capital to continue development of its gene and cell therapies . in accordance with the loan agreement , $ 15.0 million of the $ 20.0 million loan was funded on the closing date , with the remaining $ 5.0 million fundable upon the company achieving certain predetermined milestones . at-the-market offering on july 13 , 2018 , the company filed a shelf registration statement no .
| results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_1_th research and development expenses research and development expenses primarily consist of personnel related expenses , including salaries , benefits , travel , and other related expenses , stock-based compensation , payments made to third parties for license , sponsored research and milestone costs related to in-licensed products and technology , payments made to third party contract research organizations for preclinical and clinical studies , investigative sites for clinical trials , consultants , the cost of acquiring and manufacturing clinical trial materials , costs associated with regulatory filings , laboratory costs and other supplies . for the year ended december 31 , 2019 , research and development expenses were approximately $ 30.0 million , compared to approximately $ 21.1 million , an increase of $ 8.9 million . for the year ended december 31 , 2019 , research and development expenses primarily consisted of $ 6.1 million for sponsored research and clinical trial agreements with our academic partners , $ 7.8 million for personnel compensation and benefits , $ 0.9 million for stock compensation expense , $ 4.4 million for laboratory supplies , $ 3.2 million related to consulting and outside services , $ 3.6 million for clinical trial costs , $ 0.9 million related to facility costs , and $ 1.3 million depreciation expense . for the year ended december 31 , 2018 , research and development expenses primarily consisted of $ 5.7 million for sponsored research and clinical trial agreements with our academic partners , $ 4.3 million for personnel compensation and benefits , $ 3.4 million for stock compensation expense , $ 2.3 million for laboratory supplies , $ 1.1 million related to consulting and outside services , $ 0.5 million related to facility costs , and $ 0.6 million depreciation expense .
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and other receivables increased by $ 38,172 as compared to a decrease by $ 100,504 in 2012. the primary reason for decrease in prepaid expenses and other receivables for 2012 was an amount of $ 61,837 advanced to a supplier as a deposit for purchase of injection molds for their bip40 ammunition rounds in 2011 which was adjusted against the purchase in 2012. during 2012 the company did not have any significant prepaid expense . net cash flow from investing activities was an outflow for $ 45,219 during the year ended november 30 , 2013 as compared to $ 147,219 for the year ended november 30 , 2012. the primary reason was the acquisition of moulds for $ 142,140 in 2012 as compared to $ 29,750 in 2013. net cash flow from financing activities was an inflow of $ 3,386,854 for the year ended november 30 , 2013 as compared to an inflow for $ 1,559,750 for the year ended november 30 , 2012. on august 27 , 2013 , the company completed an initial public offering to raise gross proceeds of $ 3,794,280 ( cad $ 3,993,980 ) through the issuance of 9,984,950 common shares at a price of $ 0.38 ( cad $ 0.40 ) per common share ( the issue price ) . the company incurred expenses of $ 724,580 ( cad $ 734,565 ) to raise the capital which included a fee of cad $ 80,000 paid to a former director and ceo in accordance with the terms of an agreement regarding escrow of shares and a cash commission of cad $ 359,458 paid to the agent . during the quarter ended november 30 , 2013 , the holder of bridge loans converted the principal and interest totaling $ 378,525 into common shares at cad $ 0.30 per share , resulting in gain on extinguishment of debt for $ 33,501. the company raised $ 910,000 by issue of convertible debentures and $ 649,750 by issuance of 2,165,834 common shares during the year ended november 30 , 2012. there was an overall increase in cash of $ 1,609,678 in 2013 as compared to an overall increase of $ 117,636 during 2012 . 9 changes to issued share capital year ended november 30 , 2013 during the six month period ended may 31 , 2013 the company issued 1,801,480 common shares for conversion of convertible debentures having face value of $ 500,000 and accrued interest of $ 40,444. the total debt for $ 540,444 was converted into 1,801,480 common shares at $ 0.30 per share . on august 15 , 2013 , the company filed an amended and restated final prospectus ( the prospectus ) in canada , in the provinces of alberta , british columbia and ontario to list its common shares ( common shares ) on the tsxv . on august 27 , 2013 , the company completed an initial public offering to raise gross proceeds of $ 3,794,280 ( cad $ 3,993,980 ) through the issuance of 9,984,950 common shares at a price of $ 0.38 ( cad $ 0.40 ) per common share ( the issue price ) . the company incurred expenses of $ 724,580 ( cad $ 734,565 ) to raise the capital which included a fee of cad $ 80,000 paid to a former director and ceo in accordance with the terms of an agreement regarding escrow of shares and a cash commission of cad $ 359,458 paid to the agent . in addition the company granted an option ( the agent 's option ) to purchase up to 898,645 common shares to the agent and members of its selling group . the agent 's option entitles the agent and members of its selling group to purchase common shares at a price of cad $ 0.40 ( us $ 0.38 ) per common share until august 27 , 2015. upon completion of the offering , $ 700,000 face value of convertible debentures along with $ 97,716 of interest was converted to 2,297,044 common shares , resulting in the discharge of those debentures . on january 30 , 2013 , the company issued a $ 199,342 ( cad $ 200,000 ) 6 % convertible bridge loan with a term to july 30 , 2013 ( the maturity date ) . in connection with the issuance of the bridge loan , the company issued detachable warrants to purchase 100,000 shares of the company 's common stock . the warrants have an exercise price of cad $ 0.50 per share and a time to expiration of two years . the relative fair value allocated to warrants and credited to additional paid in capital was $ 24,246 ( see note 15 ) on march 14 , 2013 , the company issued a $ 97,456 ( cad $ 100,000 ) 6 % convertible bridge loan with a term to july 30 , 2013 ( the maturity date ) . in connection with the issuance of the bridge loan , the company issued detachable warrants to purchase 50,000 shares of the company 's common stock . the warrants have an exercise price of cad $ 0.50 per share and a time to expiration of two years . the relative fair value allocated to warrants and credited to additional paid in capital was $ 11,269 ( see note 15 ) on april 12 , 2013 , the company issued a $ 197,355 ( cad $ 200,000 ) 6 % convertible bridge loan with a term to july 30 , 2013 ( the maturity date ) . in connection with the issuance of the bridge loan , the company issued detachable warrants to purchase 100,000 shares of the company 's common stock . story_separator_special_tag the consultant has agreed to act as a corporate advisor to assist in the development of strategies and tactics to improve the company 's external communication of its corporate strategy and asset value . the agreement is for a period of six months . either party may terminate the consulting agreement by giving 15 days written notice . effective november 1 , 2013 , sdi executed an agreement with a non-related consultant to pay compensation of $ 5,000 per month . the consultant has agreed to provide corporate markets advisory services the agreement is for a period of a minimum of three months and will continue unless otherwise terminated by either party by giving 30 days written notice . b ) the company has commitments for leasing office premises in oakville , ontario , canada to april 30 , 2018 at a rent of canadian $ 6,399 per month . c ) the company has commitments for leasing office premises in tampa , florida , usa to june 30 , 2014 at a rent of $ 1,418 per month . contingencies in november of 2013 , a former officer filed a suit against the company in the ontario superior court of justice ( province of ontario ) seeking , among other things , $ 60,000 in damages for wrongful dismissal , damages of $ 35,000 on account of vacation pay and damages to be determined for out of pocket expenses , breach of contract , unjust enrichment and loss of business opportunity . management of the company believes this suit is without merit and the company intends to vigorously defend against the suit and as such no provision for any potential payment has been expensed . 11 exclusive sales and supply agreements : a ) sales agreement sdi entered into an agreement ( the teaming agreement ) dated november 30 , 2011 with chemring ordnance , inc. ( chemring ) pursuant to which both agreed to establish a co-operative and supportive team to develop the best marketing , management and technical approach for the worldwide manufacture and sale of 40mm less that blunt trauma ammunition . the teaming agreement provides for sdi and chemring to create a team for the purpose of preparing competitive , cost effective proposals in response to requests for proposals and obtaining and performing any contracts that result therefrom . pursuant to the teaming agreement , if a contract is awarded , each of sdi and chemring will perform the work to be done by it as specified in the teaming agreement and will share the revenue as set out in the teaming agreement . either party who initiated the proposal that led to the contract will be the prime contact for that customer . upon a contract being awarded to either sdi or chemring , it will subcontract with the other for the other 's share of the work . in accordance with the teaming agreement , the bip ammunition sold will have chemring 's branding unless otherwise agreed by the parties . the teaming agreement will terminate on december 20 , 2016. the teaming agreement may also expire if a time period of two years from the effective date of the agreement passes without a bona fide arms length contract being executed and delivered with respect to bip ammunition . it will also terminate if either party is in material breach of the agreement or a subcontract that has n't been resolved , if any required governmental licenses or approvals or permits are revoked , in the event of a debarment or suspension of a party at the option of the other party , and by the mutual written agreement of the parties . b ) supply agreement the company entered into a development , supply and manufacturing agreement with the bip manufacturer on july 25 , 2012. this agreement provides the company to order and purchase only from the bip manufacturer certain 40mm assemblies and components for use by the company to produce less-lethal and training projectiles as described in the agreement . the agreement is for a term of five years with an automatic extension for an additional year if neither party has given written notice of termination prior to the end of the five year period . ix . subsequent events a ) subsequent to the year end , on february 3 , 2014 , the company incorporated a 100 % owned subsidiary in canada named security devices international canada corp b ) the company 's relationship with chemring { note 12 ( a ) } will now be focused more on marketing the products to the company 's global sales channels . x. critical accounting policies the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires us to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements , the reported amount of revenues and expenses during the reporting period and related disclosure of contingent assets and liabilities . these estimates are based on our best knowledge of current events and actions the corporation may undertake in the future . on an ongoing basis , we evaluate our estimates and judgments . to the extent actual results differ from those estimates ; our future results of operations may be affected . 12 recent accounting pronouncements in december 2011 , the fasb issued asu 2011-11 ( asu 2011-11 ) , disclosures about offsetting assets and liabilities , which requires certain additional disclosure requirements about financial instruments and derivatives instruments that are subject to netting arrangements .
| of operation this management discussion and analysis ( `` md & a '' ) in respect of the fiscal year ended november 30 , 2013 includes information from , and should be read in conjunction with , the audited annual financial statements and related notes for sdi for the fiscal year ended november 30 , 2013. comparison of year ended november 30 , 2013 to year ended november 30 , 2012 i. overview the corporation has $ 30,096 of revenue during the year ended november 30 , 2013 and we continue to operate at a loss . we expect our operating losses to continue for so long as we remain in a development stage and perhaps thereafter . as of november 30 , 2013 , we had accumulated losses of $ 21,320,357 ( november 30 , 2012 - $ 19,296,146 ) . our ability to emerge from the development stage and conduct business operations is dependent , in large part , upon our raising additional equity financing . as described in greater detail below , the corporation 's major financial endeavor over the years has been its effort to raise additional capital to pursue its development activities . ii . assets total assets as of november 30 , 2013 includes cash and cash equivalent of $ 1,842,149 , accounts receivable of $ 20,351 , prepaid expenses and other receivables of $ 45,372 and plant and equipment for $ 152,137 net of depreciation . total assets as of november 30 , 2012 includes cash of $ 232,471 , deferred costs of $ 32,500 , prepaid expenses and other receivables of $ 7,200 and plant and equipment for $ 145,048 net of depreciation . total assets increased from $ 417,219 on november 30 , 2012 to $ 2,060,009 on november 30 , 2013. this increase is primarily the result of net proceeds from issuance of common stock for $ 3,069,700 offset in part by expenses incurred in normal course of business . iii .
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as of april 30 , 2012 , the allowance for these accounts was $ 14,000 . there was no allowance recorded for open receivables at april 30 , 2011. accounts receivable is also comprised of certain unbilled accounts receivable for services completed under tos that have not been billed as of the balance sheet date . as of april 30 , 2012 and 2011 , the company had unbilled receivables of $ 104,000 and $ 305,000 , respectively . restricted cash the company has restricted cash of $ 150,000 , which is classified as a noncurrent asset . this restricted cash serves as collateral for corporate credit cards to provide financial assurance that the company will fulfill its obligations . the cash is held in custody by the issuing bank , is restricted as to withdrawal or use , and is currently invested in an interest-bearing certificate of deposit ( “ cd ” ) . though the initial cd matures in the second quarter of fiscal 2013 , the cash will be reinvested into another cd to continue use of the corporate cards . the company accounts for this cd as a non-current asset supporting operations of the business . f- 8 property and equipment property and equipment is recorded at cost and primarily consists of laboratory equipment , furniture and fixtures , and computer hardware and software . depreciation is calculated on a straight-line basis over the estimated useful lives of the various assets ranging from three to seven years . property and equipment consisted of the following ( in thousands ) : replace_table_token_14_th depreciation expense was $ 105,000 and $ 42,000 for the years ended april 30 , 2012 and 2011 , respectively . impairment of long-lived assets impairment losses are to be recognized when the carrying amount of a long-lived asset is not recoverable or exceeds its fair value . the company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that a carrying value may not be recoverable . the company uses estimates of future cash flows over the remaining useful life of a long- lived asset or asset group to determine the recoverability of the asset . these estimates only include the net cash flows directly associated with , and that are expected to arise as a direct result of , the use and eventual disposition of the asset or asset group . the company has not recognized any impairment losses for the company 's long-lived assets for the years ending april 30 , 2012 and 2011. goodwill goodwill represents the excess of the cost over the fair market value of the net assets acquired including identifiable assets . goodwill is tested annually , or more frequently if circumstances indicate potential impairment , by comparing its fair value to its carrying amount . the determination of whether or not goodwill is impaired involves significant judgment . although the company believes its goodwill is not impaired , changes in strategy or market conditions could significantly impact the judgments and may require future adjustments to the carrying value of goodwill . the company uses a two-step process to test for goodwill impairment . the first step is to story_separator_special_tag results of operations you should read the following discussion and analysis together with our consolidated financial statements and the related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that are based on our current expectations , estimates , and projections about our business and operations . our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors , including those we discuss under item 1a – “ risk factors ” and elsewhere in this annual report . overview and recent developments champions oncology , inc. is engaged in the development of advanced technology solutions to personalize the development and use of oncology drugs . the company 's tumorgraft technology platform is a novel approach to personalizing cancer care , based upon the implantation of human tumors in immune-deficient mice . the company uses this technology , in conjunction with related services , to offer solutions for two customer groups : · our personalized oncology solutions ( “ pos ” ) business , which provides services to physicians and patients looking for information to help guide the development of personalized treatment plans . · our translational oncology solutions ( “ tos ” ) business , which provides services to pharmaceutical and biotechnology companies seeking personalized approaches to drug development that will lower costs and increase the speed of developing new drugs , as well as increase the adoption of existing drugs . we plan to continue our efforts to expand our tumorgraft technology platform in order to expand our tos program . in fiscal 2012 , we modified our pos business strategy to focus on growing our core technology products , which includes tumorgraft implants and drug studies . as part of this strategy , we significantly reduced the price of our core technology products to make the products affordable to a broader patient base , maximize synergies between our pos and tos businesses , increase our tumor model offerings to our tos sponsors , and increase the number of models in our tumorbank . we have increased spending on sales and marketing efforts to support this strategy . we will continue to offer related personalized oncology services to our customers ; however , we expect future pos revenue to be driven by our core products . during the second half of fiscal 2012 , we transitioned the laboratory activities that support the pos and tos services from a third-party contract research organization ( “ cro ” ) to our facility in baltimore , maryland . story_separator_special_tag the preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty . these areas include the carrying amounts of long-lived assets and deferred taxes . we base our estimates on historical experience , our observance of trends in particular areas and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources . actual amounts could differ significantly from amounts previously estimated . 15 revenue recognition we derive revenue from our pos and tos businesses . personalized oncology solutions ( “ pos ” ) assist physicians by providing information to help guide the development of personalized treatment plans for their patients using our core offerings , including testing oncology drugs and drug combinations on personalized tumorgrafts , and through other services . translational oncology solutions ( “ tos ” ) offer a preclinical tumorgraft platform to pharmaceutical and biotechnology companies using proprietary tumorgraft studies , which have been shown to be predictive of how drugs may perform in clinical settings . we recognize revenue when the following four basic criteria are met : ( i ) a contract has been entered into with our customers ; ( ii ) delivery has occurred or services have been rendered to our customers ; ( iii ) the fee charged is fixed and determinable as noted in the contract ; and ( iv ) collectability is reasonably assured . for tos , we utilize a proportional performance revenue recognition model , under which we recognize revenue as performance occurs , based on the relative outputs of the performance that have occurred up to that point in time under the respective agreement , typically the delivery of reports to our customers documenting the results of our testing protocols . when a pos or tos arrangement involves multiple elements , the items included in the arrangement ( deliverables ) are evaluated to determine whether they represent separate units of accounting . we perform this evaluation at the inception of an arrangement and as each item in the arrangement is delivered . generally , we account for a deliverable ( or a group of deliverables ) separately if : ( i ) the delivered item ( s ) has standalone value to the customer , and ( ii ) we have given the customer a general right of return relative to the delivered item ( s ) and the delivery or performance of the undelivered item ( s ) or service ( s ) is probable and substantially in our control . revenue on multiple element arrangements is recognized using a proportional method for each separately identified element . all revenue from contracts determined not to have separate units of accounting is recognized based on consideration of the most substantive delivery factor of all the elements in the contract or if there is no predominant deliverable upon delivery of the final element of the arrangement . share-based payments we typically recognize expense for share-based payments based on the fair value of awards on the date of grant . we use the black-scholes option pricing model to estimate fair value . the option pricing model requires us to estimate certain key assumptions such as expected life , volatility , risk free interest rates , and dividend yield to determine the fair value of share-based awards . these assumptions are based on historical information and management judgment . we expense share-based payments over the period that the awards are expected to vest , net of estimated forfeitures . if actual forfeitures differ from management 's estimates , compensation expense is adjusted . we report cash flows resulting from tax deductions in excess of the compensation cost recognized from those options ( excess tax benefits ) as financing cash flows when the cash tax benefit is received . goodwill goodwill represents the excess of the cost over the fair market value of the net assets acquired including identifiable assets . goodwill is tested annually , or more frequently , if circumstances indicate potential impairment , by comparing its fair value to its carrying amount . the determination of whether or not goodwill is impaired involves significant judgment . although we believe our goodwill is not impaired , changes in strategy or market conditions could significantly impact the judgments and may require future adjustments to the carrying value of goodwill . we use a two-step process to test for goodwill impairment . the first step is to screen for potential impairment , while the second step measures the amount of the impairment , if any . the first step of the goodwill impairment test compares the fair value of each reporting unit with its carrying amount , including goodwill . if the fair value of the reporting unit exceeds its carrying value , goodwill is not impaired . if the carrying value of the reporting unit 's net assets , including goodwill , exceeds the fair value of the reporting unit , then we determine the implied fair value of goodwill . if the carrying value of goodwill exceeds its implied fair value , then an impairment of goodwill has occurred and an impairment loss would be recognized for the difference between the carrying amount and the implied fair value of goodwill as a component of operating income .
| results of operations the following table summarizes our operating results for the periods presented below ( dollars in thousands ) : replace_table_token_3_th operating revenues operating revenues for the years ended april 30 , 2012 and 2011 were $ 7.1 and $ 6.9 million , respectively , an increase of $ 0.2 million , or 3 % . pos revenues were $ 2.3 million and $ 3.4 million for the years ended april 30 , 2012 and 2011 , respectively , a decrease of $ 1.1 million , or 31 % . panel revenue , a component of pos revenue , decreased $ 1.2 million from the prior year , which is primarily attributable to a decrease in pricing per panel . excluding panel revenue , pos revenue was $ 1.8 million and $ 1.7 million for the years ended april 30 , 2012 and 2011 , respectively , an increase of $ 0.1 million . during fiscal 2012 , the company experienced significantly higher volumes of implants and drug studies compared to fiscal 2011. for the year ended april 30 , 2012 , the company performed 97 tumorgraft implants , compared to 12 in the prior year . for the year ended april 30 , 2012 , the company completed 19 drug studies , compared to 5 in the prior year . the increase in volume was offset by decreased pricing for both the tumorgraft implants and drug studies , as part of our strategic decision to obtain more tumors to increase our tumor model offerings to our tos sponsors and increase the number of models in our tumorbank . tos revenues were $ 4.8 million and $ 3.5 million for the years ended april 30 , 2012 and 2011 , respectively , an increase of $ 1.3 million or 38 % . the increases in tos revenues were due primarily to increased sales efforts and investments in growing our tumorbank .
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146 signatures pursuant to the requirements of section 13 or 15 ( d ) of story_separator_special_tag introduction this management 's discussion and analysis of financial condition and results of operations of harbinger group inc. ( hgi , we , us , our and , collectively with its subsidiaries , the company ) should be read in conjunction with item 6 , selected financial data , and our accompanying consolidated financial statements and related notes ( the consolidated financial statements ) referred to in item 8 of this annual report on form 10-k ( the form 10-k ) . certain statements we make under this item 7 constitute forward-looking statements under the private securities litigation reform act of 1995. see forward-looking statements at the beginning of part i of this form 10-k. you should consider our forward-looking statements in light of our consolidated financial statements and other financial information appearing elsewhere in this form 10-k and our other filings with the securities and exchange commission ( the sec ) . all references to fiscal 2012 , 2011 and 2010 refer to fiscal periods ended september 30 , 2012 , 2011 and 2010 , respectively . hgi overview we are a holding company and our principal operations are conducted through subsidiaries that offer life insurance and annuity products , and branded consumer products such as batteries , small appliances , pet supplies , home and garden control products and personal care products . our outstanding common stock is 92.6 % owned , collectively , by harbinger capital partners master fund i , ltd. ( the master fund ) , global opportunities breakaway ltd. and harbinger capital partners special situations fund , l.p. ( together , the principal stockholders ) , not giving effect to the conversion rights of the series a participating convertible preferred stock or the series a-2 participating convertible preferred stock ( the preferred stock ) . we are focused on obtaining controlling equity stakes in companies that operate across a diversified set of industries and growing acquired businesses . we view the acquisitions in fiscal 2011 of majority interests in spectrum brands holdings , inc. ( spectrum brands ) and fidelity & guaranty life holdings , inc. ( fgl , formerly old mutual u.s. life holdings , inc. ) as first steps in the implementation of that strategy . in addition to fgl 's asset management activities , hgi has begun to expand its asset management business by forming salus capital partners , llc ( salus ) , a subsidiary engaged in providing secured asset-based loans to entities across a variety of industries . we have identified the following five indicative sectors in which we intend to pursue business opportunities : consumer products/retail , insurance and financial services , energy , natural resources and agriculture . we may also pursue business opportunities in other indicative sectors . in addition to our intention to acquire controlling interests , we may also from time to time make investments in debt instruments , acquire minority equity interests in companies and expand our operating businesses . on november 5 , 2012 , we announced a joint venture with exco resources inc. ( exco ) to create a private oil and gas limited partnership ( the partnership ) that will purchase and operate exco 's producing u.s. conventional oil and gas assets , for a total consideration of $ 725 million ( the exco/hgi production partners acquisition. ) the partnership will constitute our initial operating business in the energy sector . we believe that our access to the public equity markets may give us a competitive advantage over privately-held entities with whom we compete to acquire certain target businesses on favorable terms . we may pay acquisition consideration in the form of cash , our debt or equity securities , or a combination thereof . in addition , as a part of our acquisition strategy we may consider raising additional capital through the issuance of equity or debt securities . 93 we currently operate in two major segments : consumer products through spectrum brands and insurance through fgl . consumer products segment through spectrum brands , we are a diversified global branded consumer products company with positions in six major product categories : consumer batteries ; small appliances ; pet supplies ; home and garden control products ; electric shaving and grooming products and electric personal care products . spectrum brands was created in connection with the combination of spectrum brands , inc. ( sbi ) and russell hobbs , inc. ( russell hobbs ) on june 16 , 2010 ( the sb/rh merger . ) spectrum brands manufactures and markets alkaline , zinc carbon and hearing aid batteries , herbicides , insecticides and repellents and specialty pet supplies . spectrum brands also designs and markets rechargeable batteries , battery-powered lighting products , electric shavers and accessories , grooming products and hair care appliances . in addition , spectrum brands designs , markets and distributes a broad range of branded small appliances and personal care products . spectrum brands ' operations utilize manufacturing and product development facilities located in the united states , europe , latin america and asia . substantially , all of spectrum brands ' rechargeable batteries and chargers , shaving and grooming products , small household appliances , personal care products and portable lighting products are manufactured by third-party suppliers , primarily located in asia . spectrum brands sells products in approximately 140 countries through a variety of trade channels , including retailers , wholesalers and distributors , hearing aid professionals , industrial distributors and original equipment manufacturers ( oems ) and enjoys strong name recognition in these markets under the rayovac , varta and remington brands , each of which has been in existence for more than 80 years , and under the tetra , 8-in-1 , dingo , nature 's miracle , spectracide , cutter , hot shot , black & decker , george foreman , russell hobbs , farberware , black flag , furminator and various other brands . story_separator_special_tag 95 hgi received total dividends of approximately $ 71 million from its operating subsidiaries in fiscal 2012. in september , spectrum brands paid a special one-time dividend of $ 1.00 per share , of which hgi received approximately $ 30 million ; fgl paid cumulative dividends of $ 40 million , and salus paid an inaugural dividend of approximately $ 1 million in its first year of operation . for fiscal 2012 , our consumer products segment recorded record net sales of $ 3,252 million , a $ 65 million , or 2 % , increase from $ 3,187 million for fiscal 2011 ; excluding negative foreign exchange impact , net sales grew 4 % versus the prior year . consumer products segment operating income grew by $ 74 million , or 32 % , to $ 302 million , and adjusted earnings before interest , taxes , depreciation and amortization ( adjusted ebitda ) increased by $ 28 million , or 6 % , to $ 485 million versus the prior year ( or 10 % excluding unfavorable foreign exchange impact ) on higher sales , synergy benefits and cost reduction initiatives . adjusted ebitda margin on a full-year basis represented 15 % of sales . insurance segment product sales for fiscal 2012 were $ 1,884 million , led by the successful introduction of prosperity elitesm which resulted in fgl solidifying a top ten market position in the competitive fixed index annuity marketplace . as of september 30 , 2012 , our insurance segment had a net us gaap book value of $ 1,208 million ( including accumulated other comprehensive income ( aoci ) of $ 434 million ) , almost double the book value of $ 667 million ( including aoci of $ 159 million ) at the end of fiscal 2011. net unrealized gains on available for sale investments were $ 1,058 million on a u.s. gaap basis ( $ 1,245 million on a statutory basis ) . fgl 's investment portfolio continues to be conservatively positioned , as it holds cash of $ 1,062 million , has shortened portfolio duration , and remains well matched against its liability profile . salus , in its first year of operation , originated $ 260 million of asset-backed loan commitments in fiscal 2012 , for which $ 181 million of loans were outstanding as of september 30 , 2012 , and contributed approximately $ 1 million to our consolidated earnings for fiscal 2012. hgi stock price appreciation of 66 % from $ 5.07 to $ 8.43 per share during fiscal 2012 resulted in a $ 157 million liability increase related to the fair value of the preferred stock equity conversion feature , which represents a non-cash charge to net income . net income attributable to common and participating preferred stockholders increased to $ 30 million , or $ 0.15 per common share attributable to controlling interest , compared to $ 22 million , or $ 0.11 per common share attributable to controlling interest , in fiscal 2011. the non-cash accretion rate on hgi 's preferred stock decreased from 2 % for the third and fourth fiscal quarters to 0 % commencing in the first quarter of fiscal 2013 due to a 163 % increase in hgi 's net asset value since the issuance of its preferred stock in may 2011 as calculated in accordance with the terms of its certificates of designation . hgi ended the year with corporate cash and short-term investments of approximately $ 433 million ( primarily held at hgi and hgi funding llc ) , which supports its business strategy and growth of existing businesses . results of operations fiscal 2012 includes the results of hgi , fgl , spectrum brands and russell hobbs for the full year , the results of spectrum brands ' acquisitions of black flag and furminator commencing october 31 , 2011 and december 22 , 2011 , respectively , and the results of salus commencing december 1 , 2011. fiscal 2011 includes the results of hgi , spectrum brands and russell hobbs for the full year and the results of fgl commencing april 6 , 2011. although the acquisition of spectrum brands ( the spectrum brands acquisition ) was on january 7 , 2011 , its results of operations are included in the full fiscal 2011 and 2010 years since the acquisition was considered a transaction between entities under common control and accounted for similar to the pooling of interest method . 96 fiscal 2010 includes the results of spectrum brands for the full year and the results of russell hobbs and hgi commencing june 16 , 2010. as a result of the spectrum brands acquisition being accounted for similar to the pooling of interest method , we have included the results of hgi from june 16 , 2010 , the date at which both hgi and spectrum brands were entities under common control , through the end of the period . presented below is a table that summarizes our results of operations and compares the amount of the change between the years ended september 30 , 2012 and 2011 ( the 2012 change ) and between the years ended september 30 , 2011 and 2010 ( the 2011 change ) ( in millions ) : replace_table_token_7_th 97 fiscal year ended september 30 , 2012 compared to fiscal year ended september 30 , 2011 revenues consumer products and other net sales increased $ 65 million , or 2 % , to $ 3,252 million in fiscal 2012 from $ 3,187 million in fiscal 2011. excluding negative foreign exchange impacts of $ 73 million , net sales increased $ 138 million , or 4 % . consolidated net sales by product line for fiscal 2012 and 2011 are as follows ( in millions ) : replace_table_token_8_th global consumer battery net sales decreased $ 5 million , or less than 1 % , during fiscal 2012 compared to fiscal 2011. excluding negative foreign exchange impacts of $ 36 million , global consumer battery sales increased $ 31 million , or 3 % .
| summary of consolidated cash flows replace_table_token_26_th operating activities cash provided by operating activities totaled $ 619 million for fiscal 2012 as compared to $ 153 million for fiscal 2011. the $ 466 million improvement was the result of a $ 202 million increase in cash provided by fgl , a $ 236 million increase in cash provided by hgi corporate , and a $ 28 million increase in cash provided by spectrum brands . fgl 's $ 202 million increase in cash provided from operating activities is primarily due to a $ 379 million increase in investment income , a decrease of $ 99 million cash used due to lower level of collateral required for equity option derivatives in the current year , a $ 63 million decrease in benefits paid and a $ 12 million increase in insurance premiums and investment product fees , all partially offset by a $ 222 million increase in policy acquisition and operating expenses and a $ 124 million increase in transfers of cash to reinsurers relating to reinsurance transactions in the respective periods . the increase in cash provided from fgl 's operating activities is partly due to the inclusion of fgl in our results for the full year in fiscal 2012 versus only six months in fiscal 2011. the $ 63 million decrease in benefits paid in fiscal 2012 is mostly due to the effects of reinsurance transactions entered into in fiscal 2011 and early fiscal 2012. the $ 236 million increase at hgi corporate was primarily due to a $ 135 million increase in excess of sales over purchases of trading securities acquired for resale , the return to us of $ 49 million that had been posted as collateral for an fgl subsidiary , a decrease in acquisition related costs of $ 24 million primarily related to the fgl acquisition in fiscal 2011 , a decrease in the
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improve margins through price increases ; the ability to maintain plant utilization rates and to implement planned capacity additions , expansions and maintenance ; the ability to reduce or maintain current levels of production costs and to improve productivity by implementing technological improvements to existing plants ; increased price competition and the introduction of competing products by other companies ; the ability to identify desirable potential acquisition targets and to complete acquisition or investment transactions , including obtaining regulatory approvals , consistent with our strategy ; 35 market acceptance of our technology ; compliance and other costs and potential disruption or interruption of production or operations due to accidents , interruptions in sources of raw materials , cyber security incidents , terrorism or political unrest , public health crises ( including , but not limited to , the covid-19 outbreak ) , or other unforeseen events or delays in construction or operation of facilities , including as a result of geopolitical conditions , the occurrence of acts of war or terrorist incidents or as a result of weather , natural disasters , or other crises ; the ability to obtain governmental approvals and to construct facilities on terms and schedules acceptable to us ; changes in applicable tariffs , duties and trade agreements , tax rates or legislation throughout the world including , but not limited to , adjustments , changes in estimates or interpretations that may impact recorded or future tax impacts associated with the tax cuts and jobs act ( `` tcja '' ) and potential regulatory and legislative tax developments in other jurisdictions ; changes in the degree of intellectual property and other legal protection afforded to our products or technologies , or the theft of such intellectual property ; potential liability for remedial actions and increased costs under existing or future environmental , health and safety regulations , including those relating to climate change ; potential liability resulting from pending or future claims or litigation , including investigations or enforcement actions , or from changes in the laws , regulations or policies of governments or other governmental activities , in the countries in which we operate ; changes in currency exchange rates and interest rates ; and various other factors , both referenced and not referenced in this annual report . many of these factors are macroeconomic in nature and are , therefore , beyond our control . covid-19 and responses to the pandemic by governments and businesses , have significantly increased financial and economic volatility and uncertainty , exacerbating the risks and potential impact of these factors . should one or more of these risks or uncertainties materialize , affect us in ways or to an extent that we currently do not expect or consider to be significant , or should underlying assumptions prove incorrect , our actual results , performance or achievements may vary materially from those described in this annual report as anticipated , believed , estimated , expected , intended , planned or projected . we neither intend nor assume any obligation to update these forward-looking statements , which speak only as of their dates . 36 results of operations story_separator_special_tag for the year ended december 31 , 2020 compared to the same period in 2019 primarily due to : lower volume for most of our products driven by depressed global economic conditions as a result of the covid-19 pandemic ; and lower pricing for most of our products , primarily due to a continued reduction in customer demand , as well as customer and product mix ; partially offset by : a favorable currency impact resulting from a stronger euro relative to the us dollar . operating profit decreased for the year ended december 31 , 2020 compared to the same period in 2019 primarily due to : lower net sales ; higher plant turnaround activity and associated inventory costs of $ 73 million , partially offset by reduced spending on lower plant production ; and an unfavorable impact of $ 41 million to other ( charges ) gains , net . during the year ended december 31 , 2020 , we recorded a $ 26 million long-lived asset impairment loss related to certain fixed assets used in compounding operations at our facilities in kaiserslautern , germany ; wehr , germany and ferrara marconi , italy . during the year ended december 31 , 2019 , we also recorded a $ 15 million gain related to a settlement of a commercial dispute from a previous acquisition , which did not recur in the current year . see note 16 - other ( charges ) gains , net in the accompanying consolidated financial statements for further information ; partially offset by : lower raw material costs for most of our products ; and lower energy costs of $ 19 million , primarily related to favorable pricing . 40 equity in net earnings ( loss ) of affiliates decreased for the year ended december 31 , 2020 compared to the same period in 2019 primarily due to : a decrease in equity investment in earnings of $ 31 million and $ 8 million from our ibn sina and kepco strategic affiliates , primarily as a result of depressed global economic conditions ; and a decrease in equity investment in earnings of $ 10 million from our polyplastics strategic affiliate as a result of the sale of our 45 % joint venture equity interest to our joint venture partner daicel during the three months ended december 31 , 2020. gain ( loss ) on sale of investments in affiliates of $ 1.4 billion increased for the year ended december 31 , 2020 compared to the same period in 2019 due to the sale of our 45 % polyplastics joint venture equity interest . see note 7 - investments in affiliates in the accompanying consolidated financial statements for further information . story_separator_special_tag total cash outflows for capital expenditures are expected to be approximately $ 450 million to $ 500 million in 2021 , primarily due to additional investments in growth opportunities and productivity improvements primarily in our engineered materials and acetyl chain segments . on a stand-alone basis , celanese and its immediate 100 % owned subsidiary , celanese us , have no independent external operations of their own . accordingly , they generally depend on the cash flow of their subsidiaries and their ability to pay dividends and make other distributions to celanese and celanese us in order to meet their obligations , including their obligations under senior credit facilities and senior notes , and to pay dividends on our common stock . we are subject to capital controls and exchange restrictions imposed by the local governments in certain jurisdictions where we operate , such as china , india and indonesia . capital controls impose limitations on our ability to exchange currencies , repatriate earnings or capital , lend via intercompany loans or create cross-border cash pooling arrangements . our largest exposure to a country with capital controls is in china . pursuant to applicable regulations , foreign-invested enterprises in china may pay dividends only out of their accumulated profits , if any , determined in accordance with chinese accounting standards and regulations . in addition , the chinese government imposes certain currency exchange controls on cash transfers out of china , puts certain limitations on duration , purpose and amount of intercompany loans , and restricts cross-border cash pooling . while it is possible that future tightening of these restrictions or application of new similar restrictions could impact us , these limitations do not currently restrict our operations . we remain in compliance with the financial covenants under our senior unsecured revolving credit facility and expect to remain in compliance based on our current expectation of future results of operations . if our actual future results of operations differ materially from these expectations , or if we otherwise experience increased indebtedness or substantially lower ebitda , we may be required to seek an amendment or waiver of such covenants which may increase our borrowing costs under those debt instruments . cash flows cash and cash equivalents increased $ 492 million to $ 955 million as of december 31 , 2020 compared to december 31 , 2019. as of december 31 , 2020 , $ 578 million of the $ 955 million of cash and cash equivalents was held by our foreign subsidiaries . under the tcja , we have incurred a prior year charge associated with the deemed repatriation of previously unremitted foreign earnings , including foreign held cash . these funds are largely accessible without additional material tax consequences , if needed in the us , to fund operations . see note 17 - income taxes in the accompanying consolidated financial statements for further information . year ended december 31 , 2020 compared to year ended december 31 , 2019 net cash provided by ( used in ) operating activities net cash provided by operating activities decreased $ 111 million to $ 1.3 billion for the year ended december 31 , 2020 compared to $ 1.5 billion for the same period in 2019. net cash provided by operations for the year ended december 31 , 2020 decreased primarily due to : a decrease in net earnings , net of the sale of our polyplastics joint venture equity interest ; 44 partially offset by : favorable trade working capital of $ 147 million , primarily due to a decrease in inventory and payables . inventory decreased as a result of turnaround activity and reduced operational rates in the current year . payables decreased as a result of timing of settlement of trade payables ; and a decrease in incentive compensation payouts of $ 62 million . net cash provided by ( used in ) investing activities net cash provided by investing activities increased $ 1.1 billion to $ 592 million for the year ended december 31 , 2020 compared to net cash used in investing activities of $ 493 million for the same period in 2019 , primarily due to : a net cash inflow of $ 1.6 billion related to the sale of our 45 % polyplastics joint venture equity interest . see note 7 - investments in affiliates in the accompanying consolidated financial statements for further information ; partially offset by : a net cash outflow of $ 544 million related to the purchase of marketable securities . net cash provided by ( used in ) financing activities net cash used in financing activities increased $ 536 million to $ 1.5 billion for the year ended december 31 , 2020 compared to $ 935 million for the same period in 2019 , primarily due to : an increase in net repayments of short-term debt of $ 715 million , primarily as a result of higher borrowings under our revolving credit facility and accounts receivable securitization facility during the year ended december 31 , 2019 related to the timing of share repurchases of our common stock ; and a decrease in net proceeds of long-term debt of $ 169 million , primarily due to the issuance of $ 500 million in principal amount of the 3.500 % senior unsecured notes due may 8 , 2024 ( the `` 3.500 % notes '' ) , partially offset by the redemption of the 3.250 % senior unsecured notes ( the `` 3.250 % notes '' ) during the year ended december 31 , 2019 , as discussed below ; partially offset by : lower share repurchases of our common stock of $ 346 million during the year ended december 31 , 2020. in addition , exchange rates had a favorable impact of $ 28 million on cash and cash equivalents and an unfavorable impact of $ 2 million on cash
| financial highlights replace_table_token_4_th _ ( 1 ) defined as operating profit ( loss ) divided by net sales . replace_table_token_5_th 37 factors affecting business segment net sales the percentage increase ( decrease ) in net sales attributable to each of the factors indicated for each of our business segments is as follows : year ended december 31 , 2020 compared to year ended december 31 , 2019 replace_table_token_6_th pension and postretirement benefit plan costs the increase ( decrease ) in pension and other postretirement plan net periodic benefit cost for each of our business segments is as follows : year ended december 31 , 2020 compared to year ended december 31 , 2019 replace_table_token_7_th see note 13 - benefit obligations in the accompanying consolidated financial statements for further information . consolidated results year ended december 31 , 2020 compared to year ended december 31 , 2019 net sales decreased $ 642 million , or 10 % , for the year ended december 31 , 2020 compared to the same period in 2019 primarily due to : lower volume in our engineered materials and acetate tow segments due to ( i ) depressed global economic conditions as a result of the covid-19 pandemic and ( ii ) the expiration of an acetate flake contract ; and lower pricing across all of our segments , primarily driven by our acetyl chain segment due to the reduced global customer demand environment and an overall deflationary environment for raw materials as a result of the covid-19 pandemic ; partially offset by : a favorable currency impact resulting from a stronger euro relative to the us dollar .
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as a result , we are able to produce low-carbon fuels with substantially reduced carbon intensity ( as measured by the level of ghg emissions compared to standard petroleum fossil-based fuels across their lifecycle ) . our products perform as well or better than traditional fossil-based fuels in infrastructure and engines , but with substantially reduced ghg emissions . in addition to addressing the environmental problems of fossil-based carbon fuels , our technology also enables certain plastics , such as polyester , to be made with more sustainable ingredients . our ability to penetrate the growing low-carbon fuels market depends on the price of oil and the value of abating carbon emissions that would otherwise increase ghg emissions . we believe that our proven , patented technology that enables the use of a variety of low-carbon sustainable feedstocks to produce price-competitive , low-carbon products , such as atj , gasoline components like isooctane and isobutanol and diesel fuel , yields the potential to generate project and corporate returns that justify the build-out of a multi-billion-dollar business . recent developments in 2019 , we entered into supply agreements pursuant to which we agreed to supply an aggregate of approximately 17 mgpy of atj , renewable isooctane and other renewable hydrocarbon products . certain of these supply agreements are take-or-pay arrangements . the timing and volume commitment of certain of these agreements are subject to our ability to complete the expanded facility . in order to commence construction of and complete the expanded facility , we must secure third party financing . we believe we can obtain this financing in part due to the strength of the fuel supply commitments that we have in place . specifically , as of the date of this report , we have entered into the following arrangements , among others : delta air lines . in december 2019 , we entered into a long-term , take-or-pay fuel supply agreement with delta pursuant to which we agreed to sell and deliver 10 mgpy of atj to delta , subject to certain conditions and exceptions . we expect to supply the atj to delta upon completion of the expanded facility , which we expect to occur by 2023. scandinavian airlines system . in october 2019 , we entered into a long-term , take-or-pay fuel supply agreement with sas pursuant to which we agreed to sell and deliver atj to sas , subject to certain conditions and exceptions . we expect to supply the atj under the agreement with sas from the expanded facility , which we expect to occur by 2023. air total . in august 2019 , we entered into a take-or-pay renewable atj purchase and sale agreement with air total pursuant to which we agreed to supply atj to air total under a three-year offtake agreement . air total will initially purchase certain minimal quantities of atj produced at the south hampton facility , and we expect to sell air total increasing amounts of atj upon the completion of two expansion projects to increase atj production capabilities at the luverne facility . we expect the expansion projects to be completed in 2021 and 2022 , respectively . hcs group gmbh . in february 2019 , we entered into a take-or-pay renewable isooctane purchase and sale agreement with hcs , pursuant to which we agreed to supply renewable isooctane to hcs under a ten-year offtake agreement . hcs will initially purchase certain minimum quantities of renewable isooctane produced at the south hampton facility . we expect to sell hcs increasing amounts of minimum quantities of renewable isooctane each year upon the completion of two expansion projects to increase renewable isooctane production capabilities at the luverne facility . we expect the expansion projects to be completed in 2021 and 2022 , respectively . 40 financial condition for the year ended december 31 , 2019 , we incurred a consolidated net loss of $ 28.7 million and , as of december 31 , 2019 , we had an accumulated deficit of $ 458.0 million . our cash and cash equivalents at december 31 , 2019 totaled $ 16.3 million , which is primarily being used for the following : ( i ) operating activities of our luverne facility ; ( ii ) operating activities at our corporate headquarters in colorado , including research and development work ; ( iii ) capital improvements primarily associated with the luverne facility ; ( iv ) exploration of strategic alternatives and new financings ; and ( v ) debt service obligations . the continued operation of our business is dependent upon raising additional capital through future public and private equity offerings , debt financings or through other alternative financing arrangements . in addition , successful completion of our research and development programs and the attainment of profitable operations are dependent upon future events , including our ability to raise sufficient capital to expand our commercial production facility , completion of our development activities resulting in sales of isobutanol or isobutanol-derived products and or technology , achieving market acceptance and demand for our products and services and attracting and retaining qualified personnel . we expect to incur future net losses as we continue to fund the development and commercialization of our products and product candidates . we have primarily relied on raising capital to fund our operations and debt service obligations by issuing common stock and warrants in underwritten public offerings . those issuances have caused significant dilution to our existing stockholders . while we have sought , and will continue to seek , other , less dilutive forms of financing to fund our operations and debt service obligations , there is no assurance that we will be successful in doing so . our transition to profitability is dependent upon , among other things , the successful development and commercialization of our products and product candidates , the achievement of a level of revenues adequate to support our cost structure and securing sufficient financing for the expansion of the luverne facility or a facility at another suitable location . story_separator_special_tag million compared to $ 15.9 million for the year ended december 31 , 2018. the $ 4.9 million decrease in operating cash flows was due to reduced production at the luverne facility as a result of an unfavorable commodity environment , largely the result of greater corn costs as compared to national markets than the region has historically produced . we will continue to reduce production at the luverne facility if corn prices are too high to make it cost effective to operate . during the year ended december 31 , 2018 , we used $ 15.9 million in cash for operating activities due to a net loss of $ 28.0 million , excluding the impact of $ 11.3 million in non-cash expenses and $ 0.8 million net cash increase associated with a decrease in working capital primarily a result of a decreases in both receivables and inventories . investing activities during the year ended december 31 , 2019 , we used $ 7.5 million in cash for investing activities , including $ 6.0 million related to capital expenditures at our luverne facility , of which $ 2.6 million related to the dry fractionation project and $ 2.2 million related to expanding our renewable hydrocarbon production capacity . we also invested $ 1.5 million in juhl , which will provide electric energy to the luverne facility from its wind generation station located nearby , as well as the sale of all related environmental attributes , including renewable energy credits to agri-energy . we are installing equipment to fractionate and dry distillers grains at the luverne facility totaling approximately $ 3.0 million as of december 31 , 2019. the cost of the fractionation machine and the thermal dryer have been funded with financing leases . no amounts are payable on these financing leases until the equipment is operational . the fractionation machine is expected to be operational in the first half of 2020. we are developing an rng project comprised of anaerobic digesters to be located at three dairy farms in northwest iowa , plus associated gas upgrading equipment , to commence the supply of rng to the luverne facility in 2021 as a part of our rng project initiative . we expect to finance the rng project with approximately $ 55 million of project finance debt and third-party equity . gevo or an affiliate is expected to operate the rng project , and agri-energy is expected to have a purchase option on approximately 50 % of the rng project 's estimated annual 350,000 mmbtu of rng production . the digesters are expected to be operational in the second half of 2020. we anticipate funding the digesters with financing leases . 44 we also plan to install approximately $ 18.0 million of manufacturing equipment at our luverne facility that is intended to support the development of a 1 mgpy hydrocarbon production facility and to reduce the cost of producing isobutanol . the manufacturing equipment is expected to be operational in the first half of 2021. we anticipate funding the manufacturing equipment with an operating lease . during the year ended december 31 , 2018 , we used $ 2.2 million in cash for investing activities , all of which was related to capital expenditures at our luverne facility . approximately $ 1.9 million of the 2018 capital expenditures related to constructing the site to house the dry fractionation project . financing activities during the year ended december 31 , 2019 , we generated $ 10.9 million in cash from financing activities , which primarily consisted of $ 11.6 million of net proceeds under our `` at-the-market '' offering program discussed below offset by $ 0.3 million paid on equipment and insurance financed , $ 0.2 million of debt and equity offering costs and $ 0.2 million net settlement of common stock under stock plans . during the year ended december 31 , 2018 , we generated $ 40.3 million in cash from financing activities primarily related to $ 39.4 million in net proceeds from issuances of common stock and $ 1.3 million in proceeds from the exercise of warrants . at-the-market offering program . in february 2018 , we commenced an at-the-market offering program , which allows us to sell and issue shares of our common stock from time-to-time . the at-the-market offering program was amended multiple times during 2018 to increase the available capacity under the at-the-market offering program by an aggregate of approximately $ 84.9 million . in august 2019 , the at-the-market offering program was further amended to increase the available capacity under the at-the-market offering program by $ 10.7 million . during the year ended december 31 , 2019 , we issued 3,965,688 shares of common stock under the at-the-market offering program for net proceeds of $ 11.5 million net of commissions and offering related expenses . during the year ended december 31 , 2018 , we issued 6,936,930 shares of common stock for net proceeds of $ 38.9 million , net of commissions and offering related expenses . as of december 31 , 2019 , we had capacity to issue up to $ 8.8 million of common stock under the at-the-market offering program . during the period january 1 , 2020 to february 29 , 2020 , we issued 425,776 shares of common stock under the at-the-market offering program for $ 0.9 million net proceeds of commissions and offering related expenses . as of february 29 , 2019 , we had capacity to issue up to $ 7.8 million of common stock under the at-the-market offering program . however , pursuant to instruction i.b.6 . to form s-3 , because our market capitalization was below $ 75 million as of the date of this report , we may only sell securities via form s-3 if the aggregate market value of the securities sold by or on behalf of us during the 12-month period immediately prior to and including the date of the sale is no more than one-third of all common voting and nonvoting equity held by non-affiliates of us .
| results of operations the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements appearing in this report . this discussion contains forward-looking statements that involve significant risks and uncertainties . as a result of many factors , such as those set forth under “ risk factors ” in part i , item 1a of this report , our actual results may differ materially from those anticipated in these forward-looking statements . this section of this report discusses year-to-year comparisons between 2019 and 2018 , as well as other discussions of 2019 and 2018 items . we have omitted discussion of the year ended december 31 , 2017 ( the earliest of the three years covered by our consolidated financial statements presented in this report ) as permitted by the sec 's recent amendments to regulation s-k. the complete management 's discussion and analysis of financial condition and results of operations for year-to-year comparisons between 2018 and 2017 and other discussions of 2017 items can be found within part ii , item 7 , to our annual report on form 10-k filed with the sec on march 28 , 2019 , which is available free of charge on the sec 's website at www.sec.gov and our corporate website at www.gevo.com . 41 comparison of the years ended december 31 , 201 9 and 201 8 replace_table_token_0_th revenue .
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the bank , formed in 1848 , is engaged in customary banking activities , including general deposit taking and lending activities to both retail and commercial markets , and trust and wealth advisory services . the bank conducts its banking business from thirteen full-service offices in the towns of : canaan , lakeville , salisbury and sharon , connecticut ; great barrington , south egremont and sheffield , massachusetts ; and , fishkill , newburgh , poughkeepsie , red oaks mill , dover plains and millerton , new york , and its trust and wealth advisory services from offices in lakeville , connecticut . in may 2014 , the bank established a new branch in great barrington , massachusetts . in june 2014 , the bank acquired a branch office and related deposits from another institution in sharon , connecticut and consolidated its existing sharon office with the new branch . additionally , on december 5 , 2014 , salisbury completed its acquisition of riverside bank of poughkeepsie , new york , adding four new offices and a strong commercial loan focus to salisbury 's new york market presence . critical accounting policies and estimates salisbury 's consolidated financial statements follow gaap as applied to the banking industry in which it operates . application of these principles requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements . these estimates , assumptions and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value , when a decline in the value of an asset not carried at fair value warrants an impairment write-down or valuation reserve to be established , or when an asset or liability needs to be recorded contingent upon a future event . salisbury 's significant accounting policies are presented in note 1 of notes to consolidated financial statements , which , along with this management 's discussion and analysis , provide information on how significant assets are valued in the financial statements and how those values are determined . management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating salisbury 's reported financial results , and they require management 's most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . loans acquired in business combinations are initially recorded at fair value with no carryover of the related allowance for credit losses . determining the fair value of the loans involves estimating the amount and timing of cash flows initially expected to be collected and discounting those cash flows at an appropriate market rate of interest . the bank continues to evaluate reasonableness of the timing and the amount of cash expected to be collected . subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments , and in some cases may result in the loan being considered impaired . such decreases may also result in recognition of additional provisions to the allowance for loan losses . for collateral dependent loans with deteriorated credit quality , the bank estimates the fair value of the underlying collateral of the loans . these values are discounted using market derived rates of return , with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral . the allowance for loan losses represents management 's estimate of credit losses inherent in the loan portfolio . determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and consideration of current economic trends and conditions , all of which may be susceptible to significant change . the loan portfolio also represents the largest asset type on the balance sheet . note 1 describes the methodology used to determine the allowance for loan losses . a discussion of the factors driving changes in the amount of the allowance for loan losses is included in the “ provision and allowance for loan losses ” section of management 's discussion and analysis . management , with the assistance of a third party , evaluates goodwill and identifiable intangible assets for impairment annually using valuation techniques that involve observations and adjustments as to comparable transactions , estimates for discount rates , projected future cash flows and time period calculations , all of which are susceptible to change based on changes in economic conditions and other factors . for both goodwill and for the core deposit intangible , the comparable transaction methodology was used to assess , and conclude that there was no impairment at december 31,2016. future events , or changes in the estimates , which are used to determine the carrying value of goodwill and identifiable intangible assets or which otherwise adversely affect their value or estimated lives could have a material adverse impact on the results of operations . 22 management evaluates securities for other-than-temporary impairment giving consideration to the extent to which the fair value has been less than cost , estimates of future cash flows , delinquencies and default severity , and the intent and ability of salisbury to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value . the consideration of the above factors is subjective and involves estimates and assumptions about matters that are inherently uncertain . story_separator_special_tag salisbury did not incur connecticut income tax in 2016 , 2015 or 2014 , other than minimum state income tax , as a result of a connecticut law that permits banks to shelter certain mortgage income from the connecticut corporation business tax through the use of a special purpose entity called a passive investment company or pic . in 2004 , salisbury availed itself of this benefit by forming a pic , sbt mortgage service corporation . salisbury 's income tax provision reflects the full impact of the connecticut legislation . salisbury does not expect to pay other than minimum state income tax in the foreseeable future unless there is a change in connecticut tax law . comparison of the years ended december 31 , 2015 and 2014 net interest and dividend income net interest and dividend income ( presented on a tax-equivalent basis ) increased $ 11,304,000 in 2015 over 2014. the net interest margin increased 35 basis points to 3.99 % from 3.64 % , due to a 26 basis point increase in the average yield on interest-earning assets and a 9 basis point decline in the average cost of interest-bearing liabilities . the net interest margin is affected by changes in the mix of interest-earning assets and funding liabilities , asset and liability growth , and the effects of changes in market interest rates on the pricing and re-pricing of assets and liabilities . interest and dividend income tax equivalent interest and dividend income increased $ 11.6 million , or 48.1 % , to $ 35.8 million in 2015. loan income increased $ 12.2 million , or 60.7 % , primarily due to a $ 214.0 million , or 45.2 % , increase in average loans and a 45 basis point increase in average yield . interest income for 2015 reflects purchase accounting adjustments consisting of net accretion related to the fair value adjustments of loans acquired in the riverside bank acquisition in the amount of $ 2.7 million . tax equivalent interest and dividend income from securities decreased $ 621,000 , or 15.6 % , in 2015 , as a result of an $ 8.5 million decrease in average security balances , and a 30 basis point decrease in average yield . contributing factors to the lower yield includes the maturity , sale , call or pay down of higher yielding securities resulting in a remaining mix of lower yielding securities in the portfolio . interest from short term funds increased $ 62,000 in 2015 as a result of a $ 26.5 million increase in average short term balances . 29 interest expense interest expense increased $ 322,000 , or 11.9 % , to $ 3.0 million in 2015. interest expense on interest bearing deposit accounts increased $ 379,000 , or 25.8 % , in 2015 , as a result of a $ 140.3 million , or 33.5 % , increase in average interest bearing deposits , partially offset by a 2 basis point decline in the average rate to 0.33 % . the decline in average rate was due to the decline in interest rates and changes in product mix . interest expense on fhlbb advances decreased $ 120,000 , or 10.1 % , due to a $ 2.4 million , or 7.9 % , decrease in average advances as a result of scheduled maturities as well as the modification of two advances , in accordance with asc 470-50 , during the third quarter 2015. the modification extended $ 21 million in advances to a weighted average remaining term of 39 months . the average borrowing rate decreased to 3.82 % from 3.92 % . provision and allowance for loan losses the provision for loan losses was $ 917,000 for 2015 , compared with $ 1,134,000 for 2014. net loan charge-offs were $ 559,000 and $ 459,000 , for the respective years . the higher provision for loan losses was supported by maintaining an adequate allowance to gross loans as gross loans continue to increase . the reserve coverage at december 31 , 2015 , as measured by the ratio of allowance for loan losses to gross loans , was 0.81 % , as compared with 0.79 % at december 31 , 2014. non-performing loans ( non-accrual loans and accruing loans past-due 90 days or more ) increased $ 6.4 million to $ 16.3 million , or 2.31 % of gross loans receivable , at december 31 , 2015 , up from 1.46 % at december 31 , 2014. such increase in non-performing loans is concentrated among a few specific relationships and is not considered to be generally indicative of any adverse trend . accruing loans past due 30-89 days increased $ 0.4 million to $ 4.5 million , or 0.64 % of gross loans receivable at december 31 , 2015. see “ financial condition – loan credit quality ” below for further discussion and analysis . non-interest income non-interest income increased $ 1,022,000 , or 16.3 % , in 2015 versus 2014. trust and wealth advisory revenues decreased $ 30,000 primarily due to decreased market values and a lower volume of assets under management , partially offset by increased estate fee income . service charges and fees increased $ 555,000 mainly due to the increased volume of accounts due to the riverside bank merger in december 2014. gains on sales of mortgage loans increased $ 210,000 due to higher volume of loans sold to the fhlbb mortgage partnership finance program . mortgage loans sales totaled $ 8.4 million in 2015 versus $ 4.4 million in 2014. income from servicing of mortgage loans decreased $ 89,000 due primarily to an increase in amortization and impairment charges . loans serviced under the fhlbb mortgage partnership finance program totaled $ 130.8 million and $ 138.1 million at december 31 , 2015 and 2014 , respectively . boli income increased $ 126,000 reflecting the boli investments of riverside bank which salisbury obtained as a result of the riverside bank acquisition .
| overview and highlights selected 2016 highlights are as follows : net income allocated to common stock was $ 6.6 million , or $ 2.43 per common share , for december 31 , 2016 , compared with $ 8.3 million , or $ 3.04 per common share , for december 31 , 2015 total assets increased $ 44 million , or 5.0 % , as compared with december 31 , 2015 net loans increased $ 64 million , or 9.2 % , as compared to year end december 31 , 2015 total deposits increased $ 27 million , or 3.6 % as compared with year end december 31 , 2015 non-performing loans as a percentage of gross loans receivable decreased year over year to 1.14 % as compared with 2.31 % at year end december 31 , 2015 book value per share of $ 34.08 increased $ 0.95 , or 3 % as compared with year end december 31 , 2015 tangible book value per share of $ 28.90 represents an increase of $ 1.21 , or 4 % as compared with year end december 31 , 2015 the following discussion and analysis of salisbury 's consolidated results of operations should be read in conjunction with the consolidated financial statements and footnotes . results of operations comparison of the years ended december 31 , 2016 and 2015 net interest and dividend income net interest and dividend income ( presented on a tax-equivalent basis ) decreased $ 995,000 in 2016 over 2015. the net interest margin decreased 30 basis points to 3.69 % from 3.99 % , due to a 23 basis point decrease in the average yield on interest-earning assets and an 11 basis point increase in the average cost of interest-bearing liabilities . the net interest margin is affected by changes in the mix of interest-earning assets and funding liabilities , asset and liability growth , and the effects of changes in market interest rates on the pricing and re-pricing of assets and liabilities .
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77 ( 7 ) the company is required to maintain a minimum net worth of $ 17 million , minimum liquidity of $ 1.7 million and a debt service coverage ratio of no less than 1.15x . ( 8 ) the company is required to maintain a debt service coverage ratio of no less than 1.45x , 1.15x , 1.20x respectively for each of plaza 25 , 190 office center and intellicenter . the scheduled principal repayments of mortgage payable as of december 31 , 2015 are as follows ( in thousands ) : replace_table_token_23_th 7. fair value of financial instruments fair value measurements are based on assumptions that market participants would use story_separator_special_tag the following discussion and analysis is based on , and should be read in conjunction with , the consolidated and combined financial statements and the related notes thereto of the city office reit , inc. and the city office predecessor ( as defined in this section ) for the periods ended december 31 , 2015 , december 31 , 2014 and december 31 , 2013. as used in this section , unless the context otherwise requires , references to we , our , us , and our company refer to city office reit , inc. , a maryland corporation , together with our consolidated subsidiaries , including city office reit operating partnership l.p. , a maryland limited partnership , of which we are the sole general partner and which we refer to in this section as our operating partnership , except where it is clear from the context that the term only means city office reit , inc. references to the city office predecessor are to the real estate activity and holdings of the entities that own the historical interests in the amberglen , central fairwinds , city center , cherry creek , corporate parkway and washington group plaza properties . this management 's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks , uncertainties and assumptions . see cautionary statement regarding forward-looking statements for a discussion of the risks , uncertainties and assumptions associated with those statements . our actual results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors , including , but not limited to , those in risk factors and included in other portions of this document . overview company we were formed as a maryland corporation on november 26 , 2013. on april 21 , 2014 , we completed our initial public offering ( ipo ) of shares of common stock . we contributed the net proceeds of the ipo to our operating partnership in exchange for common units in our operating partnership . both we and our operating partnership commenced operations upon completion of the ipo and certain related formation transactions ( the formation transactions ) . our interest in our operating partnership entitles us to share in distributions from , and allocations of profits and losses of , our operating partnership in proportion to our percentage ownership of common units . as the sole general partner of our operating partnership , we have the exclusive power under the partnership agreement to manage and conduct our operating partnership 's business , subject to limited approval and voting rights of the limited partners . on april 21 , 2014 , we closed the ipo , pursuant to which we sold 5,800,000 shares of common stock to the public at a public offering price of $ 12.50 per share . we raised $ 72.5 million in gross proceeds , resulting in net proceeds to us of approximately $ 63.4 million after deducting approximately $ 5.1 million in underwriting discounts and approximately $ 4.0 million in other expenses relating to the ipo . on may 9 , 2014 , the underwriters of the ipo partially exercised their overallotment option with respect to an additional 782,150 shares of our common stock at the ipo price of $ 12.50 a share resulting in additional gross proceeds of approximately $ 9.8 million . the net proceeds to us were $ 9.1 million after deducting approximately $ 0.7 million in underwriting discounts . our common stock began trading on the new york stock exchange under the symbol cio on april 15 , 2014. pursuant to the formation transactions and exercise of the underwriters ' over-allotment option , our operating partnership acquired a 100 % interest in each of the washington group plaza , cherry creek and corporate parkway properties and acquired an approximate 76 % economic interest in the amberglen property , 90 % interest in the central fairwinds property and 95 % interest in the city center property . these initial 39 property interests were contributed in exchange for 3,731,209 common units , 1,858,860 shares of our common stock and $ 19.4 million of cash . on may 9 , 2014 , subsequent to the exercise of the underwriters ' overallotment option , 479,305 common units and 248,095 common stock were redeemed for $ 9.1 million in cash . on december 10 , 2014 , we completed a public offering pursuant to which we sold 3,750,000 of our common stock to the public at a price of $ 12.50 per share . we raised $ 46.9 million in gross proceeds , resulting in net proceeds to us of approximately $ 43.7 million after deducting approximately $ 2.6 million in underwriting discounts and approximately $ 0.6 million in other expenses relating to the offering . on december 23 , 2014 , the underwriters of the offering exercised their overallotment option to purchase an additional 512,664 shares of our common stock at the offering price of $ 12.50 a share resulting in additional gross proceeds to us of approximately $ 6.4 million resulting in net proceeds to us of $ 6.1 million after deducting approximately $ 0.3 million in underwriting discounts . the net proceeds were used entirely to redeem 336,195 common units and 176,469 common stock held by the operating partnerships ' non-controlling interest . story_separator_special_tag the property operating expenses are reflected in operating expenses ; however , only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations . in a net lease , the tenant is typically responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expenses , but rather all such expenses are billed to or paid by the tenant . the full amount of the expenses for this lease type is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . the tenants in the corporate parkway property and the lake vista pointe property have net leases . we are also a lessor for a fee simple ground lease at the amberglen property . all of our other leases are full-service gross leases . factors that may influence our operating results and financial condition business and strategy we focus on owning and acquiring office properties in our target markets . our target markets generally possess what we believe are favorable economic growth trends , growing populations with above-average employment growth forecasts , a large number of government offices , large international , national and regional employers across diversified industries , are generally low-cost centers for business operations , and exhibit favorable occupancy trends . we utilize our market-specific knowledge and relationships as well as the expertise of local real estate operators and our investment partners to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation . our target markets are attractive , among other reasons , because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public reits and there is a relatively low level of participation of large institutional investors . we believe that these factors result in attractive pricing levels and risk-adjusted returns . 41 rental revenue and tenant recoveries the amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations . as of december 31 , 2015 , our properties were approximately 94.8 % leased . the amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties . we believe that the average rental rates for the portfolio of our properties are generally in-line or slightly below the current average quoted market rates . negative trends in one or more of these factors could adversely affect our rental revenue in future periods . future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants ' industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments , as in the case of tenant bankruptcies , could adversely affect our ability to maintain or increase rental rates at our properties . in addition , growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria . operating expenses our operating expenses generally consist of utilities , property and ad valorem taxes , insurance and site maintenance costs . increases in these expenses over tenants ' base years ( until the base year is reset at expiration ) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties . conditions in our markets the economy in the united states is continuing to experience a period of moderate economic growth , with declining unemployment from recent high levels , which directly affects the demand for office space , our primary income producing asset . the broad economic market conditions in the united states are affected by numerous factors , including but not limited to , inflation and employment levels , energy prices , slow economic growth and or recessionary concerns , uncertainty about government fiscal and tax policy , changes in currency exchange rates , geopolitical events , the regulatory environment , the availability of credit and interest rates . performance in commercial office real estate is generally predicated on a sustained pattern of office-using job growth , and as a result of only modest growth , it has trailed the general economy . we believe office-using job growth has occurred at a moderate pace over the past several years . continued economic recovery , or the lack thereof , could impact our tenants ' businesses . for example , tenants may be reluctant to make long-term lease commitments and many are focused on using less space per employee . in addition , the united states federal reserve has recently decided to raise interest rates and has indicated that it may continue to raise rates quarterly . the current and possible future rise in interest rates will result in increased borrowing costs to us . however , we could also benefit from any further improved economic fundamentals , increasing levels of employment and negative interest rates . we believe that the economy is in the early stages of a cyclically-slower but prolonged broad-based upswing . due to the uncertainty surrounding the continued growth of the economy , we continue to follow a disciplined approach to allocating our capital and managing our operations . positive or negative changes in economic or other conditions in the markets we operate in , including state budgetary shortfalls , employment rates , natural hazards and other factors , may impact our overall performance . summary of significant accounting policies basis of preparation the accompanying consolidated and combined financial statements were prepared in accordance with accounting principles generally accepted in the united states ( gaap ) and include the financial position and results of operations of the company , the operating partnership and its wholly owned subsidiaries .
| results of operations comparison of year ended december 31 , 2015 to year ended december 31 , 2014 the year ended december 31 , 2015 includes our consolidated results whereas the comparable period in 2014 are the combined results which includes the city office predecessor from january 1 , 2014 until april 20 , 2014 and our results from april 21 , 2014 through december 31 , 2014 and accordingly may not be directly comparable due to the impact of the ipo and the formation transactions on april 21 , 2014 and the absence of any public company and related costs prior to that time . in the discussion below , we have highlighted the impact of the ipo and formation transactions where applicable . 46 revenue total revenue . revenue includes net rental income , including parking , signage and other income , as well as the recovery of operating costs and property taxes from tenants . total revenues increased $ 18.2 million , or 49 % , to $ 55.1 million for the year ended december 31 , 2015 compared to $ 36.9 million in the corresponding period in 2014. revenue in 2015 increased by $ 2.0 million from the acquisition of the plaza 25 property in june 2014 , $ 2.0 million from the acquisition of the lake vista pointe property in july 2014 and $ 2.6 million from the acquisition of florida research park in november 2014 , $ 1.4 million from the acquisition of logan tower in february 2015 , $ 1.9 million from the acquisition of superior pointe in june 2015 , $ 2.2 million from the acquisition of dtc crossroads in june 2015 , $ 2.6 million from the acquisition of 190 office center in september 2015 and $ 1.7 million from the acquisition of intellicenter in september 2015. city center and central fairwinds increased total revenues by $ 1.0 million , and $ 0.4 million , respectively due to the increased occupancy at the property over the
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( l ) goodwill and intangibles : we recorded goodwill and intangibles with definite lives , including trade names and trademarks , customer relationships , technology , and non-compete agreements , in conjunction with the acquisitions of junkfood clothing company and art gun . intangible assets are amortized based on their estimated economic lives , ranging from four to twenty years . goodwill represents the excess of the purchase price over the fair value of net identified tangible and intangible assets and liabilities acquired , and is not amortized . the total amount of goodwill is expected to be deductible for tax purposes . see note 6 story_separator_special_tag business outlook we had a good year across our business units , with the exception of soffe . we have been busy working on a number of initiatives that should have a very positive effect on our results as we go forward . soffe 's difficulties primarily stem from a high degree of turmoil that occurred in the mid-tier retail industry and our failure to make adjustments in our go-to-market strategy and operations in a timely manner to address changes in fashion and the market direction . our management team continues to focus its attention to address the problems experienced at soffe and to take steps to regain the sales and profitability we have historically enjoyed with the business . during the year , we realigned our merchandising , marketing and sales leadership , who are focused on expanding the retail customer base and replacing the business we lost . we are excited about the new soffe product line designed for spring 2014. we have shown the line to focus groups and key retailer accounts and have received very positive responses . we have modernized soffe 's screen print operations and on july 10 , 2013 announced the closing of the wendell , north carolina decoration facility to consolidate these operations into the fayetteville facility . this will improve soffe 's printing capabilities and should save approximately $ 1.5 million annually beginning in september 2013. we are in the process of implementing improved systems and business processes to streamline our operations so they run more efficiently . although it will take some time before we see the full benefits of these changes in our results , we should begin seeing improved operating margins as the 2014 fiscal year progresses . we also took steps to reduce our selling , general and administrative headcounts at soffe and continue to work on additional measures to lower these costs . our other business units performed well during the year , growing sales and expanding margins from improved manufacturing performance and successful merchandising initiatives . we began the consolidation of our bookstore business into the game . we recently introduced a new collegiate apparel line under the game , “ american threads ” , a 100 % made in the usa collection . the line just hit stores , but appears to be well-received by college students . we are also getting interest from other customers regarding the 'made in the usa ' apparel and headwear products , creating another potential growth avenue for delta apparel . 15 the junkfood business continued its growth in 2013 as well . we continue to build the junk food brand with direct-to-consumer business , and will continue this in fiscal year 2014 with the opening of a junk food flagship retail store on abbot kinney boulevard in venice , california . the store will embrace the full lifestyle approach and , in addition our junkfood graphic products and our new stray heart product line of contemporary non-graphic women 's apparel , will offer contemporary brands in other product categories so the customer can purchase all the essentials for a complete outfit at our junk food store . in conjunction with the new retail store , junkfood is also re-launching its ecommerce site to take advantage of new technology . the new site will feature a wider array of products , both junkfood and stray heart , along with web-exclusive opportunities . in addition , the site will have enhanced functionality with ease of navigation for an ultimate junkfood experience . during fiscal year 2013 in our basics segment , we completed the conversion of funtees to the catalog erp platform , allowing us to streamline operations , consolidate administrative functions , and reduce general and administrative costs . with this we are able to provide broader offerings to our customers using off-the-shelf blanks combined with our decoration and retail packaging services . this has allowed us to gain market share with retail licensing customers , who previously had to dual source products . we anticipate the convenience and wider range of offerings will continue to gain traction with customers , driving continued growth in the basics segment . during the year we also completed the move of our print development offshore and have doubled the size of our el salvador screen printing operations . the resources that we have invested in printing provide us with new technologies and printing techniques that should enable us to satisfy the growing demand for decoration services . our manufacturing expansion project is also currently underway . we are expanding textile operations at our ceiba textile plant in honduras , as well as expanding sewing operations in that country . as output from these facilities is increased , it will leverage our fixed costs driving lower product costs and improved margins . in january 2013 , we opened a third-party operated distribution center in canada to support the growing customer base in that country . we are taking a further step to broaden our footprint with a distribution center in dallas , texas . the dallas distribution facility will be third-party operated , minimizing the need for capital investment on our part . serving key markets throughout texas and surrounding states , it will enable us to offer one day shipping to customers as well as serving as a customer pick-up point in that location . story_separator_special_tag the tax rate was impacted by the operating losses driven by the inventory markdown during the year , lowering our u.s. taxable income while maintaining profits in the offshore taxable and tax-free jurisdictions fiscal year 2012 had a net loss of $ 2.4 million , a $ 19.8 million decrease from net earnings of $ 17.3 million in fiscal year 2011 . liquidity and capital resources credit facility and other financial obligations on may 27 , 2011 , delta apparel , soffe ( successor by merger to tcx , llc ) , junkfood , to the game and art gun entered into a fourth amended and restated loan and security agreement ( the “ amended loan agreement ” ) with the financial institutions named in the amended loan agreement as lenders , wells fargo bank , national association , as administrative agent , bank of america , n.a. , as syndication agent , wells fargo capital finance , llc , as sole lead arranger , and wells fargo capital finance , llc and merrill lynch , pierce , fenner & smith incorporated , as joint bookrunners . pursuant to the amended loan agreement , the line of credit is $ 145 million ( subject to borrowing base limitations ) , and matures on may 26 , 2016. provided that no event of default exists , we have the option to increase the maximum credit available under the facility to $ 200 million ( subject to borrowing base limitations ) , conditioned upon the agent 's ability to secure additional commitments and customary closing conditions . at june 29 , 2013 , we had $ 88.8 million outstanding under our u.s. revolving credit facility at an average interest rate of 2.6 % , and had the ability to borrow an additional $ 42.0 million . for further information regarding our u.s. asset-based secured credit facility , refer to note 8 - long-term debt and note 17 - subsequent events to the consolidated financial statements , which information is incorporated herein by reference . 18 in the third quarter of fiscal year 2011 , we renegotiated our loan agreement with banco ficohsa , a honduran bank . proceeds from the new loan agreement were used to extinguish the existing loan indebtedness and resulted in no gain or loss being recorded upon extinguishment . as of june 29 , 2013 , we had a total of $ 9.5 million outstanding on this loan . for further information regarding our honduran credit facility , refer to note 8 - long-term debt to the consolidated financial statements , which information is incorporated herein by reference . our primary cash needs are for working capital and capital expenditures , as well as to fund share repurchases under our stock repurchase program . in addition , in the future we may use cash to pay dividends . derivative instruments from time to time we may use derivative instruments to manage our exposure to interest rates . these financial instruments are not used for trading or speculation purposes . when we enter into a derivative instrument , we determine whether hedge accounting can be applied . where hedge accounting can be applied , a hedge relationship is designated as either a fair value hedge or cash flow hedge . the hedge is documented at inception , detailing the particular risk objective and strategy considered for undertaking the hedge . the documentation identifies the specific asset or liability being hedged , the risk being hedged , the type of derivative used and how effectiveness of the hedge will be assessed . on september 1 , 2011 , we entered into three interest rate swap agreements , as follows : replace_table_token_3_th we assessed these agreements and concluded that the swap agreements match the exact terms of the underlying debt except for a slight timing difference . we use a hypothetical derivative method to assess and measure ineffectiveness associated with the hedge each reporting period . during fiscal years 2013 and 2012 , the interest rate swap agreements had minimal ineffectiveness and were considered highly-effective hedges . changes in the derivatives ' fair values are deferred and are recorded as a component of accumulated other comprehensive income ( “ aoci ” ) , net of income taxes , until the underlying transaction is recorded . when the hedged item affects income , gains or losses are reclassified from aoci to the consolidated statements of operations as interest income/expense . any ineffectiveness in our hedging relationships is recognized immediately in the consolidated statement of operations . the changes in fair value of the interest rate swap agreements resulted in an aoci gain , net of taxes , of $ 47 thousand for the year ended june 29 , 2013 and an aoci loss , net of taxes , of $ 0.1 million the year ended june 30 , 2012. operating cash flows in fiscal year 2013 , operating activities provided $ 32.2 million in cash compared to $ 19.1 million in cash used by operating activities for fiscal year 2012. the improvement in operating cash flow during fiscal year 2013 from the prior year resulted from stronger operating earnings , lower inventory costs , the tax refund received from the carryback of the 2012 net operating loss , and higher accounts payable and accrued liabilities . the cash flow used by operating activities in fiscal year 2012 resulted from our net loss combined with lower accounts payable , taxes payable and accrued expenses . investing cash flows cash used in investing activities in fiscal year 2013 was $ 7.9 million compared to $ 6.6 million in fiscal year 2012. in fiscal year 2013 , we used $ 7.9 million in cash for the purchase of property and equipment primarily to improve our information technology in both our branded and basics segments , to increase our post-production decorating and warehouse capacity , and to lower costs in our manufacturing facilities , which support both our branded and basics segments .
| results of operations overview fiscal year 2013 marked another year of growth for delta apparel , inc. and our tenth consecutive year of record revenue . strong net sales growth in our basics segment along with junkfood , the game and art gun drove the record revenue . these gains were offset by softness in the soffe business that continued through the fiscal year . gross margins in the basics segment improved 1,200 basis points in fiscal year 2013 as we benefited from manufacturing efficiencies and cost-savings initiatives . in addition , the prior year had been impacted by the effects resulting from the high cotton costs . gross margins also expanded in each of the branded business units , besides soffe , from effective merchandising strategies . operating profit increased to $ 13.9 million , or 2.8 % of sales , resulting in net earnings of $ 9.2 million , or $ 1.08 , per diluted share compared to an operating loss of $ 6.2 million , or $ 0.29 per diluted share , in fiscal year 2012. quarterly financial data for information regarding quarterly financial data , refer to note 16 - quarterly financial information ( unaudited ) to the consolidated financial statements , which information is incorporated herein by reference . fiscal year 2013 versus fiscal year 2012 net sales for fiscal year 2013 were $ 490.5 million , a $ 0.6 million , or 0.1 % , increase from the prior year sales of $ 489.9 million , all of which was organic sales growth . the basics segment 's 14 % increase in unit sales was partially offset by lower average selling prices , resulting in 6.3 % sales growth , bringing sales to $ 270.9 million . sales in the branded segment declined 6.6 % to $ 219.6 million .
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the costs of improvements are story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties . actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include , but are not limited to , those discussed below and elsewhere in this annual report on form 10-k particularly under “ risk factors ” and “ special note regarding forward-looking statements , ” which immediately follows “ risk factors. ” unless otherwise specified , references to notes to our consolidated financial statements are to the notes to our audited consolidated financial statements as of december 31 , 2020 and 2019 and for years ended december 31 , 2020 , 2019 and 2018. introduction and overview discover financial services ( “ dfs ” ) is a digital banking and payment services company . we provide digital banking products and services and payment services through our subsidiaries . we offer our customers credit card loans , private student loans , personal loans , home loans and deposit products . we also operate the discover network , the pulse network ( “ pulse ” ) and diners club international ( “ diners club ” ) . the discover network processes transactions for discover-branded credit and debit cards and provides payment transaction processing and settlement services . pulse operates an electronic funds transfer network , providing financial institutions issuing debit cards on the pulse network with access to atms domestically and internationally , as well as merchant acceptance throughout the united states for debit card transactions . diners club is a global payments network of licensees , which are generally financial institutions , that issue diners club branded credit and charge cards and or provide card acceptance services . our primary revenues consist of interest income earned on loan receivables and fees earned from customers , financial institutions , merchants and issuers . the primary expenses required to operate our business include funding costs ( interest expense ) , credit loss provisions , customer rewards and expenses incurred to grow , manage and service our loan receivables and networks . our business activities are funded primarily through consumer deposits , securitization of loan receivables and the issuance of unsecured debt . change in accounting principle financial accounting standards board ( `` fasb '' ) accounting standards update ( `` asu '' ) no . 2016-13 , financial instruments—credit losses ( topic 326 ) : measurement of credit losses on financial instruments became effective for us on january 1 , 2020. the standard significantly amended accounting principles generally accepted in the united states ( “ gaap ” ) by replacing the incurred loss model with the current expected credit loss ( `` cecl '' ) approach . the cecl approach requires our allowance for credit losses to be based on an estimate of all anticipated credit losses over the remaining expected life of all of the loans , as opposed to an estimate of incurred losses as of the balance sheet date . for additional information on cecl , see note 1 : background and basis of presentation to our consolidated financial statements . the asu required modified-retrospective application , meaning a cumulative-effect adjustment was recorded on january 1 , 2020 , without adjusting comparative prior periods . this cumulative-effect adjustment did not reflect the economic disruption resulting from the coronavirus disease 2019 ( “ covid-19 ” ) pandemic since the global disruption occurred subsequent to january 1 , 2020. as a result of adoption , we recorded : a $ 2.5 billion increase to the allowance for credit losses on loan receivables primarily representing the adjustment for recording reserves for expected losses , not simply those deemed to be already incurred , and extending the loss estimate period over the entire life of the loan ; a $ 0.6 billion increase to other assets related to deferred tax assets on the larger allowance for credit losses ; an offsetting $ 1.9 billion decrease , net of tax , to the opening balance of retained earnings ; and immaterial adjustments to the following : the carrying value of purchased credit-deteriorated ( “ pcd ” ) loans and related accrued interest reflected in other assets ; and accrued expenses and other liabilities to record reserves for unfunded commitments . -50- as required by the asu , financial statement results and balances prior to january 1 , 2020 , have not been retrospectively adjusted to reflect the amendments in asu no . 2016-13. therefore , current period results and balances are not comparable to prior period amounts , particularly with regard to the provision and allowance for credit losses ( and their related subtotals ) . additional information for comparability to help investors understand our year-over-year performance , we are providing adjusted prior year allowance for credit losses and related allowance build figures using the cecl approach for comparative purposes . these adjusted prior year figures are non-gaap financial measures and should be viewed in addition to , not as a substitute for , our reported results . we believe that these adjusted figures are useful to investors since credit losses were estimated using the incurred loss approach prior to adoption of asu no . 2016-13 on january 1 , 2020. the adjusted allowance and related build figures provide investors with comparable amounts to understand our results . story_separator_special_tag over the course of the year , we materially increased our allowance for credit losses in anticipation of higher credit losses caused by deterioration in the macroeconomic outlook . our estimate of expected loss reflected in our allowance for credit losses includes the risk associated with all loans and considers the effects of all loan modifications , including tdrs , loan modifications exempt from tdr status under the coronavirus aid , relief , and economic security act ( `` cares act ” ) and skip-a-pay ( payment deferral ) programs . the reserve for the year ended december 31 , 2020 , also took into account our best estimate for the impact of programs put in place by federal and state governments and agencies to mitigate the economic impact of the pandemic . it is unclear whether the measures employed to date are complete or whether federal and state governments and agencies may take additional action that could impact our business . refer to `` — loan quality — impact of covid-19 on loan quality '' for more details on the current period allowance for credit losses . capital and liquidity we entered the covid-19 pandemic in march 2020 with strong capital and liquidity position sized to allow us to maintain normal operations during extended periods of financial market stress and disruptions to wholesale and retail funding sources . our reserves of high-quality liquid assets and access to diverse funding channels allowed us to refrain from issuing debt while certain wholesale funding markets experienced disruptions and wider credit spreads , particularly during the second quarter . moreover , our direct-to-consumer balance increased substantially during the second and third quarters as investors sought safer assets . consequently , our cash and other liquid assets balances have increased materially since the onset of the covid-19 pandemic , curtailing our need for wholesale funding . we remain well-capitalized with capital ratios in excess of regulatory minimums and have taken prudent actions to preserve capital and augment our capital when the macroeconomic and operating environment turned uncertain . of note , we suspended our plans to purchase shares of our common stock through the end of 2020 , took actions to reduce our exposure to higher-risk segments of our credit portfolio and issued preferred stock during the second quarter of 2020. we have also completed numerous stress tests to assess the impact of a severe economic downturn on our capital and liquidity and maintain ample amounts of both to ensure we remain well-capitalized and funded while continuing to serve our customers and extend special accommodations to those who need it . -52- for purposes of calculating regulatory capital , we have elected to defer recognition of the estimated impact of cecl on regulatory capital for two years in accordance with the interim final rule announced by federal banking regulators on march 27 , 2020. pursuant to the interim final rule , the estimated impact of cecl on regulatory capital will be phased in over a three-year period beginning in 2022. for more information on the impact of covid-19 on liquidity and capital , see `` — liquidity and capital resources — impact of covid-19 on liquidity and capital . '' payment services as governments across the united states and the world have taken steps to minimize the transmission of covid-19 , the number of transactions processed on the discover global network has declined overall despite increases in certain categories . certain negatively impacted categories such as travel make up a small portion of the transactions processed but may have an outsized impact on some of our diners club franchisees . the current crisis may result in lasting changes in consumer payment behaviors , such as a shift from credit to debit , a decline in the use of cash , increasing online sales and rapid adoption of contactless payment . as economic uncertainty persists , these shifts may continue to result in changes to the payment services segment 's results of operations . fair value and impairments with the uncertain nature of the pandemic 's overall impact to the economy , we continue to assess the impact of the covid-19 pandemic with respect to our goodwill and intangible assets , investment securities and other long-term assets and determined that there were no material impairments necessary during the quarter ended december 31 , 2020. for more information on the impact of covid-19 on intangible assets , see note 7 : goodwill and intangible assets to our consolidated financial statements . business continuity and operations we have re-opened some of our physical locations with appropriate health safety measures and capacity limitations , including our corporate headquarters . however , we have informed employees that they may continue to work from home and will not be required to return to our physical locations until june 2021 , at the earliest . notwithstanding the shift to work-from-home , our operations continue largely unaffected due to the successful implementation of certain of our business continuity plans . operational changes necessitated by the rapid shift in employee location have not thus far had a material adverse effect on us or our financial condition ; however , the shift has caused us to grow increasingly dependent on third-party service providers , including those with which we have no relationship such as our employees ' internet service providers . for more information on the risks associated with reliance on third-party service providers and the shift to work from home , see our risk factors disclosed in `` item 1a — risk factors '' in part i of this annual report on form 10-k. regulatory environment and developments the covid-19 pandemic continues to dramatically impact the u.s. and global economies . we continue to work with our customers to address their unique financial situations , while balancing safety and soundness requirements . we are in contact with our regulators , who continue to proactively encourage banks to work with borrowers during this time of stress .
| results of operations the discussion below provides a summary of our results of operations and information about our loan receivables as of and for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. refer to our annual report on form 10-k for the year ended december 31 , 2019 , for discussion of our results of operations and loan receivables information as of and for the year ended december 31 , 2019 , compared to the year ended december 31 , 2018. segments we manage our business activities in two segments , digital banking and payment services , based on the products and services provided . for a detailed description of the operations of each segment , as well as the allocation conventions used in our business segment reporting , see note 22 : segment disclosures to our consolidated financial statements . the following table presents segment data ( dollars in millions ) : replace_table_token_6_th ( 1 ) prior to adoption of asu no . 2016-13 on january 1 , 2020 , credit losses were estimated using the incurred loss approach . -56- the following table presents information on transaction volume ( dollars in millions ) : replace_table_token_7_th ( 1 ) diners club volume is derived from data provided by licensees for diners club branded cards issued outside north america and is subject to subsequent revision or amendment . ( 2 ) represents gross discover card sales volume on the discover network . ( 3 ) represents discover card activity related to sales net of returns , balance transfers , cash advances and other activity . ( 4 ) represents discover card activity related to sales net of returns .
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our curated and fully-integrated assortments are presented consistently across our sales channels in sophisticated and unique lifestyle settings that we believe are on par with world-class interior designers . we offer dominant merchandise assortments across a growing number of categories , including furniture , lighting , textiles , bathware , décor , outdoor and garden , and child and teen furnishings . we position our galleries as showrooms for our brand , while our source books and websites act as virtual extensions of our stores . our retail business is fully integrated across our multiple channels of distribution , consisting of our stores , source books , and websites . we have an integrated rh hospitality experience in eight of our new design gallery locations , which include restaurants , wine vaults and barista bars . our business is fully integrated across our multiple channels of distribution , consisting of our stores , source books and websites . as of february 1 , 2020 , we operated the following number of galleries , outlets and showrooms : count rh design galleries 22 legacy galleries 40 modern galleries 2 baby & child and teen galleries 4 total galleries 68 outlets 38 waterworks showrooms 15 we are undertaking substantial changes in our business and operations in response to the recent global outbreak of the coronavirus ( covid-19 ) . the covid-19 health crisis poses significant and widespread risks to our business as well as to the business environment and the markets in which we operate our business . we have already experienced significant disruption to our business as a result of the rapid development of the covid-19 pandemic . the immediate impact from this global health crisis has been both direct in terms of disruption in numerous aspects of our business operations as well as indirect in terms of the adverse effect on overall economic conditions . the magnitude and duration of the negative impact to our business from the covid-19 pandemic can not be predicted with certainty . accordingly , we withdrew all prior guidance and outlook statements that relate to the performance of our business with respect to fiscal 2020. in response to the public health crisis posed by covid-19 , effective from march 17 , 2020 , the company temporarily closed its retail locations for an indeterminate period of time . although we continue to serve our customers virtually through our gallery representatives and designers , as well as our online websites , our business operations are being substantially affected by applicable regulatory restrictions including stay-at-home requirements applicable in california where our corporate headquarters is located . our decision to reopen retail locations will be affected by a number of factors including applicable regulatory restrictions and there is substantial uncertainty regarding the manner and timing in which we can return some or all of our business to more normal business operations . we may face longer 52 term closure requirements and other operational restrictions with respect to some or all of our physical locations for prolonged periods of time due to , among other factors , evolving and increasingly stringent federal , state and local restrictions including shelter-in-place orders . even once we are able to reopen closed physical locations , changes in consumer behavior and health concerns may continue to impact consumer demand for our products and customer traffic at our galleries , restaurants and outlets and may make it more difficult to staff our business operations . if we are not able to access capital at the time and on terms that our business requires , we may encounter difficulty funding our business requirements including debt repayments when due . given the fast moving nature of the covid-19 health crisis , and the corresponding impact on financial markets and the economy as a whole , there is an enhanced degree of uncertainty regarding the company 's capital position and availability of capital to fund the company 's liquidity requirements . we may not be able to access liquidity or the terms and conditions of available credit may be substantially more expensive than previously expected due to changes in financial conditions and credit markets . we may require waivers or amendments to our existing credit facilities and these requirements may trigger pricing increases from lenders for available credit . if we are not able to access credit to fund our business requirements for liquidity , or the cost of available credit increases , we may need to curtail our business operations including various business initiatives that require capital investment . we have recently commenced an effort to expand our business internationally by establishing a new retail presence in global markets including europe and the united kingdom . in addition , we are in the process of developing a number of new gallery locations in the u.s. in addition , our rh guesthouse initiative may be negatively impacted by the disease outbreak as federal , state and local governments have restricted travel , conferences , events and gatherings . reductions in our liquidity position and the need to use capital for other day to day requirements of our business may affect a number of our business initiatives and long-term investments and as a result we may be required to curtail and or postpone business investments including those related to international expansion , the pace of opening new galleries in the u.s. as well as other initiatives that require capital investment . as a result of the covid-19 outbreak , and the corresponding reduction in our sales , we have had to institute a number of measures to mitigate expenses and reduce costs . these efforts may not be enough to offset anticipated declines in revenue including the loss of sales related to store closures , and may negatively affect our ability to quickly resume operations when we are able to re-open our galleries , restaurants and outlets . story_separator_special_tag the new model is a standard we will utilize in the future that is based on key learnings from more recent design gallery openings and will have approximately 38,000 leased selling square feet inclusive of our integrated hospitality experience . this prototype will present our assortments across our businesses and contain interior design offices and presentation rooms where design professionals can work with clients on their projects . this new model will be more capital efficient with less time and cost risk , but yield similar productivity . we anticipate the new prototype design galleries will represent the format of most of our upcoming design galleries in north america . our most recently opened design galleries in minneapolis , mn and columbus , oh are prototype design galleries , and upcoming prototype locations include corte madera , ca , charlotte , nc , jacksonville , fl , dallas , tx and oakbrook , il . second , we will continue to develop and open larger bespoke design galleries in the top metropolitan markets , similar to those we opened in new york and chicago . these iconic locations are highly profitable statements for our brand , and we believe they create a long-term competitive advantage that will be difficult to duplicate . 54 third , we will continue to open indigenous bespoke galleries in the best second home markets where the wealthy and affluent visit and vacation . these galleries are tailored to reflect the local culture and are sized to the potential of each market . examples of current indigenous bespoke galleries include yountville , ca and aspen , co. fourth , we are developing a new gallery model tailored to secondary markets . targeted to be 10,000 to 18,000 square feet , we believe these smaller expressions of our brand will enable us to gain share in markets currently only served by smaller competitors . examples of target secondary markets include oklahoma city , ok and milwaukee , wi , among others . we expect these galleries to require a substantially smaller net investment than our larger design galleries and to pay back our capital investment in most instances within two years or less . our plan is to test a few of these galleries over the next several years , and if proven successful , this format could lead to an increase in our long-term gallery potential in the united states . we believe our multi-tier market approach to transforming our real estate will enable us to ramp our opening cadence from 3 to 5 new galleries per year , to a pace of 5 to 7 new galleries per year . like our evolving multi-tier market approach , we have developed a multi-tier real estate strategy that is designed to significantly increase our unit level profitability and return on invested capital . our three primary deal constructs are outlined below : ● first , due to the productivity and proof of concept of our recent new galleries , and the addition of a powerful , traffic-generating hospitality experience , we are able to negotiate “ capital light ” leasing deals , where as much as 65 % to 100 % of the capital requirement would be funded by the landlord , versus 35 % to 50 % previously . ● second , in select projects we are migrating from a leasing to a development model . we currently have two galleries , yountville and minneapolis , using this new model , and have additional projects in the pipeline . in the case of yountville and minneapolis , we have completed or expect to complete sale-leaseback transactions that should allow us to recoup all or a large portion of our capital . ● third , we are working on joint venture projects , where we share the upside of a development with the developer/landlord . an example of this new model would be our future gallery and guesthouse in aspen , where we are contributing the value of our lease to the development in exchange for a profits interest in the project . the developer will deliver to rh a substantially turnkey gallery and guesthouse , while we continue to retain a 20 % and 25 % profits interest in the properties , respectively . we would expect to monetize the profits interest at the time of sale of the properties during the first five years . the net result should be a minimal capital investment to operationalize the business , with the expectation for a net positive capital benefit at time of monetization of the profits interest . we anticipate that all of the above deal structures should lead to lower capital requirements , higher unit profitability , and significantly higher return on invested capital versus our prior gallery development strategies . ● pursue international expansion . we believe that our luxury brand positioning and unique aesthetic has strong international appeal . as such , we believe there is tremendous opportunity for the rh brand to expand globally and launch rh international in 2021 or 2022 and we are close to completing real estate transactions for approximately 5 initial locations across europe . ● expand our offering and increase our market share . we believe we have a significant opportunity to increase our market share by : ● transforming our real estate platform ; 55 ● growing our merchandise assortment and introducing new products and categories ; ● expanding our service offerings , including design services ; ● exploring and testing new business opportunities complementary to our core business ; and ● increasing our brand awareness and customer loyalty through our source book circulation strategy , membership program , our digital marketing initiatives , advertising , and public relations activities and events . during fiscal 2017 and fiscal 2018 we deferred the introduction of major new product category expansions other than the ongoing development of rh hospitality in conjunction with new design galleries .
| basis of presentation and results of operations the results of operations for the fiscal years ended february 1 , 2020 , february 2 , 2019 and february 3 , 2018 reflect the modified retrospective application of the new lease accounting standard ( accounting standards update 2016-02— leases ) . for information regarding recently issued accounting pronouncements , refer to note 3— significant accounting policies in our consolidated financial statements within part ii of this annual report on form 10-k. the following table sets forth our consolidated statements of operations and other financial and operating data . replace_table_token_12_th 62 the following table sets forth our consolidated statements of operations as a percentage of total net revenues . replace_table_token_13_th fiscal 2019 compared to fiscal 2018 replace_table_token_14_th ( 1 ) waterworks results include non-cash amortization of $ 0.4 million related to the inventory fair value adjustment recorded in connection with our acquisition of waterworks during fiscal 2018. net revenues consolidated net revenues increased $ 141.8 million , or 5.7 % , to $ 2,647.4 million in fiscal 2019 compared to $ 2,505.7 million in fiscal 2018. consolidated net revenues for fiscal 2019 were positively impacted by $ 0.4 million and for fiscal 2018 were negatively impacted by $ 4.7 million , in each case related to product recalls . excluding the product recall adjustments , consolidated net revenues increased $ 136.7 million , or 5.4 % , to $ 2,647.0 million in fiscal 2019 compared to $ 2,510.4 million in fiscal 2018. product recalls and the establishment or adjustment of any related recall accruals can affect our results and cause quarterly fluctuations affecting the period-to-period comparisons of our results . no assurance can be provided that any accruals will be for the appropriate amount , and actual losses could be higher or lower than what we accrue from time to time , which could further affect results .
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capital invested in unaffiliated entities may generally be redeemed at various intervals ranging from monthly to annually upon notice of 30 to 95 days . certain unaffiliated entities may require a minimum investment period before capital can be voluntarily redeemed ( a “ lockup period ” ) . no investment in an unaffiliated entity has an unexpired lockup period . the company has no outstanding capital commitments to any affiliated or unaffiliated entity . f. fair value the following tables present information about the company 's assets and liabilities by major category measured at fair value on a recurring basis as of december 31 , 2019 and 2018 and indicate the fair value hierarchy of the valuation techniques utilized by the company to determine such fair value . 46 index the following tables present assets and liabilities measured at fair value on a recurring basis as of the dates specified ( in thousands ) : replace_table_token_29_th replace_table_token_30_th 47 index the following table presents additional information about assets by major category measured at fair value on a recurring basis and for which the company has utilized level 3 inputs to determine fair value : replace_table_token_31_th total realized and unrealized gains and losses for level 3 assets are reported in net gain/ ( loss ) from investments in the consolidated statements of income . during the years ended december 31 , 2019 and 2018 , the company transferred investments with a value of approximately $ 63,000 and $ 53,000 , respectively , from level 1 to level 3 due to the unavailability of observable inputs . for the year ended december 31 , 2018 , the company transferred an investment with a value of approximately $ 605,000 from level 3 to level 1 due to increased availability of market price quotations . g. income taxes the provision for income taxes for the years ended december 31 , 2019 and 2018 consisted of the following ( in thousands ) : replace_table_token_32_th 48 index a reconciliation of the federal statutory rate to the effective tax rate for the years ended december 31 , 2019 and 2018 is set forth below : replace_table_token_33_th significant components of our deferred tax assets and liabilities as of december 31 , 2019 and 2018 are as follows ( in thousands ) : replace_table_token_34_th ( a ) net of valuation allowance of $ 1,385 and $ 719 for 2019 and 2018 , respectively a reconciliation of the beginning and ending amount of gross unrecognized tax benefits related to uncertain tax positions is as follows ( in thousands ) : replace_table_token_35_th the company records penalties and interest related to tax uncertainties in income taxes . as of december 31 , 2018 the company had gross unrecognized tax benefits of $ 5,688 of which $ 4,494 if recognized , would impact the company 's effective tax rate . the company has accrued liabilities of $ 3,071 as of december 31 , 2018 for interest and penalties . these amounts are included in accrued expenses and other liabilities on the consolidated statements of financial condition . 49 index the company remains subject to income tax examination by the irs for the years 2017 and 2018 and state examinations for years after 2011. h. earnings per share basic earnings per share is computed by dividing net income/ ( loss ) attributable to our shareholders by the weighted average number of shares outstanding during the period . diluted earnings per share is computed by dividing net income/ ( loss ) attributable to our shareholders by the weighted average number of shares outstanding during the period . the computations of basic and diluted net income/ ( loss ) per share are as follows ( in thousands , except per share data ) : replace_table_token_36_th i. related party transactions the following is a summary of certain related party transactions . ggcp , inc. , a private company controlled by the executive chairman , indirectly owns a majority of our class b stock , story_separator_special_tag of operations introduction this md & a is provided as a supplement to , and should be read in conjunction with , the consolidated financial statements and the notes thereto included in item 8 to this report . unless the context otherwise requires , all references to “ we , ” “ us , ” “ our , ” “ ac group ” or the “ company ” refer collectively to associated capital group , inc. and its subsidiaries through which our operations are actually conducted . factors affecting financial condition and results of operations the company , through its subsidiaries , provides alternative investment management services and institutional research services , as well as management of the company 's proprietary investment portfolio . 14 index in its alternative asset management operations , subsidiaries of the company serve as general partner or investment manager to investment funds including limited partnerships , offshore companies and separate accounts . the company primarily manages assets in equity event-driven value strategies , across a range of risk and event arbitrage portfolios , earning management and incentive fees from its advisory activities . the institutional research operations offer domain knowledge-driven research and a sales and execution platform for institutional investors , earning fees from its institutional clients via trading commissions or direct payment . overview consolidated statements of income investment advisory and incentive fees , which are based on the amount and composition of aum in our funds and accounts , represent our largest source of revenues . growth in revenues depends on good investment performance , which influences the value of existing aum as well as contributes to higher investment and lower redemption rates and facilitates the ability to attract additional investors while maintaining current fee levels . story_separator_special_tag million , return of capital on securities of $ 0.9 million and cash received in acquisition of morgan group of $ 0.6 million . net cash generated from investing activities was $ 4.7 million in 2018. a short-term note due from gbl ( “ gbl short-term note ” ) with a principal amount of $ 15 million was repaid during the year . offsetting this principal repayment was net purchases of securities in the amount of $ 10.4 million and $ 0.1 million from return of capital on securities . net cash used in financing activities was $ 11.6 million largely resulting from dividends paid of $ 4.5 million , share repurchases of $ 4.1 million and redemptions to consolidated funds of $ 2.9 million . net cash provided by financing activities was $ 34.7 million for 2018 , largely resulting from $ 50.0 million principal payments on the gamco note partially offset by $ 7.0 million of treasury stock purchases , dividend payments of $ 4.7 million , and net redemptions of redeemable noncontrolling interests of $ 3.6 million g.research is registered with the sec as a broker-dealer and is regulated by finra . as such , g.research is subject to minimum net capital requirements promulgated by the sec . g.research computes its net capital under the alternative method permitted by the sec , which requires minimum net capital of $ 250,000. as of december 31 , 2019 and 2018 , g.research had net capital , as defined , of approximately $ 4.6 million and $ 9.1 million , respectively , exceeding the regulatory requirement by approximately $ 4.3 million and $ 8.8 million , respectively . net capital requirements for g.research may increase in accordance with sec rules and regulations to the extent it engages in other business activities . off-balance sheet arrangements we do not have any off-balance sheet arrangements . critical accounting policies in the ordinary course of business , we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) . we base our estimates on historical experience , when available , and on other various assumptions that are believed to be reasonable under the circumstances . actual results could differ significantly from those estimates under different assumptions and conditions . we believe that the following critical accounting policies require management to exercise significant judgment : major revenue-generating services and revenue recognition the company 's revenues are derived primarily from investment advisory and incentive fees and institutional research services . investment advisory and incentive fees are directly influenced by the level and mix of aum as fees are derived from a contractually-determined percentage of the balance of each account as well as a percentage of the investment performance of certain accounts . management fees from investment partnerships and offshore funds are computed either monthly or quarterly , and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition . these revenues vary depending upon the level of capital flows , financial market conditions , investment performance and the fee rates applicable to each account . incentive allocations or fees are generally recognized at the end of an annual measurement period and amounts receivable are included in investment advisory fees receivable on the consolidated statements of financial condition . 19 index g.research , llc provides institutional research services and earns brokerage commissions and sales manager fees from securities transactions executed on an agency basis on behalf of institutional clients and mutual funds , private wealth management clients and retail customers of affiliated companies . commission revenue and related clearing charges are recorded on a trade-date basis and are included in institutional research services and other operating expenses , respectively , on the consolidated statements of income . g.research has also been involved in syndicated underwriting activities that included public equity and debt offerings managed by major investment banks . underwriting fees include gains , losses , selling concessions and fees , net of syndicate expenses , arising from securities offerings in which g.research acts as underwriter or agent and are accrued as earned . see note c , revenue , in the consolidated financial statements for additional information . investments in securities investments in securities are a recorded at fair value in the statements of financial condition in accordance with u.s. gaap . securities transactions and any related gains and losses are recorded on a trade date basis . realized gains and losses from securities transactions are recorded on the specific identified cost basis and are included in gain/ ( loss ) from investments , net on the consolidated statements of income . management determines the appropriate classification of securities at the time of purchase . government debt with maturities of greater than three months at the time of purchase are considered investments in debt securities . investments in debt securities are accounted for as trading , available for sale ( “ afs ” ) , or held-to-maturity securities . the company does not hold any investments in debt securities accounted for as afs or held to maturity . securities sold , but not yet purchased are recorded on the trade date , and are stated at fair value and represent obligations of ac to purchase the securities at prevailing market prices . therefore , the future satisfaction of such obligations may be for an amount greater or less than the amounts recorded on the consolidated statements of financial condition . the ultimate gains or losses recognized are dependent upon the prices at which these securities are purchased to settle the obligations under the sales commitments .
| assets under management highlights we reported assets under management as follows ( dollars in millions ) : replace_table_token_3_th ( a ) includes $ 259 million and $ 214 million of proprietary capital , respectively . changes in our aum during 2019 were as follows ( dollars in millions ) : replace_table_token_4_th the majority of our aum has calendar year-end measurement periods , and our incentive fees are primarily recognized in the fourth quarter . operating results for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 revenues total revenues were $ 31.3 million for the year ended december 31 , 2019 , $ 8.5 million higher than total revenues of $ 22.8 million for the year ended december 31 , 2018. total revenues by type were as follows ( dollars in thousands ) : replace_table_token_5_th 16 index investment advisory and incentive fees : we earn advisory fees based on our aum . investment advisory fees are directly influenced by the amount of average aum and the fee rates applicable to various accounts . advisory fees were $ 10.9 million for 2019 compared to $ 10.2 million for 2018 , an increase of $ 0.7 million . this increase is a result of the increase in average aum over the period . incentive fees are directly related to the gains generated for our clients ' accounts . we earn a percentage , usually 20 % , of such gains . incentive fees were $ 11.2 million in 2019 , up $ 7.0 million from $ 4.2 million in 2018 , due to higher investment performance .
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further , because the accounting for leases by the lessor is substantially unchanged and it has elected the practical expedients to not separate rental recovery revenue from the associated rental revenue , the asu did not have a significant impact on its results of operations or financial position . consistent with the transition guidance under asu 2018-11 , leases ( topic 842 ) : targeted improvements , all prior period disclosures remain in accordance with asc topic 840. on january 1 , 2017 , kennedy wilson adopted asu 2016-09 , compensation—stock compensation ( topic 718 ) : improvements to employee share-based payment accounting under the modified retrospective approach and recorded the cumulative impact of the accounting change through a reduction to the accumulated deficit of $ 9.3 million . this amount represents the cumulative excess tax benefits related to share-based compensation as of december 31 , 2016 which had not been reflected as a deferred tax asset . as a result of adoption of asu 2016-09 , the excess tax benefits were reclassified to net operating loss carryover , resulting in an increase in our deferred tax asset by $ 9.3 million as of january 1 , 2017. in august 2016 , the fasb issued asu 2016-15 , statement of cash flows ( topic 230 ) : classification of certain cash receipts and cash story_separator_special_tag the following discussion and analysis should be read in conjunction with the financial statements and related notes and the other financial information appearing elsewhere in this report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . see the section titled `` forward-looking statements '' for more information . actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors , including those discussed in the section titled “ risk factors ” and elsewhere in this report . unless specifically noted otherwise , as used throughout this management 's discussion and analysis section , “ we , ” “ our , ” `` us , '' `` the company '' or “ kennedy wilson ” refers to kennedy-wilson holdings , inc. and its wholly-owned subsidiaries . “ equity partners ” refers to the subsidiaries that we consolidate in our financial statements under u.s. gaap ( other than wholly-owned subsidiaries ) and third-party equity providers . please refer to “ non-gaap measures and certain definitions ” for definitions of certain terms used throughout this report . overview kennedy wilson is a global real estate investment company . we own , operate , and invest in real estate both on our own and through our investment management platform . we focus primarily on multifamily and office properties located in the western u.s. , uk , and ireland . our value is primarily derived from our ownership in income producing real estate assets . we have an ownership stake in approximately 49 million square feet of property globally , including 29,705 multifamily rental units . at december 31 , 2019 , along with our equity partners , we held a real estate and real estate related investment portfolio with assets at a book value of approximately $ 13.3 billion . for the year ended december 31 , 2019 , these assets generated total revenues of approximately $ 1.0 billion . the company has an average ownership interest across all of its investments of approximately 61 % as of december 31 , 2019 . in addition to our income producing real estate , we engage in development , and redevelopment and value add initiatives through which we enhance cashflows or reposition asset to increase disposal value . we have 318 employees in 14 offices throughout the united states , the united kingdom , ireland , jersey and spain . our operations are defined by two core business segments , kw investments and imres , which work closely together to identify attractive investment markets and opportunities around the world . financial measures and descriptions our key financial measures and indicators are discussed below . please refer to the critical accounting policies in the notes to the consolidated financial statements for additional detail regarding the gaap recognition policies associated with the captions described below . revenue rental - rental income is comprised of rental revenue earned by our consolidated real estate investments . hotel - hotel income is comprised of hotel revenue earned by our consolidated hotels . sale of real estate - sales of real estate consists of gross sales proceeds received on the sale of consolidated real estate that is not defined as a business by u.s. gaap . investment management , property services and research fees - investment management , property services , and research fees are primarily comprised of base asset management fees , and acquisition fees generated by our investment management division , property management fees generated by our property services division , leasing fees and sales commissions generated by our brokerage and auction divisions , and consulting fees generated by meyers research until the company 's sale of meyers research in the fourth quarter of 2018. fees earned from consolidated investments are eliminated in consolidation with the amount relating to our equity partners being recognized through income attributable to noncontrolling interests . expenses rental - rental expenses consists of the expenses of our consolidated real estate investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . hotel - hotel expenses consists of expenses of our consolidated hotel investments , including items such as property taxes , insurance , maintenance and repairs , utilities , supplies , salaries and management fees . 31 commission and marketing - commission and marketing expenses includes fees paid to third party sales and leasing agents as well as business development costs necessary to generate revenues . story_separator_special_tag the joint venture has also made investments in 274 units in dublin and acquired two development sites on which it expects to build an estimated 684 additional units ( collectively with the transactions described in the paragraph above `` 2018 axa transactions '' ) . during the second quarter of 2019 , axa invested in a 50 % ownership stake in the state street office building , capital dock office buildings and capital dock residential tower in dublin , ireland that was previously held by the company and different equity partners . these investments were previously consolidated in the company 's consolidated financial statements . during the fourth quarter of 2019 , the company sold 468 multifamily units across three assets in dublin , ireland into the joint venture with axa that were previously wholly owned by the company ( collectively with the transactions described in the paragraph directly above `` 2019 axa transactions '' and with the 2018 axa transactions `` axa transactions '' ) . the table below summarizes the impact axa transactions had on our consolidated financial statements during the year ended december 31 , 2019 and 2018 : replace_table_token_8_th ( 1 ) includes $ 12.4 million and $ 9.4 million of performance fees for the year ended december 31 , 2019 and 2018 and $ 2.1 million and $ 1.5 million on acquisition and disposition fees for the year ended december 31 , 2019 and 2018. see results of operations section for more detail on adjusted fees . for the year ended december 31 , 2019 we recognized $ 10.5 million of fair value gains on assets held within the axa joint venture including $ 4.3 million of performance fees . gains were due to property appreciation offset by fair value losses on debt . the deconsolidation of the assets above has led to a decrease in total assets and total liabilities as we have gone from showing 100 % of the gross balance sheet items to our net investment through unconsolidated investments . prior to deconsolidation these assets had an asset value of $ 1.0 billion and as of december 31 , 2019 they have an unconsolidated investment balance of $ 401.7 million . preferred stock in october 2019 , the company announced the issuance of a $ 300 million perpetual preferred equity investment in kennedy wilson by affiliates of eldridge industries ( collectively , `` eldridge '' ) . under the terms of the agreement , eldridge is purchasing $ 300 million in convertible perpetual preferred stock carrying a 5.75 % annual dividend rate , with an initial conversion price of $ 25.00 per share , representing a premium of 15 % to the daily volume weighted average price per share of kennedy wilson 's common stock over the 20 trading days ending , and including , october 16 , 2019. the preferred stock is callable by kennedy wilson on and after october 15 , 2024. security benefit platform in addition to eldridge 's equity investment , we established a joint venture platform between eldridge affiliate security benefit and kennedy wilson which has an investment target of $ 1.5 billion . as of december 31 , 2019 , the platform has acquired $ 386 million in assets with a strong pipeline of future opportunities . kennedy wilson expects to continue investing alongside 33 security benefit and its affiliates with a 20 % interest in the investments of the joint venture and entitled to earn customary fees , including promote fees , in its role as asset manager . meyers research sale in december 2018 , we sold meyers research for $ 48.0 million and recognized a gain on sale of business of $ 40.4 million . we used part of the proceeds from such sale to reinvest $ 15.0 million for an 11 % ownership interest in a new partnership between meyers research and another premiere residential real estate construction service company . we no longer control meyers research and treat the investment as an unconsolidated investment . tax cuts and jobs act the tcja , was signed into law on december 22 , 2017. the tcja amends a range of u.s. federal tax rules applicable to businesses and international taxation with most provisions having taken effect beginning january 1 , 2018. these changes include lowering the federal corporate income tax rate from a top marginal rate of 35 % to a flat rate of to 21 % and imposing and imposing additional limitation on deductibility of executive compensation . during the fourth quarter of 2017 , we adjusted our net u.s. deferred tax liability down to the new federal tax rate and recorded a $ 44.8 million tax benefit . during 2018 , we had completed our analysis and recorded an insignificant adjustment in the 2018 financial statement with respect to the federal rate change . certain aspects of the legislation remains unclear in certain respects and has been and may continue to be subject to amendments , technical corrections , interpretations and implementing regulations by the u.s. treasury and internal revenue service ( “ irs ” ) , any of which could lessen or increase certain adverse impacts of the legislation . as the irs , treasury regulations or state taxing authorities issue further guidance or interpretation of relevant aspects of the new tax law , our federal and state taxable income computations may be adjusted accordingly . kennedy wilson europe real estate plc on october 20 , 2017 , the company purchased the remaining 76 % of shares in kennedy wilson europe real estate plc ( `` kwe '' ) it did not previously own for $ 1.4 billion , which represented a discount of approximately $ 260 million to the original value of the shares when issued . as part of the acquisition consideration , the company issued 37.2 million shares of common stock valued at $ 722.2 million . before and after such transaction , kwe 's results is consolidated in our financial results with amounts not owned by us being allocated to noncontrolling interests .
| results of operations the following tables summarize the company 's revenue , expenses , other income ( expenses ) and net income ( loss ) and calculate ebitda and adjusted ebitda by segment for the years ended december 31 , 2019 , 2018 and 2017 and is intended to be helpful in understanding the year over year explanations following the tables : replace_table_token_9_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . 35 replace_table_token_10_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . 36 replace_table_token_11_th ( 1 ) see `` non-gaap measures and certain definitions '' for definitions and discussion of adjusted ebitda . ( 2 ) this includes allocation to noncontrolling interest holders of kwe up through the acquisition date of october 20 , 2017 . 37 kennedy wilson consolidated financial results : year ended december 31 , 2019 compared to the year ended december 31 , 2018 gaap net income to common shareholders was $ 224.1 million and $ 150.0 million for the year ended december 31 , 2019 and 2018 , respectively . adjusted ebitda was $ 728.1 million for the year ended december 31 , 2019 , a 2 % increase from $ 712.7 million for 2018 , due primarily to higher realized gains on the sale of consolidated and unconsolidated real estate investments and higher fair value gains and performance fees . these were offset by a gain on the sale of our meyers research business in the prior period . also we have been a net seller of assets and during the year ended december 31 , 2019 and 2018 , our share of net asset sales of assets were $ 115.5 million and $ 348.4 million , respectively .
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references below to “ ameriprise financial , ” “ ameriprise , ” the “ company , ” “ we , ” “ us , ” and “ our ” refer to ameriprise financial , inc. exclusively , to our entire family of companies , or to one or more of our subsidiaries . overview ameriprise financial is a diversified financial services company with a 120 year history of providing financial solutions . we offer a broad range of products and services designed to achieve the financial objectives of individual and institutional clients . we are america 's leader in financial planning and a leading global financial institution with more than $ 806 billion in assets under management and administration as of december 31 , 2014 . our strategy is centered on helping our clients confidently achieve their goals by providing advice and managing their assets and protecting their assets and income . we utilize two go-to-market approaches in carrying out this strategy : wealth management and asset management . our wealth management capabilities are centered on the long-term , personal relationships between our clients and our financial advisors and registered representatives ( our “ advisors ” ) . through our advisors , we offer financial planning , products and services designed to be used as solutions for our clients ' cash and liquidity , asset accumulation , income , protection , and estate and wealth transfer needs . our focus on personal relationships , together with our discipline in financial planning and strengths in product development and advice , allow us to address the evolving financial and retirement-related needs of our clients , including our primary target market segment , the mass affluent and affluent , which we define as households with investable assets of more than $ 100,000. the financial product solutions we offer through our advisors include both our own products and services and the products of other companies . our advisor network is the primary channel through which we offer our affiliated insurance and annuity products and services . our network of approximately 9,700 advisors is the primary means through which we engage in our wealth management activities . we offer our advisors training , tools , leadership , marketing programs and other field and centralized support to assist them in delivering advice and product solutions . we believe that our nationally recognized brand and practice vision , local marketing support , integrated operating platform and comprehensive set of products and solutions constitute a compelling value proposition for financial advisors , as evidenced by our strong advisor retention rate and our ability to attract and retain experienced and productive advisors . we have and will continue to invest in and develop capabilities and tools designed to maximize advisor productivity and client satisfaction . we are in a compelling position to capitalize on significant demographic and market trends driving increased demand for financial advice and solutions . in the u.s. , the ongoing transition of baby boomers into retirement , as well as recent economic and financial market crises , continues to drive demand for financial advice and solutions . in addition , the amount of investable assets held by mass affluent and affluent households , our target market , has grown and accounts for over half of u.s. investable assets . we believe our differentiated financial planning model , broad range of products and solutions , as well as our demonstrated financial strength throughout the economic downturn of recent past years , will help us capitalize on these trends . our asset management capabilities are increasingly global in scale , with columbia management investment advisers , llc ( “ columbia ” or “ columbia management ” ) as the primary provider of products and services in the u.s. and threadneedle asset management holdings sàrl ( “ threadneedle ” ) as the primary provider of products and services outside of the u.s. we offer a broad spectrum of investment advice and products to individual , institutional and high-net worth investors . these investment products are primarily provided through third parties , though we also provide our asset management products through our advisor channel . our underlying asset management philosophy is based on delivering consistently strong and competitive investment performance . the quality and breadth of our asset management capabilities are demonstrated by 118 of our mutual funds , including 51 columbia management funds and 67 threadneedle funds , being rated as four- and five-star funds by morningstar . we are positioned to continue to grow our assets under management and to strengthen our asset management offerings to existing and new clients . our asset management capabilities are well positioned to address mature markets in the u.s. and europe . we also have the capability to leverage existing strengths to effectively expand into new global and emerging markets . in the past few years , we have expanded beyond our traditional strengths in the u.s. and uk to gather assets in continental europe , asia , australia , the middle east and africa . in addition , we continue to pursue opportunities to leverage the collective capabilities of columbia management and threadneedle to enhance our current range of investment solutions , to develop new solutions that are responsive to client demand in an increasingly complex marketplace and to maximize the distribution capabilities of our global business . 44 the financial results from the businesses underlying our go-to-market approaches are reflected in our five operating segments : advice & wealth management ; asset management ; annuities ; protection ; and corporate & other . in the first quarter of 2014 , we made the following changes to our previously reported segment data : ameriprise interest and debt expense was allocated to all segments to more accurately reflect management 's assessment of capital allocation . interest accretion income from the intercompany transfer of former bank assets was eliminated for segment reporting resulting in this accretion no longer being allocated to the annuities and protection segments . the corresponding offset is no longer reported in the corporate & other segment . story_separator_special_tag on a consolidated basis , the management fees we earn for the services we provide to the cies and the related general and administrative expenses are eliminated and the changes in the assets and liabilities related to the cies , primarily syndicated loans and debt , are reflected in net investment income . we continue to include the fees from these entities in the management and financial advice fees line within our asset management segment . while our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , management believes that operating measures , which exclude net realized gains or losses ; the market impact on variable annuity guaranteed benefits , net of hedges and the related dsic and dac amortization ; the market impact on indexed universal life benefits , net of hedges and the related dac amortization , unearned revenue amortization and the reinsurance accrual ; integration and restructuring charges ; income ( loss ) from discontinued operations ; and the impact of consolidating cies , best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis . management uses certain of these non-gaap measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors . also , certain of these non-gaap measures are taken into consideration , to varying degrees , for purposes of business planning and analysis and for certain compensation-related matters . throughout our management 's discussion and analysis , these non-gaap measures are referred to as operating measures . it is management 's priority to increase shareholder value over a multi-year horizon by achieving our on-average , over-time financial targets . our financial targets are : operating total net revenue growth of 6 % to 8 % , operating earnings per diluted share growth of 12 % to 15 % , and operating return on equity excluding accumulated other comprehensive income ( “ aoci ” ) of 19 % to 23 % . the following tables reconcile our gaap measures to operating measures : replace_table_token_2_th 46 years ended december 31 , per diluted share years ended december 31 , 2014 2013 2014 2013 ( in millions , except per share amounts ) net income $ 2,000 $ 1,475 less : net income attributable to noncontrolling interests 381 141 net income attributable to ameriprise financial 1,619 1,334 $ 8.30 $ 6.44 less : loss from discontinued operations , net of tax ( 2 ) ( 3 ) ( 0.01 ) ( 0.02 ) net income from continuing operations attributable to ameriprise financial 1,621 1,337 8.31 6.46 add : integration/restructuring charges , net of tax ( 1 ) — 9 — 0.04 add : market impact on variable annuity guaranteed benefits , net of tax ( 1 ) 61 111 0.31 0.53 add : market impact on indexed universal life benefits , net of tax ( 1 ) 4 8 0.02 0.04 less : net realized gains , net of tax ( 1 ) 24 5 0.12 0.02 operating earnings $ 1,662 $ 1,460 $ 8.52 $ 7.05 weighted average common shares outstanding : basic 191.6 203.2 diluted 195.0 207.1 ( 1 ) calculated using the statutory tax rate of 35 % . the following table reconciles the trailing twelve months ' sum of net income attributable to ameriprise financial to operating earnings and the five-point average of quarter-end equity to operating equity : years ended december 31 , 2014 2013 ( in millions ) net income attributable to ameriprise financial $ 1,619 $ 1,334 less : loss from discontinued operations , net of tax ( 2 ) ( 3 ) net income from continuing operations attributable to ameriprise financial 1,621 1,337 less : adjustments ( 1 ) ( 41 ) ( 123 ) operating earnings $ 1,662 $ 1,460 total ameriprise financial , inc. shareholders ' equity $ 8,270 $ 8,582 less : aoci , net of tax 734 821 total ameriprise financial , inc. shareholders ' equity , excluding aoci 7,536 7,761 less : equity impacts attributable to cies 311 333 operating equity $ 7,225 $ 7,428 return on equity from continuing operations , excluding aoci 21.5 % 17.2 % operating return on equity , excluding aoci ( 2 ) 23.0 % 19.7 % ( 1 ) adjustments reflect the trailing twelve months ' sum of after-tax net realized gains/losses ; the market impact on variable annuity guaranteed benefits , net of hedges and related dsic and dac amortization ; the market impact on indexed universal life benefits , net of hedges and the related dac amortization , unearned revenue amortization , and the reinsurance accrual ; and integration and restructuring charges . after-tax is calculated using the statutory tax rate of 35 % . ( 2 ) operating return on equity , excluding aoci , is calculated using the trailing twelve months of earnings excluding the after-tax net realized gains/losses ; market impact on variable annuity guaranteed benefits , net of hedges and related dsic and dac amortization ; the market impact on indexed universal benefits , net of hedges and the related dac amortization , unearned revenue amortization , and the reinsurance accrual ; integration and restructuring charges ; and discontinued operations in the numerator , and ameriprise financial shareholders ' equity , excluding aoci and the impact of consolidating investment entities using a five-point average of quarter-end equity in the denominator . after-tax is calculated using the statutory rate of 35 % . 47 critical accounting policies the accounting and reporting policies that we use affect our consolidated financial statements . certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and , in some cases , the application of these policies can be significantly affected by the estimates , judgments and assumptions made by management during the preparation of our consolidated financial statements . the accounting and reporting policies we have identified as fundamental to a full understanding of our consolidated results of operations and financial condition are described below .
| results of operations by segment year ended december 31 , 2013 compared to year ended december 31 , 2012 operating earnings is the measure of segment profit or loss management uses to evaluate segment performance . operating earnings should not be viewed as a substitute for gaap income from continuing operations before income tax provision . we believe the presentation of segment operating earnings as we measure it for management purposes enhances the understanding of our business by reflecting the underlying performance of our core operations and facilitating a more meaningful trend analysis . see note 25 to the consolidated financial statements for further information on the presentation of segment results and our definition of operating earnings . the following table presents summary financial information by segment : replace_table_token_11_th the following table presents the segment pretax operating impacts on our revenues and expenses attributable to unlocking : replace_table_token_12_th 75 the operating impact of unlocking for 2012 included a $ 43 million benefit , net of dac and dsic amortization , from an adjustment to the model which values the reserves related to living benefit guarantees primarily attributable to prior periods . advice & wealth management the following table presents the changes in wrap account assets and average balances for the years ended december 31 : 2013 2012 ( in billions ) beginning balance $ 124.6 $ 103.4 net flows 13.1 9.6 market appreciation and other 15.8 11.6 ending balance $ 153.5 $ 124.6 advisory wrap account assets ending balance ( 1 ) $ 152.6 $ 124.2 average advisory wrap account assets ( 2 ) $ 138.2 $ 115.0 ( 1 ) advisory wrap account assets represent those assets for which clients receive advisory services and are the primary driver of revenue earned on wrap accounts . clients may hold non-advisory investments in their wrap accounts that do not incur an advisory fee .
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substantially all of our marketable debt investments are classified as current based on the nature of the investments and their availability for use in current operations . investments in equity securities , other than equity method investments , are recorded at fair value , if fair value is readily determinable . we hold investments in certain non-marketable equity securities with no readily determinable fair values in which we do not have a controlling interest or significant influence . upon adoption of asu 2016-01 effective june 1 , 2018 , we have elected to measure these equity securities at cost , less any impairment , adjusted for observable price changes from orderly transactions for story_separator_special_tag f financial condition and results of operations we begin management 's discussion and analysis of financial condition and results of operations with an overview of our businesses and significant trends . this overview is followed by a summary of our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . we then provide a more detailed analysis of our results of operations and financial condition . business overview oracle provides products and services that address enterprise information technology ( it ) environments . our products and services include applications and infrastructure offerings that are delivered worldwide through a variety of flexible and interoperable it deployment models . these models include on-premise deployments , cloud-based deployments , and hybrid deployments ( an approach that combines both on-premise and cloud-based deployment ) such as our oracle cloud at customer offering ( an instance of oracle cloud in a customer 's own data center ) . accordingly , we offer choice and flexibility to our customers and facilitate the product , service and deployment combinations that best suit our customers ' needs . our customers include businesses of many sizes , government agencies , educational institutions and resellers that we market and sell to directly through our worldwide sales force and indirectly through the oracle partner network . we have three businesses : cloud and license ; hardware ; and services ; each of which comprises a single operating segment . the descriptions set forth below as a part of management 's discussion and analysis of financial condition and results of operations and the information contained within note 15 of notes to consolidated financial statements included elsewhere in this annual report provide additional information related to our businesses and operating segments and align as to how our chief operating decision makers ( codms ) , which include our chief executive officers and chief technology officer , view our operating results and allocate resources . cloud and license business our cloud and license line of business , which represented 83 % , 81 % and 80 % of our total revenues in fiscal 2019 , 2018 and 2017 , respectively , markets , sells and delivers a broad spectrum of applications and infrastructure technologies through our cloud and license offerings . cloud services and license support revenues include : license support revenues , which are earned by providing oracle license support services to customers that have elected to purchase support services in connection with the purchase of oracle applications and infrastructure software licenses for use in cloud , on-premise and other it environments . substantially all license support customers renew their support contracts with us upon expiration in order to continue to benefit from technical support services and the periodic issuance of unspecified updates and enhancements , which current license support customers are entitled to receive . license support contracts are generally priced as a percentage of the net fees paid by the customer to purchase a cloud license and or on-premise license ; are generally billed in advance of the support services being performed ; are generally renewed at the customer 's option ; and are generally recognized as revenues ratably over the contractual period that the support services are provided , which is generally one year ; and cloud services revenues , which provide customers access to oracle cloud applications and infrastructure technologies via cloud-based deployment models that oracle develops , provides unspecified updates and enhancements for , hosts , manages and supports and that customers access by entering into a subscription agreement with us for a stated period . the majority of our oracle cloud services arrangements are generally billed in advance of the cloud services being performed ; have durations of one to three years ; are generally renewed at the customer 's option ; and are generally recognized as revenues ratably over the contractual period of the cloud contract or , in the case of usage model contracts , as the cloud services are consumed over time . 36 index to financial statements cloud license and on-premise license revenues include revenu es from the licensing of our software products including oracle applications , oracle database , oracle middleware and java , among others , which our customers deploy within cloud-based , on-premise and other it environments . our cloud license and on-premise l icense transactions are generally perpetual in nature and are generally recognized upfront at the point in time when the software is made available to the customer to download and use . revenues from usage-based royalty arrangements for distinct cloud licen ses and on-premise licenses are recognized at the point in time when the software end user usage occurs . the timing of a few large license transactions can substantially affect our quarterly license revenues due to the point in time for revenue recognition of license transactions , which is different than the typical revenue recognition pattern for our cloud services and license support revenues in which revenues are generally recognized ratably over the contractual terms . cloud license and on-premise licens e customers have the option to purchase and renew license support contracts , as described above . providing choice and flexibility to our customers as to when and how they deploy our applications and infrastructure technologies is an important element of our corporate strategy . story_separator_special_tag we believe that our services are differentiated based on our focus on oracle technologies , extensive experience , broad sets of intellectual property , and best practices . our services offerings include consulting services , advanced customer support services and education services . our services business has lower margins than our cloud and license and hardware businesses . our services revenues are impacted by , among others : our strategy for , and the competitive position of , our services ; customer demand for our cloud and license and hardware offerings and the associated services for these offerings ; certain of our acquisitions ; general economic conditions ; governmental budgetary constraints ; personnel reductions in our customers ' it departments ; and tighter controls over customer discretionary spending . acquisitions our selective and active acquisition program is another important element of our corporate strategy . in recent years , we have invested billions of dollars to acquire a number of complementary companies , products , services and technologies , including netsuite in fiscal 2017. we expect to continue to acquire companies , products , services and technologies in furtherance of our corporate strategy . note 2 of notes to consolidated financial statements included elsewhere in this annual report provides additional information related to our recent acquisitions . we believe that we can fund our future acquisitions with our internally available cash , cash equivalents and marketable securities , cash generated from operations , additional borrowings or from the issuance of additional 38 index to financial statements securities . we estimate the financial impact of any potential acquisition wit h regard to earnings , operating margin , cash flow and return on invested capital targets before deciding to move forward with an acquisition . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( gaap ) as set forth in the financial accounting standards board 's ( fasb ) , asc , and we consider the various staff accounting bulletins and other applicable guidance issued by the sec . note 1 of notes to consolidated financial statements included elsewhere in this annual report includes a description of our significant accounting policies . gaap , as set forth within the asc , requires us to make certain estimates , judgments and assumptions as we apply our significant accounting policies . the accounting policies that reflect estimates , judgments and assumptions that we believe are the most critical to aid in fully understanding and evaluating our reported financial results and for which we include additional discussion below are : revenue recognition ; business combinations ; goodwill and intangible assets—impairment assessments ; accounting for income taxes ; and legal and other contingencies . our senior management has reviewed our critical accounting policies and related disclosures with the finance and audit committee of the board of directors . revenue recognition the most critical judgments required in applying topic 606 and our revenue recognition policy relate to the determination of distinct performance obligations and the evaluation of the standalone selling price ( ssp ) for each performance obligation . many of our customer contracts include multiple performance obligations . judgment is required in determining whether each performance obligation within a customer contract is distinct . oracle products and services generally do not require a significant amount of integration or interdependency . therefore , multiple products and services contained within a customer contract are generally considered to be distinct and are not combined for revenue recognition purposes . we allocate the transaction price for each customer contract to each performance obligation based on the relative ssp ( the determination of ssp is discussed below ) for each performance obligation within each contract . we recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue as each performance obligation is delivered . we use judgment in determining the ssp for products and services . for substantially all performance obligations except cloud licenses and on-premise licenses , we are able to establish the ssp based on the observable prices of products or services sold separately in comparable circumstances to similar customers . we typically establish an ssp range for our products and services , which is reassessed on a periodic basis or when facts and circumstances change . ssp for our products and services can evolve over time due to changes in our pricing practices that are influenced by intense competition , changes in demand for our products and services , and economic factors , among others . our cloud licenses and on-premise licenses have not historically been sold on a standalone basis , as substantially all customers elect to purchase license support contracts at the time of a cloud license and on-premise license purchase . license support contracts are generally priced as a percentage of the net fees paid by the customer to access the license . we are unable to establish the ssp for our cloud licenses and on-premise licenses based on observable prices given the same products are sold for a broad range of amounts ( that is , the selling price is highly variable ) and a representative ssp is not discernible from past transactions or other observable evidence . as a result , the ssp for a cloud license and an on-premise license included in a contract with multiple performance obligations is determined by applying a residual approach whereby all other performance 39 index to financial statements obligations within a contract are first allocated a portion of the transaction price based upon their respective ssps , with any residual amount of transaction price allocated to cloud license and on-premise license revenues . business combinations we apply the provisions of asc 805 , business combinations , in accounting for our acquisitions . asc 805 requires that we evaluate whether a transaction pertains to an acquisition of assets , or to an acquisition of a business .
| results of operations impacts of the u.s. tax cuts and jobs act of 2017 the comparability of our operating results in fiscal 2019 compared to the corresponding prior year periods , and of our consolidated balance sheets as of may 31 , 2019 relative to may 31 , 2018 , was impacted by the u.s. tax cuts and jobs act of 2017 ( the tax act ) , which was effective for us in our third quarter of fiscal 2018. information regarding our adoption and the impacts of the tax act are included in notes 1 and 14 of notes to consolidated financial statements included elsewhere in this annual report . impacts of acquisitions the comparability of our operating results in fiscal 2019 compared to fiscal 2018 was impacted by our recent acquisitions . in our discussion of changes in our results of operations from fiscal 2019 compared to fiscal 2018 , we may qualitatively disclose the impact of our acquired products and services revenues ( for the one-year period subsequent to the acquisition date ) to certain of our businesses ' revenues where such qualitative discussions would be meaningful for an understanding of the factors that influenced the changes in our results of operations . when material , we may also provide quantitative disclosures related to such acquired products and services . expense contributions from our recent acquisitions for each of the respective period comparisons may not be separately identifiable due to the integration of these businesses into our existing operations , and or were insignificant to our results of operations during the periods presented .
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pursuant to the security agreement , the “ collateral ” was defined as including any and all ( all such terms as defined in the security agreement ) of the accounts , chattel paper , commercial tort claims , deposit accounts , documents , equipment , instruments , inventory , investment property , general intangibles , letter of credit rights , negotiable collateral , supporting obligations , vehicles , grantors ' books , in each case whether now existing or hereafter acquired or created , any money or other assets of any grantor that now or hereafter come into the possession , custody , or control of agent and any proceeds or products of any of the foregoing , or any portion thereof . in connection with the grant of the security interest in the collateral , each of the borrowers made standard representations and warranties relating to ownership of the collateral , location and control of the collateral , and certain rights to payment . f- 18 additionally , in connection with the a & r credit agreement and the acquisition of ctek security , inc. transaction , ( see note 14 ) , michael mathews , ( “ mathews ” ) , michael mcmillan ( “ mcmillan ” ) , the company , and avidbank entered into a subordination agreement ( the “ subordination agreement ” ) , pursuant to which mathews and mcmillan agreed that unless and until all of the company 's obligations under the a & r credit agreement have been repaid in full , mathews and mcmillan would not , except as provided in the subordination agreement , ask , demand , sue for , take or receive , or retain , from the company or any other person or entity , by setoff or in any other manner , payment of all or any part of the subordinate debt ( as defined below ) , or take any other action with respect to the subordinate debt ; forgive , cancel or discharge any of the story_separator_special_tag . the following discussion presents information about our consolidated results of operations , financial condition , liquidity and capital resources and should be read in conjunction with our consolidated financial statements and the notes thereto beginning on page f-1 of this annual report . overview we are engaged in the business of providing it and related consulting services , including cybersecurity , and it security consulting services and managed print services to the healthcare industry . our business is operated throughout the united states . we provide a large selection of testing services offered on a standalone basis or customized into a package of services to fit our customers ' needs or offered as an industry accepted methodology-based risk assessment that meets requirements outlined by hipaa and meaningful use . the hipaa risk assessment is our flagship stand-alone service and combines several of our individual technical and physical assessment components into a single engagement aimed specifically at addressing the requirement for both a risk assessment as well as ongoing risk management processes for all organizations with a requirement to comply with hipaa . we also offer an annual risk assessment as the base component of an ongoing holistic compliance management program , compliance assist partner program ( capp ) . 14 we understand that health information privacy means more than just meeting an organization 's hipaa compliance requirements – it is a business imperative . our team of consultants is comprised of experienced professionals who have learned their craft both in the classroom and through years of experience as policy makers and in the health care industry . this allows us to provide our customers with expert hipaa privacy consulting services that evaluate the rigor and effectiveness of their privacy program to ensure the confidentiality of their patients ' health information . we offer a menu of services to measure and strengthen an organization 's compliance with the hipaa privacy rule , hitech breach notification rule , federal trade commission consumer protection guidelines and state privacy standards . using state of the art assessment tools and applying industry best practices , our teams identify areas to strengthen our customers privacy program , recommend solutions , and provide tools and training materials to enhance the culture of privacy and compliance within your organization . a variety of consulting advisory services are also offered , ranging from using cutting-edge technologies to monitor user access to patient health information to producing exercises replicating the hipaa/hitech audit experience that help guide organizations on how to respond to state or federal regulatory enforcement investigations . we can also customize any assessment to address specific organizational requirements . working with us enables customers to have resources and expertise that they need to accelerate the effectiveness of their privacy program . to help organizations prepare for audits and investigations , cynergistek offers a series of audit solutions that help organizations verify and validate that privacy and security programs meet compliance and business objectives . cynergistek understands the regulatory and compliance environment and can help organizations enhance their risk management efforts through various types of audits . our compliance and audit services are delivered by our industry experts and provide an overall assessment of your organization 's audit readiness . we provide a compliance assist partner program ( “ capp ” ) that is a fully customizable managed security services support agreement . the capp is offered to both providers and business associates and provides the basic building blocks to help an organization build and maintain their cybersecurity program . this multi-year program provides a fully managed support environment . we offer a patient privacy monitoring service ( “ ppms ” ) that supports multiple platforms allowing the customer to select the tool of choice and have a fully managed solution . our vendor security management service is a fully automated saas solution employing our proprietary risk sonar application . story_separator_special_tag such provisions are considered by management during the company 's initial proprietary client assessment and are charged and accrued when deemed by management to be probable . the company 's historical settlement of such amounts has been within management 's estimates . 16 · software subscriptions and managed services revenue software subscriptions and managed services revenues are recognized ratably over the contract terms beginning on the commencement date of each contract , which is the date the company 's service is made available to customers . amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met . the company 's software subscription service arrangements are non-cancelable and do not contain refund-type provisions . · cybersecurity professional services revenue the majority of the company 's cybersecurity services contracts are on a time and material basis . when these services are not combined with subscription revenues as a single unit of accounting , these revenues are recognized as the services are rendered for time and material contracts , and when the milestones are achieved and accepted by the customer for fixed price contracts . in may 2014 , the fasb issued guidance which provides a single , comprehensive accounting model for revenue arising from contracts with customers . this guidance supersedes most of the existing revenue recognition guidance , including industry-specific guidance . under this model , revenue is recognized at an amount that a company expects to be entitled to upon transferring control of goods or services to a customer , as opposed to when risks and rewards transfer to a customer . the new guidance also requires additional disclosures about the nature , timing and uncertainty of revenue and cash flow arising from customer contracts , including significant judgments and changes in judgments . considering the one-year delay in the required adoption date for the guidance as issued in july 2015 , the new guidance is effective for us beginning in 2018 and may be applied retrospectively to all prior periods presented or through a cumulative adjustment to the opening retained earnings balance in the year of adoption . we will adopt this standard beginning january 1 , 2018 and expect to use the modified retrospective method of adoption . under the new guidance , based on the nature of our contracts , we expect to continue to recognize revenue in a similar manner as with the current guidance . additionally , we expect the unit of accounting , that is , the identification of performance obligations , will be consistent with current revenue guidance . accordingly , the adoption of this standard is not expected to have an material impact on our revenues . accounts receivable valuation and related reserves we estimate the losses that may result from that portion of our accounts receivable that may not be collectible as a result of the inability of our customers to make required payments . management specifically analyzes customer concentration , customer credit-worthiness , current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts . we review past due accounts on a monthly basis and record an allowance for doubtful accounts where we deem appropriate . new customer implementation costs we ordinarily incur additional costs to implement our services for new customers . these costs are comprised primarily of additional labor and support . these costs are expensed as incurred , and have a negative impact on our statements of operations and cash flows during the implementation phase . impairment review of goodwill and intangible assets we periodically evaluate our intangible assets and goodwill relating to acquisitions for impairment . goodwill is not amortized but is evaluated annually at year end for any impairment in the carrying value . we review our intangible assets for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable . factors we consider important which could trigger an impairment review include , but are not limited to , the following : significant underperformance relative to expected historical or projected future operating results ; significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; and a significant negative industry or economic trend for a sustained period . 17 goodwill and intangible asset impairment assessments are generally determined based on fair value techniques , including determining the estimated future discounted and undiscounted cash flows over the remaining useful life of the asset . those models require estimates of future revenue , profits , capital expenditures and working capital for each reporting unit . we estimate these amounts by evaluating historical trends , the current state of the company 's industries and the economy , current budgets , and operating plans . determining the fair value of reporting units and goodwill includes significant judgment by management and different judgments could yield different results . any resulting impairment loss could have a material impact on our financial condition and results of operations . stock-based compensation under the fair value recognition provisions of the authoritative guidance , stock-based compensation cost granted to employees is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service or performance period , which is the vesting period . stock options and warrants issued to consultants and other non-employees as compensation for services to be provided to us are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant , whichever can be more clearly determined . we currently use the black-scholes option pricing model to determine the fair value of stock options .
| results of operations year ended december 31 , 2017 compared to the year ended december 31 , 2016 net revenue revenue increased by approximately $ 11,400,000 to $ 71,638,947 for the year ended december 31 , 2017 , as compared to the same period in 2016. this increase is largely attributable to the growth in our cybersecurity professional services as a result of the acquisition of ctek security , inc. ( formerly cynergistek , inc. ) ( “ ctek security ” ) in january 2017. revenues from these services increased by approximately $ 14,300,000. revenues from document solution services were approximately $ 49,100,000 in 2017 compared to $ 53,400,000 in 2016. the reduction in these revenues is a result of terminations as well as volume and negotiated rate reductions at existing customers , offset by new customers and expansion of services at existing customers . these terminations will result in lower managed document services revenue in the next few quarters until we replace this revenue with new customers . equipment sales for 2017 were approximately $ 5,000,000 as compared to approximately $ 3,600,000 in 2016. equipment revenues are primarily from copier fleet refresh activities at customers . these fleet refreshes are sporadic since they are typically done every five years at any one customer facility . cost of revenues cost of revenue consists of salaries and expenses of direct labor and indirect support staff as well as document imaging equipment , parts and supplies . cost of revenue was $ 50,739,359 for the year ended december 31 , 2017 , as compared to $ 47,888,296 for the same period in 2016. we incurred approximately $ 5,200,000 in additional staffing costs , including contract labor , largely as a result of the acquisition of ctek security . our service and supply costs decreased approximately $ 3,900,000 as a result of the reduction in document solution services revenue and lower toner supply pricing obtained .
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as noted above , customers incur variable fees when the gmv processed through marketplaces , or the gmv or advertising spend processed through digital marketing , exceeds the gmv or advertising spend included in their subscriptions . in general , revenue from variable fees is recognized in the period in which the related gmv or advertising spend is processed through the platform . other - other product story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this annual report . some of the information contained in this discussion and analysis or set forth elsewhere in this annual report , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review item 1a . `` risk factors '' and `` special note regarding forward-looking statements '' in this annual report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . executive overview story_separator_special_tag from smaller retailers , we need to continue to add brands and large retailers as profitable customers . these customers generally pay a lower percentage of gmv as fees to us based on the relatively higher volume of their gmv processed through our platform . to help drive our future growth , we have made significant investments in our sales force and allocated resources focused on growing our customer base of brands and large retailers . we continue to focus our efforts on increasing value for our customers to support higher rates . strategic partnerships . our business development team 's mission is to expand our sales and market opportunities through strategic partner relationships . we plan to continue to invest in initiatives to expand our strategic partnership base to further enhance our offerings for brands and retailers . increasing complexity of e-commerce . although e-commerce continues to expand as brands and retailers continue to increase their online sales , it is also becoming more complex due to the hundreds of channels available to brands and retailers and the rapid pace of change and innovation across those channels . in order to gain consumers ' attention in a more crowded and competitive online marketplace , an increasing number of brands and many retailers sell their merchandise through multiple online channels , each with its own rules , requirements and specifications . in particular , third-party marketplaces are an increasingly important driver of growth for a number of brands and large online retailers . as a result , we need to continue to support multiple channels in a variety of geographies in order to support our targeted revenue growth . as of december 31 , 2018 , we supported 118 marketplaces , up from 89 at december 31 , 2017 . global growth in e-commerce . we believe the growth in e-commerce globally presents an opportunity for brands and retailers to engage in international sales . however , country-specific marketplaces are often the market share leaders in their regions , as is the case for alibaba in asia . in order to help our customers capitalize on this potential market opportunity , and to address our customers ' needs with respect to cross-border trade , we intend to continue to invest in our international operations . doing business overseas involves substantial challenges , including management attention and resources needed to adapt to multiple languages , cultures , laws and commercial infrastructure , as further described in this report under the caption `` risks related to our international operations . '' our senior management continuously focuses on these and other trends and challenges , and we believe that our culture of innovation and our history of growth and expansion will contribute to the success of our business . we can not , however , assure you that we will be successful in addressing and managing the many challenges and risks that we face . 34 key financial and operating metrics the average revenue generated per customer is a primary determinant of our revenue . we calculate this metric by dividing our revenue for a particular period by the average monthly number of customers during the period , which is calculated by taking the sum of the number of customers at the end of each month in the period and dividing by the number of months in the period . we typically calculate average revenue per customer in absolute dollars on a rolling twelve-month basis , but we may also calculate percentage changes in average revenue per customer on a quarterly basis in order to help us evaluate our period-over-period performance . for purposes of this metric and the number of customers metric described below , we include all customers who subscribe to at least one of our solutions . the number of customers decreased slightly . we continue our focus on obtaining brands and large retailers as customers , which may represent a smaller number of total customers , but a potentially larger source of predictable or sustainable recurring revenue . adjusted ebitda represents our earnings before interest ( income ) expense , income tax expense ( benefit ) and depreciation and amortization , adjusted to eliminate stock-based compensation expense , which is a non-cash item , as well as non-recurring severance and related costs for 2018 and a one-time charge of $ 2.5 million in 2017 for vdas and settlement of an audit related to sales taxes ( refer to note 6 , `` commitments and contingencies , '' to our consolidated financial statements included elsewhere in this annual report for additional information regarding this one-time charge ) . adjusted ebitda for the year ended december 31 , 2018 was favorably impacted by our adoption of accounting standards update no . story_separator_special_tag we invoice our customers for the implementation fee at the inception of the arrangement . fixed subscription and implementation fees that have been invoiced are initially recorded as deferred revenue and are generally recognized ratably over the contract term . in general , we invoice and recognize revenue from the variable portion of subscription fees in the period in which the related gmv or advertising spend is processed . comparison of 2018 to 2017 revenue increased by 7.1 % , or $ 8.7 million , to $ 131.2 million for the year ended december 31 , 2018 compared with $ 122.5 million for the prior year primarily due to an increase in the average revenue per customer . average revenue per customer increased 8.4 % , to $ 46,286 for the year ended december 31 , 2018 compared with $ 42,693 for the year ended december 31 , 2017 . the increase in the average revenue per customer was primarily driven by the growth of revenue derived from our marketplaces solution . this growth was largely attributable to an overall increase in transaction volume . in addition , the increase in average revenue per customer was due in part to our established customers who have increased their revenue over time on our platform . in general , as customers mature they generate a higher amount of gmv from which we derive revenue and in some cases they may subscribe to additional modules on our platform , thereby increasing our subscription revenue . in addition , other revenue increased by 39.7 % , or $ 4.5 million , to $ 16.0 million for the year ended december 31 , 2018 compared with $ 11.4 million for the prior year largely due to growth in revenue derived from our where to buy solution , attributable to both new and expanded contractual arrangements . 38 comparison of 2017 to 2016 revenue increased by 8.2 % , or $ 9.3 million , to $ 122.5 million for the year ended december 31 , 2017 compared with $ 113.2 million for the prior year primarily due to an increase in the average revenue per customer . average revenue per customer increased 8.5 % to $ 42,693 for the year ended december 31 , 2017 compared with $ 39,339 for the year ended december 31 , 2016 . the increase in average revenue per customer was primarily driven by the growth of revenue derived from our marketplaces solution . cost of revenue cost of revenue primarily consists of : salaries and personnel-related costs for employees providing services to our customers and supporting our platform infrastructure , including benefits , bonuses and stock-based compensation ; co-location facility costs for our data centers ; infrastructure maintenance costs ; and fees we pay to credit card vendors in connection with our customers ' payments to us . comparison of 2018 to 2017 cost of revenue increased by 1.4 % , or $ 0.4 million , to $ 29.5 million for the year ended december 31 , 2018 compared with $ 29.1 million for the prior year . the change was comprised primarily of an increase in contractor costs to support our services team . comparison of 2017 to 2016 cost of revenue decreased by 6.3 % , or $ 2.0 million , to $ 29.1 million for the year ended december 31 , 2017 compared with $ 31.1 million for the prior year . the change was comprised primarily of decreases of : $ 1.2 million in compensation and employee-related costs , including stock-based compensation expense , due to changes in headcount ; and $ 0.5 million in co-location and infrastructure maintenance costs primarily associated with closing a data center and retiring servers used to support legacy product offerings that are no longer part of our strategic focus . 39 operating expenses sales and marketing expense sales and marketing expense consists primarily of : salaries and personnel-related costs for our sales and marketing and customer support employees , including benefits , bonuses and stock-based compensation ; amortization of capitalized sales commissions and related incentive payments over their expected term of benefit due to our adoption of asc 606 beginning in 2018 , and sales commissions and related incentive payments expensed as incurred in periods prior to 2018 ; marketing , advertising and promotional event programs ; and corporate communications . comparison of 2018 to 2017 sales and marketing expense decreased by 0.4 % , or $ 0.3 million , to $ 60.1 million for the year ended december 31 , 2018 compared with $ 60.3 million for the prior year . the change was comprised primarily of ( decreases ) increases of : $ ( 6.8 ) million due to the deferral of sales commissions and a portion of other incentive compensation , referred to collectively as contract costs , which were expensed as incurred prior to our adoption of asc 606 at the beginning of 2018 ; and $ ( 0.3 ) million in professional fees , including consulting and contractor services ; partially offset by $ 6.8 million in compensation and employee-related costs , mainly due to additional headcount to support our sales and marketing organization to continue to grow our business . comparison of 2017 to 2016 sales and marketing expense increased by 13.5 % , or $ 7.2 million , to $ 60.3 million for the year ended december 31 , 2017 compared with $ 53.2 million for the prior year . the change was comprised primarily of increases of : $ 4.4 million in compensation and employee-related costs , mainly due to additional headcount in our sales organization ; and $ 2.1 million in marketing and advertising expenses , promotional event programs and travel costs to support expanding marketing activities .
| financial results total revenue of $ 131.2 million for the year ended december 31 , 2018 increased 7.1 % from the prior year ; average revenue per customer of $ 46,286 for the year ended december 31 , 2018 increased 8.4 % compared with $ 42,693 for the prior year ; revenue was comprised of 76.3 % and 23.7 % fixed and variable subscription fees , respectively , for both of the years ended december 31 , 2018 and 2017 ; revenue derived from customers located outside of the united states as a percentage of total revenue was 23.9 % for the year ended december 31 , 2018 compared with 21.9 % for the prior year ; gross margin of 77.5 % for the year ended december 31 , 2018 improved by 120 basis points compared with gross margin of 76.3 % for the prior year ; operating margin of ( 5.7 ) % for the year ended december 31 , 2018 improved 780 basis points compared with operating margin of ( 13.5 ) % for the prior year ; net loss of $ 7.6 million for the year ended december 31 , 2018 improved compared with net loss of $ 16.6 million for the prior year ; adjusted ebitda of $ 9.8 million for the year ended december 31 , 2018 increased 114.1 % compared with adjusted ebitda of $ 4.6 million for the prior year ; cash and cash equivalents was $ 47.2 million at december 31 , 2018 compared with $ 53.4 million at december 31 , 2017 ; and operating cash flow was $ 1.2 million for the year ended december 31 , 2018 compared with $ ( 3.0 ) million for the prior year . trends in our business the following trends have contributed to the results of our consolidated operations , and we anticipate that they will continue to impact our future results : growth in online shopping .
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in connection with this investment , galaxy purchased sbs industries , llc ( a subsidiary of sbs industries holdings , inc. ( sbs industries ) , one of our other portfolio companies ) . sbs industries used proceeds from the sale to partially repay our $ 11.4 million first lien debt , resulting in a realized loss of $ 8.5 million . 62 in december 2020 , we sold our investment in frontier packaging , inc. ( frontier ) , which resulted in dividend income of $ 0.9 million , success fee income of $ 0.2 million , and a realized gain of $ 14.0 million . in connection with the sale , we received net cash proceeds of $ 26.0 million , including the repayment of our debt investment of $ 9.5 million at par . recent developments distributions and dividends in april 2021 , our board of directors declared the following monthly and supplemental cash distributions to common stockholders and monthly dividends to holders of our series e term preferred stock : replace_table_token_10_th ( a ) represents a supplemental distribution to common stockholders . libor transition in general , our investments in debt securities have a term of five years , accrue interest at variable rates ( based on the one-month libor ) and , to a lesser extent , at fixed rates . most u.s. dollar libor are currently anticipated to be phased out in june 2023. libor may transition to a new standard rate , sofr , which will incorporate certain overnight repo market data collected from multiple data sets . to attain an equivalent one-month rate , we currently intend to adjust the sofr to minimize the difference between the interest that a borrower would be paying using libor versus what it will be paying using sofr . we are currently monitoring the transition and can not assure you whether sofr will become a standard rate for variable rate debt . we expect we will need to continue to renegotiate a limited number of loan agreements with our portfolio companies to include fallback language providing a mechanism for the parties to negotiate a new reference interest rate in the event that libor ceases to exists . assuming that sofr replaces libor and is appropriately adjusted to equate to one-month libor , we expect that there should be minimal impact on our operations . covid-19 impact we continue to closely monitor and work with our portfolio companies to navigate the significant challenges created by the continuing covid-19 pandemic , and remain focused on ensuring the safety of the adviser 's and administrator 's personnel and of the employees of our portfolio companies , while also managing our ongoing business activities . while we are closely monitoring all of our portfolio companies , our portfolio continues to be diverse from a geographic and industry perspective . through proactive measures and continued diligence , the management teams of our portfolio companies continue to demonstrate their ability to respond effectively and efficiently to the challenges posed by covid-19 and related orders imposed by state and local governments , including paused or reversed reopening orders . we believe we have sufficient levels of liquidity to support our existing portfolio companies , as necessary , and selectively deploy capital in new investment opportunities . 63 story_separator_special_tag financing costs , during the year ended march 31 , 2021 was 4.3 % , as compared to 9.4 % in the prior year . this decrease in the effective interest rate on the credit facility was primarily a result of the decrease in unused commitment fee on the undrawn portion of the credit facility and a decrease in libor . other expenses decreased 13.9 % during the year ended march 31 , 2021 , as compared to the prior year , primarily due to a decrease in bad debt expense and tax expense . realized and unrealized gain ( loss ) , net of taxes net realized gain ( loss ) on investments during the year ended march 31 , 2021 , we recorded net realized gains on investments of $ 11.4 million , primarily related to a $ 14.3 million realized gain from the exit of frontier , a $ 3.5 million realized gain from the recapitalization of old world , and gains from previous exits , partially offset by an $ 8.5 million realized loss 66 related to the partial write-off of a debt investment in sbs industries . during the year ended march 31 , 2020 , we recorded net realized gains on investments of $ 44.8 million , primarily related to a $ 50.0 million realized gain from the exit of nth degree , inc. ( nth degree ) , a $ 20.4 million realized gain from the exit of adc , and a $ 3.2 million realized gain from the exit of jackrabbit inc. ( jackrabbit ) , partially offset by a $ 14.5 million realized loss from the exit of b-dry , llc ( b-dry ) , a $ 13.0 million realized loss from the exit of meridian , and a $ 2.7 million realized loss from the exit of tread corporation ( tread ) . taxes on deemed distribution of long-term capital gains we did not elect to retain long-term capital gains and to treat them as deemed distributions to common stockholders for the year ended march 31 , 2021. for the year ended march 31 , 2020 , we elected to retain $ 38.0 million of long-term capital gains and to treat them as deemed distributions to common stockholders . story_separator_special_tag we incurred $ 8.0 million of federal income taxes on behalf of common stockholders for the year ended march 31 , 2020. in addition , we incurred virginia state taxes related to the deemed distribution of $ 2.3 million for the year ended march 31 , 2020. refer to note 9 distributions to common stockholders in the accompanying notes to consolidated financial statements for additional information . net realized gain ( loss ) on other during the year ended march 31 , 2021 , we recorded a net realized loss on other of $ 0.8 million which primarily related to unamortized deferred issuance costs written off upon the redemption of our series d term preferred stock in march 2021. during the year ended march 31 , 2020 , there were no realized gains or losses on other . 67 net unrealized appreciation ( depreciation ) of investments during the year ended march 31 , 2021 , we recorded net unrealized appreciation of investments of $ 13.9 million . the realized gains ( losses ) and unrealized appreciation ( depreciation ) across our investments for the year ended march 31 , 2021 were as follows : replace_table_token_13_th the primary drivers of net unrealized appreciation of investments of $ 13.9 million for the year ended march 31 , 2021 were increased performance of certain of our portfolio companies and an increase in comparable multiples used to estimate the fair value of a majority of our portfolio companies , partially offset by the reversal of previously recorded unrealized appreciation upon the exit of one of our investments and a decrease in performance of certain of our other portfolio companies . the decrease in the performance of a limited number of our portfolio companies was driven by the continued impact covid-19 has had or is expected to have on those portfolio companies and the markets in which they operate , including government restrictions on the portfolio companies ' ability to operate under historical conditions , shutdowns , demand for products , and general economic outlook . 68 during the year ended march 31 , 2020 , we recorded net unrealized depreciation of investments of $ 78.1 million . the realized gains ( losses ) and unrealized appreciation ( depreciation ) across our investments for the year ended march 31 , 2020 were as follows : replace_table_token_14_th the primary drivers of net unrealized depreciation of investments of $ 78.1 million for the year ended march 31 , 2020 were decreased performance of certain of our portfolio companies , a decrease in comparable multiples used to estimate the fair value of a majority of our portfolio companies , and the reversal of previously recorded unrealized appreciation of certain investments upon their exit , partially offset by the reversal of previously recorded unrealized depreciation upon the exit of certain of our investments and an increase in performance of certain of our other portfolio companies . in part , the decrease in multiples used to estimate the fair value , and to a lesser extent the performance of certain of our portfolio companies was driven by the impact covid-19 has had or is expected to have on our portfolio companies and the markets in which they operate , including government restrictions on the portfolio companies ' ability to operate under historical conditions , shutdowns , demand for products , and general economic outlook . across our entire investment portfolio , we recorded $ 14.5 million of net unrealized appreciation on our equity investments and $ 0.6 million of net unrealized depreciation on our debt investments for the year ended march 31 , 2021. at march 31 , 2021 , the fair value of our investment portfolio was less than our cost basis by $ 29.7 million , 69 as compared to march 31 , 2020 , when the fair value of our investment portfolio was less than our cost basis by $ 43.7 million , representing net unrealized appreciation of $ 13.9 million for the year ended march 31 , 2021. our entire portfolio was fair valued at 95.5 % of cost as of march 31 , 2021. the comparison of the fiscal year ended march 31 , 2020 to the fiscal year ended march 31 , 2019 can be found in our annual report on form 10-k for the fiscal year ended march 31 , 2020 located within item 7. management 's discussion and analysis of financial condition and results of operations , which is incorporated by reference herein . liquidity and capital resources operating activities cash inflows from operating activities are primarily generated from cash collections of interest and other income from our portfolio companies , as well as from cash proceeds received from repayments of debt investments and from sales of equity investments . these cash collections are principally used to fund new investments , pay distributions to our common stockholders , make interest payments on the credit facility and the 2026 notes , make dividend payments on our mandatorily redeemable preferred stock , pay management and incentive fees to the adviser , and for other operating expenses . we may also use cash inflows from operating activities to repay outstanding borrowings under the credit facility . net cash used in operating activities for the year ended march 31 , 2021 was $ 29.7 million , as compared to net cash provided by operating activities of $ 35.3 million for the year ended march 31 , 2020. this change was primarily due to decreases in principal repayments of investments and net proceeds from the sale of investments and a decline in other liabilities , principally due to $ 13.3 million of tax payments made related to prior year deemed distributions , partially offset by a decline in purchases of investments , and an increase in fees due to adviser related to the prior year payment of $ 8.1 million of capital gains-based incentive fees that were contractually due period over period . purchases of
| results of operations comparison of the fiscal year ended march 31 , 2021 to the fiscal year ended march 31 , 2020 replace_table_token_11_th nm = not meaningful 64 investment income total investment income decreased by 8.6 % for the year ended march 31 , 2021 as compared to the prior year . this decrease was primarily due to a decrease in dividend and success fee income , as well as a decrease in interest income . interest income from our investments in debt securities decreased 4.8 % for the year ended march 31 , 2021 , as compared to the prior year . during the year ended march 31 , 2020 , we received $ 2.1 million of past due interest upon the exit of our investment in alloy die casting co. ( adc ) . generally , the level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period , multiplied by the weighted-average yield . the weighted-average principal balance of our interest-bearing investment portfolio during the year ended march 31 , 2021 was $ 398.1 million , compared to $ 374.3 million during the prior year . this increase was primarily due to the origination of $ 93.8 million of new debt investments , $ 86.3 million of follow-on debt investments to existing portfolio companies , and $ 35.0 million of loans placed back on accrual status , partially offset by the pay-off , restructuring , or write-off of $ 109.2 million of debt investments and $ 47.9 million of loans placed on non-accrual status after march 31 , 2019 , and their respective impact on the weighted-average principal balance when considering the timing of new investments , pay-offs , restructurings , write-offs , and accrual status changes , as applicable . the weighted-average yield on our interest-bearing investments , excluding cash and cash equivalents and receipts recorded as other income , was 11.9 % and 13.2 % for the year ended march 31 , 2021 and 2020 , respectively .
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7. income taxes the income tax provision consists of the following components : replace_table_token_34_th the following table presents u.s. and foreign income ( loss ) before income taxes : replace_table_token_35_th f- 17 the tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows : replace_table_token_36_th we have recorded a valuation allowance against our net deferred tax assets . if or when realized , the tax benefits relating to , and the reversal of , approximately $ 4.3 million of the valuation allowance will be accounted for as an increase in additional paid-in capital as a result of tax deductible compensation arising from stock option exercises . the valuation allowance was established due to uncertainties surrounding the realization of the deferred tax assets . we determined that the valuation allowance pertaining to certain deferred tax assets and liabilities was misclassified between current and long term assets in the june 30 , 2012 consolidated balance sheet . for comparability purposes , we have reclassified such amounts in the accompanying prior year balance sheet , which we believe are not material , to conform to the current year presentation . the following table presents a reconciliation of the income tax provision ( benefit ) to taxes computed at the u.s. federal statutory rate : replace_table_token_37_th due to the “ change of ownership ” provision of the tax reform act of 1986 , utilization of our net operating loss ( “ nol ” ) carryforwards and tax credit carryforwards may be subject to an annual limitation story_separator_special_tag you should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in item 8 of this report , the “ risk factors ” included in item 1a of this report , as well as the cautionary note regarding forward looking statements described elsewhere in this report , before deciding to purchase , hold or sell our common stock . overview lantronix , inc. ( the “ company , ” “ lantronix , ” “ we , ” “ our , ” or “ us ” ) designs , develops , markets and sells networking and communications products with a focus on the convergence of mobility with machine-to-machine ( “ m2m ” ) systems . we provide solutions that enable machines , devices and sensors to be securely accessed , managed and controlled . our solutions are designed to make it easier and more cost effective for our customers to participate in the internet of things ( “ iot ” ) market . we provide a broad portfolio of products intended to enhance the value of electronic devices or machines . our products are typically used by enterprise and commercial businesses , government institutions , telecommunication and utility companies , financial institutions , and individual consumers . we organize our solutions into two product lines based on how they are marketed , sold and deployed : oem modules and enterprise solutions . we conduct our business globally and manage our sales teams by geography , according to four regions : the americas ; europe , middle east , and africa ( “ emea ” ) ; asia pacific ; and japan . recent accounting pronouncements refer to note 1 of notes to consolidated financial statements included in item 8 of this report for a discussion of recent accounting pronouncements . 19 critical accounting policies and estimates the preparation of financial statements and related disclosures in accordance with u.s. generally accepted accounting principles requires us to make judgments , estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during the reporting period . we regularly evaluate our estimates and assumptions related to net revenue , allowances for doubtful accounts , sales returns and allowances , inventory valuation , valuation of deferred income taxes , goodwill valuation , warranty reserves , litigation and other contingencies . we base our estimates and assumptions on historical experience and on various other factors 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 . to the extent there are material differences between our estimates and the actual results , our future results of operations will be affected . we believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements : revenue recognition we recognize revenue when all of the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred or services have been rendered ; our price to the buyer is fixed or determinable ; and collectability is reasonably assured . a significant portion of our sales are made to distributors under agreements which contain a limited right to return unsold product and price protection provisions . therefore , the recognition of net revenue and related cost of revenue from sales to these distributors are deferred until the distributor resells the product . when product revenue is recognized , we establish an estimated allowance for future product returns based on historical returns experience . actual product returns or pricing adjustments that differ from our estimates could result in increases or decreases to revenue . additionally , we sell extended warranty services , which extend the warranty period for an additional one to three years , depending upon the product . warranty net revenue is deferred and recognized ratably over the warranty service period . warranty reserve the standard warranty periods for our products typically range from one to five years . we establish reserves for estimated product warranty costs at the time revenue is recognized based upon our historical warranty experience , and additionally for any known product warranty issues . story_separator_special_tag the expected term of our stock options is generally estimated using the simplified method , as permitted by guidance issued by the securities and exchange commission ( “ sec ” ) . the expected volatility is based on the historical volatility of our stock price . the risk-free interest rate assumption is based on the u.s. treasury interest rates appropriate for the expected term of our stock options and stock purchase rights . if factors change and we employ different assumptions , share-based compensation expense may differ significantly from what we have recorded in the past . if there are any modifications or cancellations of the underlying unvested share-based awards , we may be required to accelerate , increase or cancel any remaining unearned share-based compensation expense . story_separator_special_tag margin : 0pt 0 '' > the following table presents selling , general and administrative expenses : replace_table_token_6_th the increase in selling , general and administrative was primarily due to an increase in advertising and marketing fees related to various marketing initiatives attributable to new products releases . the increase in selling , general and administrative expense was partially offset by decreases in ( i ) professional fees and outside services due to a reduction associated with the implementation of various cost-cutting programs , as well as the fact that in the prior year , the balance included fees related to the special investigation that was completed during the quarter ended september 30 , 2011 , and ( ii ) certain facilities-related equipment and insurance expenses . research and development research and development expenses consisted of personnel-related expenses including share-based compensation , as well as expenditures to third-party vendors for research and development activities , and product certification costs . the following table presents research and development expenses : replace_table_token_7_th 23 the decrease in research and development expenses was primarily due to a decrease in variable compensation and lower travel and other miscellaneous expenses . this decrease was partially offset by an increase in the cost of outside services and certifications primarily related to development costs for new products . other expense , net the following table presents other expense , net : replace_table_token_8_th other expense , net , is comprised of foreign currency remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currency is the u.s. dollar . during fiscal year 2013 , as a result of the final dissolution of our foreign subsidiary in france , we reclassified to other income $ 28,000 in accumulated foreign currency translation adjustments related to this subsidiary that were previously suspended in accumulated other comprehensive income . provision for income taxes the following table presents the income tax provision : replace_table_token_9_th the following table presents our effective tax rate based upon our income tax provision : replace_table_token_10_th we utilize the liability method of accounting for income taxes . the difference between our effective tax rate and the federal statutory rate resulted primarily from the effect of our domestic losses recorded without a tax benefit , as well as the effect of foreign earnings taxed at rates differing from the federal statutory rate . we record net deferred tax assets to the extent we believe these assets will more likely than not be realized . as a result of our cumulative losses and uncertainty of generating future taxable income , we provided a full valuation allowance against our net deferred tax assets for the fiscal years ended june 30 , 2013 and 2012. due to the “ change of ownership ” provision of the tax reform act of 1986 , utilization of our net operating loss ( “ nol ” ) carryforwards and tax credit carryforwards may be subject to an annual limitation against taxable income in future periods . as a result of the annual limitation , a portion of these carryforwards may expire before ultimately becoming available to reduce future income tax liabilities . the following table summarizes our nols : june 30 , 2013 ( in thousands ) federal $ 86,397 state $ 33,146 24 our nol carryovers for federal and state income tax purposes begin to expire in fiscal years 2021 and 2014 , respectively . at june 30 , 2013 , our fiscal year ended 2006 through fiscal year ended 2013 tax years remain open to examination by federal , state , and foreign taxing authorities . however , we have nols beginning in fiscal year ended 2001 which would cause the statute of limitations to remain open for the year in which the nol was incurred . liquidity and capital resources liquidity the following table presents details of our working capital and cash and cash equivalents : replace_table_token_11_th our principal sources of cash and liquidity include our existing cash and cash equivalents , amounts available under our credit facilities , and cash generated from operations . we believe that these sources will be sufficient to fund our current requirements for working capital , capital expenditures and other financial commitments for at least the next 12 months . we anticipate that the primary factors affecting our cash and liquidity are net revenue , working capital requirements and capital expenditures . management defines cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased . we maintain cash and cash equivalents balances at certain financial institutions in excess of amounts insured by federal agencies . management does not believe this concentration subjects us to any unusual financial risk beyond the normal risk associated with commercial banking relationships . we frequently monitor the third-party depository institutions that hold our cash and cash equivalents . our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds . our future working capital requirements will depend on many factors , including the timing and amount of our net revenue , research and development expenses , and expenses associated with any strategic partnerships or acquisitions and infrastructure investments .
| results of operations fiscal years ended june 30 , 2013 and 2012 net revenue by product line the following table presents our net revenue by product line : replace_table_token_2_th 21 to more closely align our product lines with how they are marketed , sold and deployed , we re-categorized our product lines as follows : ( i ) embedded device enablement products are now referred to as oem modules and ( ii ) external device enablement and device management products have been combined into a single product line and are now referred to as enterprise solutions . the following table presents our re-categorized net revenue by product line : replace_table_token_3_th the increase in net revenue from our oem modules product line was primarily due to increased unit sales of our asic , new premierwave en , xport direct and new xpico product families . the unit increases for asic and premierwave en were primarily related to increased production for two existing customers in emea and japan , respectively . the increases were partially offset by a decrease in unit sales of our xport pro , matchport bg and wiport product families . the unit decreases for xport pro were primarily related to the design out of a single customer . the unit decreases for matchport bg and wiport were primarily related to the maturity of these products . the increase in net revenue from our enterprise solutions product line was primarily due to increased unit sales of our new xprintserver product family . in addition , we experienced increased unit sales of our eds product family and our new xdirect and premierewave xn product families .
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“ consolidated financial statements ” ) referred to in item 8 of this form 10-k. certain statements we make under this item 7 constitute “ forward-looking statements ” under the private securities litigation reform act of 1995. see “ forward-looking statements ” at the beginning of part i of this form 10-k. you should consider our forward-looking statements in light of our consolidated financial statements and other financial information appearing elsewhere in this form 10-k and our other filings with the securities and exchange commission ( the “ sec ” ) . hrg overview we are a holding company that conducts its operations principally through its operating subsidiaries . as of september 30 , 2017 , our principal operations were conducted through subsidiaries that offer branded consumer products and related businesses ( spectrum brands ) ; and insurance and reinsurance services ( fgl and front street ) . in addition , we own 99.5 % of nzch corporation , a public shell company , and salus , which was established to serve as a secured asset-based lender and is in the process of completing the wind-down of its business . from time to time , we may manage a portion of our available cash and engage in other activities through our wholly-owned subsidiaries , hgi funding , llc ( “ hgi funding ” ) and hgi energy holdings , llc ( “ hgi energy ” ) . we currently present the results of our operations in two reportable segments : ( i ) consumer products , which consists of spectrum brands ; and ( ii ) corporate and other , which includes salus , nzch , hgi funding and hgi energy . as further described below , our insurance operations are presented as discontinued operations . through spectrum brands , we are a diversified global branded consumer products company with positions in the following major product lines and categories : consumer batteries , small appliances , global pet supplies , home and garden control products , personal care products , hardware and home improvement products and global auto care . spectrum brands manufactures , markets and or distributes its products in approximately 160 countries in the north america ( “ na ” ) , europe , middle east & africa ( “ emea ” ) , latin america ( “ latam ” ) and asia-pacific ( “ apac ” ) regions through a variety of trade channels , including retailers , wholesalers and distributors , original equipment manufacturers ( “ oems ” ) , construction companies and hearing aid professionals . spectrum brands ' operating performance is influenced by a number of factors including : general economic conditions ; foreign exchange fluctuations ; trends in consumer markets ; consumer confidence and preferences ; overall product line mix , including pricing and gross margin , which vary by product line and geographic region ; pricing of certain raw materials and commodities ; energy and fuel prices ; and general competitive positioning , especially as impacted by competitors ' advertising and promotional activities and pricing strategies . through its wholly-owned subsidiaries , fidelity & guaranty life insurance company ( “ fgl insurance ” ) and fidelity & guaranty life insurance company of new york ( “ fgl ny insurance ” ) , fgl is a provider of various types of fixed annuities and life insurance products in the u.s. through its bermuda and cayman-based subsidiaries , front street re ltd. ( “ front street bermuda ” ) and front street re ( cayman ) ltd. ( “ front street cayman ” ) , front street engages in the business of life , annuity and long-term care reinsurance . on may 24 , 2017 , fgl entered into an agreement and plan of merger and front street entered into a share purchase agreement , see “ discontinued operations ” section below and note 1 , basis of presentation and nature of operations to our consolidated financial statements included in part iv - item 15. exhibits , financial statements and schedules for additional information . as a result , our ownership interest in our insurance operations has been classified as held for sale in the accompanying consolidated balance sheets and as discontinued operations in the accompanying consolidated statements of operations and the consolidated statements of cash flows and reported separately for all periods presented . see note 5 , divestitures to our consolidated financial statements included in part iv - item 15. exhibits , financial statements and schedules for additional information . during the fourth quarter of fiscal 2016 , hgi energy completed the sale of its equity interests in compass to a third party ( the “ compass sale ” ) . following the completion of the compass sale , the company no longer owns , directly or indirectly , any oil and gas properties and , accordingly , the results of compass are presented as discontinued operations in the accompanying consolidated statements of operations . see note 5 , divestitures to our consolidated financial statements included in part iv - item 15. exhibits , financial statements and schedules for additional information . 75 highlights for fiscal 2017 : significant transactions and activity consumer products segment on june 1 , 2017 , spectrum brands completed the acquisition of petmatrix , a manufacturer and marketer of rawhide-free dog chews consisting primarily of the dreambone ® and smartbones ® brands . the results of petmatrix 's operations since june 1 , 2017 are included in the company 's consolidated statements of operations and reported within the consumer products segment for fiscal 2017 . on may 12 , 2017 , spectrum brands entered into an asset purchase agreement for the acquisition of assets consisting of the glofish branded operations , including transfer of the glofish ® brand , related intellectual property and operating agreements . the glofish operations consist of the development and licensing of fluorescent fish for sale through retail and online channels . story_separator_special_tag on may 24 , 2017 , fgl entered into an agreement and plan of merger ( the “ fgl merger agreement ” ) with cf corporation ( “ cf corp ” ) , fgl u.s. holdings inc. , an indirect wholly owned subsidiary of cf corp ( “ cf/fgl us ” ) and fgl merger sub inc. , a direct wholly owned subsidiary of cf/fgl us , pursuant to which cf corp has agreed to acquire fgl for $ 31.10 per share ( the “ fgl merger ” ) . fgl expects to be in a position to close the fgl merger before the end of calendar year 2017 , subject to receipt of approval from the iowa insurance division . see note 1 , basis of presentation and nature of operations to our consolidated financial statements included in part iv - item 15. exhibits , financial statements and schedules for additional information . on may 24 , 2017 , front street entered into a share purchase agreement ( the “ front street purchase agreement ” ) pursuant to which , subject to the terms and conditions set forth therein , front street has agreed to sell ( the “ front street sale ” ) to cf/fgl us all of the issued and outstanding shares of ( i ) front street cayman and ( ii ) front street bermuda ( collectively , the “ acquired companies ” ) . the purchase price is $ 65.0 million , subject to customary adjustments for transaction expenses . the required regulatory approvals in connection with the transaction have been received and the closing of the transaction is expected to take place before the end of calendar year 2017 , subject to the satisfaction of other customary closing conditions , including the consummation of the fgl merger . see note 1 , basis of presentation and nature of operations to our consolidated financial statements included in part iv - item 15. exhibits , financial statements and schedules for additional information . on may 24 , 2017 , hrg , fs holdco ii ltd. ( “ fs holdco ” ) , cf corp and cf/fgl us agreed that fs holdco may , at its option , cause cf/fgl us and fs holdco to make a joint election under section 338 ( h ) ( 10 ) of the internal revenue code of 1986 , as amended , with respect to the fgl merger and the deemed share purchases of fgl 's subsidiaries ( the “ 338 tax election ” ) . the company currently expects to exercise the 338 tax election . see note 1 , basis of presentation and nature of operations to our consolidated financial statements included in part iv - item 15. exhibits , financial statements and schedules for additional information . also see part i , item 1a . “ risk factors- while , as of the date of this report , we expect to exercise the 338 tax election and to receive tax benefits from making such election there can be no assurance that such an election will be made or that we will receive any of the benefits from such an election . ” key financial highlights net loss from continuing operations attributable to controlling interest increased $ 19.0 million to $ 20.6 million , or $ 0.10 per basic and diluted common share attributable to controlling interest in fiscal 2017 , compared to $ 1.6 million , or $ 0.01 per basic and diluted common share attributable to controlling interest in fiscal 2016 . the increase in net loss per share was primarily due to lower operating profit and a higher effective income tax rate , partially offset by lower interest expenses . corporate cash and investments were approximately $ 93.0 million at september 30 , 2017 . our consumer products segment 's operating income for fiscal 2017 decreased $ 94.9 million , or 14.5 % , to $ 561.4 million from $ 656.3 million for fiscal 2016 . the decrease was primarily due to a $ 47.3 million increase in restructuring and related charges primarily attributable to restructuring initiatives in the hardware and home improvement and global auto care product lines ; incremental costs of $ 35.8 million from the rawhide safety recall ; and $ 11.6 million increase in impairment charges on intangible assets . our consumer products segment 's adjusted earnings before interest , taxes , depreciation and amortization ( “ adjusted ebitda ” see additional discussion included in the “ non-gaap measurements ” section below ) of $ 955.7 million increased slightly compared to adjusted ebitda of $ 952.8 million for fiscal 2016 . adjusted ebitda margin represented 19.1 % of sales as compared to 18.9 % in fiscal 2016 . our corporate and other segment 's operating loss for fiscal 2017 decreased $ 37.1 million to an operating loss of $ 45.7 million from $ 82.8 million for the fiscal 2016 primarily due to decreases in corporate stock-based compensation , payroll and bonus expenses , coupled with lower impairments and loan loss provision expenses on the asset-based loan portfolio and the effects of the continued run-off of the salus portfolio , the company 's sale of its ownership interest in coramerica , and the wind-down of operations of energy & infrastructure capital , llc ( “ eic ” ) . during fiscal 2017 , we received cash dividends of approximately $ 68.5 million from our subsidiaries , including $ 56.3 million and $ 12.2 million from spectrum brands and fgl , respectively . 77 results of operations fiscal 2017 compared to fiscal 2016 , and fiscal 2016 compared to fiscal 2015 presented below is a table that summarizes our results of operations and compares the amount of the change between the fiscal periods ( in millions ) : replace_table_token_3_th revenues . revenues for fiscal 2017 decreased $ 40.1 million , or 0.8 % , to $ 5,008.5 million from $ 5,048.6 million for fiscal 2016 .
| summary of consolidated cash flows presented below is a table that summarizes the cash provided or used in our activities and the amount of the respective increases or decreases in cash provided or used from those continuing activities between the fiscal periods ( in millions ) : replace_table_token_14_th operating activities cash provided by operating activities totaled $ 479.7 million for fiscal 2017 as compared to $ 427.4 million for fiscal 2016 . the $ 52.3 million improvement in cash provided by operating activities was the result of a $ 50.4 million increase in cash provided by the consumer products segment primarily due to ( i ) incremental cash generated from spectrum brands ' operations of $ 25.7 million , including cash contributed through working capital of $ 15.5 million , primarily from working capital management initiatives to reduce inventory levels , improve turns and the cash conversion cycle and ( ii ) a decrease in cash paid for interest of $ 53.4 million , excluding a non-recurring tender premium of $ 4.6 million for the redemption of the 6.375 % notes , due to a 89 reduction in annualized interest costs from refinancing activities . partially offsetting these cash inflows were : ( i ) an increase in cash paid for acquisition , integration and restructuring related activities of $ 30.3 million primarily for integration of newly acquired businesses and ongoing restructuring initiatives ; ( ii ) an increase in corporate expenditures of $ 7.3 million for continued investment in shared service operations ; and ( iii ) an increase in cash paid for income taxes of $ 2.1 million . cash provided by operating activities totaled $ 427.4 million for fiscal 2016 compared to $ 292.5 million for fiscal 2015 .
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diluted net income ( loss ) per share/unit is computed giving effect to all potential weighted average dilutive shares/units including unit options and incentive units for historical periods prior to the closing of the ipo story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below and those discussed in “ risk factors ” included elsewhere in this form 10-k. overview we are a technology infrastructure company powering the sustainable growth of the connected world and the internet of everything . using our technology platform , we provide solutions to help enable that growth . our advanced data centers are the center of our platform and provide power densities that exceed industry averages with efficient cooling , while being powered by 100 % renewable energy . these hyper scale data centers address the growing challenges facing the data center industry . our critical infrastructure components in our data centers are purpose-built to satisfy customers ' needs , drive efficiency and enable the deployment of highly advanced computing technologies . we presently own and operate three primary campus locations , called primes , which encompass 11 colocation facilities with an aggregate of up to 4.4 million gross square feet , or gsf , of space . our primes consist of the core campus in las vegas , nevada ; the citadel campus near reno , nevada ; and the pyramid campus in grand rapids , michigan . in addition , we have begun construction on a fourth prime , the keep campus , in atlanta , georgia . in addition to our primes , we hold a 50 % ownership interest in supernap international , s.a. , or supernap international , which has deployed facilities in italy and thailand . until march 31 , 2018 , we accounted for this ownership interest under the equity method of accounting . we currently have more than 850 customers , including some of the world 's largest technology and digital media companies , cloud , it and software providers , financial institutions and network and telecommunications providers . our ecosystem connects over 250 cloud , it and software providers and 80 network and telecommunications providers . our business is based on a recurring revenue model comprised of ( 1 ) colocation , which includes the licensing and leasing of cabinet space and power ; and ( 2 ) connectivity services , which include cross-connects , broadband services and external connectivity . we consider these services recurring because our customers are generally billed on a fixed and recurring basis each month for the duration of their contract . we derive more than 95 % of our revenue from recurring revenue and we expect to continue to do so for the foreseeable future . for the years ended december 31 , 2018 , 2017 , and 2016 , our largest customer , ebay , inc. and its affiliates , accounted for 10.5 % , 10.9 % , and 13.3 % of our revenue , respectively . our non-recurring revenue is primarily comprised of installation services related to a customer 's initial deployment . these services are non-recurring because they are typically billed once , upon completion of the installation . our revenue has grown from $ 318.4 million in 2016 to $ 405.9 million in 2018 . we generated net income of $ 29.3 million during the year ended december 31 , 2018 . due in part to a non-recurring equity-based compensation expense related to the accelerated vesting of certain incentive units upon our ipo and fully vested awards granted under our 2017 incentive award plan , we generated a net loss of $ 8.6 million for the year ended december 31 , 2017 . we generated net income of $ 31.4 million during the year ended december 31 , 2016 . during the years ended december 31 , 2018 , 2017 , and 2016 , we generated adjusted ebitda of $ 201.7 million , $ 194.7 million , and $ 153.2 million , respectively , representing an adjusted ebitda margin of 49.7 % , 51.5 % , and 48.1 % , respectively . factors that may influence future results of operations market and economic conditions . we are affected by general business and economic conditions in the united states and globally . these conditions include short-term and long-term interest rates , inflation , money supply , political issues , legislative and regulatory changes , fluctuations in both debt and equity capital markets and broad trends in industry and finance , all of which are beyond our control . macroeconomic conditions that affect the economy and the economic outlook of the united states and the rest of the world could adversely affect our customers and vendors , which could adversely affect our results of operations and financial condition . growth and expansion activities . our future revenue growth will depend on our ability to maintain our existing revenue base while expanding and increasing utilization at our existing and developing prime campus locations . our existing prime campus locations currently encompass 11 colocation facilities with an aggregate of up to 4.4 million gsf of space and up to 455 mw of power . as of december 31 , 2018 , the utilization rates at these prime campuses , based on currently available cabinets , were approximately 91 % , 58 % , and 88 % at the core campus , the citadel campus , and the pyramid campus , respectively . story_separator_special_tag we present adjusted ebitda and adjusted ebitda margin because we believe certain investors use them as measures of a company 's historical operating performance and its ability to service and incur debt and make capital expenditures . we believe that the inclusion of certain adjustments in presenting adjusted ebitda and adjusted ebitda margin is appropriate to provide additional information to investors because adjusted ebitda and adjusted ebitda margin exclude certain items that we believe are not indicative of our core operating performance and that are not excluded in the calculation of ebitda . adjusted ebitda is also similar to the measures used under the debt covenants included in our credit facilities , except that the definition used in our credit facilities does not exclude cash gains or shareholder-related litigation expense . accordingly , we believe that adjusted ebitda and adjusted ebitda margin provide useful information to investors and others in understanding and evaluating our operating results , enhancing the overall understanding of our past performance and future prospects , and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making . our non-gaap financial measures have limitations as analytical tools and you should not consider them in isolation or as a substitute for an analysis of our results under gaap . there are a number of limitations related to the use of these non-gaap financial measures versus their nearest gaap equivalents . non-gaap financial measures may not provide information directly comparable to measures provided by other companies in our industry , as those other companies may calculate their non-gaap financial measures differently . in addition , the non-gaap financial measures exclude certain recurring expenses that have been and will continue to be significant expenses of our business . switch , inc. | 2018 form 10-k | 56 the following table sets forth a reconciliation of our net income ( loss ) to adjusted ebitda : replace_table_token_5_th ( 1 ) interest income is included in the “ other ” line of other income ( expense ) in our consolidated statements of operations and comprehensive income ( loss ) . ( 2 ) the write-off of interest income receivable pertaining to our notes receivable with planet3 , inc. is included in the selling , general and administrative expense line in our consolidated statements of operations and comprehensive income ( loss ) . components of results of operations revenue during the years ended december 31 , 2018 , 2017 , and 2016 , we derived more than 95 % of our revenue from recurring revenue streams , consisting primarily of ( 1 ) colocation , which includes the licensing and leasing of cabinet space and power ; and ( 2 ) connectivity services , which include cross-connects , broadband services and external connectivity . the remainder of our revenue is from non-recurring revenue , which primarily includes installation services related to a customer 's initial deployment and contract settlements . based on the current growth stage of our business , we expect increases in revenue to be driven primarily by increases in volume , rather than changes in the prices we charge to our customers . revenue from recurring revenue streams is generally billed monthly and recognized ratably over the period to which the service relates . contracts with our customers generally have terms of three to five years . non-recurring installation fees , although generally paid in a lump sum upon installation , are deferred and recognized ratably over the expected life of the installation . revenue from connectivity services is generally recognized on a gross basis , primarily because we generally act as the principal in the transactions , take title to services and bear credit risk . revenue from contract settlements , which result when a customer wishes to terminate their contract early , is recognized when no remaining performance obligations exist , to the extent that the revenue has not previously been recognized . cost of revenue cost of revenue consists primarily of depreciation and amortization expense , expenses associated with the operations of our facilities , including electricity and other utility costs and repairs and maintenance , data center employees ' salaries and benefits , including equity-based compensation , connectivity costs , and rental payments related to our leased buildings and land used in data center operations . a substantial portion of our cost of revenue is fixed in nature and may not vary significantly from period to period , unless we expand our existing data centers or open new data centers . however , there are certain costs that are considered more variable in nature , including utilities and supplies that are directly related to growth in our existing and new customer base . we have seen the cost of our utilities , specifically electricity , decrease as we have become an unbundled purchaser of energy in nevada , and are able to purchase energy from the open market . the largest portion of our utility costs is fixed and a smaller portion is variable with market conditions . switch , inc. | 2018 form 10-k | 57 gross profit and gross margin gross profit , or revenue less cost of revenue , and gross margin , or gross profit as a percentage of revenue , has been and will continue to be affected by various factors , including customer growth , the expansion of our existing data centers or opening of new data centers , and the cost of our utilities , specifically electricity . our gross margin may fluctuate from period to period depending on the interplay of these factors .
| results of operations the following table sets forth our results of operations : replace_table_token_6_th ( 1 ) switch , ltd. and its subsidiaries is our predecessor for accounting purposes and , accordingly , amounts for the period from january 1 , 2017 to october 10 , 2017 and the year ended december 31 , 2016 represent the historical consolidated operations of switch , ltd. and its subsidiaries . switch , inc. | 2018 form 10-k | 59 the following table sets forth the consolidated statements of operations data presented as a percentage of revenue . amounts may not sum due to rounding . replace_table_token_7_th comparison of the years ended december 31 , 2018 and 2017 revenue replace_table_token_8_th revenue increased by $ 27.6 million , or 7 % , for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 . the increase was primarily attributable to increases of $ 19.5 million in colocation revenue and $ 6.3 million in connectivity revenue , both of which resulted from an increased volume of sales to existing and new customers . of the overall increase , 30 % was attributable to new customers initiating service after december 31 , 2017 , and the remaining 70 % was attributable to growth from existing customers . our revenue churn rate , which we define as the reduction in recurring revenue attributable to customer terminations or non-renewal of expired contracts , divided by revenue at the beginning of the period , was 0.5 % and 0.6 % during the years ended december 31 , 2018 and 2017 , respectively . switch , inc. | 2018 form 10-k | 60 cost of revenue and gross margin replace_table_token_9_th cost of revenue increased by $ 26.2 million , or 13 % , for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 .
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we recommend reading this md & a in conjunction with our consolidated financial statements and notes thereto included in this form 10-k. story_separator_special_tag size= '' 1 '' > 30 restructuring activity during 2017 , we announced a multi-year strategic transformation to pivot from a traditional office product retailer to a broader omni-channel business services , product and technology provider which included the acquisition of compucom . as part of the new strategy , we will expand our technology and business service offerings and accelerate the offering of new subscription-based services , including expanding our service offering to address the needs of small businesses . as part of this multi-year strategic shift , we anticipate incurring additional costs over the next few years including professional fees , severance and other related cost . in august 2016 , we announced the results of a comprehensive business review ( the comprehensive business review ) , which , among other things , included the planned closure of 300 retail stores in north america over a three-year period , and to lower operating and general and administrative expenses through efficiencies and organizational optimization . however , as part of a new omni-channel strategy , we have decided to significantly slow the pace of future store closures . we will continue to re-evaluate store closure programs on an annual basis . officemax merger on november 5 , 2013 , we finalized our merger with officemax . as part our merger with officemax , we initiated various merger integration activities . during 2016 , we completed a retail store closure program totaling 400 locations during 2014 to 2016. during 2017 , we completed changes to our supply chain network related to the officemax merger . in addition , all of our retail stores have been converted to common point of sale systems , we successfully launched a co-branded public website ( www.officedepot.com ) , combined operating support functions , transitioned most contract customers from the officemax to the office depot platform , and identified customer preferences and developed methods to service their needs . the business solutions customer migrations followed the completion of the supply chain integration and was substantially completed at the end of 2017 , with some activity anticipated in early 2018. we estimate we have achieved over $ 750 million in annual run rate synergy benefits from the officemax integration through the end of 2017. continuing operations a summary of certain factors impacting our operating results from continuing operations for the 52-week period ended december 30 , 2017 ( also referred to as 2017 ) and the 53-week period ended december 31 , 2016 ( also referred to as 2016 ) is provided below . sales reported for 2017 compared to the prior year were negatively affected by retail store closures and declining comparable store sales in the retail division . sales in our business solutions division were negatively impacted by continuing competitive pressures and the continued impact of prior period customer losses as a result of the staples merger disruption . the compucom division includes the operating results of compucom since our acquisition on november 8 , 2017. additionally , the impact of one less week in 2017 compared to 2016 resulted in lower total company sales and operating income of approximately $ 143 million and $ 15 million , respectively . 31 during the third quarter of 2017 , the south-central and southeast areas of the united states , as well as puerto rico and the u.s. virgin islands , were impacted by three powerful hurricanes that disrupted normal operations at approximately 220 of our retail stores and impacted sales in our business solutions division . while nearly all of these stores have resumed operations , some of these stores continue to be impacted by the hurricanes , either as a result of damage incurred , or as a result of declining customer traffic driven by reduced hours and disrupted shopping patterns in those areas . replace_table_token_7_th * * we formed the compucom division as a result of our acquisition of compucom on november 8 , 2017. the 2017 amount represents sales from the acquisition date of november 8 , 2017 through the end of fiscal 2017. other significant factors impacting total company results and liquidity gross margin rate decreased 54 basis points in 2017 compared to 2016 , with decreases in both the retail division and the business solutions division partially offset by the impact of the acquisition of compucom during 2017. the decrease in gross margin rate is primarily due to store and supply chain costs deleverage on lower sales . total company selling , general and administrative expenses decreased in 2017 compared to 2016 , reflecting the closure of stores in north america , lower payroll and advertising expenses , operational efficiencies and synergies , partially offset by higher expenses related to the five business acquisitions in 2017. as a percentage of sales , total selling , general and administrative expenses decreased in 2017 compared to 2016 by 60 basis points . we recorded $ 94 million of merger and restructuring expenses , net , in 2017 , compared to $ 80 million of merger and restructuring income , net in 2016. merger and restructuring expense in 2017 includes $ 17 million of transaction and integration related costs associated with our acquisition of compucom and the other businesses in 2017 , $ 25 million of expenses related to continued officemax merger activities and $ 52 million of expenses associated with restructuring activities . the 2016 merger and restructuring income , net includes $ 250 million of income related to the termination fee payment received from staples during the period . additional integration and restructuring expenses are expected to be incurred in future periods . refer to note 3 . merger and restructuring activity in the notes to the consolidated financial statements for additional information . story_separator_special_tag future store closures under the comprehensive business review may have lower sales transfer rates as the geographic distance between stores being closed to stores remaining open increases and overall impact of the sales transfer may decrease given the lower number of store closures . comparable store sales in 2016 decreased 2 % , reflecting flat average order value , lower store traffic and transaction counts compared to 2015 , partially offset by higher conversion rates and by sales transfers from closed stores and higher sales associated with our omni -channel programs . the growth in omni-channel sales was primarily related to buy online-pickup in store sales which increased over 50 % to approximately $ 115 million in 2016 compared to the prior year , and was favorably impacted by the initiation of the buy online ship from store strategy . additionally , comparable store sales calculations were positively affected from customers transferring from closed to nearby stores which remained open . comparable store sales decreased in ink , toner , computers and technology products . sales increased in furniture , copy and print services , and cleaning/breakroom products . comparable store sales in 2015 were flat . as we began closing stores , comparable store sales calculations were positively affected from customers transferring from closed to nearby stores which remained open . the 2015 results reflected increases in supplies , furniture , copy and print services , ink and toner and declines in computer and related technology products . in 2015 , transaction counts increased and average order values decreased compared to prior year . the increase in transaction counts resulted from increased traffic in the stores due to sales transfers resulting from store closures and improvements in customer in-store experience . additionally , 2015 sales include an increase in online sales picked up by customers in stores . the decrease in average order values in 2015 reflect , in part , declines in technology sales , as customers continue to reduce purchases in this overall category partially offset by the increase in average sale prices on furniture products . the retail division reported operating income of $ 254 million in 2017 , compared to $ 299 million in 2016 and $ 310 million in 2015. the decline in the division 's operating income in 2017 reflects the negative flow-through impact of lower sales and gross margin rate , which were partially offset by lower selling , general and administrative expenses , including payroll and other store expenses primarily related to store closures increased efficiency and the impact of one less week in fiscal 2017 compared to fiscal 2016. the impact of one less week in 2017 compared to 2016 resulted in approximate $ 14 million of lower division operating income in 2017 compared to 2016. the decline in the division 's operating income in 2016 compared to 2015 reflects the positive impact to operating income in 2015 from a favorable legal settlement of $ 16 million relating to labor matters and $ 23 million favorable settlement relating to certain product manufacturers ' pricing practices . excluding those items , the retail division 's operating income improved in 2016 compared to 2015 , reflecting a slight increase in gross margin and lower occupancy costs , as well as lower selling , general and administrative expenses , from both 34 store closures and increased efficiency , as well as the impact of the 53 rd week . the additional week of operations in 2016 positively impacted division results by approximately $ 14 million compared to 2015. at the end of 2017 , the retail division operated 1,378 retail stores in the united states , puerto rico and the u.s. virgin islands . store opening and closing activity for the last three years has been as follows : replace_table_token_9_th charges associated with store closures are reported as appropriate in asset impairments and merger and restructuring expenses ( income ) , net in the consolidated statements of operations . these charges are reflected in corporate reporting , and are not included in the determination of division income . refer to corporate discussion below for additional information of expenses incurred to date . business solutions division replace_table_token_10_th sales in our business solutions division in u.s. dollars decreased year over year by 5 % in 2017 , 2016 and 2015. in 2017 , 2016 and 2015 , on a constant currency basis , sales decreased 6 % , 5 % , and 4 % , respectively . changes in constant currencies are computed by excluding the impact of foreign currency exchange rate fluctuations . in future periods , business solutions division results will continue to be impacted by changes in foreign currency exchange rates associated with the canadian business . the acquisitions ( excluding compucom ) in 2017 are reported in the business solutions division , but did not have a material impact on sales or operating income . the decline in sales in all three years was primarily driven by ongoing competitive pressures , customer losses in the contract channel , the ongoing reduction in catalog sales through our call centers and the impact of increasing levels of sales from the omni-channel programs that are recorded in the retail division . the sales decline in 2017 was also impacted by one less selling week compared to 2016 , resulting in approximately $ 56 million of lower sales . also , negatively impacting the level of sales in 2017 was the impact of the three hurricanes as discussed above . the sales decline in 2016 and 2015 were also negatively impacted by sales disruptions associated with the staples acquisition attempt and , in 2015 , by the decommissioning of certain legacy officemax e-commerce sites which had a positive impact on overall operating income . on a product category basis for the business solutions division , sales increased in cleaning/breakroom and furniture , were essentially flat in copy and print , and decreased across the other primary product categories . sales of paper , toner , and ink continued to trend lower over the three years .
| results of operations overview the company our business is comprised of three reportable segments ( or divisions ) at year end 2017. the retail division includes our retail stores in the united states , puerto rico and the u.s. virgin islands , which offer office supplies , technology products and solutions , business machines and related supplies , print , cleaning , breakroom and facilities products , and office furniture . stores also have a copy and print center offering printing , reproduction , mailing and shipping . the business solutions division sells office supply products and services in the united states , puerto rico , u.s. virgin islands , and canada . business solutions division customers are served through dedicated sales forces , through catalogs , telesales , and electronically through our internet sites . the compucom division consists of compucom systems , inc. ( compucom ) and was formed during the fourth quarter of 2017 after the acquisition of compucom . compucom division sells information technology ( it ) outsourcing services and products to north american enterprise organizations in the united states , canada and costa rica , and offers a broad range of solutions that includes end user computing ( tablets , smartphones , laptops and desktops ) , data center management , service desk , network infrastructure and it workforce solutions . compucom division customers are served through dedicated it service and sales representatives , telesales , and electronically through our internet sites . acquisitions to further our strategic direction to transform into a more services-driven platform and strengthen our core business operations , we acquired five businesses during 2017. on november 8 , 2017 , we completed the acquisition of compucom . we acquired all of the capital stock of compucom for approximately $ 937 million , funded with a new $ 750 million 5-year term loan facility , approximately 44 million shares of office depot common stock with an approximate market value of $ 135 million , and approximately $ 52 million of cash on hand .
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74 juniper networks , inc. notes to consolidated financial statements ( continued ) deferred product revenue represents unrecognized revenue related to undelivered product commitments and other shipments that have not met revenue recognition criteria . deferred service revenue represents billed amounts for service contracts , which include technical support , hardware and software maintenance , professional services , and training , for which services have not been rendered . revenue is recognized net of any taxes collected , which are subsequently remitted to governmental authorities . deferred commissions sales commissions earned by the company 's sales force are considered incremental and recoverable costs of obtaining a contract with story_separator_special_tag the following discussion should be read with the business in item 1 of part i and the consolidated financial statements and the related notes in item 8 of part ii of this report . the following discussion is based upon our consolidated financial statements included elsewhere in this report , which have been prepared in accordance with u.s. generally accepted accounting principles , or u.s. gaap . in the course of operating our business , we routinely make decisions as to the timing of the payment of invoices , the collection of receivables , the manufacturing and shipment of products , the fulfillment of orders , the purchase of supplies , and the building of inventory and spare parts , among other matters . in making these decisions , we consider various factors including contractual obligations , customer satisfaction , competition , internal and external financial targets and expectations , and financial planning objectives . each of these decisions has some impact on the financial results for any given period . for further information about our critical accounting policies and estimates , see “ critical accounting policies and estimates ” section included in this “ management 's discussion and analysis of financial condition and results of operations. ” to aid in understanding our operating results for the periods covered by this report , we have provided an executive overview , which includes a summary of our business and market environment along with a financial results and key performance metrics overview . these sections should be read in conjunction with the more detailed discussion and analysis of our consolidated financial condition and results of operations in this item 7 , our “ risk factors ” section included in item 1a of part i , and our consolidated financial statements and notes thereto included in item 8 of part ii of this report . 42 executive overview financial results and key performance metrics overview the following table provides an overview of our financial results and key financial metrics ( in millions , except per share amounts , percentages , and days sales outstanding , or dso ) : replace_table_token_6_th ( * ) dso is for the fourth quarter ended december 31 , 2019 , and 2018 . net revenues : the net revenues decreased primarily due to the service provider vertical , partially offset by growth in enterprise and cloud . we believe the decline in the service provider vertical is due to continued business challenges facing some of our largest service provider customers . our cloud vertical has returned to year-over-year growth . certain large cloud customers were transitioning their network architecture as they continued to add capacity . the transition from purchasing our mx product family to our ptx product family contributed to the decline in our net revenues as the ptx product family has a lower average selling price compared to the mx product family . we believe the mx to ptx transition is largely behind us . nevertheless , we are focused on the cloud vertical as well as the transition to 400-gig ethernet , or 400g , which we believe will present further opportunities for juniper across our portfolio as our cloud customers value high-performance , highly compact , power efficient infrastructures , which we support and continue to develop . our enterprise vertical grew year-over-year , primarily due to services and to a lesser extent , routing and security , partially offset by a decline in switching . service net revenues increased primarily due to strong renewal and attach rates of support contracts . gross margin : the gross margin as a percentage of net revenues decreased primarily due to lower product revenues , higher amortization of intangible assets associated with the acquisition of mist , customer and product mix , and to a lesser extent , china tariffs , partially offset by higher service revenues and lower service delivery costs . operating margin : the operating income as a percentage of net revenues decreased primarily due to the drivers described in the gross margin discussion above , and higher restructuring costs during the first half of 2019 that we did not incur during the same period in 2018. the decrease in operating margin was partially offset by lower personnel-related and share-based compensation expenses . 43 operating cash flows : net cash provided by operations decreased primarily due to lower invoicing activity , partially offset by a decrease in cash paid for income taxes and a decrease in payments to suppliers . capital return : we continue to return capital to our stockholders . during the second quarter of 2019 , we entered into an accelerated share repurchase program , or asr , of $ 300.0 million . the asr resulted in a total settlement of 11.6 million shares . during the fourth quarter of 2019 , we entered into another asr to repurchase an aggregate of $ 200.0 million shares . under the asr , we made an up-front payment of $ 200.0 million and received an initial delivery of 6.4 million shares for an aggregate price of $ 160.0 million . upon completion of the asr in the first quarter of 2020 , we received an additional 1.8 million shares from the financial institution . story_separator_special_tag inventory valuation and contract manufacturer liabilities : inventory consists primarily of component parts to be used in the manufacturing process and finished goods in-transit , and is stated at lower of cost or net realizable value . a provision is recorded when inventory is determined to be in excess of anticipated demand or obsolete , to adjust inventory to its estimated realizable value . in determining the provision , we also consider estimated recovery rates based on the nature of the inventory . as of december 31 , 2019 and december 31 , 2018 , our net inventory balances were $ 94.2 million and $ 82.0 million , respectively . we establish a liability for non-cancelable , non-returnable purchase commitments with our contract manufacturers for quantities in excess of our demand forecasts or obsolete materials charges for components purchased by contract manufacturers based on our demand forecasts or customer orders . we also take estimated recoveries of aged inventory into consideration when determining the liability . as of december 31 , 2019 and december 31 , 2018 , our contract manufacturer liabilities were $ 28.6 million and $ 30.4 million , respectively . significant judgment is used in establishing our forecasts of future demand , recovery rates based on the nature and age of inventory , and obsolete material exposures . we perform a detailed analysis and review of data used in establishing our demand forecasts . if the actual component usage and product demand are significantly lower than forecast , which may be caused by factors within and outside of our control , or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and our customer requirements , we may be required to increase our inventory write-downs and contract manufacturer liabilities , which could have an adverse impact on our gross margins and profitability . we regularly evaluate our exposure for inventory write-downs and adequacy of our contract manufacturer liabilities . inventory and supply chain management remains an area of focus as we balance the risk of material obsolescence and supply chain flexibility in order to reduce lead times . revenue recognition : we enter into contracts to sell our products and services , and while some of our sales agreements contain standard terms and conditions , there are agreements that contain non-standard terms and conditions and include promises to transfer multiple goods or services . as a result , significant interpretation and judgment are sometimes required to determine the appropriate accounting for these transactions , including : ( 1 ) whether performance obligations are considered distinct that should be accounted for separately versus together , how the price should be allocated among the performance obligations , and when to recognize revenue for each performance obligation ; ( 2 ) developing an estimate of the stand-alone selling price , or ssp , of each distinct performance obligation ; ( 3 ) combining contracts that may impact the allocation of the transaction price between product and services ; and ( 4 ) estimating and accounting for variable consideration , including rights of return , rebates , price protection , expected penalties or other price concessions as a reduction of the transaction price . our estimates of ssp for each performance obligation require judgment that considers multiple factors , including , but not limited to , historical discounting trends for products and services , pricing practices in different geographies and through different sales channels , gross margin objectives , internal costs , competitor pricing strategies , and industry technology lifecycles . our estimates for rights of return , rebates , and price protection are based on historical sales returns and price protection credits , specific criteria outlined in customer contracts or rebate agreements , and other factors known at the time . our estimates for expected penalties and other price concessions are based on historical trends and expectations regarding future incurrence . changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition . income taxes : we are subject to income taxes in the united states and numerous foreign jurisdictions . significant judgment is required in evaluating our uncertain tax positions and determining our taxes . although we believe our reserves are reasonable , no assurance can be given that the final tax outcome of these matters will not be different from 45 that which is reflected in our historical income tax provisions and accruals . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit or the refinement of an estimate . to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made . significant judgment is also required in determining any valuation allowance recorded against deferred tax assets . in assessing the need for a valuation allowance , we consider all available evidence , including past operating results , estimates of future taxable income , and the feasibility of tax planning strategies . in the event that we change our determination as to the amount of deferred tax assets that can be realized , we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made .
| summary of cash flows the following table summarizes cash flow activity from our consolidated statements of cash flows ( in millions , except percentages ) : replace_table_token_13_th operating activities our primary source of operating cash flows is cash collections from our customers . our primary uses of cash from operating activities are for personnel-related expenditures , payments for suppliers and other general operating expenses , as well as payments related to taxes , interest , and facilities . net cash provided by operations decreased primarily due to lower revenues and lower collections , partially offset by lower cash payments for income taxes and to suppliers . investing activities investing cash flows consist primarily of capital expenditures ; purchases , sales , maturities , and redemptions of investments ; and cash used for business combinations . net cash used in investing activities was $ 528.2 million in 2019 , compared to net cash provided by investing activities of $ 564.8 million in 2018. in 2019 , the payment for the acquisition of mist was $ 270.9 million and net purchases of investments was $ 140.4 million . in 2018 , net proceeds from sales , maturities and redemptions of investments was $ 771.3 million , primarily to fund the stock repurchases discussed below . 52 financing activities financing cash flows consist primarily of repurchases and retirement of common stock , payment of cash dividends to stockholders , issuance and repayment of long-term debt , and proceeds from the issuance of shares of common stock through employee equity incentive plans . net cash used in financing activities increased in 2019 , compared to 2018 . the 2019 payments were primarily comprised of $ 454.8 million net repayments of debt , payments of $ 550.0 million under the 2018 stock repurchase program and $ 260.1 million payments of dividends . the 2018 payments were primarily comprised of $ 750.0 million under the 2018 stock repurchase program and $ 249.3 million payments of dividends .
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at january 31 , 2020 , accumulated other comprehensive loss of approximately $ 14.3 million , net of tax , is attributable to the pension plans . the company does not anticipate making any significant changes to the pension assumptions in the near future . if story_separator_special_tag effects of covid-19 pandemic the covid-19 pandemic has had an immediate impact on the company 's operating activities . in march 2020 most school districts we serve closed their doors to students and initiated remote learning . many schools are not anticipated to re-open until the 2020-2021 academic year , although there can be no assurance that school systems in the united states will reopen or resume normal operations for the 2020-2021 academic year . virco has determined that the company is considered to be an essential manufacturer under the california public health order issued in march 2020 , and with the exception of a six-day closure of our torrance operations , all facilities in california and arkansas have been operating . while the company is considered to be an essential manufacturer , not all of our domestic suppliers meet this criterion , and the company may experience supply chain challenges from domestic suppliers depending upon the length and severity of state and local orders to shelter in place in california . in addition , there can be no assurance that our suppliers in china will not experience material disruptions in the future , whether due to covid-19 or otherwise . the company believes that it is not more subject to supply chain disruptions than our competitors and is substantially less dependent upon a supply chain extending to china than many competitors in the industry . as of the date of this annual report , the company is operating its torrance manufacturing and distribution facility on a voluntary basis to give employees the flexibility to remain at home with children who are out of school or for other personal reasons as they deem necessary . office employees and others who can work from home will continue to do so . additional measures are being taken to insure adequate social distancing among employees performing essential on-site operations . management estimates that the torrance facility will be staffed at approximately 50 % of its normal level during the next few weeks . in addition , the company 's conway , arkansas facility will continue operating at full capacity to support the many school districts in the eastern two-third of the country that are still taking delivery of school furniture . as with schools in western states , many districts serviced by the company 's conway facility have determined it is safer to accept deliveries while students and credentialed employees are not on campus . as with the torrance facility , additional social distancing and sanitation protocols are in force . our sales force has been working remotely as of the date of this annual report , and as a general matter only physically calls on school sites when specifically invited by the district . the company has implemented appropriate social distancing protocols throughout its facilities , and all personnel that can effectively work from home are doing so . most school districts in the united states have closed campuses to students , and it is anticipated that many schools will remain closed for the remainder of the 2019-2020 academic year . although schools are currently closed to instruction , district 22 business officials are typically operating , frequently from home offices . the company anticipates that the short-term demand for school furniture could be adversely impacted by covid-19 , but believes that demand will eventually recover as stay at home and shelter in place requirements abate and states begin to transition back to work . transactional sales of consumable supplies and smaller orders of furniture were immediately and severely impacted by the school closing and are not expected to recover until school district offices reopen . in addition , new school construction and renovation may be delayed due to covid-19 , although the company is not aware of any projects scheduled for this summer that have been cancelled . our order rates through march 2020 have been comparable to the prior year . production levels have been moderated to match demand generated by orders as received . backlog at march 31 , 2020 is slightly higher than the prior year . with no students on campus , many school facilities may accept deliveries of furniture that otherwise may have been deferred to later dates . executive overview the market for school furniture is traditionally seasonal , with approximately 50 % of annual sales occurring in the months of june , july , and august . the company has traditionally met the seasonal needs with significant overtime and by hiring seasonal temporary labor . the covid-19 pandemic may make hiring seasonal labor more challenging than in recent years . exceedingly generous federal supplements to state unemployment benefits may exacerbate this challenge . the markets that virco serves include the education market ( the company 's primary market ) , which is made up of public and private schools ( preschool through 12th grade ) , junior and community colleges , four-year colleges and universities ; and trade , technical and vocational schools . virco also serves convention centers and arenas ; the hospitality industry , with respect to their banquet and meeting facilities ; government facilities at the federal , state , county and municipal levels ; and places of worship . in addition , the company sells to wholesalers , distributors , retailers , catalog retailers , and internet retailers that serve these same markets . these institutions are frequently characterized by extreme seasonality and or a bid-based purchasing function . the company 's business model , which is designed to support this strategy , is highly integrated . the company purchases coils of steel , plastic resin , particle board , and other raw materials and fabricated finished goods for education market . story_separator_special_tag the furniture industry in general , including the market for school furniture , has been significantly impacted by low cost competition from manufacturers based in china . competition from china increased dramatically after admission of china to the world trade organization in 2001. subsequent to this date , many of our domestic manufacturing competitors closed their factories and sourced product from china . to our knowledge , no new factories or significant manufacturing enhancements were constructed to support the school furniture market during this period . virco pursued a different strategy which exacerbated operating challenges following these events , but now leave us with what we believe to be a significant competitive advantage . during a period of robust education spending during the 1990 's , the company expanded and modernized its manufacturing and distribution facilities at the torrance , ca and conway , ar locations . during the last 15 years , the company has worked continuously to significantly reduce and control its cost structure while concurrently expanding its product offering , expanding manufacturing process capabilities and more fully automating its facilities . for example , headcount of permanent employees as of january 31 , 2020 , was approximately 825 compared to a peak of nearly 2,950 in august 2000. factory overhead in fiscal 2020 declined by more than 50 % compared to fiscal 2001. the company accomplished this without closing a factory and while continuing to add new production processes , including flat metal forming , and other capabilities to support its ambitious product development program . our domestic fabrication allowed the company to develop significant product variety , color choices and custom products that are very difficult to replicate with a supply chain extending to china . finally , many education furniture products are bulky , with a large cube relative to the selling price . the cost of ocean freight from overseas for these bulky items offsets the cost advantages for overseas production . the company 's operating results can be impacted significantly by cost and volatility of commodities , especially steel , plastic , wood and energy . because a majority of the company 's sales are generated under annual contracts in which the company has limited ability to raise the price of its products during the term of the contract , if the costs of the company 's raw materials increase suddenly or unexpectedly , the company can not be certain that it will be able to implement corresponding increases in its sales prices in order to offset such increased costs . the company moderates this exposure by building significant quantities of finished goods and component parts during the first and second quarters . during the year ended january 31 , 2018 ( `` fiscal 2018 '' ) , commodity costs increased throughout the year , but without volatile spikes . in the year ended january 31 , 2019 ( `` fiscal 2019 '' ) , commodity costs were volatile , in large part due to 10 % tariffs on imported steel and chinese furniture components . during the year ended january 31 , 2020 ( `` fiscal 2020 '' ) , the company incurred an additional 15 % increase tariffs on components sourced from china , but other commodities were stable , and in some cases slightly lower . the majority of virco 's sales include freight to the customer facility and the cost or availability of transportation equipment can adversely impact both profitability and customer service . significant cost increases in manufacturing or distributing products during a given contract period can adversely impact operating results and have done so during prior years . the company typically benefits from any decreases in raw material or distribution costs under the contracts described above . 24 during the year ending january 31 , 2021 ( `` fiscal 2021 '' ) , the company anticipates continued uncertainty and volatility in commodity costs , particularly with respect to certain raw materials , transportation and energy . although unknown at this time , the global pandemic related to covid-19 is expected to impact commodity costs and disrupt global and domestic supply chains . while the company anticipates challenging economic conditions to continue to impact its core customer base in the near term , there are certain underlying demographics , customer responses and changes in the competitive landscape that provide opportunities . first , the underlying demographics of the student population are stable compared to the volatility of school budgets and the related level of furniture and equipment purchases . this volatility is attributable to the financial health of the school systems . virco management believes that there is a pent-up demand for quality school furniture ( though it is unclear when and to what extent that pent-up demand will be converted into a meaningful increase in purchases ) . second , management believes that parents and voters will make quality education an ongoing priority for future government spending . third , many schools have responded to the budget strains by reducing their support infrastructure . this change provides opportunities to provide services to schools , such as project management for new or renovated schools , delivery to individual school sites rather than truckload deliveries to central warehouses and delivery of furniture into classrooms . moreover , this change offers opportunities for virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing furniture needs from a variety of suppliers . fourth , many suppliers previously shut down or dramatically curtailed their domestic manufacturing capabilities , making it difficult for competitors to adapt to dynamic fluctuations in demand or provide custom colors or finishes during a narrow seasonal summer delivery window when they are reliant upon a supply chain extending to asia or elsewhere . meanwhile , virco has continued to invest in automation at its domestic manufacturing facilities , adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of items formerly sourced from other suppliers ( both domestic and international ) .
| financial highlights the company earned a pre-tax profit of $ 2,727,000 on net sales of $ 191,063,000 for fiscal 2020 , compared to pre-tax loss of ( $ 1,117,000 ) on net sales of $ 200,716,000 in fiscal 2019. pre-tax profit improved by $ 3,844,000. net income / ( loss ) per diluted share improved to a profit of $ 0.15 for fiscal 2020 , compared to a loss of ( $ 0.10 ) in the prior year . cash flow provided by operations was $ 9,759,000 in fiscal 2020 , compared to $ 2,363,000 in fiscal 2019. net sales virco 's net sales decreased by 4.8 % in fiscal 2020 to $ 191,063,000 compared to $ 200,716,000 in fiscal 2019. the decrease in net sales was attributable to a 18 % reduction in volume partially offset by an increase in selling prices . in fiscal 2019 , virco incurred significant cost increases related to increased raw material costs , primarily driven by tariffs on steel and imported components sourced from china . in addition , the company increased compensation for factory employees 26 in response to minimum wage and other market conditions . at the beginning of fiscal 2020 , the company raised prices in order to recover these cost increases in addition to anticipated tariff and cost increases in fiscal 2020. for fiscal 2021 , the covid-19 pandemic is creating significant uncertainty as state and local government revenues will be severely impacted and spending priorities will be re-evaluated . the revenue shortfall may be offset significantly or in part by a variety of federal government programs . the company anticipates that the budgetary challenges for state and local governments will continue to affect our growth in net sales . the company intends to modestly increase selling prices to recover increased commodity costs and the costs related to employee compensation and benefits . the increased costs may have an adverse impact on our sales volume .
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income taxes are presented in these financial statements as if the company filed its own tax returns on a separate tax return basis . current income tax liabilities are assumed to be immediately settled with former parent against the former parent company investment account . post-separation . the company accounts for income taxes under the asset and liability method of accounting , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of story_separator_special_tag the following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated and combined financial statements and the related notes . it contains forward-looking statements , ( which may be identified by words such as those described in risk factorsforward-looking statement risks in part i of this annual report ) including statements regarding our intent , belief , or current expectations with respect to , among other things , trends affecting our financial condition or results of operations , backlog , our industry , government budgets and spending and the impact of competition . such statements are not guarantees of future performance and involve risks and uncertainties and actual results may differ materially from those in the forward-looking statements as a result of various factors . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report , particularly in risk factors in part i of this annual report . due to such uncertainties and risks , you are cautioned not to place undue reliance on such forward-looking statements , which speak only as of the date hereof . we do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future results or developments . we use the terms company , we , us and our to refer to both ( 1 ) science applications international corporation and its consolidated subsidiaries for time periods after the separation and ( 2 ) the technical , engineering and enterprise information technology ( it ) services businesses of former parent , which were contributed to science applications international corporation as part of the separation , for time periods prior to the separation . the financial information discussed below and included elsewhere in this annual report may not necessarily reflect what our financial condition , results of operations or cash flow would have been had we been a stand-alone company during the periods presented prior to separation or what our financial condition , results of operations and cash flows may be in the future . subsequent to separation , we are incurring additional costs to be able to function as an independent , publicly traded company , including additional costs related to it . unless otherwise noted , references to fiscal years are to fiscal years ended january 31 ( for fiscal 2013 and earlier periods ) or fiscal years ending the friday closest to january 31 ( for fiscal 2014 and later periods ) . for example , we refer to the fiscal year ended january 31 , 2014 as fiscal 2014. effective in fiscal 2014 , we changed our fiscal year to a 52/53 week fiscal year ending on the friday closest to january 31 , with interim fiscal quarters typically consisting of thirteen weeks and ending on the friday closest to april 30 , july 31 , and october 31. overview we are a leading provider of technical , engineering , and enterprise it services primarily to the u.s. government , including the department of defense ( dod ) and federal civilian agencies . despite recently becoming a separate company following a separation from our former parent in september 2013 , our well-known and prestigious heritage was developed over more than 45 years of addressing our client 's mission critical needs and solving their problems . the saic brand carries tremendous value with our customers and the markets that we serve and we have proudly retained the saic name following the separation . we serve markets of significant scale and opportunity , with our primary customer being the u.s. government . we serve our customers through more than 1,500 active contracts and task orders and employ approximately 13,000 individuals with an experienced executive team of proven industry leaders . serving our country 's defense and civilian markets , along with many commercial and state/local governments , has afforded us the ability to develop strong and longstanding relationships with some of the largest customers in the markets we serve . we provide engineering and integration offerings for large , complex government projects and offer a broad range of services with a targeted emphasis on higher-end , differentiated technology services . we operate in two operating segments that provide comprehensive service offerings across our customer base . our technical and engineering offerings include engineering and maintenance of ground and maritime systems , logistics , training and simulation , as well as operation and program support services . our enterprise it offerings include end-to-end enterprise it services , which span the design , development , integration , deployment , management and operation , sustainment and security of our customers ' entire it infrastructure . our segments have been aggregated into one reporting segment for financial reporting purposes . substantially all of our revenues and tangible long-lived assets are generated by or are owned by entities located in the united states . leveraging our customer relationships and the new operating model and cost efficiency afforded through the separation , we believe we are poised to protect our existing business base , expand our offerings to current customers and grow into adjacent markets . we believe that saic 's value proposition is found in the proven ability to serve as a trusted adviser to our customers . story_separator_special_tag the following table summarizes revenues by contract type as a percentage of total revenues for the periods presented : replace_table_token_7_th 26 saic annual report part ii revenue mix . we generate revenues under our contracts from the efforts of our employees , which we refer to as labor-related revenues , the efforts of our subcontractors and the materials provided on a contract . our subcontractor-related revenues and materials-related revenues generally have lower margins than our labor-related revenues . the following table presents changes in labor-related , subcontractor-related and materials-related revenues for the periods presented : replace_table_token_8_th subcontractor-related revenues decreased for fiscal 2014 relative to the respective prior periods primarily due to the ramp down of the dgs program . materials-related revenues decreased for fiscal 2014 relative to the respective prior periods primarily on it and logistics contracts affected by the in-theater force drawdown and due to the completion of a program to supply it infrastructure support for the army . for fiscal 2013 , the increase in materials-related revenues as compared to labor-related revenues from fiscal 2012 was primarily due to increased activity as a prime contractor on large programs involving significant material deliveries . this included a contract to provide supply chain management and delivery of military land and aircraft tires . labor-related revenues declined during fiscal 2013 , largely due to the ending of the u.s. army brigade combat team modernization program in the third quarter of fiscal 2012. liquidity and capital resources our business requires minimal infrastructure investment because we are primarily a services provider . we expect to fund our ongoing working capital , capital expenditures , commitments and other discretionary investments with existing cash and cash equivalents , future cash flows from operations and , if needed , borrowings under our $ 200 million revolving credit facility . in connection with the separation , we raised $ 500 million from advances under our term loan facility , of which $ 295 million was used to pay a cash distribution to former parent . our $ 500 million borrowing under the term loan facility and , if used in the future , the revolving credit facility will incur interest at a variable rate . in september 2013 , in accordance with our risk management objectives , we entered into fixed rate swap agreements for the same notional amount and tenor as the term loan facility . these instruments are used to hedge the variability in interest payment cash flows and are accounted for as a cash flow hedge . under the swap agreements , we pay the fixed rate and the counterparties to the agreement pay a floating interest rate , for which settlement occurs monthly . we anticipate that our future cash needs will be for working capital , capital expenditures , commitments and strategic investments . our ability to fund these needs will depend , in part , on our ability to generate cash in the future , which depends on our future financial results , which are subject to general economic , financial , competitive , legislative and regulatory factors . furthermore , our ability to forecast future cash flows is more limited because we do not have a recent operating history as a stand-alone company . although we believe that the arrangements in place will permit us to finance our operations on acceptable terms and conditions , our access to , and the availability of , financing on acceptable terms and conditions in the future will be impacted by many factors , including : our credit ratings , the liquidity of the overall capital markets and overall economic conditions . we can not assure that such financing will be available to us on acceptable terms or that such financing will be available at all . we believe that our future cash from operations together with our existing cash and cash equivalents , as well as access to bank financing and capital markets will provide adequate resources to fund our short-term and long-term liquidity and capital needs . saic annual report 27 part ii historical cash flow trends the following table summarizes cash flow information for the periods presented : replace_table_token_9_th cash provided by operating activities . refer to results of operations above for a discussion of the changes in cash provided by operating activities between fiscal 2014 and fiscal 2013 and between fiscal 2013 and fiscal 2012. cash used in investing activities . cash used in investing activities for fiscal 2014 increased by $ 10 million over the prior year due primarily to investments in facility leasehold improvements and furniture and fixtures related to the renovation of our corporate headquarters as a result of our separation from former parent . the increase from fiscal 2012 to fiscal 2013 was also as a result of increased investments in plant , property , and equipment . cash provided by ( used in ) financing activities . for fiscal 2014 and prior to separation , financing activities primarily consisted of borrowings under the term loan facility of $ 495 million ( net of $ 5 million in debt issuance costs ) , payment of a dividend to former parent of $ 295 million , and net transfers to former parent using a centralized cash management approach for the periods prior to separation whereby the cash generated from our operations was received by former parent to settle its obligations , including those related to our operations . subsequent to separation , we paid two quarterly cash dividends to our stockholders totaling $ 27 million . outstanding indebtedness long-term debt and capital leases . our long-term debt and capital lease obligations for the periods presented consisted of the following : replace_table_token_10_th the term loan facility contains financial covenants and customary restrictive covenants , including limitations on the ability to merge or consolidate with other entities , property sale and lease back transactions , and dividend and stock repurchases under certain leverage ratios . we were in compliance with all covenants as of january 31 , 2014. revolving credit facility .
| results of operations the primary financial performance measures we use to manage our business and monitor results of operations are revenue , operating income , and cash flows from operating activities . the following table summarizes our results of operations for the periods presented : replace_table_token_5_th management believes that the presentation of operating income excluding separation transaction and restructuring expenses , as a percentage of revenues , which is a non-gaap financial measure , provides useful information to investors regarding the registrant 's financial condition and results of operations . we classify overhead costs as cost of revenues and general and administrative expenses as defined in our disclosure statements in accordance with u.s. government cost accounting standards ( cas ) . 24 saic annual report part ii fiscal 2014 compared to fiscal 2013 revenues . total revenues decreased $ 660 million , or 14 % , for fiscal 2014 as compared to fiscal 2013. revenue contraction was primarily due to the loss of the dgs program ( $ 293 million ) , decrease in activity on logistics programs primarily related to the drawdown in theater ( $ 156 million ) , lower material and subcontract revenues on navy contract vehicles ( $ 123 million ) and completion of a program to supply technical support to the army ( $ 52 million ) . the remainder of the decline was driven by the slower u.s. government contract ordering environment resulting from budget pressures . operating income .
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the company is currently evaluating story_separator_special_tag in addition to historical information , this annual report on form 10-k contains forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934. these statements relate to future events or to our future financial performance and involve known and unknown risks , uncertainties and other factors that may cause our or our industry 's actual results , levels of activity , performance or achievements to be materially different from any future results , levels of activity , performance or achievements expressed or implied by these forward-looking statements . forward-looking statements include , but are not limited to , statements about : our goals and strategies ; our and our customers ' estimates regarding future revenues , operating results , expenses , capital requirements and liquidity ; our expectation that the portion of our future revenues attributable to customers in regions outside of north america will increase compared with the portion of those revenues for fiscal year 2017 ; our expectation that we will incur incremental costs of revenue as a result of our planned expansion of our business into new geographic markets ; our expectation that our fiscal year 2018 selling , general and administrative ( sg & a ) expenses will increase on an absolute dollar basis and decrease as a percentage of revenue compared with fiscal year 2017 ; our expectation that our employee costs will increase in thailand and the people 's republic of china ( prc ) ; our future capital expenditures and our needs for additional financing ; the expansion of our manufacturing capacity , including into new geographies ; the growth rates of our existing markets and potential new markets ; our ability , and the ability of our customers and suppliers , to respond successfully to technological or industry developments ; our suppliers ' estimates regarding future costs ; our ability to increase our penetration of existing markets and to penetrate new markets ; our plans to diversify our sources of revenues ; our plans to execute acquisitions ; trends in the optical communications , industrial lasers , and sensors markets , including trends to outsource the production of components used in those markets ; our ability to attract and retain a qualified management team and other qualified personnel and advisors ; and competition in our existing and new markets . these forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in this annual report on form 10-k , in particular , the risks discussed under the heading risk factors in item 1a , as well as those discussed in other documents we file with the securities and exchange commission . we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements . given these risks and uncertainties , readers are cautioned not to place undue reliance on these statements . we , us and our refer to fabrinet and its subsidiaries as a group . 36 overview we provide advanced optical packaging and precision optical , electro-mechanical and electronic manufacturing services to original equipment manufacturers ( oems ) of complex products such as optical communication components , modules and sub-systems , industrial lasers , medical devices and sensors . we offer a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process , including process design and engineering , supply chain management , manufacturing , complex printed circuit board assembly , advanced packaging , integration , final assembly and test . although we focus primarily on low-volume production of a wide variety of high complexity products , which we refer to as low-volume , high-mix , we also have the capability to accommodate high-volume production . based on our experience with and positive feedback we have received from our customers , we believe we are a global leader in providing these services to the optical communications , industrial lasers and automotive markets . our customer base includes companies in complex industries that require advanced precision manufacturing capabilities such as optical communications , industrial lasers , automotive and sensors . the products that we manufacture for our oem customers include selective switching products ; tunable transponders and transceivers ; active optical cables ; solid state , diode-pumped , gas and fiber lasers ; and sensors . in many cases , we are the sole outsourced manufacturing partner used by our customers for the products that we produce for them . we also design and fabricate application-specific crystals , lenses , prisms , mirrors , laser components , and substrates ( collectively referred to as customized optics ) and other custom and standard borosilicate , clear fused quartz , and synthetic fused silica glass products ( collectively referred to as customized glass ) . we incorporate our customized optics and glass into many of the products we manufacture for our oem customers , and we also sell customized optics and glass in the merchant market . business acquisition on september 14 , 2016 , we acquired global cem solutions ltd. and all of its subsidiaries ( collectively , exception ems ) , a privately-held group located in wiltshire , united kingdom , for cash consideration of approximately $ 13.0 million , net of cash acquired . exception ems provides contract electronics manufacturing services primarily to the european electronics market with innovative solutions , adding value to the design , manufacture and testing of printed circuit board assemblies . its customers include industrial , energy , aerospace and defense companies , with approximately 80 % of its revenue derived from customers in europe . see note 9business acquisition to the consolidated financial statements for further details . story_separator_special_tag once materials are designated as either excess or obsolete inventory , our customers are typically required to purchase such inventory from us even if they have chosen to cancel production of the related products . cost of revenues the key components of our cost of revenues are material costs , employee costs , and infrastructure-related costs . material costs generally represent the majority of our cost of revenues . several of the materials we require to manufacture products for our customers are customized for their products and often sourced from a single supplier or in some cases , our own subsidiaries . shortages from sole-source suppliers due to yield loss , quality concerns and capacity constraints , among other factors , may increase our expenses and negatively impact our gross profit margin or total revenues in a given quarter . material costs include scrap material . historically , scrap rate diminishes during a product 's life cycle due to process , fixturing and test improvement and optimization . a second significant element of our cost of revenues is employee costs , including indirect employee costs related to design , configuration and optimization of manufacturing processes for our customers , quality testing , materials testing and other engineering services ; and direct costs related to our manufacturing employees . direct employee costs include employee salaries , insurance and benefits , merit-based bonuses , recruitment , training and retention . historically , our employee costs have increased primarily due to increases in the number of employees necessary to support our growth and , to a lesser extent , costs to recruit , train and retain employees . our cost of revenues is significantly impacted by salary levels in thailand , the prc and the united kingdom , the fluctuation of the thai baht , rmb and gbp against our functional currency , the u.s. dollar , and our ability to retain our employees . we expect our employee costs to increase as wages continue to increase in thailand and the prc . wage increases may impact our ability to sustain our competitive advantage and may reduce our profit margin . we seek to mitigate these cost increases through improvements in employee productivity , employee retention and asset utilization . our infrastructure costs are comprised of depreciation , utilities , facilities management and overhead costs . most of our facility leases are long-term agreements . our depreciation costs include buildings and fixed assets , primarily at our pinehurst campus in thailand , and capital equipment located at each of our manufacturing locations . during fiscal year 2017 , fiscal year 2016 and fiscal year 2015 , discretionary merit-based bonus awards were made to our non-executive employees . charges included in cost of revenues for bonus awards to non-executive employees were $ 3.2 million , $ 2.8 million and $ 2.4 million for fiscal year 2017 , fiscal year 2016 and fiscal year 2015 , respectively . share-based compensation expense included in cost of revenues was $ 5.3 million , $ 2.0 million and $ 1.5 million for fiscal year 2017 , fiscal year 2016 and fiscal year 2015 , respectively . 39 we expect to incur incremental costs of revenue as a result of our planned expansion into new geographic markets , though we are not able to determine the amount of these incremental expenses . selling , general and administrative expenses our sg & a expenses primarily consist of corporate employee costs for sales and marketing , general and administrative and other support personnel , including research and development expenses related to the design of customized optics and glass , travel expenses , legal and other professional fees , share-based compensation expense and other general expenses not related to cost of revenues . in fiscal year 2018 , we expect our sg & a expenses will increase on an absolute dollar basis and decrease as a percentage of revenue compared with fiscal year 2017. the compensation committee of our board of directors approved a fiscal year 2017 executive incentive plan with quantitative objectives , based on achieving certain revenue and gross margin targets for our fiscal year ended june 30 , 2017. bonuses under our fiscal year 2017 executive incentive plan are payable after the end of fiscal year 2017. in fiscal year 2016 , the compensation committee approved a fiscal year 2016 executive incentive plan with quantitative objectives , based on achieving certain revenue and non-gaap earnings per share targets for our fiscal year ended june 24 , 2016 , as well as qualitative objectives , based on achieving individual performance goals . in the three months ended september 30 , 2016 , the compensation committee awarded bonuses to our executive employees for company and individual achievements of performance under our fiscal 2016 executive incentive plan . discretionary merit-based bonus awards were also available to our non-executive employees and were payable as of june 30 , 2017. charges included in sg & a expenses for bonus distributions to non-executive and executive employees were $ 4.4 million , $ 4.7 million and $ 3.6 million for fiscal year 2017 , fiscal year 2016 and fiscal year 2015 , respectively . share-based compensation expense included in sg & a expenses was $ 21.2 million , $ 7.9 million and $ 6.6 million for fiscal year 2017 , fiscal year 2016 and fiscal year 2015 , respectively . additional financial disclosures foreign exchange as a result of our international operations , we are exposed to foreign exchange risk arising from various currency exposures primarily with respect to the thai baht . although a majority of our total revenues is denominated in u.s. dollars , a substantial portion of our payroll plus certain other operating expenses are incurred and paid in thai baht . the exchange rates between the thai baht and the u.s. dollar have fluctuated substantially in recent years and may continue to fluctuate substantially in the future .
| results of operations the following table sets forth a summary of our consolidated statements of operations and comprehensive income . note that period-to-period comparisons of operating results should not be relied upon as indicative of future performance . replace_table_token_8_th the following table sets forth a summary of our consolidated statements of operations and comprehensive income as a percentage of total revenues for the periods indicated . replace_table_token_9_th 46 the following table sets forth our revenues by end market for the periods indicated . replace_table_token_10_th we operate and internally manage a single operating segment . as such , discrete information with respect to separate product lines and segments is not accumulated . we utilize a 52-53 week fiscal year ending on the friday in june closest to june 30. fiscal year 2017 ended on june 30 , 2017 and consisted of 53 weeks . fiscal year 2016 and fiscal year 2015 ended on june 24 , 2016 and june 26 , 2015 , respectively , and each consisted of 52 weeks . comparison of fiscal year 2017 with fiscal year 2016 total revenues . our total revenues increased by $ 443.7 million , or 45.4 % , to $ 1.4 billion for fiscal year 2017 , compared with $ 976.7 million for fiscal year 2016. this increase was primarily due to ( 1 ) an increase in customers ' demand for both optical and non-optical communication manufacturing services for fiscal year 2017 ; and ( 2 ) the positive impact from an additional week of revenue during fiscal year 2017. revenues from optical communications products represented 78.0 % of our total revenues for fiscal year 2017 , compared with 74.5 % for fiscal year 2016. cost of revenues .
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significant components of the company 's deferred tax assets and liabilities as of january 30 , 2016 and january 31 , 2015 are as follows : replace_table_token_38_th at january 30 , 2016 , the company had a deferred tax asset related to state net operating loss carryforwards of approximately $ 74.1 million that could be utilized to reduce the tax liabilities of future years . these carryforwards will expire between fiscal 2016 and 2036. a portion of the deferred tax asset attributable to state net operating loss carryforwards was reduced by a valuation allowance of approximately $ 52.7 million for the losses of various members of story_separator_special_tag dillard 's , inc. operates 297 retail department stores spanning 29 states and an internet store . the company also operates a general contractor , cdi , a portion of whose business includes constructing and remodeling stores for the company , which is a reportable segment separate from our retail operations . in accordance with the national retail federation fiscal reporting calendar and our bylaws , the fiscal 2015 , 2014 and 2013 reporting periods presented and discussed below ended january 30 , 2016 , january 31 , 2015 and february 1 , 2014 , respectively , and each contained 52 weeks . executive overview fiscal 2015 the company 's performance during fiscal 2015 was difficult . sales were less than planned , but the company worked to control inventory during an unusually competitive environment . comparable retail sales decreased 2 % over last year , and gross profit from retail operations decreased 107 basis points of net retail sales as a result of increased markdowns . consolidated selling , general and administrative expenses increased 19 basis points of net sales , primarily as a result of increased selling payroll , which was partially offset by decreased advertising expense . net income decreased to $ 269.4 million , or $ 6.91 per share , during fiscal 2015 from $ 331.9 million , or $ 7.79 per share , in the prior year . included in net income for fiscal 2015 is a pre-tax gain of $ 12.6 million ( $ 8.1 million after tax or $ 0.21 per share ) related to the sale of four retail store locations . included in net income for fiscal 2014 is a $ 5.9 million pretax gain ( $ 3.8 million after tax or $ 0.09 per share ) related to the sale of a retail store location . during fiscal 2015 , the company repurchased $ 500 million , or 5.3 million shares , of class a common stock under the november 2014 stock plan , with no authorization remaining at january 30 , 2016. as of january 30 , 2016 , we had working capital of $ 917.7 million ( including cash and cash equivalents of $ 202.9 million ) and $ 814.8 million of total debt outstanding , excluding capital lease obligations , with no scheduled maturities until late fiscal 2017. we operated 273 dillard 's locations , 24 clearance centers and one internet store as of january 30 , 2016 . 16 key performance indicators we use a number of key indicators of financial condition and operating performance to evaluate the performance of our business , including the following : replace_table_token_8_th trends and uncertainties fluctuations in the following key trends and uncertainties may have a material effect on our operating results . cash flow—cash from operating activities is a primary source of our liquidity that is adversely affected when the retail industry faces economic challenges . furthermore , operating cash flow can be negatively affected by competitive factors . pricing—if our customers do not purchase our merchandise offerings in sufficient quantities , we respond by taking markdowns . if we have to reduce our retail selling prices , the cost of sales on our consolidated statement of income will correspondingly rise , thus reducing our income and cash flow . success of brand—the success of our exclusive brand merchandise as well as merchandise we source from national vendors is dependent upon customer fashion preferences and how well we can predict and anticipate trends . sourcing—our store merchandise selection is dependent upon our ability to acquire appealing products from a number of sources . our ability to attract and retain compelling vendors as well as in-house design talent , the adequacy and stable availability of materials and production facilities from which we source our merchandise and the speed at which we can respond to customer trends and preferences all have a significant impact on our merchandise mix and , thus , our ability to sell merchandise at profitable prices . store growth—our ability to open new stores is dependent upon a number of factors , such as the identification of suitable markets and locations and the availability of shopping developments , especially in a weak economic environment . store growth can be further hindered by mall attrition and subsequent closure of underperforming properties . seasonality and inflation our business , like many other retailers , is subject to seasonal influences , with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season . because of the seasonality of our business , results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year . we do not believe that inflation has had a material effect on our results during the periods presented ; however , our business could be affected by such in the future . 17 2016 guidance a summary of management 's estimates of key financial measures for fiscal 2016 is shown below . replace_table_token_9_th general net sales . net sales include merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of cdi , the company 's general contracting construction company . comparable store sales include sales for those stores which were in operation for a full period in both the current quarter and the corresponding quarter for the prior year . story_separator_special_tag a 1 % change in the dollar amount of markdowns would have impacted net income by approximately $ 11 million for fiscal 2015. the company regularly records a provision for estimated shrinkage , thereby reducing the carrying value of merchandise inventory . complete physical inventories of all of the company 's stores and warehouses are performed no less frequently than annually , with the recorded amount of merchandise inventory being adjusted to coincide with these physical counts . the differences between the estimated amounts of shrinkage and the actual amounts realized during the past three years have not been material . revenue recognition . the company 's retail operations segment recognizes revenue upon the sale of merchandise to its customers , net of anticipated returns of merchandise . the provision for sales returns is based on historical evidence of our return rate . we recorded an allowance for sales returns of $ 4.9 million and $ 5.0 million as of january 30 , 2016 and january 31 , 2015 , respectively . adjustments to earnings resulting from revisions to estimates on our sales return provision were not material for fiscal years 2015 , 2014 or 2013. the company 's share of income earned under the wells fargo alliance and former synchrony alliance involving the dillard 's branded private label credit cards is included as a component of service charges and other income . the company received income of approximately $ 105 million , $ 112 million and $ 113 million from the alliances in fiscal 2015 , 2014 and 2013 , respectively . the company participates in the marketing of the private label credit cards and accepts payments on the private label credit cards in its stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to wells fargo . revenues from cdi construction contracts are generally recognized by applying percentages of completion for each period to the total estimated revenue for the respective contracts . the length of each contract varies but is typically nine to eighteen months . the percentages of completion are determined by relating the actual costs of work performed to date to the current estimated total costs of the respective contracts . any anticipated losses on completed contracts are recognized as soon as they are determined . vendor allowances . the company receives concessions from vendors through a variety of programs and arrangements , including co-operative advertising , payroll reimbursements and margin maintenance programs . cooperative advertising allowances are reported as a reduction of advertising expense in the period in which the advertising occurred . if vendor advertising allowances were substantially reduced or eliminated , the company would likely consider other methods of advertising as well as the volume and frequency of our product advertising , which could increase or decrease our expenditures . similarly , we are not able to assess the impact of vendor advertising allowances on creating additional revenues , as such allowances do not directly generate revenues for our stores . 19 payroll reimbursements are reported as a reduction of payroll expense in the period in which the reimbursement occurred . amounts of margin maintenance allowances are recorded only when an agreement has been reached with the vendor and the collection of the concession is deemed probable . all such merchandise margin maintenance allowances are recognized as a reduction of cost purchases . under the retail inventory method , a portion of these allowances reduces cost of goods sold and a portion reduces the carrying value of merchandise inventory . insurance accruals . the company 's consolidated balance sheets include liabilities with respect to claims for self-insured workers ' compensation ( with a self-insured retention of $ 4 million per claim ) and general liability ( with a self-insured retention of $ 1 million per claim and a one-time $ 1 million corridor ) . the company 's retentions are insured through a wholly-owned captive insurance subsidiary . the company estimates the required liability of such claims , utilizing an actuarial method , based upon various assumptions , which include , but are not limited to , our historical loss experience , projected loss development factors , actual payroll and other data . the required liability is also subject to adjustment in the future based upon the changes in claims experience , including changes in the number of incidents ( frequency ) and changes in the ultimate cost per incident ( severity ) . as of january 30 , 2016 and january 31 , 2015 , insurance accruals of $ 44.4 million and $ 45.9 million , respectively , were recorded in trade accounts payable and accrued expenses and other liabilities . adjustments resulting from changes in historical loss trends have helped control expenses during fiscal 2015 and 2014 , partially due to company programs that have helped decrease both the number and cost of claims . further , we do not anticipate any significant change in loss trends , settlements or other costs that would cause a significant change in our earnings . a 10 % change in our self-insurance reserve would have affected net earnings by $ 3.0 million for fiscal 2015. long-lived assets . the company 's judgment regarding the existence of impairment indicators is based on market and operational performance . we assess the impairment of long-lived assets , primarily fixed assets , whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant changes in the manner of our use of assets or the strategy for the overall business ; significant negative industry or economic trends ; a current-period operating or cash flow loss combined with a history of operating or cash flow losses ; and store closings . the company performs an analysis of the anticipated undiscounted future net cash flows of the related long-lived assets .
| results of operations the following table sets forth the results of operations and percentage of net sales , for the periods indicated : replace_table_token_10_th 21 sales replace_table_token_11_th the percent change by segment and product category in the company 's sales for the past two years is as follows : replace_table_token_12_th 2015 compared to 2014 net sales from the retail operations segment decreased $ 101.6 million during fiscal 2015 as compared to fiscal 2014 , decreasing 2 % in both total and comparable stores . during fiscal 2015 , sales of ladies ' apparel , ladies ' accessories and lingerie , shoes , juniors ' and children 's apparel and cosmetics decreased slightly from the prior year . sales of men 's apparel and accessories decreased moderately over the prior year . sales of home and furniture declined significantly from last year . the number of sales transactions during fiscal 2015 decreased 5 % over fiscal 2014 while the average dollars per sales transaction increased 3 % . net sales from the construction segment increased $ 76.2 million or 58 % during fiscal 2015 as compared to fiscal 2014 due to an increase in construction projects . the backlog of awarded construction contracts at january 30 , 2016 totaled $ 167.3 million , decreasing approximately 45 % from january 31 , 2015 . 2014 compared to 2013 net sales from the retail operations segment increased $ 51.1 million or 1 % during fiscal 2014 as compared to fiscal 2013. during fiscal 2014 as compared to fiscal 2013 , total sales and sales in comparable stores increased 1 % . during fiscal 2014 , sales of juniors ' and children 's apparel , ladies ' apparel and men 's apparel and accessories increased moderately over the prior year . sales of shoes and ladies ' accessories and lingerie increased slightly over last year while sales of cosmetics remained essentially flat . sales of home and furniture declined significantly from last year .
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not more than once during each twelve-month period ending on april 15 , 2012 , april 15 , story_separator_special_tag you should read the following management 's discussion and analysis in conjunction with the information set forth under item 6 selected financial data and our consolidated financial statements and the notes thereto included in item 8 in this annual report on form 10-k. the statements in this discussion regarding industry outlook , our expectations regarding our future performance , liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements . see forward-looking information on page ii of this annual report on form 10-k. these forward-looking statements are subject to numerous risks and uncertainties , including , but not limited to , the risks and uncertainties described under item 1a risk factors. our actual results may differ materially from those contained in or implied by any forward-looking statements . company overview we are a leading supplier of a full range of cab related products and systems for the global commercial vehicle market , including the heavy-duty ( class 8 ) truck market , the medium/ and heavy-construction vehicle markets , military , bus , automotive and agriculture markets , the specialty transportation markets and recreational markets . our products include static and suspension seat systems , electronic wire harness assemblies , controls and switches , cab structures and components , interior trim systems ( including instrument panels , door panels , headliners , cabinetry and floor systems ) , interior and exterior finishes and mirrors and wiper systems specifically designed for applications in commercial vehicles . we are differentiated from automotive industry suppliers by our ability to manufacture low volume customized products on a sequenced basis to meet the requirements of our customers . we believe that we have a leading position in several of our major markets and that we are a leading supplier in the north american commercial vehicle market offering complete cab systems , including cab body assemblies , sleeper boxes , seats , interior trim , flooring , wire harnesses , panel assemblies and other structural components . we believe our products are used by a majority of the north american heavy truck and certain leading global construction oems , which we believe creates an opportunity to cross-sell our products and offer a full range of cab related products and systems . business overview demand for our heavy truck products is generally dependent on the number of new heavy truck commercial vehicles manufactured in north america , which in turn is a function of general economic conditions , interest rates , changes in governmental regulations , consumer spending , fuel costs , freight costs and our customers ' inventory levels and production rates . new heavy truck commercial vehicle demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy , which generates a significant portion of the freight tonnage hauled by commercial vehicles . the north american class 8 market showed a modest increase in 2012 as production levels increased approximately 9 % over 2011. according to a january 2014 report by act research , a publisher of industry market research , north american class 8 production levels are expected to increase from 248,000 in 2013 , peak at 290,000 in 2015 , decline to 270,000 in 2017 and increase to 285,000 in 2018. we believe the demand for new class 8 vehicles will be driven by several factors , including growth in freight volumes and the replacement of aging vehicles . act forecasts that the total u.s. freight composite will increase from 12.3 trillion in 2012 to 15.0 trillion in 2017. act estimates that the average age of active u.s. class 8 trucks is 6.6 years in 2012 , down slightly from 6.7 years in 2011 , which was the highest average vehicle age over the previous 13 years . as vehicles age , their maintenance costs typically increase . act forecasts that the vehicle age will decline as aging fleets are replaced . in 2013 , approximately 46 % of our revenue was generated from sales to north american heavy-duty truck oems . our remaining revenue in 2013 was primarily derived from sales to oems in the global construction equipment market , aftermarket , oe service organizations , military market and other commercial vehicle 40 specialty markets . demand for our products is driven to a significant degree by preferences of the end-user of the commercial vehicle , particularly with respect to heavy-duty ( class 8 ) trucks . unlike the automotive industry , commercial vehicle oems generally afford the end-user the ability to specify many of the component parts that will be used to manufacture the commercial vehicle , including a wide variety of cab interior styles and colors , the brand and type of seats , type of seat fabric and color and specific mirror styling . in addition , certain of our products are only utilized in heavy-duty ( class 8 ) trucks , such as our storage systems , sleeper boxes , sleeper bunks and privacy curtains , and , as a result , changes in demand for heavy-duty ( class 8 ) trucks or the mix of options on a vehicle can have a greater impact on our business than changes in the overall demand for commercial vehicles . to the extent that demand for higher content vehicles increases or decreases , our revenues and gross profit will be impacted positively or negatively . demand for our construction products is dependent on the overall vehicle demand for new commercial vehicles in the global construction equipment market and generally follows certain economic conditions around the world . our products are primarily used in the medium/heavy construction equipment markets ( weighing over 12 metric tons ) . story_separator_special_tag selling , general and administrative expenses . selling , general and administrative expenses primarily consists of wages and benefits and other overhead expenses such as marketing , travel , legal , audit , rent and utilities costs which are not directly or indirectly associated with the manufacturing of our products . selling , general and administrative expenses increased $ 6.4 million , or 9.8 % , to $ 71.9 million for the year ended december 31 , 2012 from $ 65.5 million for the year ended december 31 , 2011. the increase resulted primarily from increased wages and benefits of approximately $ 1.1 million and increased marketing , travel and other development expenses of approximately $ 5.3 million to support new product initiatives and future growth . amortization expense . amortization expense increased to approximately $ 0.4 million for the year ended december 31 , 2012 from approximately $ 0.3 million for the year ended december 31 , 2011. other expense ( income ) . the $ 0.1 million and $ 0.4 million of expense for the year ended december 31 , 2012 and 2011 , respectively , primarily related to foreign currency exchange losses . interest expense . interest expense increased $ 1.4 million to $ 20.9 million for the year ended december 31 , 2012 from $ 19.6 million for the year ended december 31 , 2011. this increase was primarily the result of higher average outstanding debt obligations resulting from the issuance of our $ 250.0 million of 7.875 % notes . ( benefit ) provision for income taxes . our benefit for income taxes increased $ 30.0 million to a benefit of $ 26.9 million for the year ended december 31 , 2012 , compared to an income tax provision of $ 3.1 million for the year ended december 31 , 2011. this overall tax benefit was primarily driven by the release of domestic valuation allowances of $ 53.5 million that had been established against deferred assets in prior years , offset by current year utilization of domestic deferred tax assets as well as tax expense recorded on the income generated by our non-u.s. locations , which are currently not subject to valuation allowances , such as china and australia . for additional information regarding the deviation from statutory income tax rates , refer to note 2 to our consolidated financial statements in item 8 in this annual report on form 10-k. net income . net income increased $ 31.4 million to $ 50.0 million compared to $ 18.6 million for the year ended december 31 , 2011 , primarily as a result of the factors discussed above . non-controlling interest in subsidiary 's loss . included in net income is a loss of approximately $ 47 thousand and $ 15 thousand , respectively , for the year ended december 31 , 2012 and 2011 representing the non-controlling interest of our joint venture in india . 44 net income attributable to cvg stockholders . net income attributable to cvg stockholders increased $ 31.5 million to $ 50.1 million compared to $ 18.6 million for the year ended december 31 , 2011 , primarily as a result of the factors discussed above . liquidity and capital resources cash flows our primary sources of liquidity during the year ended december 31 , 2013 were cash generated from the sale of our various products to our customers throughout the year . we believe that cash from operations , existing cash reserves , and availability under our revolving credit facility will provide adequate funds for our working capital needs , planned capital expenditures and cash interest payments through 2014. however , no assurance can be given that this will be the case . we did not borrow under our revolving credit facility during 2013. for the year ended december 31 , 2013 , cash provided by operations was approximately $ 19.2 million compared to approximately $ 24.0 million in the year ended december 31 , 2012. this decrease was primarily the result of lower net income , partially offset by reductions in working capital employed as a consequence of the reduction in sales . cash flow from operations benefited by a reduction in the number of days on hand of inventory at december 31 , 2013 compared to december 31 , 2012. this improvement is principally a consequence of the decline in north american heavy duty ( class 8 ) build in the last half of 2012 that resulted in higher than normal inventory levels at year end . for the year ended december 31 , 2012 , cash provided by operations was approximately $ 24.0 million compared to approximately $ 7.8 million in the year ended december 31 , 2011. this increase was primarily the result of a reduction in accounts receivable , which was partially offset by higher inventory as production volumes increased and lower accounts payable . net cash used in investing activities was approximately $ 12.9 million for the year ended december 31 , 2013 compared to approximately $ 42.8 million for the year ended december 31 , 2012 and approximately $ 32.4 million for the year ended december 31 , 2011. the amounts used in the year ended december 31 , 2013 , included purchases of new equipment and tooling . the amounts used in the year ended december 31 , 2012 , included approximately $ 17.3 million related to capital expenditure purchases related to upgrades , replacements or new equipment , machinery and tooling and approximately $ 24.5 million related to our acquisitions of vijayjyot ( vspl ) and daltek . the amounts used in the year ended december 31 , 2011 , primarily related to capital expenditure purchases of approximately $ 21.3 million and our acquisition of bostrom and stratos for approximately $ 11.1 million .
| results of operations the table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated : replace_table_token_9_th year ended december 31 , 2013 compared to year ended december 31 , 2012 revenues . revenues decreased $ 110.2 million , or 12.8 % , to $ 747.7 million for the year ended december 31 , 2013 from $ 857.9 million for the year ended december 31 , 2012. this change resulted primarily from : a 20 % decrease in oem north american heavy-duty ( class 8 ) truck production and fluctuations in production levels for other north american end markets resulting in approximately $ 85.0 million decrease in revenues ; a 23 % decrease in global construction production revenue driven by customer destocking resulting in approximately $ 45.7 million decrease in revenues ; a 43 % decrease in military production driven by a significant decline in us government military defense spending resulting in $ 11.7 million decrease in revenues ; a 24 % increase in oem bus resulting in a $ 5.0 million increase in revenues ; and a 59 % increase in other markets driven primarily by automotive , aftermarket , office seating and specialty production resulting in a $ 27.4 million increase in revenues . cost of revenues . cost of revenues consists primarily of raw materials and purchased components for our products , wages and benefits for our employees and other expenses such as manufacturing supplies , rent and utilities costs related to our operations . cost of revenues decreased approximately $ 73.4 million , or 9.9 % , to $ 668.0 million for the year ended december 31 , 2013 from $ 741.4 million for the year ended december 31 , 2012. this decrease resulted from a decline in raw material and purchased components costs of $ 57.9 million , a decrease in wages and benefits costs of $ 20.1 million associated with a decline in sales volume .
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f-20 wayside technology group , inc. and subsidiaries notes to consolidated financial statements ( amounts in tables in thousands , except share and per share amounts ) note 10. commitments and contingencies leases operating leases primarily relate to the lease of the space used for our operations in shrewsbury , new jersey , mississauga , canada and almere , netherlands . future minimum rental commitments under non-cancellable operating leases are as follows : replace_table_token_27_th rent expense for the years ended december 31 , 2013 , 2012 and 2011 was approximately $ 253 thousand , $ 229 thousand and $ 332 thousand , respectively . employment agreements in the event that simon nynens , president and chief executive officer , employment is terminated without cause or by the rendering of a non-renewal notification , he is entitled to receive a severance payment equal to twelve months cash compensation , immediate vesting of all outstanding equity awards , and to purchase the car used by him at the buy-out price of any lease or fair market value , as applicable . additionally , in the event that a change of control of the company occurs ( as described in the employment agreement ) , mr. nynens ' outstanding equity awards become immediately vested and he is entitled to receive a lump-sum payment equal to 2.9 times his then annual salary and actual incentive bonus earned in the year prior to such change in control . in the event that thomas flaherty 's , vice president and chief financial officer , employment is terminated without cause or mr. flaherty terminates his employment for good reason , he is entitled to receive a severance payment equal to six months of his base salary in effect at the time of termination . additionally , in the event that a change of control of the company occurs , mr. story_separator_special_tag the following management 's discussion and analysis of the company 's financial condition and results of operations should be read in conjunction with the company 's consolidated financial statements and the notes thereto . this discussion and analysis contains , in addition to historical information , forward-looking statements that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain risks and uncertainties , including those set forth under the heading risk factors and elsewhere in this report . overview the company is organized into two reportable operating segments . the lifeboat distribution segment distributes technical software to corporate resellers , value added resellers ( vars ) , consultants and systems integrators worldwide . the techxtend segment is a value-added reseller of software , hardware and services for corporations , government organizations and academic institutions in the usa and canada . we offer an extensive line of products from leading publishers of software and tools for virtualization/cloud computing , security , networking , storage & infrastructure management , application lifecycle management and other technically sophisticated domains as well as computer hardware . we market these products through direct sales , the internet , our catalogs , direct mail programs , advertisements in trade magazines and e-mail promotions . forward-looking statements this report includes forward-looking statements within the meaning of section 21e of the exchange act . statements in this report regarding future events or conditions , including but not limited to statements regarding industry prospects and the company 's expected financial position , business and financing plans , are forward-looking statements . although the company believes that the expectations reflected in such forward-looking statements are reasonable , it can give no assurance that such expectations will prove to have been correct . we strongly urge current and prospective investors to carefully consider the cautionary statements and risks contained in this report , particularly the risks described under item 1a . risk factors above . such risks include , but are not limited to , the continued acceptance of the company 's distribution channel by vendors and customers , the timely availability and acceptance of new products , contribution of key vendor relationships and support programs , as well as factors that affect the software industry generally . the company operates in a rapidly changing business , and new risk factors emerge from time to time . management can not predict every risk factor , nor can it assess the impact , if any , of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those projected in any forward-looking statements . accordingly , forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of their dates . the company undertakes no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . the statements concerning future sales , future gross profit margin and future selling and administrative expenses are forward looking statements involving certain risks and uncertainties such as availability of products , product mix , pricing pressures , market conditions and other factors , which could result in a fluctuation of sales below recent experience . page 14 stock volatility . the technology sector of the united states stock markets has experienced substantial volatility in recent periods . numerous conditions which impact the technology sector or the stock market in general or the company in particular , whether or not such events relate to or reflect upon the company 's operating performance , could adversely affect the market price of the company 's common stock . story_separator_special_tag therefore , despite our increasing revenue , vendor rebates have declined . gross profit margin ( gross profit as a percentage of net sales ) for 2012 was 8.0 % compared to 9.3 % in 2011. gross profit margin for our lifeboat distribution segment in 2012 was 7.3 % compared to 8.7 % in 2011. gross profit margin for our techxtend segment in 2012 was 10.1 % compared to 11.2 % in 2011. the increase in gross profit dollars and the decrease in gross profit margins were primarily caused by the sales growth within our lifeboat distribution and techxtend segments , offset in part , by continued pressure on discounts and rebates earned and competitive pricing pressure in both segments , and , in part , by our having won several large bids , including transactions on extended payment terms , based on aggressive pricing . the company monitors gross profits and gross profit margins carefully . price competition in our market intensified further in 2012 , with competitors lowering their prices significantly and the company responding immediately . although our sales volume increased substantially as a result , gross margins , as well as the rebates and discounts that are material elements of the company 's overall profitability , were negatively impacted during the year ended december 31 , 2012. selling , general and administrative expenses total selling , general and administrative ( sg & a ) expenses for 2012 were $ 15.4 million compared to $ 14.6 million in 2011 , representing an increase of $ 0.8 million . this increase is primarily the result of an increase in sales commissions for our techxtend segment due to our growth in this segment , the addition of employees in sales , finance and operations to support business growth and higher professional fees . as a result of the increase in net sales , sg & a expenses declined as a percentage of net sales to 5.2 % in 2012 , compared to 5.9 % in 2011. direct selling costs ( a component of sg & a ) for 2012 were $ 8.1 million compared to $ 7.8 million in 2011. total direct selling costs for our lifeboat distribution segment for 2012 were $ 4.5 million compared to $ 4.7 million in 2011 , mainly due to lower commission and bonus expense compared to the prior year . total direct selling costs for our techxtend segment for 2012 were $ 3.6 million compared to $ 3.1 million in 2011. the increase in the techxtend segment was due to higher commission , salaries and bonus expense resulting from growth in the segment . the company expects that its sg & a expenses , as a percentage of net sales , may vary depending on changes in sales volume , as well as the levels of continuing investments in key growth initiatives . income taxes for the year ended december 31 , 2012 , the company recorded a provision for income taxes of $ 3.6 million which consists of a provision of $ 2.8 million for u.s. federal income taxes , as well as a $ 0.5 million provision for state and local taxes , a $ 0.2 million provision for foreign taxes , and a deferred tax expense of $ 0.1 million . as of december 31 , 2012 , the company had a u.s. deferred tax asset of approximately $ 0.5 million . for the year ended december 31 , 2011 , the company recorded a provision for income taxes of $ 3.4 million which consists of a provision of $ 2.4 million for u.s. federal income taxes , as well as a $ 0.5 million provision for state and local taxes , a $ 0.3 million provision for foreign taxes , and a deferred tax expense of $ 0.3 million . as of december 31 , 2011 , the company had a u.s. deferred tax asset of approximately $ 0.6 million . page 18 recently adopted accounting pronouncements in february 2013 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) 2013-02 reporting of amounts reclassified out of accumulated other comprehensive income . this update requires companies to present the effects on the line items of net income of significant reclassifications out of accumulated other comprehensive income if the amount being reclassified is required under u.s. generally accepted accounting principles ( us gaap ) to be reclassified in its entirety to net income in the same reporting period . asu 2013-02 is effective prospectively for the company for fiscal years , and interim periods within those years , beginning after december 15 , 2012. the adoption of the amended guidance did not have a significant impact on our consolidated financial statements . liquidity and capital resources our cash and cash equivalents increased by $ 9.8 million to $ 19.6 million at december 31 , 2013 from $ 9.8 million at december 31 , 2012. net cash provided by operating activities amounted to $ 10.3 million , net cash provided by investing activities amounted to $ 4.2 million , and net cash used in financing activities amounted to $ 4.8 million . net cash provided by operating activities in 2013 was $ 10.3 million . in 2013 , cash was mainly provided by $ 8.1 million from net income net of non-cash charges , a $ 2.0 million decrease in accounts receivable , a $ 0.4 million decrease in inventory , and a $ 0.8 million increase in accounts payable , offset in part by an increase in prepaid and other current assets of $ 0.8 million . in 2013 , cash provided by investing activities was $ 4.2 million . this resulted primarily from $ 4.4 million net redemptions of available-for-sale marketable securities . these securities are highly rated and highly liquid .
| results of operations the following table sets forth for the years indicated the percentage of net sales represented by selected items reflected in the company 's consolidated statements of earnings . the year-to-year comparison of financial results is not necessarily indicative of future results : replace_table_token_5_th page 15 year ended december 31 , 2013 compared to year ended december 31 , 2012 net sales net sales for 2013 increased 1 % , or $ 3.3 million to $ 300.4 million in 2013 compared to $ 297.1 million in 2012. total sales for our lifeboat distribution segment in 2013 were $ 237.7 million compared to $ 217.3 million in 2012 , representing a 9 % increase . total sales for the techxtend segment in 2013 amounted to $ 62.8 million , compared to $ 79.7 million in 2012 , representing a 21 % decrease . the increase in net sales for our lifeboat distribution segment was mainly a result of the strengthening of our account penetration , our continued focus on the expanding virtual infrastructure-centric business and the addition of several key product lines ; primarily on sales generated out of the usa sales office . the 21 % decrease in sales in the techxtend segment was primarily due to a decrease in large single sales transactions and a decrease in extended payment terms sales transactions in the first three quarters of 2013 as compared to exceptionally strong levels of large single sales transactions and extended payment terms sales transactions in 2012. gross profit gross profit for 2013 was $ 24.4 million compared to $ 23.9 million in 2012 , a 2 % increase . total gross profit for our lifeboat distribution segment in 2013 was $ 17.4 million compared to $ 15.8 million in 2012 , representing a 10 % increase . the increase in gross profit for the lifeboat distribution segment was due to increased sales volume as gross profit margin remained relatively stable .
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although approximately 81 % of revenues were generated in north america in 2015 , we have a global presence by serving customers in europe , asia , south america and africa . we serve customers through an independent network of approximately 1,400 independent distributor and dealer locations worldwide . trends impacting our business our net sales are driven by commercial vehicle production , which tends to be highly correlated to macroeconomic conditions . in 2016 , we expect tempering demand conditions in the north america on-highway end market , no meaningful relief from the global off-highway end markets challenges and divergent global economic environments . our 2016 net sales outlook also assumes previously considered reductions in demand for north america hybrid-propulsion systems for transit bus due to engine emissions improvements and non-hybrid alternatives . full year 2015 and 2014 net sales by end market ( in millions ) replace_table_token_8_th north america on-highway end market net sales were up 7 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , principally driven by higher demand for rugged duty series and highway series models . north america hybrid-propulsion systems for transit bus end market net sales were down 22 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , principally driven by lower demand due to engine emissions improvements and non-hybrid alternatives that generally require a fully-automatic transmission ( e.g . xng ) . north america off-highway end market net sales were down 45 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , principally driven by lower demand from hydraulic fracturing applications . defense end market net sales were down 28 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , principally driven by the recognition of previously deferred revenue in 2014 related to shipment of certain tracked transmissions at the request of the u.s. government and lower u.s. defense spending . outside north america on-highway end market net sales were down 1 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , principally driven by lower demand in china partially offset by higher demand in europe . 32 outside north america off-highway end market net sales were down 57 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , principally driven by weak demand in the energy and mining sectors . service parts , support equipment & other end market net sales were down 12 % for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 , principally driven by lower demand for north america service parts . key components of our results of operations net sales we generate our net sales primarily from the sale of transmissions , transmission parts , support equipment , defense kits , engineering services , royalties and extended transmission coverage to a wide array of oems , distributors and the u.s. government . sales are recorded net of provisions for customer allowances and other rebates . engineering services are recorded as net sales in accordance with the terms of the contract . the associated costs are recorded in cost of sales . we also have royalty agreements with third parties that provide net sales as a result of joint efforts in developing marketable products . cost of sales our primary components of cost of sales are purchased parts , the overhead expense related to our manufacturing operations and direct labor associated with the manufacture and assembly of transmissions and parts . for the year ended december 31 , 2015 , direct material costs were approximately 68 % , overhead costs were approximately 26 % and direct labor costs were approximately 6 % of total cost of sales . we are subject to changes in our cost of sales caused by movements in underlying commodity prices . we seek to hedge against this risk by using commodity swap contracts and ltsas . see part ii , item 7a , quantitative and qualitative disclosures about market riskcommodity price risk included in this annual report on form 10-k. selling , general and administrative expenses the principal components of our selling , general and administrative expenses are salaries and benefits for our office personnel , advertising and promotional expenses , product warranty expense , expenses relating to certain information technology systems and amortization of our intangibles . engineering research and development we incur costs in connection with research and development programs that are expected to contribute to future earnings . such costs are expensed as incurred . 33 non-gaap financial measures we use adjusted net income to measure our overall profitability because we believe it better reflects our cash flow generation by capturing the actual cash interest paid and cash taxes paid rather than our interest expense and tax expense as calculated under accounting principles generally accepted in the united states of america ( gaap ) and excludes the impact of the non-cash annual amortization of certain intangible assets and other certain non-recurring items . we use adjusted ebitda , adjusted ebitda excluding technology-related license expenses , adjusted ebitda margin , adjusted ebitda margin excluding technology-related license expenses and adjusted free cash flow to evaluate and control our cash operating costs and to measure our operating profitability . we believe the presentation of adjusted net income , adjusted ebitda , adjusted ebitda excluding technology-related license expenses , adjusted ebitda margin , adjusted ebitda margin excluding technology-related license expenses and adjusted free cash flow enhances our investors ' overall understanding of the financial performance and cash flow of our business . you should not consider adjusted net income , adjusted ebitda , adjusted ebitda excluding technology-related license expenses , adjusted ebitda margin and adjusted ebitda margin excluding technology-related license expenses as an alternative to net income , determined in accordance with gaap , as an indicator of operating performance . story_separator_special_tag the increase was principally driven by a $ 163.0 million , or 20 % , increase in net sales of north american on-highway products principally driven by higher demand from rugged duty series and pupil transport/shuttle series models , a $ 69.0 million , or 18 % , increase in net sales of parts and other products principally driven by higher demand for north american service parts and support equipment commensurate with increased transmission unit volumes , and a $ 61.0 million , or 156 % , increase in net sales of north american off-highway products principally driven by higher demand from hydraulic fracturing applications , partially offset by a $ 45.0 million , or 22 % , decrease in net sales of defense products due to lower u.s. defense spending , a $ 29.0 million , or 10 % , decrease in net sales of outside north america on-highway products principally driven by weakness in europe and asia , a $ 12.0 million , or 11 % , decrease in net sales of north america hybrid-propulsion systems for transit buses principally driven by lower demand due to engine emissions improvements and non-hybrid alternatives ( e.g . xng ) , and a $ 7.0 million , or 8 % , decrease in net sales of outside north america off-highway products principally driven by lower demand from the energy sector . see trends impacting our business above for additional information on net sales by end markets . cost of sales cost of sales for the year ended december 31 , 2014 was $ 1,151.5 million compared to $ 1,084.9 million for the year ended december 31 , 2013 , an increase of 6 % . the increase was principally driven by $ 45.3 million related to increased direct material costs , $ 17.3 million of higher overhead costs and $ 4.0 million of higher direct labor costs , in each case commensurate with increased sales volume and consistent with historical trends for these three cost of sales components . the increase in each of these cost of sales components was consistent with historical trends and management 's expectations given the respective change in sales volume . 37 gross profit gross profit for the year ended december 31 , 2014 was $ 975.9 million compared to $ 841.9 million for the year ended december 31 , 2013 , an increase of 16 % . the increase was principally driven by $ 122.0 million related to increased net sales , $ 20.0 million of price increases on certain products and $ 3.0 million of favorable foreign exchange , partially offset by $ 5.8 million of higher incentive compensation expense and $ 5.2 million of higher manufacturing expense commensurate with increased net sales . gross profit as a percent of net sales increased by 2 % . this increase was principally driven by increased net sales and price increases on certain products . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2014 were $ 344.6 million compared to $ 334.9 million for the year ended december 31 , 2013 , an increase of 3 % . the increase was principally driven by $ 7.1 million of higher incentive compensation expense , increased global commercial spending activities , a $ 2.4 million favorable adjustment in 2013 related to the dpim extended coverage program and a $ 1.0 million unfavorable adjustment in 2014 related to the dpim extended coverage program , partially offset by $ 6.5 million of lower intangible asset amortization . engineering research and development engineering expenses for the year ended december 31 , 2014 were $ 103.8 million compared to $ 97.1 million for the year ended december 31 , 2013 , an increase of 7 % . the increase was principally driven by increased spending on product initiatives and $ 2.7 million of higher incentive compensation expense . loss associated with impairment of long-lived assets during 2014 , we reviewed certain of our long-lived assets related to the production of the h3000 and h4000 hybrid-propulsion systems , resulting in a $ 15.4 million loss recorded for the year ended december 31 , 2014. the loss included approximately $ 1.7 million of accrued expenses related to the impairment of the long-lived assets . interest expense , net interest expense , net for the year ended december 31 , 2014 was $ 138.4 million compared to $ 132.9 million for the year ended december 31 , 2013 , an increase of 4 % . the increase was principally driven by $ 30.8 million of less favorable mark-to-market adjustments for interest rate derivatives , partially offset by $ 12.3 million of lower interest expense as a result of the maturity of $ 950.0 million of interest rate derivatives , $ 5.2 million of lower interest expense as a result of debt repayments , $ 4.7 million of lower interest expense related to lower interest rates and $ 2.8 million of lower amortization of deferred financing fees . other expense , net other expense , net for the year ended december 31 , 2014 was $ 5.6 million compared to $ 10.9 million for the year ended december 31 , 2013 , a decrease of 49 % . the decrease in expense was principally driven by $ 4.5 million of lower expenses related to unrealized and realized losses on derivative contracts , $ 3.0 million of lower technology-related investment impairment expense , a $ 2.0 million gain related to the negotiation of a commercial agreement , $ 1.4 million of lower expenses related to foreign exchange losses , $ 0.3 million of lower expenses related to debt repayments , and $ 0.2 million of lower public offering fees and expenses , partially offset by $ 3.1 million of increased foreign exchange losses on intercompany financing , $ 2.6 million of lower grant program income and $ 0.4 million of lower miscellaneous income .
| results of operations the following tables set forth certain financial information for the years ended december 31 , 2015 and 2014 and for the years ended december 31 , 2014 and 2013. the following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included in part ii , item 8 of this annual report on form 10-k. comparison of years ended december 31 , 2015 and 2014 replace_table_token_10_th net sales net sales for the year ended december 31 , 2015 were $ 1,985.8 million compared to $ 2,127.4 million for the year ended december 31 , 2014 , a decrease of 7 % . the decrease was principally driven by a $ 55.0 million , or 12 % , decrease in net sales of parts and other products principally driven by lower demand for north american service parts , a $ 46.0 million , or 57 % , decrease in net sales of outside north america off-highway products principally driven by lower demand from the energy and mining sectors , a $ 45.0 million , or 45 % , decrease in net sales of north american off-highway products principally driven by lower demand from hydraulic fracturing applications , a $ 44.0 million , or 28 % , decrease in net sales of defense products driven by lower u.s. defense spending and the recognition of previously deferred revenue in 2014 related to shipment of certain tracked transmissions at the request of the u.s. government , a $ 20.0 million , or 22 % , decrease in net sales of north america hybrid-propulsion systems for transit buses driven by lower demand due to engine emissions improvements and non-hybrid alternatives that generally require a fully-automatic transmission ( e.g .
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the following discussion and analysis should be read in conjunction with the selected consolidated financial information beginning on page 22 and the company 's consolidated financial statements and related notes that appear on pages 51 through 90. all references in the discussion to the financial condition and results of operations refer to the consolidated position and results of the company and its subsidiaries taken as a whole . unless otherwise noted , all earnings per share ( “ eps ” ) figures disclosed in the md & a refer to diluted eps ; interest income , net interest income , and net interest margin are presented on a fully tax-equivalent ( “ fte ” ) basis , which is a non-gaap measure . the term “ this year ” and equivalent terms refer to results in calendar year 2015 , “ last year ” and equivalent terms refer to calendar year 2014 , and all references to income statement results correspond to full-year activity unless otherwise noted . this md & a contains certain forward-looking statements with respect to the financial condition , results of operations , and business of the company . these forward-looking statements involve certain risks and uncertainties . factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are set herein under the caption “ forward-looking statements ” on page 49. critical accounting policies as a result of the complex and dynamic nature of the company 's business , management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations . the policy decision process not only ensures compliance with the latest generally accepted accounting principles ( “ gaap ” ) , but also reflects management 's discretion with regard to choosing the most suitable methodology for reporting the company 's financial performance . it is management 's opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance , or the level of subjectivity in the selection process . these estimates affect the reported amounts of assets and liabilities and disclosures of revenues and expenses during the reporting period . actual results could differ from these estimates . management believes that the critical accounting estimates include : ● acquired loans – acquired loans are initially recorded at their acquisition date fair values based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk , prepayment risk , liquidity risk , default rates , loss severity , payment speeds , collateral values and discount rate . acquired loans deemed impaired at acquisition are recorded in accordance with asc 310-30. the excess of undiscounted cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount . the difference between contractually required payments at acquisition and the undiscounted cash flows expected to be collected at acquisition is referred to as the non-accretable discount , which represents estimated future credit losses and other contractually required payments that the company does not expect to collect . subsequent decreases in expected cash flows are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for loan losses . subsequent improvements in expected cash flows result in a recovery of previously recorded allowance for loan losses or a reversal of a corresponding amount of the non-accretable discount , which the company then reclassifies as an accretable discount that is recognized into interest income over the remaining life of the loans using the interest method . for acquired loans that are not deemed impaired at acquisition , the difference between the acquisition date fair value and the outstanding balance represents the fair value adjustment for a loan , and includes both credit and interest rate considerations . subsequent to the purchase date , the methods used to estimate the allowance for loan losses for the acquired non-impaired loans is consistent with the policy described below . however , the company compares the net realizable value of the loans to the carrying value , for loans collectively evaluated for impairment . the carrying value represents the net of the loan 's unpaid principal balance and the remaining purchase discount ( or premium ) that has yet to be accreted into interest income . when the carrying value exceeds the net realizable value , an allowance for loan losses is recognized . for loans individually evaluated for impairment , a provision is recorded when the required allowance exceeds any remaining discount on the loan . ● allowance for loan losses – the allowance for loan losses reflects management 's best estimate of probable loan losses in the company 's loan portfolio . determination of the allowance for loan losses is inherently subjective . it requires significant estimates , including the amounts and timing of expected future cash flows on impaired loans , appraisal values of underlying collateral for collateralized loans , and the amount of estimated losses on pools of homogeneous loans which is based on historical loss experience and consideration of current economic trends , all of which may be susceptible to significant change . 24 of 105 ● investment securities – investment securities are classified as held-to-maturity , available-for-sale , or trading . the appropriate classification is based partially on the company 's ability to hold the securities to maturity and largely on management 's intentions with respect to either holding or selling the securities . the classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities . unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive income or loss , as a separate component of shareholders ' equity , and do not affect earnings until realized . the fair values of investment securities are generally determined by reference to quoted market prices , where available . story_separator_special_tag net charge-offs of $ 6.4 million were $ 0.2 million more than 2014. this resulted in an annual net charge-off ratio ( net charge-offs / total average loans ) of 0.15 % , which was consistent with the prior year . nonperforming loans as a percentage of total loans and nonperforming assets as a percentage of loans and other real estate owned , decreased six basis points and seven basis points , respectively , compared to december 31 , 2014 levels , and remain well below averages for the company 's peers . additional information on trends and policy related to asset quality is provided in the asset quality section on pages 40 through 44 . ● excluding net loss on sales of investment securities , banking noninterest income for 2015 of $ 57.7 million decreased by $ 0.9 million from 2014 's level primarily due to lower utilization of overdraft protection-related deposit services . fees from deposit services in 2015 were nearly identical to the prior year while other banking-related income was lower . additionally , 2015 mortgage banking revenue increased $ 0.2 million . ● total banking noninterest expenses , including acquisition expenses , litigation settlement , and contract termination charges increased $ 2.8 million , or 1.5 % , in 2015 to $ 184.7 million , primarily reflective of higher acquisition-related costs and continued investment in technology and data processing . excluding acquisition expenses and litigation settlement , banking noninterest expenses decreased $ 1.3 million , or 0.7 % , due in part to the branch consolidations during the second half of 2014. employee benefit services ● employee benefit services noninterest income for 2015 of $ 46.8 million was an increase of $ 3.1 million , or 7.1 % , from the prior year level , benefiting from new and expanded customer relationships as well as additional service offerings . ● employee benefit services noninterest expenses for 2015 totaled $ 35.7 million . this represented an increase from 2014 of $ 2.2 million , or 6.7 % , and was attributable to the additional resources needed to support a higher revenue base . all other ( wealth management and insurance services ) ● wealth management and insurance services noninterest income for 2015 was $ 21.0 million , an increase of $ 2.3 million , or 12.5 % , from the prior year level . the increase was primarily due to the addition of onegroup from the oneida acquisition . ● wealth management and insurance services noninterest expenses of $ 14.8 million increased $ 1.8 million , or 13.4 % , from 2014 primarily due to the addition of onegroup and increased personnel costs associated with growth initiatives . 27 of 105 selected profitability and other measures return on average assets , return on average equity , dividend payout and equity to asset ratios for the years indicated are as follows : table 2 : selected ratios replace_table_token_4_th as displayed in table 2 , both the return on average assets and the return on average equity ratios decreased in 2015 as compared to 2014. the decreases in return on average assets and return on average equity were the result of a decrease in net income , due primarily to acquisition charges related to the oneida transaction , while both average assets and average equity increased . both return ratios increased in 2014 as compared to 2013. the increase in return on average assets was the result of a significant increase in net income accomplished without a significant additional investment in assets . the increase in return on average equity was the result of the increase in net income outpacing the increase in average shareholders ' equity . the dividend payout ratio for 2015 increased 3.9 percentage points from 2014 as net income decreased slightly from 2014 while dividends declared increased 7.5 % , as a result of a 5.2 % increase in the dividends declared per share in addition to an increase in the shares outstanding due to the shares issued in conjunction with the employee stock plan during 2015 and 2014 and the oneida transaction . the dividend payout ratio for 2014 decreased 4.4 percentage points from 2013 as net income increased at a 15.9 % rate from 2013 while dividends declared increased at a slower 6.8 % rate , resulting from a 5.5 % increase in the dividends declared per share and additional shares issued in conjunction with the employee stock plan . the average equity to average assets ratio continued to increase as the growth in common shareholders ' equity outpaced the growth in assets . during 2015 average equity increased at a rate of 8.6 % while average assets increased at a rate of 5.3 % , while the year 2014 saw average equity rise 8.5 % and average assets grew 3.1 % in comparison to 2013. net interest income net interest income is the amount that interest and fees on earning assets ( loans , investments and interest-bearing cash ) exceeds the cost of funds , which consists primarily of interest paid to the company 's depositors and interest on external borrowings . net interest margin is the difference between the yield on earning assets and the cost of interest-bearing funds as a percentage of earning assets . as disclosed in table 3 , net interest income ( with nontaxable income converted to a fully tax-equivalent basis ) totaled $ 260.8 million in 2015 , up $ 0.9 million , or 0.3 % , from the prior year . this is a result of a $ 348.4 million , or 5.2 % , increase in average interest-earning assets and a two basis point decrease in the average rate on interest-bearing liabilities , partially offset by a 20 basis point decline in the average yield on interest-earning assets and a $ 187.1 million increase in average interest-bearing liabilities .
| executive summary the company 's business philosophy is to operate as a community bank with local decision-making , principally in non-metropolitan markets , providing a broad array of banking and financial services to retail , commercial , and municipal customers . the company 's core operating objectives are : ( i ) grow the branch network , primarily through a disciplined acquisition strategy and certain selective de novo expansions , ( ii ) build profitable loan and deposit volume using both organic and acquisition strategies , ( iii ) increase the noninterest component of total revenue through development of banking-related fee income , growth in existing financial services business units , and the acquisition of additional financial services and banking businesses , and ( iv ) utilize technology to deliver customer-responsive products and services and to improve efficiencies . significant factors reviewed by management to evaluate achievement of the company 's operating objectives and its operating results and financial condition include , but are not limited to : net income and earnings per share ; return on assets and equity ; net interest margins ; noninterest revenues ; noninterest expenses ; asset quality ; loan and deposit growth ; capital management ; performance of individual banking and financial services units ; performance of specific product lines and customers ; liquidity and interest rate sensitivity ; enhancements to customer products and services and their underlying performance characteristics ; technology advancements ; market share ; peer comparisons ; and the performance of acquisition and integration activities . 25 of 105 the company reported net income and earnings per share for the year ended december 31 , 2015 that were 0.1 % and 1.4 % , respectively , below the prior year amounts . the decrease in net income was due to increased operating expenses , higher acquisition expenses , as well as a higher effective tax rate .
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commercial loans and commercial real estate loans with a lower expectation of default are assigned one of ten possible pass loan grades and are generally ascribed lower loss factors when determining the allowance for credit losses story_separator_special_tag corporate profile and significant developments m & t bank corporation ( m & t ) is a bank holding company headquartered in buffalo , new york with consolidated assets of $ 96.7 billion at december 31 , 2014. the consolidated financial information presented herein reflects m & t and all of its subsidiaries , which are referred to collectively as the company. m & t 's wholly owned bank subsidiaries are m & t bank and wilmington trust , national association ( wilmington trust , n.a. ) . m & t bank , with total assets of $ 95.9 billion at december 31 , 2014 , is a new york-chartered commercial bank with 693 domestic banking offices in new york state , pennsylvania , maryland , delaware , virginia , west virginia , and the district of columbia , a full-service commercial banking office in ontario , canada , and an office in the cayman islands . m & t bank and its subsidiaries offer a broad range of financial services to a diverse base of consumers , businesses , professional clients , governmental entities and financial institutions located in their markets . lending is largely focused on consumers residing in new york state , pennsylvania , maryland , virginia , delaware and washington , d.c. , and on small and medium size businesses based in those areas , although loans are originated through lending offices in other states and in ontario , canada . certain lending activities are also conducted in other states through various subsidiaries . trust and other fiduciary services are offered by m & t bank and through its wholly owned subsidiary , wilmington trust company . other subsidiaries of m & t bank include : m & t real estate trust , a commercial mortgage lender ; m & t realty capital corporation , a multifamily commercial mortgage lender ; m & t securities , inc. , which provides brokerage , investment advisory and insurance services ; wilmington trust investment advisors , inc. , which serves as an investment advisor to the wilmington funds , a family of proprietary mutual funds , and other funds and institutional clients ; and m & t insurance agency , inc. , an insurance agency . 38 wilmington trust , n.a. , with total assets of $ 2.8 billion at december 31 , 2014 , is a national bank with offices in wilmington , delaware and oakfield , new york . wilmington trust , n.a . and its subsidiaries offer various trust and wealth management services . wilmington trust , n.a . also offered selected deposit and loan products on a nationwide basis , largely through telephone , internet and direct mail marketing techniques . on august 27 , 2012 , m & t announced that it had entered into a definitive agreement with hudson city bancorp , inc. ( hudson city ) , headquartered in paramus , new jersey , under which hudson city would be acquired by m & t . pursuant to the terms of the agreement , hudson city common shareholders will receive consideration for each common share of hudson city in an amount valued at .08403 of an m & t share in the form of either m & t common stock or cash , based on the election of each hudson city shareholder , subject to proration as specified in the merger agreement ( which provides for an aggregate split of total consideration of 60 % common stock of m & t and 40 % cash ) . the estimated purchase price considering the closing price of m & t 's common stock of $ 125.62 on december 31 , 2014 was $ 5.4 billion . as of december 31 , 2014 , hudson city reported $ 36.6 billion of assets , including $ 21.7 billion of loans ( predominantly residential real estate loans ) and $ 7.9 billion of investment securities , and $ 31.8 billion of liabilities , including $ 19.4 billion of deposits . the merger has received the approval of the common shareholders of m & t and hudson city . however , the merger is subject to a number of conditions , including regulatory approvals . on june 17 , 2013 , m & t and m & t bank entered into a written agreement with the federal reserve bank of new york . under the terms of the agreement , m & t and m & t bank are required to submit to the federal reserve bank of new york a revised compliance risk management program designed to ensure compliance with the bank secrecy act and anti-money-laundering laws and regulations ( bsa/aml ) and to take certain other steps to enhance their compliance practices . the company commenced a major initiative , including the hiring of outside consulting firms , intended to fully address those regulator concerns . m & t and m & t bank continue to make progress towards completing this initiative . in view of the timeframe required to implement this initiative , demonstrate its efficacy to the satisfaction of the regulators and otherwise meet any other regulatory requirements that may be imposed in connection with these matters , m & t and hudson city have extended the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed to april 30 , 2015. nevertheless , m & t 's pending acquisition of hudson city remains subject to regulatory approval , including approval by the federal reserve , and certain other closing conditions and , as a result , there can be no assurances that the merger will be completed by that date . story_separator_special_tag on september 3 , 2014 , the federal reserve and other banking regulators adopted final rules ( final lcr rule ) implementing a u.s. version of the basel committee 's liquidity coverage ratio requirement ( lcr ) including the modified version applicable to bank holding companies , such as m & t , with $ 50 billion in total consolidated assets that are not advanced approaches institutions . the lcr is intended to ensure that banks hold a sufficient amount of so-called high quality liquid assets ( hqla ) to cover the anticipated net cash outflows during a hypothetical acute 30-day stress scenario . the lcr is the ratio of an institution 's amount of hqla ( the numerator ) over projected net cash out-flows over the 30-day horizon ( the denominator ) , in each case , as calculated pursuant to the final lcr rule . once fully phased-in , a subject institution must maintain an lcr equal to at least 100 % in order to satisfy this regulatory requirement . only specific classes of assets , including u.s. treasury securities , other u.s. government obligations and agency mortgaged-backed securities , qualify under the rule as hqla , with classes of assets deemed relatively less liquid and or subject to greater degree of credit risk subject to certain haircuts and caps for purposes of calculating the numerator under the final lcr rule . the initial compliance date for the modified lcr is january 2016 , with the requirement fully phased-in by january 2017. the company intends to comply with the lcr when it becomes effective . a detailed discussion of the lcr and its requirements is included in part i , item 1 of this form 10-k under the heading liquidity ratios under basel iii. 40 critical accounting estimates the company 's significant accounting policies conform with gaap and are described in note 1 of notes to financial statements . in applying those accounting policies , management of the company is required to exercise judgment in determining many of the methodologies , assumptions and estimates to be utilized . certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the company 's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances . some of the more significant areas in which management of the company applies critical assumptions and estimates include the following : accounting for credit losses the allowance for credit losses represents the amount that in management 's judgment appropriately reflects credit losses inherent in the loan and lease portfolio as of the balance sheet date . a provision for credit losses is recorded to adjust the level of the allowance as deemed necessary by management . in estimating losses inherent in the loan and lease portfolio , assumptions and judgment are applied to measure amounts and timing of expected future cash flows , collateral values and other factors used to determine the borrowers ' abilities to repay obligations . historical loss trends are also considered , as are economic conditions , industry trends , portfolio trends and borrower-specific financial data . in accounting for loans acquired at a discount , which are initially recorded at fair value with no carry-over of an acquired entity 's previously established allowance for credit losses , the cash flows expected at acquisition in excess of estimated fair value are recognized as interest income over the remaining lives of the loans . subsequent decreases in the expected principal cash flows require the company to evaluate the need for additions to the company 's allowance for credit losses . subsequent improvements in expected cash flows result first in the recovery of any applicable allowance for credit losses and then in the recognition of additional interest income over the remaining lives of the loans . changes in the circumstances considered when determining management 's estimates and assumptions could result in changes in those estimates and assumptions , which may result in adjustment of the allowance or , in the case of acquired loans , increases in interest income in future periods . a detailed discussion of facts and circumstances considered by management in determining the allowance for credit losses is included herein under the heading provision for credit losses and in note 5 of notes to financial statements . valuation methodologies management of the company applies various valuation methodologies to assets and liabilities which often involve a significant degree of judgment , particularly when liquid markets do not exist for the particular items being valued . quoted market prices are referred to when estimating fair values for certain assets , such as trading assets , most investment securities , and residential real estate loans held for sale and related commitments . however , for those items for which an observable liquid market does not exist , management utilizes significant estimates and assumptions to value such items . examples of these items include loans , deposits , borrowings , goodwill , core deposit and other intangible assets , and other assets and liabilities obtained or assumed in business combinations ; capitalized servicing assets ; pension and other postretirement benefit obligations ; estimated residual values of property associated with leases ; and certain derivative and other financial instruments . these valuations require the use of various assumptions , including , among others , discount rates , rates of return on assets , repayment rates , cash flows , default rates , costs of servicing and liquidation values . the use of different assumptions could produce significantly different results , which could have material positive or negative effects on the company 's results of operations . in addition to valuation , the company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of income .
| fourth quarter results net income during the fourth quarter of 2014 was $ 278 million , up from $ 221 million in the year-earlier quarter . diluted and basic earnings per common share were $ 1.92 and $ 1.93 , respectively , in the final quarter of 2014 , compared with $ 1.56 and $ 1.57 of diluted and basic earnings per common share , respectively , in the similar quarter of 2013. the annualized rates of return on average assets and average common shareholders ' equity for the final 2014 quarter were 1.12 % and 9.10 % , respectively , compared with 1.03 % and 7.99 % , respectively , in the year-earlier quarter . net operating income totaled $ 282 million in the fourth quarter of 2014 , compared with $ 228 million in 2013 's final quarter . diluted net operating earnings per common share were $ 1.95 and $ 1.61 in the fourth quarters of 2014 and 2013 , respectively . the annualized net operating returns on average tangible assets and average tangible common equity in the fourth quarter of 2014 were 1.18 % and 13.55 % , respectively , compared with 1.11 % and 12.67 % , respectively , in the corresponding quarter of 2013. core deposit and other intangible asset amortization , after tax effect , totaled $ 4 million and $ 6 million in the final quarters of 2014 and 2013 ( $ .03 and $ .05 per diluted common share ) , respectively . reconciliations of gaap results with non-gaap results for the quarterly periods of 2014 and 2013 are provided in table 24. net interest income on a taxable-equivalent basis totaled $ 688 million in the final 2014 quarter , up 2 % from $ 673 million in the year-earlier quarter .
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we develop distinctive value-added food products and market them under unique brand names . we work continuously to improve our established products and to create new products that meet consumers ' evolving needs and preferences . in addition , we build the equity of our brands over time with strong consumer-directed marketing and innovative merchandising . we believe our brand-building strategy is the key to winning and sustaining leading share positions in markets around the globe . our fundamental business goal is to generate superior returns for our stockholders over the long term . we believe that increases in net sales , segment operating profit , earnings per share ( eps ) , and return on average total capital are the key measures of financial performance for our businesses . see the non-gaap measures section below for a description of our discussion of total segment operating profit , diluted eps excluding certain items affecting comparability and return on average total capital , which are not defined by generally accepted accounting principles ( gaap ) . our objectives are to consistently deliver : low single-digit annual growth in net sales ; mid single-digit annual growth in total segment operating profit ; high single-digit annual growth in eps ; and improvements in return on average total capital . we believe that this financial performance , coupled with an attractive dividend yield , should result in long-term value creation for stockholders . we also return a substantial amount of cash annually to stockholders through share repurchases . for the fiscal year ended may 30 , 2010 , our net sales grew 1 percent , total segment operating profit grew 8 percent , diluted eps grew 18 percent , and our return on average total capital improved by 150 basis points . diluted eps growth excluding certain items affecting comparability , a non-gaap measure used for management reporting and incentive compensation purposes , was 16 percent ( see the non-gaap measures section below for our use of this measure and our discussion of the items affecting comparability ) . net cash provided by operations totaled $ 2.2 billion in fiscal 2010 , enabling us to increase our annual dividend payments per share by 12 percent from fiscal 2009 and continue returning cash to stockholders through share repurchases , which totaled $ 692 million in fiscal 2010. we also made significant capital investments totaling $ 650 million in fiscal 2010. these results met or exceeded our long-term targets . we achieved each of our five key operating objectives for fiscal 2010 : we generated broad-based growth in net sales across our businesses which enabled us to achieve a year-over-year increase , despite one less week in fiscal 2010. contributions from volume were flat , including the loss of 2 points of growth from divested products and a 1 point loss from an additional week in fiscal 2009. we 18 generated 1 point of growth from net price realization and product mix . foreign exchange was flat compared to fiscal 2009. we increased our gross margin as a percent of net sales 410 basis points driven by a decrease in input costs and a focus on our holistic margin management ( hmm ) programs , which include cost-savings initiatives , marketing spending efficiencies , and profitable sales mix strategies . we invested a significant amount in media and other brand-building marketing programs , which contributed to net sales growth on our consumer businesses . we grew our bakeries and foodservice segment operating profit , including a focus on higher-margin , branded product lines within our most attractive foodservice customer channels . we continued to develop our business in international markets . we focused on our core platforms of ready-to-eat cereal , super premium ice cream , convenient meal solutions , and healthy snacking by introducing new products and investing in consumer spending . details of our financial results are provided in the fiscal 2010 consolidated results of operations section below . in fiscal 2011 , we expect to deliver another year of quality growth . we are targeting low single-digit growth in net sales driven by volume gains . we have a strong line-up of consumer marketing , merchandising , and innovation planned to fuel growth for our leading brands . we will continue to build our four global platforms in markets around the world , accelerating our efforts in rapidly growing emerging markets . the environment remains challenging for the bakeries and foodservice segment , but we believe that our focus on higher-margin branded product lines within the most attractive foodservice channels will drive performance for this segment . we remain committed to using hmm to help manage our costs . we are targeting mid single-digit growth in segment operating profit , despite renewed input cost inflation and continued investment in advertising and media . our businesses generate strong levels of cash flows . we use some of this cash to reinvest in our business , and our fiscal 2011 plans call for $ 700 million of expenditures for capital projects . we also prioritize returning cash to stockholders . our plan for fiscal 2011 includes significant cash returned to stockholders through share repurchases and dividends . our long-term objective is to reduce outstanding shares by a net 2 percent per year . we intend to continue repurchasing shares in fiscal 2011 in-line with our long-term objective . on june 28 , 2010 , our board of directors approved a dividend increase to an annual rate of $ 1.12 per share , a 17 percent increase from the rate paid in fiscal 2010. our board of directors also approved and we announced an authorization for the repurchase of up to 100,000,000 shares of our common stock . this new authorization terminated and replaced a december 11 , 2006 repurchase authorization . story_separator_special_tag 20 restructuring , impairment , and other exit costs totaled $ 31 million in fiscal 2010 as follows : expense ( income ) , in millions discontinuation of kids ' refrigerated yogurt beverage and microwave soup product lines $ 24.1 discontinuation of the breadcrumbs product line at federalsburg , maryland plant 6.2 sale of contagem , brazil bread and pasta plant ( 0.6 ) charges associated with restructuring actions previously announced 1.7 total $ 31.4 in fiscal 2010 , we decided to exit our kids ' refrigerated yogurt beverage product line at our murfreesboro , tennessee plant and our microwave soup product line at our vineland , new jersey plant to rationalize capacity for more profitable items . our decisions to exit these u.s. retail segment products resulted in a $ 24 million non-cash charge against the related long-lived assets . no employees were affected by these actions . we expect to recognize $ 2 million of other exit costs related to these actions , which we anticipate will be completed by the end of the second quarter of fiscal 2011. we also decided to exit our breadcrumb product line at our federalsburg , maryland plant in our bakeries and foodservice segment . as a result of this decision , we concluded that the future cash flows generated by these products were insufficient to recover the net book value of the associated long-lived assets . accordingly , we recorded a non-cash charge of $ 6 million primarily related to the impairment of these long-lived assets and in the fourth quarter of fiscal 2010 , we sold our manufacturing facility in federalsburg for $ 3 million . in fiscal 2010 , we also recorded a $ 1 million net gain on the sale of our previously closed contagem , brazil bread and pasta plant for cash proceeds of $ 6 million , and recorded $ 2 million of costs related to previously announced restructuring actions . in fiscal 2010 , we paid $ 8 million in cash related to restructuring actions taken in fiscal 2010 and previous years . our consolidated effective tax rate for fiscal 2010 was 35.0 percent compared to 37.1 percent in fiscal 2009. the 2.1 percentage point decrease primarily reflects an unfavorable court decision last year on an uncertain tax matter , which increased fiscal 2009 income tax expense by $ 53 million . in addition , fiscal 2009 included $ 15 million of tax expense related to nondeductible goodwill write-offs associated with divestitures . fiscal 2010 income tax expense included a $ 35 million increase related to the enactment of federal health care reform ( the patient protection and affordable care act , as amended by the health care and education reconciliation act of 2010 ) . this legislation changed the tax treatment of subsidies to companies that provide prescription drug benefits that are at least the equivalent of benefits under medicare part d ( see the impact of inflation section below for additional discussion of this legislation ) . the fiscal 2010 tax rate also included increased benefits from the domestic manufacturing deduction . after-tax earnings from joint ventures for fiscal 2010 increased to $ 102 million compared to $ 92 million in the same period in fiscal 2009. in fiscal 2010 , net sales for cpw grew 6 percent , due to 4 percentage points of growth from net price realization and mix , 1 percentage point from favorable foreign exchange and a 1 percentage point increase in volume , including growth in russia , southeast asia , the middle east and latin america . net sales for hdj decreased 4 percent , due primarily to an 11 percentage point decline in volume , partially offset by favorable foreign exchange . average diluted shares outstanding decreased by 4 million in fiscal 2010 from fiscal 2009 , due primarily to the timing of share repurchases including the repurchase of 21 million shares since the end of fiscal 2009 , partially offset by the issuance of shares upon stock option exercises . fiscal 2010 consolidated balance sheet analysis cash and cash equivalents decreased $ 77 million from fiscal 2009 , as discussed in the liquidity section below . receivables increased $ 88 million from fiscal 2009 , as a result of sales timing shifts and a $ 33 million increase in foreign exchange translation . the allowance for doubtful accounts was essentially unchanged from fiscal 2009 . 21 inventories were essentially flat to fiscal 2009 balances . prepaid expenses and other current assets decreased $ 91 million from fiscal 2009 , due mainly to a $ 48 million decrease in certain equipment parts as a result of a change in the capitalization threshold , enabled by an upgrade to our parts management system . in addition , there was a $ 22 million decrease in notes receivable and a $ 19 million reduction in collateral for certain derivative contracts . land , buildings , and equipment increased $ 93 million from fiscal 2009 , as capital expenditures of $ 650 million were partially offset by depreciation expense of $ 448 million and foreign exchange impact of $ 32 million in fiscal 2010. goodwill and other intangible assets decreased $ 102 million from fiscal 2009 primarily due to foreign currency translation . other assets decreased $ 132 million from fiscal 2009 , driven mainly by a $ 193 million decrease in our prepaid pension assets due to a decrease in the funded status of our pension plans and a $ 60 million decrease in non-current interest rate derivative receivables , partially offset by an increase in advances to joint ventures , mainly cpw , of $ 131 million . accounts payable increased $ 46 million to $ 850 million in fiscal 2010 as a result of an increase in sg & a expenses and shifts in timing .
| results of segment operations our businesses are organized into three operating segments : u.s. retail ; international ; and bakeries and foodservice . the following tables provide the dollar amount and percentage of net sales and operating profit from each segment for fiscal years 2010 , 2009 , and 2008 : net sales percent of percent of percent of net sales net sales net sales net sales net sales net sales fiscal year in millions 2010 2009 2008 u.s. retail $ 10,323.5 70 % $ 10,052.1 68 % $ 9,072.0 66 % international 2,702.5 18 2,591.4 18 2,558.8 19 bakeries and foodservice 1,770.5 12 2,047.8 14 2,021.3 15 total $ 14,796.5 100 % $ 14,691.3 100 % $ 13,652.1 100 % segment operating profit percent of percent of percent of segment segment segment segment segment segment operating operating operating operating operating operating profit profit profit profit profit profit fiscal year in millions 2010 2009 2008 u.s. retail $ 2,392.0 83 % $ 2,208.5 84 % $ 1,971.2 82 % international 219.2 8 263.5 10 270.3 11 bakeries and foodservice 250.1 9 171.0 6 165.4 7 total $ 2,861.3 100 % $ 2,643.0 100 % $ 2,406.9 100 % segment operating profit excludes unallocated corporate items , gain on divestitures , and restructuring , impairment , and other exit costs because these items affecting operating profit are centrally managed at the corporate level and are excluded from the measure of segment profitability reviewed by our executive management . u.s. retail segment our u.s. retail segment reflects business with a wide variety of grocery stores , mass merchandisers , membership stores , natural food chains , and drug , dollar and discount chains operating throughout the united states .
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the purchaser paid an aggregate consideration of $ 990.0 million in cash in connection with the story_separator_special_tag the following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included in `` item 8-financial statements and supplemental data '' . our business executive overview we are an industry-leading racing , gaming and online entertainment company anchored by our iconic flagship event - the kentucky derby . we are a leader in brick-and-mortar casino gaming with approximately 10,000 gaming positions in eight states , and we are the largest , legal online account wagering platform for horseracing in the u.s. we were organized as a kentucky corporation in 1928 , and our principal executive offices are located in louisville , kentucky . on november 29 , 2017 , the company entered into the stock purchase agreement to sell its mobile gaming subsidiary , big fish games to the purchaser . on january 9 , 2018 , the company completed the big fish transaction . the purchaser paid an aggregate consideration of $ 990.0 million in cash in connection with the transaction , subject to customary adjustments for working capital and indebtedness and certain other adjustments as set forth in the stock purchase agreement . as described in further detail in part ii , item 8. financial statements and supplemental data , the company has presented big fish games as held for sale and discontinued operations in the accompanying consolidated financial statements and related notes . our management monitors a variety of key indicators to evaluate our business results and financial condition . these indicators include changes in net revenue , operating expense , operating income , earnings per share , outstanding debt balance , operating cash flow and capital spend . our consolidated financial statements have been prepared in conformity with u.s. generally accepted accounting principles ( `` gaap '' ) . we also use non-gaap measures , including ebitda ( earnings before interest , taxes , depreciation and amortization ) and adjusted ebitda . we believe that the use of adjusted ebitda as a key performance measure of results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner . our chief operating decision maker utilizes adjusted ebitda to evaluate segment performance , develop strategy and allocate resources . adjusted ebitda is a supplemental measure of our performance that is not required by , or presented in accordance with , gaap . adjusted ebitda should not be considered as an alternative to , or more meaningful than , net income ( as determined in accordance with gaap ) as a measure of our operating results . effective january 1 , 2017 , certain revenue previously included in our corporate segment was deemed by management to be more closely aligned with our twinspires segment . the company has not allocated corporate and other certain expenses to big fish games consistent with the discontinued operations presentation in the accompanying consolidated statements of comprehensive income . accordingly , the prior year amounts were reclassified to conform to this presentation . adjusted ebitda is defined as earnings before interest , taxes , depreciation and amortization , adjusted for the following : adjusted ebitda includes our portion of the ebitda from our equity investments . adjusted ebitda excludes : transaction expense , net which includes : ◦ acquisition and disposition related charges , including fair value adjustments related to earnouts and deferred payments ; and ◦ other transaction expense , including legal , accounting and other deal-related expense ; stock-based compensation expense ; asset impairments ; gain on calder land sale ; calder exit costs ; loss on extinguishment of debt ; and other charges , recoveries and expenses 34 for segment reporting , adjusted ebitda includes intercompany revenue and expense totals that are eliminated in the consolidated statements of comprehensive income . see the reconciliation of comprehensive income to adjusted ebitda included in this section for additional information . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > our net income increased $ 42.9 million driven by a $ 46.2 million increase in operating income , a $ 17.0 million increase in income from discontinued operations , net of tax related to big fish games , a $ 6.2 million increase in income from 36 our equity investments and a $ 0.5 million increase from other sources . partially offsetting these increases were a $ 15.1 million increase in net interest expense associated with higher outstanding debt balances , a $ 6.1 million increase in our income tax provision primarily from higher operating income from our segments and $ 5.8 million gain in 2015 from the sale of our remaining investment in hrtv llc , which operated a horse racing television network ( `` hrtv '' ) . our adjusted ebitda increased $ 32.0 million driven by a $ 10.9 million increase in casino as a result of our mvg and sch investments , as well as organic growth and operational efficiencies within certain owned properties , a $ 10.7 million increase from big fish games driven by the growth in our casual and mid-core free-to-play games , a $ 7.9 million increase from racing primarily associated with churchill downs , and a $ 6.7 million increase from twinspires as a result of handle growth . partially offsetting these increases were a $ 4.0 million increase in corporate expenses driven primarily by a non-recurring 2015 benefit associated with our deferred compensation program and a $ 0.2 million decline from our other investments . story_separator_special_tag marketing and advertising expense increased $ 1.7 million driven by increased spend in the twinspires segment associated with an increase in active players and handle growth . impairment of tangible and intangible assets increased $ 21.7 million driven by a $ 13.7 million non-cash impairment charge related to certain i-gaming assets , a $ 4.7 million non-cash impairment charge related to our bluff trademark , and a $ 3.3 million non-cash impairment charge related to our illinois horseracing equity trust . gain on calder land sale decreased $ 23.7 million from the 2016 sale of 61 acres of excess land at calder , which represented proceeds of $ 25.6 million less the book value of $ 1.9 million . calder exit costs decreased $ 1.7 million driven by lower costs associated with the grandstand demolition . other , net increased $ 3.8 million driven by a $ 2.3 million benefit recognized in 2016 related to the elimination of a contingent liability established in 2012 for the acquisition of bluff and a $ 1.5 million increase relating to our acquisition of betamerica in april 2017. other operating expense includes utilities , maintenance , food and beverage costs , property taxes and insurance and other operating expense . other operating expense increased $ 6.5 million primarily driven by a $ 2.2 million increase 41 in twinspires processing expense related to handle growth , a $ 1.6 million increase in insurance and property taxes , a $ 0.7 million increase in utilities , and a $ 2.0 million increase related to other expenses . year ended december 31 , 2016 , compared to the year ended december 31 , 2015 significant items affecting comparability of consolidated operating expense include : taxes and purses increased $ 2.6 million due to a $ 1.1 million increase in casino gaming taxes as a result of casino revenue growth at oxford , a $ 0.9 million increase in purses primarily associated with 37 additional host days at arlington and a $ 0.6 million increase in pari-mutuel taxes primarily related to twinspires . content expense increased $ 7.7 million due to a $ 7.1 million increase in third-party pari-mutuel content fees at twinspires associated with an increase in handle and a $ 0.6 million increase in other expense . salaries and benefits expense increased $ 2.1 million primarily due to a $ 1.6 million increase in contract services related to churchill downs and a $ 0.5 million increase from other sources . selling , general and administrative expense increased $ 3.8 million primarily due to a $ 1.5 million expense within our casino segment arising from potential tax penalties associated with the untimely submission of certain informational tax returns , a $ 0.8 million increase in stock-based compensation expense , a $ 0.6 million increase in professional fees , and an increase of $ 0.9 million in employee benefits for severance . gain on calder land sale increased $ 23.7 million from the sale of 61 acres of excess land at calder , which represents proceeds of $ 25.6 million less the book value $ 1.9 million . calder exit costs decreased $ 11.4 million due to the 2015 non-cash impairment of $ 12.7 million to reduce the net book value of calder 's grandstand and ancillary facilities to zero , partially offset by an increase in ongoing grandstand demolition costs of $ 1.3 million during 2016 compared to 2015. other , net decreased $ 2.3 million due to a benefit recognized in 2016 related to the elimination of a contingent liability established in 2012 for the acquisition of bluff . other operating expense decreased $ 1.7 million in 2016. other operating expense includes utilities , maintenance , food and beverage costs , property taxes and insurance and other operating expense . the decrease in other operating expenses was driven by a $ 4.0 million decrease in our insurance and property primarily from the cessation of pari-mutuel racing and demolition of property at calder and $ 0.1 million decrease from other sources . partially offsetting the decrease was a $ 1.7 million increase in corporate deferred compensation expense and a $ 0.7 million increase in twinspires third party processing expense related to handle growth . corporate allocated expense the table below presents corporate allocated expense included in the adjusted ebitda of each of the operating segments , excluding corporate stock-based compensation : replace_table_token_10_th adjusted ebitda we believe that the use of adjusted ebitda as a key performance measure of the results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner . adjusted ebitda is a supplemental measure of our performance that is not required by or presented in accordance with gaap . adjusted ebitda should not be considered as an alternative to , or more meaningful than , net income ( as determined in accordance with gaap ) as a measure of our operating results . 42 effective january 1 , 2017 , certain revenue previously included in our corporate segment was deemed by management to be more closely aligned with our twinspires segment . due to the big fish transaction , the company has presented big fish games as held for sale and discontinued operations in the accompanying consolidated financial statements and related notes . the company has not allocated corporate and other certain expenses to big fish games consistent with the discontinued operations presentation in the accompanying consolidated statements of comprehensive income . accordingly , the prior year amounts were reclassified to conform to this presentation . replace_table_token_11_th ( a ) the corporate segment includes corporate and other certain expenses of $ 3.6 million in 2017 , $ 3.1 million in 2016 and $ 3.0 million in 2015 that have not been allocated to big fish games as a result of the big fish transaction and the big fish games segment reported as held for sale and discontinued operations in the accompanying consolidated financial statements and related notes .
| business highlights in 2017 , we continued to take steps to position ourselves for sustainable value creation over the long term . we delivered growth in revenue and record net income , diluted eps , and adjusted ebitda . ◦ net revenue grew 7.3 % to $ 882.6 million ; ◦ net income grew 30.0 % to $ 140.5 million ; ◦ diluted net income per share grew 36.6 % to $ 8.77 ; and ◦ adjusted ebitda grew 9.6 % to $ 366.5 million . our kentucky derby and oaks week set all time-records for attendance and all sources handle . we announced two capital projects during 2017 reflecting our commitment to grow this iconic event , to expand the derby capacity and pricing , and to enhance customer experiences . our wholly-owned casino properties delivered strong organic growth from successful marketing and promotional activities . our casino equity investments also had strong performance . on january 3 , 2017 , we acquired an effective 62.5 % equity interest in the casino and racetrack at ocean downs in maryland . our twinspires.com handle grew to $ 1.3 billion , up 16.9 % compared to 2016 as we outpaced the industry growth by 15.3 percentage points . our twinspires.com handle represented 11.8 % of all pari-mutuel industry handle in 2017 , up 1.6 percentage points from 2016. on november 29 , 2017 , the company entered into the stock purchase agreement to sell its mobile gaming subsidiary , big fish games to aristocrat technologies , inc. ( the “ purchaser ” ) . on january 9 , 2018 , the company completed the big fish transaction and the purchaser paid the company an aggregate consideration of $ 990.0 million in cash .
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our effective tax rates differed from the u.s. corporate statutory tax rate of 35.0 % , primarily due to the mix of pre-tax income or loss earned in certain jurisdictions and the change in our valuation allowance . we record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized . as of december 31 , 2013 and december 31 , 2012 , a valuation allowance of $ 90.0 million and $ 90.4 million , respectively , has been provided for net operating loss carryforwards and other deferred tax assets . for the year ended december 31 , 2013 , we have recorded changes in the valuation allowance for deferred tax assets as a result of our assessed ability to realize the tax benefit of our net operating loss carryforwards in certain jurisdictions , primarily in the united states . we decreased our valuation allowance by $ 0.4 million in 2013 , which includes a $ 0.5 million decrease due to changes in other comprehensive income , partially offset by a $ 0.1 million increase to the income tax provision . the $ 0.1 million is comprised of $ 10.2 million of current year operating losses , offset by $ 10.1 million of income tax benefit related to the tax effect of unrealized pension gains . we increased our valuation allowance by $ 36.2 million in 2012 , of which $ 30.7 million was included in the income tax provision and $ 5.5 million represents changes in equity . the $ 30.7 million increase in the valuation allowance is comprised of $ 13.5 million related to the reversal of the benefit recorded for prior year 's net operating losses and $ 17.2 million related to current year operating losses . we consider the reversal of deferred tax liabilities within the net operating loss carryforward period , projected future taxable income and tax planning strategies in making this assessment . excluding the change in our valuation allowance , our effective tax rates would have been an 81.4 % and 366.1 % benefit for the years ended december 31 , 2013 and 2012 , respectively . net loss attributable to kraton net loss attributable to kraton was $ ( 0.6 ) million or $ ( 0.02 ) per diluted share for the year ended december 31 , 2013 , an increase in net income of $ 15.6 million , compared to a net loss of $ ( 16.2 ) million or $ ( 0.50 ) per diluted share for the year ended december 31 , 2012. net loss for the year ended december 31 , 2013 included the following : · restructuring charges of $ 0.7 million or $ 0.02 per diluted share · fees related to the proposed combination with the sbc business of lcy of $ 9.2 million or $ 0.28 per diluted share · charges associated with the credit facility refinancing of $ 5.8 million or $ 0.18 per diluted share · production downtime related to mact legislation of $ 3.5 million or $ 0.11 per diluted share 39 · income tax benefit related to a portion of the change in our valuation allowance for deferred tax assets of $ 10.1 million or $ 0.31 benefit per diluted share · negative spread between fifo and ecrc of $ 30.7 million or $ 0.96 per diluted share net loss for the year ended december 31 , 2012 included the following : · receipt from lyondellbasell in settlement of disputed charges of $ 6.9 million or $ 0.22 benefit per diluted share · property tax dispute settlement charge of $ 6.2 million or $ 0.20 per diluted share · restructuring and other charges of $ 1.2 million or $ 0.03 per diluted share · retirement plan settlement charge of $ 1.1 million or $ 0.03 per diluted share · storm related charges of $ 2.5 million or $ 0.08 per diluted share · impairment of long-lived assets of $ 5.4 million or $ 0.17 per diluted share · income tax expense related to a portion of the change in our valuation allowance for deferred tax assets of $ 13.5 million or $ 0.42 per diluted share · negative spread between fifo and ecrc of $ 30.5 million or $ 0.95 per diluted share year ended december 31 , 2012 compared to year ended december 31 , 2011 sales revenue sales revenue decreased $ 14.4 million or 1.0 % to $ 1,423.1 million for the year ended december 31 , 2012 from $ 1,437.5 million for the year ended december 31 , 2011. excluding the negative effect of changes in foreign currency exchange rates totaling $ 66.7 million , revenue increased $ 52.3 million or 3.6 % , of which $ 42.2 million resulted from a 3.4 % increase in sales volume and $ 12.6 million resulted from increased average selling prices . sales volumes were 313.4 kilotons and 303.0 kilotons for the years ended december 31 , 2012 and 2011 , respectively . sales volumes increased primarily in europe and asia pacific , which more than offset lower sales volumes into north america . the following factors influenced our sales revenue in each of our end use markets : · advanced materials . sales revenue decreased $ 19.8 million or 4.9 % to $ 382.8 million for the year ended december 31 , 2012 from $ 402.6 million for the year ended december 31 , 2011. excluding the $ 10.3 million impact of changes in foreign currency exchange rates , sales revenue declined $ 9.5 million or 2.4 % . sales volume was down 2.8 % due to reduced sales of less differentiated products in all regions , partially offset by sales volume growth of higher value hsbc products , primarily in asia pacific . story_separator_special_tag with respect to innovation sales volume , we experienced growth in pvc alternatives for medical and wire and cable applications . · adhesives , sealants and coatings . sales revenue increased $ 11.1 million or 2.2 % to $ 510.8 million for the year ended december 31 , 2012 from $ 499.7 million for the year ended december 31 , 2011. excluding a negative impact from changes in foreign currency exchange rates of $ 23.2 million , sales revenue was up $ 34.3 million or 6.9 % . in addition to an increase in average selling prices , sales volume increased 3.7 % with growth in all regions except north america , which was down modestly on lower sales volumes of less differentiated products . sales volume increased for our innovation grades in lubricant additive , printing plate and oilfield applications . · paving and roofing . sales revenue decreased $ 7.8 million or 1.8 % to $ 421.4 million for the year ended december 31 , 2012 from $ 429.3 million for the year ended december 31 , 2011. excluding the effect of changes in foreign currency exchange rates totaling $ 26.7 million , revenue increased $ 18.9 million or 4.4 % due to higher sales volumes partially offset by a decline in average selling prices , driven by lower average monomer costs . sales volumes were up 7.6 % primarily in the european and middle eastern , south american and asia pacific paving markets , which more than offset a decline in north america roofing volumes . · cariflex tm . sales revenue increased $ 6.6 million or 6.7 % to $ 105.9 million for the year ended december 31 , 2012 from $ 99.3 million for the year ended december 31 , 2011. excluding the $ 6.4 million impact from changes in foreign currency exchange rates , sales revenue improved $ 13.0 million or 13.1 % . the revenue increase reflects increased sales volume , mainly in surgical glove applications , and an increase in average selling prices across the cariflex portfolio . · other sales revenue decreased $ 4.5 million to $ 2.2 million for the year ended december 31 , 2012 . 40 cost of goods sold cost of goods sold increased $ 70.4 million or 6.3 % to $ 1,191.7 million for the year ended december 31 , 2012 from $ 1,121.3 million for the year ended december 31 , 2011. the increase was driven largely by increased monomer costs in the amount of $ 85.2 million , which includes the year-over-year $ 96.9 million negative impact assoc iated with the spread between the fifo and ecrc basis , increased sales volumes in the amount of $ 30.9 million , a $ 5.6 million charge associated with the resolution of a property tax dispute in france , storm related charges of $ 2.5 million and restructuring and related charges of $ 1.0 million , partially offset by a $ 53.9 million decrease from changes in foreign currency exchange rates , and a $ 6.8 million benefit associated with a refund received in settlement of a matter with lyondellbasell ( the “ lbi settlement ” ) . gross profit gross profit decreased $ 84.7 million or 26.8 % to $ 231.4 million for the year ended december 31 , 2012 from $ 316.2 million for the year ended december 31 , 2011. for the year ended december 31 , 2012 , our reported gross profit under fifo was lower than what it would have been under ecrc by approximately $ 30.5 million and for the year ended december 31 , 2011 was higher by $ 66.3 million . see “ —factors affecting our results of operations—raw materials and product mix ” above . operating expenses · research and development . research and development expense increased $ 3.0 million or 10.8 % , primarily due to an increase in employee related costs commensurate with additions to staffing levels among our scientists and increased lease expense for our research and development facilities , partially offset by lower maintenance and operational costs . research and development expenses were 2.2 % of sales revenue for the year ended december 31 , 2012 and 1.9 % of sales revenue for the year ended december 31 , 2011 . · selling , general and administrative . selling , general and administrative expense decreased $ 3.1 million or 3.0 % . the decrease was primarily due to $ 2.9 million in lower information technology costs , $ 1.8 million from changes in foreign currency exchange rates and $ 1.2 million in restructuring and related costs , partially offset by $ 1.1 million of increased non-cash compensation expense , $ 1.1 million retirement plan settlement charge and a $ 0.6 million charge associated with the resolution of a property tax dispute in france . selling , general and administrative expenses were 6.9 % of sales revenue for the year ended december 31 , 2012 and 7.1 % of sales revenue for the year ended december 31 , 2011 . · depreciation and amortization . depreciation and amortization increased $ 1.8 million or 2.9 % , primarily due to increased levels of capital expenditures and depreciation of our asset retirement obligations . · impairment of long-lived assets . we recorded a pre-tax charge of $ 5.4 million in the aggregate for the impairment of long-lived assets , of which $ 3.4 million was related to the hsbc facility in mailiao , taiwan and $ 2.0 million related to other long-lived assets . our subsequent entry into definitive documents for the joint venture did not affect these charges . loss on extinguishment of debt in connection with the refinancing of our indebtedness in the first quarter of 2011 , we incurred a $ 3.0 million loss on the extinguishment of debt . interest expense , net interest expense , net decreased $ 0.6 million or 1.9 % to $ 29.3 million for the year ended
| factors affecting our results of operations raw materials and product mix . our results of operations are directly affected by the cost of raw materials . we use butadiene , styrene , and isoprene as our primary raw materials in manufacturing our products . on a fifo basis , these monomers together represented approximately $ 609.5 million , $ 732.9 million and $ 658.9 million or 57.2 % , 61.5 % and 58.8 % of our total cost of goods sold for the years ended december 31 , 2013 , 2012 and 2011 , respectively . since the cost of our three primary raw materials comprise a significant amount of our total cost of goods sold , our selling prices for our products and therefore our total sales revenue is impacted by movements in our raw material costs , as well as the cost of other inputs . in addition , product mix can have an impact on our overall unit selling prices , since we provide an extensive product offering and therefore experience a wide range of unit selling prices . the cost of butadiene and isoprene is impacted by worldwide supply and demand for the monomers , prevailing energy prices and prices for natural and synthetic rubber . the cost of styrene is impacted by worldwide supply and demand for styrene , benzene and eth ylene and prevailing energy prices . in aggregate , average purchase prices decreased for butadiene and isoprene during 2013 compared to 2012 , with an increase in average purchase prices for styrene . average butadiene purchase prices were lower during 2012 compared to 2011. average isoprene and styrene purchase prices were higher in 2012 compared to 2011 , with a more significant increase in isoprene prices . we use the fifo basis of accounting for inventory and cost of goods sold , and therefore gross profit .
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the company amortizes long-lived intangible assets to reflect the pattern in which the economic benefits of the intangible asset are expected to be realized . the intangible assets are amortized over their remaining estimated useful lives , ranging from two to eighteen years for the patents , related technologies and know-how ; customer relationships ; trademarks ; and story_separator_special_tag the following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of , and should be read in conjunction with , part i , item 1 , `` business '' and item 8 , `` financial statements and supplementary data . '' for information on risks and uncertainties related to our business that may make past performance not indicative of future results , or cause actual results to differ materially from any forward-looking statements , see `` special note regarding forward-looking statements , '' and part i , item 1a , `` risk factors . '' financial overview we have incurred significant losses since our inception . we anticipate that we may continue to incur significant losses for the foreseeable future , and we may never achieve or maintain profitability . we have never generated any royalty revenues from sales of products by our collaborators and may never be profitable . certain of our consolidated subsidiaries require regulatory approval and or commercial scale-up before they may commence significant product sales and operating profits . we expect our future capital requirements will be substantial , particularly as we continue to develop our business and expand our synthetic biology technology platform . we believe that our existing cash and cash equivalents , short-term and long-term investments , and cash expected to be received from our current collaborators and for sales of products and services provided by our consolidated subsidiaries will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months . 45 sources of revenue we derive our revenues through the execution of eccs and license and collaboration agreements for the development and commercialization of products enabled by our technologies . generally , the terms of these collaborations provide that we receive some or all of the following : ( i ) technology access fees upon signing ; ( ii ) reimbursements of costs incurred by us for our research and development and or manufacturing efforts related to specific applications provided for in the collaboration ; ( iii ) milestone payments upon the achievement of specified development , regulatory and commercial activities ; and ( iv ) royalties on sales of products arising from the collaboration . our technology access fees and milestone payments may be in the form of cash or securities of the collaborator . our collaborations contain multiple arrangements and we typically defer revenues from the technology access fees and milestone payments received and recognize such revenues in the future over the anticipated performance period . we are also entitled to sublicensing revenues in those situations where our collaborators choose to license our technologies to other parties . from time to time , we and certain collaborators may cancel the agreements , relieving us of any further performance obligations under the agreement . when no further performance obligations are required of us under an agreement , we recognize any remaining deferred revenue . we also generate product and service revenues primarily through sales of advanced reproductive technologies , including bovine embryos derived from our embryo transfer and in vitro fertilization processes and from genetic preservation and sexed semen processes and applications of such processes to other livestock , as well as sales of livestock used in production . revenue is recognized when ( i ) persuasive evidence of an arrangement exists , ( ii ) services have been rendered or delivery has occurred such that risk of loss has passed to the customer , ( iii ) the price is fixed or determinable , and ( iv ) collection from the customer is reasonably assured . in future periods , our revenues will depend on the number of collaborations to which we are party , the advancement and creation of programs within our collaborations and the extent to which our collaborators bring products enabled by our technologies to market . our revenues will also depend upon our ability to maintain or improve the volume and pricing of our current product and service offerings and to develop new offerings , including those arising from our recent acquisitions . our revenues will also depend upon the ability of aquabounty to establish successful commercialization of its aquadvantage® salmon products since it received regulatory approval in november 2015. our future revenues may also include additional revenue streams we may acquire through mergers and acquisitions . in light of our limited operating history and experience in consummating new collaborations and also the limited experience with our consolidated subsidiaries , there can be no assurance as to the timing , magnitude and predictability of revenues to which we might be entitled . cost of products and services cost of products and services includes primarily labor and related costs , drugs and supplies used primarily in the embryo transfer and in vitro fertilization processes , livestock and feed used in production , and facility charges , including rent and depreciation . fluctuations in the price of livestock and feed have not had a significant impact on our operating margins and no derivative financial instruments are used to mitigate the price risk . research and development expenses we recognize research and development expenses as they are incurred . story_separator_special_tag the $ 3.7 million increase in equity in net loss of affiliates is primarily due to higher net losses incurred by intrexon energy partners in 2015. intrexon energy partners incurred a full year of losses in 2015 at a higher spend rate due to the program progression compared to only nine months in 2014 when the program was scaling up . 50 comparison of the year ended december 31 , 2014 to the year ended december 31 , 2013 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2013 , together with the changes in those items in dollars and as a percentage : replace_table_token_10_th collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2014 and 2013 , together with the changes in those items . see note 5 to our consolidated financial statements appearing elsewhere in this annual report on form 10-k for further discussion of our collaboration and licensing revenues . replace_table_token_11_th collaboration and licensing revenues increased $ 21.7 million over the year ended december 31 , 2014 due to ( i ) the recognition of deferred revenue for upfront payments received from collaborations or expansions thereof signed by us in 2014 , including 51 intrexon energy partners , a joint venture in which we own 50 percent , ( ii ) the recognition of research and development services performed by us pursuant to these new collaborations , and ( iii ) increased research and development services performed by us for collaborations in effect prior to 2014 as a result of the progression of current programs and initiation of new programs with the collaborations , including ziopharm and our joint ventures with s & i ophthalmic and ovaxon . product and service revenues and cost of products and services product revenue includes $ 10.3 million from the sale of pregnant cows , live calves and livestock used in production . service revenue totaling $ 11.7 million relates to the provision of in vitro fertilization and embryo transfer services performed . cost of products and services were $ 18.9 million which primarily consist of employee compensation costs , livestock , feed , drug supplies and facility charges related to the production of such products and services . research and development expenses research and development expenses were $ 59.0 million for the year ended december 31 , 2014 compared to $ 48.1 million for the year ended december 31 , 2013 , an increase of $ 10.9 million , or 22.5 percent . salaries , benefits and other personnel costs increased $ 6.5 million due primarily to ( i ) increases in research and development headcount to support the new collaborations , ( ii ) stock-based compensation expenses for stock options granted to research and development employees in march 2014 , and ( iii ) the inclusion of a full year of compensation costs for aquabounty employees in 2014 compared to approximately nine and a half months in 2013. lab supplies and contract research organizations expenses increased $ 4.0 million as a result of the increased level of research and development services provided to our collaborators . depreciation and amortization increased $ 1.1 million as a result of equipment purchased to support the increase in collaborations and the amortization of intangibles arising from the acquisition of trans ova . these increases were partially offset by a $ 1.2 million decrease in third party maintenance fees related to the termination of an exclusive licensing agreement in may 2014. selling , general and administrative expenses selling , general and administrative expenses were $ 63.6 million for the year ended december 31 , 2014 compared to $ 33.6 million for the year ended december 31 , 2013 , an increase of $ 30.0 million or 89.3 percent . salaries , benefits and other personnel costs increased $ 20.0 million due to ( i ) our hiring additional employees needed to operate as a public company , ( ii ) the inclusion of trans ova employees since the date of acquisition , ( iii ) stock-based compensation expenses for stock options granted to general and administrative employees in march 2014 , and ( iv ) the inclusion of a full year of costs for aquabounty employees in 2014 compared to nine and a half months in 2013. stock-based compensation expenses for options granted to our non-employee directors increased $ 1.9 million due to changes in our director compensation plan which we adopted in conjunction with our transition to a public company . legal and professional expenses increased $ 4.4 million primarily due to costs associated with merger and acquisition and other business development activities , the formation of our joint venture with intrexon energy partners , and legal costs incurred by aquabounty and trans ova . total other income ( expense ) , net total other income ( expense ) , net , is primarily comprised of unrealized appreciation ( depreciation ) in fair value of equity securities which was $ ( 10.5 ) million for the year ended december 31 , 2014 compared to $ 10.4 million for the year ended december 31 , 2013. the unrealized appreciation ( depreciation ) is the result of market change for the equity securities we hold in certain of our collaborators . total other income ( expense ) , net , for the year ended december 31 , 2013 includes a $ 7.4 million gain on our previously held equity interest in aquabounty triggered by the requirement to consolidate aquabounty in march 2013. equity in net loss of affiliates equity in net loss of affiliates for the years ended december 31 , 2014 and 2013 includes our pro-rata share of the net losses of our investments we account for by the equity method of accounting .
| results of operations comparison of the year ended december 31 , 2015 to the year ended december 31 , 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 , together with the changes in those items in dollars and as a percentage : replace_table_token_8_th 48 collaboration and licensing revenues the following table shows the collaboration and licensing revenue recognized for the years ended december 31 , 2015 and 2014 , together with the changes in those items . see note 5 to our consolidated financial statements appearing elsewhere in this annual report on form 10-k for further discussion of our collaboration and licensing revenues . replace_table_token_9_th collaboration and licensing revenues increased $ 42.6 million over the year ended december 31 , 2014 due to ( i ) the recognition of deferred revenue for upfront payments received from our license and collaboration agreement with ares trading , a subsidiary of the biopharmaceutical business of merck kgaa , which became effective in may 2015 , and from other collaborations signed by us in 2015 ; ( ii ) increased research and development services performed for both new collaborations and for the expansion or addition of new programs with previously existing collaborators , including primarily ziopharm , fibrocell science , inc. , genopaver , llc , and intrexon energy partners ; and ( iii ) the recognition of $ 16.0 million of previously deferred revenue related to collaboration agreements for which we satisfied all of our obligations or which were terminated in 2015. product and service revenues and cost of products and services product and service revenues were $ 84.8 million for the year ended december 31 , 2015 compared to $ 26.2 million for the year ended december 31 , 2014 , an increase of $ 58.6 million or 224 percent .
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functional story_separator_special_tag the following section discusses management 's view of the financial condition , results of operations and cash flows of diodes incorporated and its subsidiaries ( collectively , “ the company , ” “ our company , ” “ we , ” “ our , ” “ ours , ” or “ us ” ) and should be read together with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this form 10-k. the following discussion contains forward-looking statements and information relating to our company . we generally identify forward-looking statements by the use of terminology such as “ may , ” “ will , ” “ could , ” “ should , ” “ potential , ” “ continue , ” “ expect , ” “ intend , ” “ plan , ” “ estimate , ” “ anticipate , ” “ believe , ” “ project , ” or similar phrases or the negatives of such terms . we base these statements on our beliefs as well as assumptions we made using information currently available to us . such statements are subject to risks , uncertainties and assumptions , including those identified in part i , item 1a. “ risk factors , ” as well as other matters not yet known to us or not currently considered material by us . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results may vary materially from those anticipated , estimated or projected . given these risks and uncertainties , prospective investors are cautioned not to place undue reliance on such forward-looking statements . forward-looking statements do not guarantee future performance and should not be considered as statements of fact . - 32 - you should not unduly rely on these forward-looking statements , which speak only as of the date of this annual report on form 10-k. unless required by law , we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise . the private secur ities litigation reform act of 1995 ( the “ act ” ) provides certain “ safe harbor ” provisions for forward-looking statements . all forward-looking statements made in this annual report on form 10-k are made pursuant to the act . summary of the year ended december 31 , 2015 · we acquired pericom semiconductor corporation in november for approximately $ 403.2 million ; · during the fourth quarter we incurred costs of approximately $ 8 million for pericom employees for restricted stock awards and change-in-control agreements . · net sales were $ 849 million , a decrease of 4.7 % from the $ 891 million in 2014 ; · gross profit was $ 249 million , or 29.3 % of net sales , a decrease of 10.1 % from the $ 277 million , in 2014 , or 31.1 % of net sales . in 2014 ; · selling and administrative expenses were up $ 5.5 million , primarily related to costs associated with the pericom acquisition , when compared to 2014 ; · net income attributable to common stockholders was $ 24 million , or $ 0.49 per diluted share , compared to $ 64 million , or $ 1.31 per diluted share , in 2014 ; · cash flow from operations was $ 118 million compared to $ 134 million in 2014 ; and · we repurchased approximately $ 11 million or 466,010 shares of our outstanding common stock . summary of the year ended december 31 , 2014 · net sales for 2014 increased approximately 8 % to $ 891 million , compared to $ 827 million in 2013 ; · gross profit for 2014 was $ 277 million , or 31.1 % of net sales , an increase of 17 % from the $ 238 million , or 28.8 % of net sales , in 2013. bcd 's margins improved from 2013 to 2014 but still negatively impacted our total gross margin by approximately 160 basis points , as compared to approximately 120 basis points in 2013 ; · selling , general and administrative expenses , as a percentage of net sales , decreased 100 basis points to 15.0 % for 2014 compared to 16.0 % for 2013 : · net income attributable to common stockholders for 2014 was $ 64 million , or $ 1.31 per diluted share , an increase of 140 % from the $ 27 million , or $ 0.56 per diluted share , in 2013 ; and · cash flow from operations for 2014 was $ 134 million , an increase of 22 % from the $ 110 million generated in 2013. business acquisitions in the fourth quarter of 2015 , we completed the acquisition of pericom for aggregate consideration of approximately $ 403.2 million , excluding acquisition costs , fees and expenses . the cash portion of the acquisition price was funded by borrowings under our bank credit facilities and use of existing cash . pericom 's financial results have been included in our consolidated financial statements from november 24 , 2015. in the first quarter of 2013 , we completed the acquisition of bcd for an aggregate consideration of approximately $ 155 million , excluding acquisition costs , fees and expenses , plus a $ 5 million employee retention plan . business outlook looking forward , we remain focused on achieving our goal of $ 1 billion in annual revenue with model gross margins of 35 % . acquisitions remain a key part of our growth strategy to reach our revenue goal . we have a solid pipeline of designs and expanded customer relationships across all regions and product lines . story_separator_special_tag average selling prices for 2014 were flat compared to 2013. cost of goods sold as a percentage of sales , decreased from 71.2 % for 2013 to 68.9 % for 2014. our average unit cost decreased by approximately 3 % . - 37 - gross profit as a percentage of net sales was 31.1 % for 2014 , compared to 28.8 % for 2013. the increase in gr oss margin was primarily due to lower gold prices , improved product mix , copper wire conversion and cost reduction efforts . operating expenses replace_table_token_11_th sg & a for 2014 increased due primarily to increased selling expenses , partly offset by reduced retention bonus related to the bcd acquisition . sg & a , as a percentage of net sales , improved to 15.0 % in 2014 , from 16.0 % in 2013. r & d for 2014 increased due primarily to an increase in employee related costs . r & d , as a percentage of net sales , was 6 % for both 2014 and 2013. amortization of acquisition-related intangibles was due primarily to the amortization expense on the acquired intangibles of bcd . goodwill impairment for 2013 was related to eris . there was no goodwill impairment for 2014. there were no restructuring related costs for 2014. the restructuring in 2013 related to termination and severance costs of our u.k. development team and the closure of our new york sales office . we recorded a gain on sale of assets for 2014 , due to the sale of a building in taiwan . o ther income/ ( expenses ) replace_table_token_12_th interest income for both 2014 and 2013 was relatively flat consisting of interest earned on bank deposits and short-term investments . interest expense for 2014 declined in 2014 compared to 2013 primarily due to the repayment of $ 40 million on our revolving senior credit facility . gain on securities resulted primarily from unrealized and realized gains on trading securities . other income for 2014 included approximately $ 2 million in currency gains . included in other income for 2013 were foreign currency gains and miscellaneous income . income tax provision and noncontrolling interest replace_table_token_13_th - 38 - we recognized income tax expense of approximately $ 20 million for 2014 , resulting in an effective tax rate of approximately 24 % , as compared to 38 % for 2013. income tax expense for 2013 includes approximately $ 5 million of additional tax expense related to a tax audit by the china tax authorities . the increase in tax expense from 2013 to 2014 was due primarily to the increase in pretax earnings during the same period . net ( income ) loss attributable to noncontrolling interest primarily represents the minority investors ' share of the earnings of certain china subsidiaries and eris . the noncontrolling interest in the subsidiaries and their equity balances are reported separately in the consolidation of our financial statements . the loss attributable to noncontrolling interest for 2013 was due primarily to the goodwill impairment attributable to eris , of which 49 % was recognized in noncontrolling interest . financial condition liquidity and capital resources our primary sources of liquidity are cash and cash equivalents , funds from operations and , if necessary , borrowings under our credit facilities . on september 2 , 2015 , the company and diodes international b.v. ( the “ foreign borrower ” and , collectively with the company , the “ borrowers ” ) , and certain subsidiaries of the company as guarantors , entered into an amendment no . 3 to credit agreement , incremental term assumption agreement , limited waiver and consent ( the “ amendment ” ) with bank of america , n.a. , as administrative agent , and the lenders party to the amendment ( collectively , the “ lenders ” ) , which amends the credit agreement dated january 8 , 2013 ( as previously amended by amendment no . 1 to credit agreement and limited waiver dated as of november 1 , 2013 and amendment no . 2 to credit agreement and amendment no . 1 to collateral agreement dated as of june 19 , 2015 ) ( as previously amended and as amended by the amendment , the “ credit agreement ” ) . the amendment provided the company with a $ 400 million revolving senior credit facility ( the “ revolver ” ) , which includes a $ 10 million swing line sublimit , a $ 10 million letter of credit sublimit , and a $ 20 million alternative currency sublimit , and a $ 100 million term loan facility ( the “ term loan facility ” ) . we may from time to time request additional increases in the aggregate commitments under the credit agreement of up to $ 200 million , subject to the lenders electing to increase their commitments or by means of the addition of new lenders , and subject to at least half of each increase in aggregate commitments being in the form of term loans , with the remaining amount of each increase being an increase in the amount of the revolver . the revolver and the term loan both mature on january 8 , 2018 , and as of december 31 , 2015 , $ 464.5 million was outstanding . in addition , we have short-term foreign credit facilities with borrowing capacity of approximately $ 84 million with $ 1 million used for import and export guarantees . we also have foreign long-term debt of approximately $ 2 million . our primary liquidity requirements have been to meet our capital expenditure needs and to fund on-going operations . for 2015 and 2014 , and 2013 , our working capital was $ 571 million , $ 526 million , and $ 493 million , respectively . in 2015 our working capital increased due to increases in short-term investments , accounts receivable and inventories . these increases were driven by the pericom acquisition .
| factors relevant to our results of operations in 2015 , the following factors affected , and , we believe , will continue to affect , our results of operations : · we continue to experience pressure from our customers to reduce the selling price for our products , and we expect future improvements in net income to result primarily from increases in sales volume and improvements in product mix , as well as manufacturing cost reductions in order to offset any reduction in average selling prices of our products . · for the years ended december 31 , 2015 , 2014 and 2013 , our original equipment manufacturer ( “ oem ” ) and electronic manufacturing services ( “ ems ” ) customers together accounted for 33 % , 33 % and 37 % of net sales , respectively , while our global network of distributors accounted for 67 % , 67 % and 63 % of net sales , respectively . · our gross profit margin was 29.3 % in 2015 , compared to 31.1 % in 2014 and 28.8 % in 2013. the decline in gross profit margin in 2015 was due to lower capacity utilization , product mix and pricing . future gross profit margins will depend primarily on market prices , our product mix , manufacturing cost savings , and the demand for our products . · for 2015 , the percentage of our net sales derived from our asian subsidiaries was 80 % , compared to 80 % in 2014 and 82 % in 2013. europe accounted for approximately 11 % , 10 % and 9 % of our net sales in 2015 , 2014 and 2013 , respectively . in addition , north america accounted for approximately 9 % , 10 % and 9 % of our net sales in 2015 , 2014 and 2013 , respectively . · for 2015 , our capital expenditures were approximately 16.2 % of net sales , which is higher than our previous 5 % to 9 % of net sales model .
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discussion and analysis of our cash flows for the fiscal year ended december 31 , 2018 is included under the heading item 7. management 's discussion and analysis of financial condition and results of operations – liquidity and financial position in our annual report on form 10-k filed for the fiscal year ended december 31 , 2019 with the securities and exchange commission on february 21 , 2020. overview sensient technologies corporation ( the company or sensient ) is a global developer , manufacturer , and supplier of flavor and fragrance systems for the food , beverage , personal care , and household-products industries . the company previously announced it has entered into a definitive agreement to sell its fragrances product line ( excluding its essential oils product line ) . the company is also a leading developer , manufacturer , and supplier of colors for businesses worldwide . the company provides natural and synthetic color systems for use in foods , beverages , pharmaceuticals and nutraceuticals ; colors and other ingredients for cosmetics , pharmaceuticals , and nutraceuticals ; and technical colors for industrial applications . the company 's three reportable segments are the flavors & extracts group ( formerly known as the flavors & fragrances segment ; see note 12 , segment and geographic information ) and the color group , which are managed on a product basis , and the asia pacific group , which is managed on a geographic basis . the company 's corporate expenses , restructuring including operational improvement plans , divestiture , share-based compensation , covid-19 employee payment , and other costs are included in the “ corporate & other ” category . in the second quarter of 2020 , the company divested its inks product line ( color group ) , and in the third quarter of 2020 , the company divested its yogurt fruit preparations product line ( flavors & extracts group ) . in 2020 , sensient 's management team and employees worked diligently throughout the pandemic to ensure that employees remained safe , facilities remained open , and the supply chain continued to function . as a result of these efforts , sensient was able to serve as a consistent and reliable supplier to its customers throughout the pandemic for their food , pharmaceutical , and personal care ingredient needs . the impact of covid-19 on sensient 's business was mixed in 2020. the company believes the net impact of the pandemic was negative to sensient 's results , as the increase in certain product lines was more than offset by the significant drop in demand for cosmetic makeup ingredients and certain food products . the company also made significant progress on the product line divestitures that were announced in 2019. the sales of the inks product line and yogurt fruit preparations product line were completed in 2020. additionally , a definitive agreement to sell the fragrances product line ( excluding the essential oils product line ) was signed in november 2020 , with an anticipated close date in the first half of 2021. the company 's diluted earnings per share were $ 2.59 in 2020 and $ 1.94 in 2019. included in the 2020 results were $ 18.5 million ( $ 14.4 million after tax , $ 0.34 per share ) of divestiture & other related costs , operational improvement plan costs , and a one-time covid-19 employee payment . included in the 2019 results were $ 45.9 million ( $ 43.2 million after tax , $ 1.02 per share ) of divestiture & other related costs . adjusted diluted earnings per share , which exclude the divestiture & other related costs , the results of operations of the product lines divested or to be divested , the operational improvement plan costs , and the impact of the one-time covid-19 employee payment , were $ 2.79 in 2020 and $ 2.92 in 2019 ( see discussion below regarding non-gaap financial measures ) . additional information on the results is included below . 21 index story_separator_special_tag style= '' text-align : left ; color : # 000000 ; font-family : 'times new roman ' ; font-size : 10pt ; font-style : italic ; '' > covid-19 employee payment in the fourth quarter of 2020 , the company approved a one-time covid-19 employee payment to reward the outstanding dedication and efforts of the company 's employees during these challenging and unprecedented times . this adjustment totaled approximately $ 3.0 million . non-gaap financial measures within the following tables , the company reports certain non-gaap financial measures , including : ( 1 ) adjusted revenue , adjusted operating income , adjusted net earnings , and adjusted diluted earnings per share , which exclude the results of the product lines divested or to be divested , the divestiture & other related costs , the operational improvement plan costs , and a one-time covid-19 employee payment and ( 2 ) percentage changes in revenue , operating income , and diluted earnings per share on an adjusted local currency basis , which eliminate the effects that result from translating its international operations into u.s. dollars , the results of product lines divested or to be divested , the divestiture & other related costs or income , the operational improvement plan costs , and the one-time covid-19 employee payment . the company has included each of these non-gaap measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance . such information is supplemental to information presented in accordance with gaap and is not intended to represent a presentation in accordance with gaap . these non-gaap measures should not be considered in isolation . rather , they should be considered together with gaap measures and the rest of the information included in this report . management internally reviews each of these non-gaap measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends , and the company believes the information can be beneficial to investors for the same purposes . story_separator_special_tag segment operating income as a percent of revenue was 19.2 % in 2020 compared to 18.9 % in 2019. asia pacific segment revenue for the asia pacific segment was $ 121.2 million and $ 118.2 million for 2020 and 2019 , respectively , an increase of approximately 3 % . foreign exchange rates had a minimal impact on segment revenues . segment revenue was higher than the prior year due to higher volumes . segment operating income for the asia pacific segment was $ 22.1 million in 2020 and $ 19.4 million in 2019 , an increase of approximately 14 % compared to the prior year . foreign exchange rates did not have a significant impact on segment operating income . the increase in segment operating income was a result of higher volumes and lower raw material costs . segment operating income as a percent of revenue was 18.2 % in 2020 and 16.4 % in 2019 , respectively . corporate & other the corporate & other operating loss was $ 56.4 million in 2020 and $ 74.4 million in 2019. the lower operating loss was primarily a result of lower divestiture & other related costs in 2020 of $ 12.2 million compared to $ 45.9 million in 2019. these lower divestiture & other related costs in 2020 were partially offset by higher stock based compensation of $ 6.3 million , operational improvement plan costs of $ 3.3 million , and the one-time covid-19 employee payment of $ 3.0 million . there were no operational improvement plan costs or covid-19 employee payment in 2019. see the divestitures , operational improvement plan , and covid-19 employee payment sections above for further information . results of operations 2019 vs. 2018 revenue sensient 's revenue was approximately $ 1.3 billion and $ 1.4 billion in 2019 and 2018 , respectively . gross profit the company 's gross margin was 31.4 % in 2019 and 33.6 % in 2018. the decrease in gross margin was primarily a result of unfavorable volume and the impact of a $ 10.6 million inventory adjustment related to the divesting of the yogurt fruit preparations product line , partially offset by higher selling prices . see divestitures below for further information on the inventory adjustment . selling and administrative expenses selling and administrative expense as a percent of revenue was 22.2 % in 2019 and 18.9 % in 2018 , respectively . divestiture & other related costs of $ 35.3 million in 2019 were included in selling and administrative expense and increased selling and administrative expense as a percent of revenue by approximately 270 basis points in 2019. see divestitures below for further information . operating income operating income was $ 121.1 million in 2019 and $ 203.4 million in 2018. operating margins were 9.2 % in 2019 and 14.7 % in 2018. divestiture & other related costs reduced operating margins by approximately 350 basis points in 2019. additional information on segment results can be found in the segment information section . 26 index interest expense interest expense was $ 20.1 million in 2019 and $ 21.9 million in 2018. the decrease in expense was primarily due to the decrease in average debt outstanding . income taxes the effective income tax rate was 18.8 % in 2019 and 13.3 % in 2018. the effective tax rates in both 2019 and 2018 were impacted by changes in estimates associated with the finalization of prior year foreign and domestic tax items , audit settlements , and mix of foreign earnings . the effective tax rate in 2019 was impacted by tax costs related to the divestiture & other related costs and the release of valuation allowances related to the foreign tax credit carryover and foreign net operating losses . the effective tax rate in 2018 was also favorably impacted by u.s. tax accounting method changes that were filed with the irs in the second quarter of 2018 and generation of foreign tax credits during 2018. see note 11 , income taxes , in the notes to consolidated financial statements included in this report for additional information . on december 22 , 2017 , the u.s. enacted the 2017 tax legislation ( 2017 tax legislation ) . the 2017 tax legislation significantly changed u.s. corporate income tax laws by reducing the u.s. corporate income tax rate to 21 % beginning in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . as a result , the company recorded a provisional net tax expense of $ 18.4 million during the fourth quarter of 2017. this amount consists of reevaluating the u.s. deferred tax assets and liabilities based on the lower corporate income tax rate , adjustments to the company 's foreign tax credit carryover , and the one-time mandatory tax on previously deferred foreign earnings of u.s. subsidiaries . in 2018 , the company finalized its provisional estimates related to the 2017 tax legislation resulting in an income tax benefit of $ 6.6 million . sensient considers $ 11.8 million to be the final net tax expense related to the 2017 tax legislation . replace_table_token_6_th acquisitions on march 9 , 2018 , the company completed the acquisition of certain net assets and the natural color business of globenatural , a company based in lima , peru . the company paid $ 10.8 million of cash for this acquisition . the assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date . the company acquired net assets of $ 1.4 million and identified intangible assets , principally customer relationships of $ 2.0 million , and allocated the remaining $ 7.4 million to goodwill . these operations are included in the color segment . on july 10 , 2018 , the company completed the acquisition of sensient natural extraction inc . , a botanical extraction business with patented solvent-free extraction processes , located in vancouver , canada . the company paid $ 19.8 million of cash for this acquisition .
| results of operations 2020 vs. 2019 revenue sensient 's revenue was approximately $ 1.3 billion in both 2020 and 2019. gross profit the company 's gross margin was 31.8 % in 2020 and 31.4 % in 2019. the increase in gross margin is primarily a result of lower divestiture & other related costs in 2020. selling and administrative expenses selling and administrative expense as a percent of revenue was 20.4 % in 2020 and 22.2 % in 2019. selling and administrative expenses in 2020 included divestiture & other related expenses , operational improvement plan costs , and the one-time covid-19 employee payment totaling $ 15.7 million and in 2019 included divestiture & other related costs totaling $ 35.3 million . these expenses increased selling and administrative expense as a percent of revenue by approximately 120 and 270 basis points in 2020 and 2019 , respectively . see divestitures below for further information . operating income operating income was $ 152.7 million in 2020 and $ 121.1 million in 2019. operating margins were 11.5 % in 2020 and 9.2 % in 2019. divestiture & other related costs , operational improvement plan costs , and the one-time covid-19 employee payment reduced operating margins by approximately 140 basis points in 2020 and divestiture & other related expenses reduced operating margins by approximately 350 basis points in 2019. additional information on segment results can be found in the segment information section . interest expense interest expense was $ 14.8 million in 2020 and $ 20.1 million in 2019. the decrease in expense was primarily due to a decrease in the average interest rate and the average debt outstanding .
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for story_separator_special_tag the following discussion and analysis of the financial condition and results of operations of coty inc. and its majority and wholly-owned subsidiaries , should be read in conjunction with the information contained in the consolidated financial statements and related notes included elsewhere in this document . when used in this discussion , the terms “ coty , ” the “ company , ” “ we , ” “ our , ” or “ us ” mean , unless the context otherwise indicates , coty inc. and its majority and wholly-owned subsidiaries . the following discussion contains forward-looking statements . see “ special note regarding forward-looking statements ” and “ risk factors ” for a discussion on the uncertainties , risks and assumptions associated with these statements . actual results may differ materially from those contained in any forward-looking statements . the following discussion includes certain non-gaap financial measures . see “ overview—non-gaap financial measures ” for a discussion of non-gaap financial measures and how they are calculated . all dollar amounts in the following discussion are in millions of united states ( “ u.s. ” ) dollars , unless otherwise indicated . overview we are a leading global beauty company . we manufacture and market beauty products in the fragrances , color cosmetics and skin & body care segments with distribution in over 130 countries and territories across both prestige and mass markets . we continue to operate in a challenging market environment particularly in mass fragrance and color cosmetics with heightened promotional activities in mass retail in western europe and the u.s. a significant part of our strategy is to expand our geographic footprint into emerging markets and diversify our distribution channels within existing geographies to increase market presence . as part of our expansion efforts , we entered into agreements to broaden distribution in asia , south africa , brazil , the united kingdom ( “ u.k. ” ) , and the united arab emirates ( “ u.a.e. ” ) during fiscal 2014 and our results from certain of these efforts reflect incremental net revenues from joint venture consolidations and conversion from third party to direct distribution in these geographies . non-gaap financial measures adjusted operating income , adjusted income before income taxes , adjusted net income attributable to coty inc. and adjusted net income attributable to coty inc. per common share are non-gaap financial measures which we believe better enable management and investors to analyze and compare the underlying business results from period to period . these non-gaap financial measures should not be considered in isolation , or as a substitute for or superior to , financial measures calculated in accordance with gaap . moreover , these non-gaap financial measures have limitations in that they do not reflect all the items associated with the operations of our business as determined in accordance with gaap . we compensate for these limitations by analyzing current and future results on a gaap basis as well as a non-gaap basis , and we provide reconciliations from the most directly comparable gaap financial measures to the non-gaap financial measures . our non-gaap financial measures may not be comparable to similarly titled measures of other companies . other companies , including companies in our industry , may calculate similarly titled non-gaap financial measures differently than we do , limiting the usefulness of those measures for comparative purposes . adjusted operating income , adjusted income before income taxes , adjusted net income attributable to coty inc. and adjusted net income attributable to coty inc. per common share provide an alternative view of performance used by management and we believe that an investor 's understanding of our performance is enhanced by disclosing these adjusted 27 performance measures . in addition , our financial covenant compliance calculations under our debt agreements are substantially derived from these adjusted performance measures . the following are examples of how these adjusted performance measures are utilized by management : senior management receives a monthly analysis of our operating results that are prepared on an adjusted performance basis ; strategic plans and annual budgets are prepared on an adjusted performance basis ; and senior management 's annual compensation is calculated , in part , using adjusted performance measures . adjusted operating income we define adjusted operating income as operating income adjusted for the following : share-based compensation adjustment : as of june 12 , 2013 , the effective date of the share-based compensation plan amendments , the share-based compensation expense adjustment represents the difference between equity plan accounting using the grant date fair value and equity plan accounting using the june 12 , 2013 fair value . prior to june 12 , 2013 , the share-based compensation expense adjustment represents the difference between share-based compensation expense accounted for under equity plan accounting based on grant date fair value , and under liability plan accounting based on reporting date fair value . future adjustments for share-based compensation will consist of the difference between expense under equity plan accounting based on the grant date fair value and total estimated share-based compensation expense , which is based on ( i ) the fair value on june 12 , 2013 for nonqualified stock option awards and restricted stock units ( “ rsus ” ) and ( ii ) all costs associated with the special incentive awards granted in fiscal 2012 and 2011. the estimated aggregate expense is approximately $ 12 , $ 7 , $ 2 , and $ 0 for the fiscal years ended june 30 , 2015 , 2016 , 2017 , and 2018 respectively . refer to “ management discussion and analysis of financial condition and results of operations—critical accounting policies and estimates ” for a full discussion of the share-based compensation adjustment ; and other adjustments , which include : asset impairment charges ; restructuring costs and business structure realignment programs ; acquisition-related costs and certain acquisition accounting impacts ; and other adjustments that we believe investors may find useful . story_separator_special_tag partially offsetting the increase in the segment was a decline in net revenues from lady gaga , beyoncé and vera wang in part due to a lower level of new launch activity for these brands in fiscal 2014 compared to fiscal 2013 , the expiration of certa in licenses and lower net revenues from existing celebrity brands that are later in their lifecycles . power brand , playboy , also negatively impacted segment results primarily due lower holiday customer orders in fiscal 2014 compared to fiscal 2013. segment growth reflects weak market conditions in developed markets that we expect to continue . t he negative price and mix impact primarily reflects an increased level of promotional and discounted pricing activity in select developed markets , reflecting a competitive retail environment . also contributing to lower price and mix was lower prices for select brands as we cascade them into different distribution channels in accordance with our strategy . in fiscal 2013 , net revenues of fragrances increased 2 % , or $ 37.9 , to $ 2,490.7 from $ 2,452.8 in fiscal 2012. the increase was primarily the result of unit volume growth of 8 % , partially offset by a negative price and mix impact of 5 % and a negative impact of foreign currency exchange translations of 1 % . excluding the negative impact of foreign currency exchange translations , net revenues of fragrances increased 3 % reflecting our continued focus on introducing new products into the market . segment growth was primarily driven by net revenues from newly-established brand lady gaga fame , the strengthening of the roberto cavalli brand through new launches just cavalli , roberto cavalli acqua and our special edition fragrance for the middle east , roberto cavalli oud , and growth in our power brands marc jacobs , chloé , and playboy driven by the successful new launches dot marc jacobs , see by chloé and playboy vip . the segment also benefited from the acquisition of licensing rights to distribute katy perry 's existing fragrance portfolio . partially offsetting this growth were lower net revenues from brands such as calvin klein and davidoff , primarily due to challenging market conditions in southern europe and a lower level of new launch activity in fiscal 2013 compared to fiscal 2012 , the expiration of the kenneth cole license and lower net revenues from existing celebrity brands that are later in their life cycles . the negative price and mix impact primarily reflects higher relative volumes of lower-priced products for select brands and an overall increase in customer discounts and allowances in the segment . color cosmetics in fiscal 2014 , net revenues of color cosmetics decreased 7 % , or $ 102.3 , to $ 1,366.2 from $ 1,468.5 in fiscal 2013. foreign curre ncy exchange translations had an immaterial impact on net revenues in color cos metics . the decrease was primarily the result of a decline in unit volume of 5 % and a negative price and mix impact of 2 % . th e decline in the segment was primarily driven by lower net revenues from nail products , in part reflecting continued declines since the first quarter of fiscal 2014 in the u.s. retail nail market . the sally hansen brand was the largest contributor to the segment decline , in part due to lower net revenues from sally hansen insta gel and sally hansen salon effects nail products that generated stronger net revenues in fiscal 2013 , partially offset by higher net revenues from new launches sally hansen triple shine , sally hansen miracle gel and sally hansen i heart nail art in fiscal 2014. also contributing to the decline in sally hansen was the impact of several key u.s. mass retailers significantly reducing their inventory on hand , particularly in the first quarter of fiscal 2014 in response to the sudden decline in consumer demand for nail products , resulting in lower replenishment orders in fiscal 2014 compared to fiscal 2013. net revenues for sally hansen were also negatively affected by an increasingly competitive retail environment , decline in market share and the aforementioned weaker demand in the nail category in the u.s . we expect weakness in the color cosmetics market in the u.s. to continue , including further reduction of inventory on hand by retailers . lo wer net revenues from opi also contributed to the decline in the color cosmetics segment , reflecting a decline in the u.s. retail channel driven by lower net revenues of nicole by opi and the discontinuation of a particular product line sold exclusively by a large retailer . these decreases in opi were partially offset by incremental net revenues attributable to new distribution through a professional salon chain in the u.s. , incremental net revenues in the u.k. following the acquisition of a u.k. distributor and expanded distribution in australia and our travel retail business . partially offsetting the decline in the segment was an increase in rimmel primarily reflecting strong growth of rimmel scandal'eyes mascara and rimmel stay matte foundation . the negative price and mix impact for the segment was primarily driven by unit price declines in most key brands within the segment primarily driven by an increased level of highly promotional and discounted pricing activity , reflecting a competitive retail environment . in fiscal 2013 , net revenues of color cosmetics increased 3 % , or $ 37.9 , to $ 1,468.5 from $ 1,430.6 in fiscal 2012. the increase was primarily the result of unit volume growth of 4 % , partially offset by a negative impact of foreign currency exchange translations of 1 % . excluding the negative impact of foreign currency exchange translations , net revenues of color cosmetics increased 4 % , primarily driven by strong growth in rimmel . rimmel brand growth reflects the success of new launches rimmel scandal'eyes mascara and rimmel apocalips lip lacquer along with higher net revenues of rimmel match 30 perfection foundation and rimmel kate lipstick .
| results of operations — net revenues — operating income — adjusted operating income ” . ( b ) see the reconciliation included in item 7 , “ management 's discussion and analysis of financial condition and results of operations — results of operations-net income attributable to coty inc. ” . ( c ) our normalized tax rate excluding the benefits associated with the foreign audit settlements was 27.7 % for the year ended june 30 , 2014. the adjusted effective tax rate was 18.9 % compared to 28.2 % in the prior-year period . the decrease was a result of reversal of certain unrecognized tax benefits associated with the settlement of tax audits in multiple foreign jurisdictions . cash paid during the year ended june 30 , 2014 , 2013 and 2012 , for income taxes of $ 84.1 , $ 84.0 and $ 67.4 represents 19.5 % , 16.9 % and 14.7 % of adjusted income before income taxes for the fiscal year then ended , respectively . net income attributable to coty inc. in fiscal 201 4 , net income attributable to coty inc. decreased $ 265.4 , to $ ( 97.4 ) , from $ 168.0 in fiscal 2013. this decrease primarily reflects lower operating income partially offset by lower interest expense and lower tax expense as described in “ interest expense , net ” and “ income taxes ” above . in fiscal 2013 , net income attributable to coty inc. increased $ 492.4 , to $ 168.0 , from $ ( 324.4 ) in fiscal 2012. this increase primarily reflects higher operating income along with lower other expense , net , and interest expense , net partially offset by higher tax expense ( as discussed above ) . we believe that adjusted net income attributable to coty inc. provides an enhanced understanding of our performance . see “ overview—non-gaap financial measures.
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the plans provide for the granting of several available forms of stock compensation . as of january 26 , 2020 , the company has granted non-qualified stock option awards ( `` nqsos `` ) and restricted stock unit awards ( `` rsus `` ) under the plans and has also issued some share-based compensation outside of the plans , including nqsos and rsus as inducements to join the company . 61 earnings per share the computation of basic and diluted earnings per common share was as follows : replace_table_token_23_th basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the reporting period . diluted earnings per story_separator_special_tag the following discussion and analysis of our financial condition and operating results should be read in conjunction with item 6 `` selected consolidated financial data '' and our consolidated financial statements and related notes included in item 8 of this annual report on form 10-k. see also “ special note regarding forward looking and cautionary statements ” at the beginning of this annual report on form 10-k. certain prior period amounts have been corrected as discussed in note 20 to the consolidated financial statements included in item 8 of this annual report on form 10-k. overview we are a leading global supplier of high-performance analog and mixed-signal semiconductors and advanced algorithms and were incorporated in delaware in 1960. we design , develop , manufacture , and market a broad range of products that are sold principally into applications within the enterprise computing , communications , high-end consumer , and industrial end markets . enterprise computing end markets include data center related equipment , passive optical networks , storage networks , desktops , notebooks , servers , printers , monitors , and computer peripherals . communications end-market applications include wireless base stations , long-haul optical networks , carrier networks , switches and routers , cable modems , backplane signal conditioners , wireless lan , and other communication infrastructure equipment . the high-end consumer end market includes handheld devices , smartphones , tablets , wireless charging , set-top boxes , digital televisions , digital video recorders , thunderbolt cables and other consumer equipment . applications for the industrial market include analog and digital video broadcast studio equipment , video-over-ip solutions , automated meter reading , smart grid , wireless charging , military and aerospace , medical , security systems , automotive , iot , industrial and home automation , and other industrial equipment . our end customers are primarily oems and their suppliers . we report results on the basis of 52 and 53 week periods and our fiscal year ends on the last sunday in january . the fiscal years ended january 26 , 2020 , january 27 , 2019 , and january 28 , 2018 , each consisted of 52 weeks . we operate and account for our results in one reportable segment . see note 16 to the consolidated financial statements for segment information . recent acquisitions on december 11 , 2018 , we , through our subsidiary semtech ( international ) ag , a swiss corporation , completed our acquisition of all of the outstanding equity interests of tracknet , for an aggregate purchase price of approximately $ 8.5 million . tracknet is a provider of lora-based end-to-end solutions for the iot and provides expertise and intellectual property that will be integrated into our business to support our goal of enabling the growing ecosystem around our lora® devices and wireless radio frequency technology . $ 4.3 million of the purchase price was attributed to goodwill and $ 3.0 million and $ 0.3 million of the purchase price was attributed to the estimated fair values of the intangible and tangible net assets acquired , respectively . the goodwill is not deductible for tax purposes . the transaction was accounted for as a business combination . net sales , earnings and pro forma results of operations have not been presented because they are not material to our consolidated financial statements . for more information , refer to note 8 to the consolidated financial statements . on may 2 , 2018 , we acquired substantially all of the assets of ici for an aggregate purchase price of approximately $ 7.4 million . the addition of ici is aimed at further enhancing our u.s. research and development capabilities for our next-generation z-pak platform . $ 4.9 million of the purchase price was attributed to goodwill and $ 2.5 million of the purchase price was attributed to the estimated fair values of the tangible net assets acquired . the goodwill is deductible for tax purposes . the transaction was accounted for as a business combination . net sales , earnings and pro forma results of operations have not been presented because they are not material to our consolidated financial statements . for more information , refer to note 8 to the consolidated financial statements . on july 1 , 2017 , we acquired aptovision , a privately-held provider of uncompressed , zero-frame latency , video-over-ip solutions addressing the professional audio visual market . the unique combination of aptovision 's advanced algorithms for real-time , full bandwidth video transmission over ip networks , and our industry leading high-speed signal integrity and chip development expertise is expected to enable the adoption of sdvoe accelerating this natural progression in the evolution of video transport . under the terms of the share purchase agreement with aptovision , we acquired all of the outstanding equity interest in aptovision for a cash payment of $ 17.6 million at closing , net of acquired cash , and a commitment to pay additional contingent consideration ( the `` aptovision earn-out '' ) of up to a maximum of $ 47.0 million over three years if certain goals are achieved in each of the earn-out periods . story_separator_special_tag our contracts with trade customers do not have significant financing components or non-cash consideration . we record net sales excluding taxes collected on our sales to our trade customers . 34 we provide an assurance type warranty , which is typically not sold separately and does not represent a separate performance obligation . our payment terms are generally aligned with shipping terms . on october 5 , 2016 , we issued a warrant to comcast to purchase up to 1,086,957 warrant shares . the cost of the warrant shares is recognized as an offset to net sales . on april 27 , 2018 , we accelerated the vesting of the remaining 586,956 unvested shares from the warrant ( `` acceleration event '' ) , resulting in the full recognition of the previously unrecognized costs . for the fiscal year ended january 27 , 2019 , the net sales offset reflects the cost associated with the warrant shares of $ 21.5 million , including $ 15.9 million related to the acceleration event . as of january 27 , 2019 , the warrant was fully vested and exercisable for a total of 869,565 shares , with no additional costs to be recognized in future periods . the warrant was fully exercised and no longer outstanding as of march 15 , 2019. gross profit gross profit is equal to our net sales less our cost of sales . our cost of sales includes materials , depreciation on fixed assets used in the manufacturing process , shipping costs , direct labor and overhead . we determine the cost of inventory by the first-in , first-out method . operating costs our operating costs and expenses generally consist of selling , general and administrative , product development and engineering costs , costs associated with acquisitions , restructuring charges , and other operating related charges . story_separator_special_tag income , the impact of finalized regulations on the u.s. transition tax and a gain associated with the intra-entity asset transfer . we receive a tax benefit from a tax holiday that was granted in switzerland . the tax holiday commenced on january 30 , 2017 , and is effective for five years ( the “ initial term ” ) and can be extended for an additional five years , subject to meeting certain staffing targets . the ability to meet the requirements to extend the ruling is within our control and we do not anticipate any issues meeting the established targets . the maximum benefit under this tax holiday is chf 500.0 million of cumulative after tax profit , which equates to a maximum potential tax savings of chf 44.0 million . depending on the operational performance of our swiss operations , it is possible that we could utilize the maximum benefit during the initial term . once the term of the tax holiday expires or we achieve the maximum benefit , our effective tax rate could be negatively impacted if we are unable to negotiate an extension or expansion of the tax holiday . the swiss tax reform that was enacted during fiscal year 2020 reduces the swiss cantonal tax rate , which further increases the benefit of our tax holiday . as a global organization , we are subject to audit by taxing authorities in various jurisdictions . to the extent that an audit , or the closure of a statute of limitations results in adjusting our reserves for uncertain tax positions , our effective tax rate could experience extreme volatility since any adjustment would be recorded as a discrete item in the period of adjustment . for further information on the effective tax rate and tax act 's impact , see note 12 to the consolidated financial statements . fiscal year 2019 compared with fiscal year 2018 all periods presented in the following summary of sales by major end-market reflect our current classification methodology : replace_table_token_11_th net sales . net sales for fiscal year 2019 were $ 627.2 million , an increase of 7 % compared to $ 587.8 million for fiscal year 2018 . during fiscal year 2019 , our industrial end-market growth benefited from growing demand for our lora technology , which is increasingly becoming the defacto standard for lpwans . growth in our enterprise computing products benefited from continued data center build outs by cloud and hyper-scale data center customers and on-going demand for our pon solutions . additionally , fiscal year 2019 reflects a $ 9.8 million benefit from the adoption of asc 606. gross profit . gross profit was $ 377.0 million and $ 352.0 million in fiscal years 2019 and 2018 , respectively . our gross margin was 60.1 % for fiscal year 2019 , compared to 59.9 % for fiscal year 2018 . fiscal year 2019 performance benefited from a more favorable mix of products from the industrial end market , which have a higher gross profit profile . operating costs and expenses . replace_table_token_12_th 37 selling , general & administrative expenses sg & a expenses for fiscal year 2019 decrease d by $ 2.9 million compared to fiscal year 2018 as a result of an $ 8.0 million legal recovery from the hilight settlement and lower restructuring expenses , partially offset by an increase in share-based compensation . the higher levels of share-based compensation expense in fiscal year 2019 compared to fiscal year 2018 primarily resulted from higher levels of performance achievement for awards with performance-based vesting conditions , additional expense associated with the modification of certain awards , and the impact of increases in our stock price , and the related fair value re-measurement , of awards accounted for as a liability rather than equity . product development and engineering expenses product development and engineering expenses for fiscal years 2019 and 2018 were $ 109.0 million and $ 105.1 million , respectively , or an increase of 4 % . the increase was primarily a result of higher variable compensation expense and the timing of development activities .
| results of operations fiscal year 2020 compared with fiscal year 2019 all periods presented in the following summary of sales by major end market reflect our current classification methodology : replace_table_token_9_th net sales . net sales for fiscal year 2020 were $ 547.5 million , a decrease of 13 % compared to $ 627.2 million for fiscal year 2019 . during fiscal year 2020 , we experienced weakness in china-based demand across all of our end markets , primarily due to geopolitical headwinds driven by huawei export restrictions and tariffs imposed by the u.s. government . the most heavily impacted areas were the communications end market , which also reflects slower conversion from 4g to 5g , and the enterprise computing end market , which experienced lower pon demand . the industrial end market decline reflects lower revenue from north america and europe as channel inventory was managed down in a more cautious global environment . the high-end consumer end market experienced lower demand from china and korea-based smartphone manufacturers and softer demand for our proximity sensing products . additionally , fiscal year 2019 reflects a $ 21.5 million adverse impact from comcast warrant shares expense , partially offset by a $ 9.8 million benefit from the adoption of asc 606. as we enter fiscal year 2021 , the broader macro concerns and soft demand from china is expected to persist in the near-term . based on booking trends and backlog entering the quarter , we estimate net sales for the first quarter of fiscal year 2021 to be between $ 125.0 million to $ 135.0 million . gross profit . gross profit was $ 336.7 million and $ 377.0 million in fiscal years 2020 and 2019 , respectively . our gross margin was 61.5 % in fiscal year 2020 , compared to 60.1 % in fiscal year 2019 .
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for example , 2016 refers to fiscal 2016 , which is the period from april 1 , 2015 to march 31 , 2016. the following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion contains forward-looking statements that are based on the beliefs of our management , as well as assumptions made by , and information currently available to , our management . our actual results could differ materially from those discussed below . factors that could cause or contribute to such differences include , but are not limited to , those identified below , and those discussed in the sections titled item 1a . risk factors and cautionary statement about forward-looking statements included elsewhere in this annual report on form 10-k. you should read the following discussion together with the sections titled item 1a . risk factors , item 6. selected financial and operating data and our consolidated financial statements , including the related notes , included in item 8. financial statements and supplementary data of this form 10-k. we consolidate all of our joint ventures for purposes of gaap , except for our south american joint venture and our tigre-ads usa joint venture . overview we are the leading manufacturer of high performance thermoplastic corrugated pipe , providing a comprehensive suite of water management products and superior drainage solutions for use in the underground construction and infrastructure marketplace . our innovative products are used across a broad range of end markets and applications , including non-residential , residential , agriculture and infrastructure applications . we have established a leading position in many of these end markets by leveraging our national sales and distribution platform , our overall product breadth and scale and our manufacturing excellence . in the united states , our national footprint combined with our strong local presence and broad product offering make us the leader in an otherwise highly fragmented sector comprised of many smaller competitors . we believe the markets we serve in the united states represent approximately $ 10.8 billion of annual revenue opportunity . in addition , we believe the increasing acceptance of thermoplastic pipe products in international markets represents an attractive growth opportunity . our products are generally lighter , more durable , more cost effective and easier to install than comparable alternatives made with traditional materials . following our entrance into the non-residential construction market with the introduction of n-12 corrugated polyethylene pipe in the late 1980s , our pipe has been displacing traditional materials , such as reinforced concrete , corrugated steel and pvc , across an ever expanding range of end markets . this has allowed us to consistently gain share and achieve above market growth throughout economic cycles . we expect to continue to drive conversion to our products from traditional materials as contractors , civil design engineers and municipal agencies increasingly acknowledge the superior physical attributes and compelling value proposition of our thermoplastic products . in addition , we believe that overall demand for our products will benefit as the regulatory environment continues to evolve . our broad product line includes hdpe pipe , pp pipe and related water management products . building on our core drainage businesses , we have aggressively pursued attractive ancillary product categories such as storm and septic chambers , pvc drainage structures , fittings and filters , and water quality filters and separators . we refer to these ancillary product categories as allied products . given the scope of our overall sales and distribution platform , we have been able to drive growth within our allied products and believe there are significant growth opportunities going forward . 52 we have revised the previously reported consolidated financial statements for the years ending march 31 , 2015 and 2014 for certain errors that were not material , individually or in the aggregate , in any of those years . refer to item 8. financial statements and supplementary data , note 23. revision of prior period financial statements of this form 10-k. key factors affecting our results of operations product demand there are numerous factors that influence demand for our products . our businesses are cyclical in nature and sensitive to general economic conditions , primarily in the united states , canada , mexico and south america . the non-residential , residential , agricultural and infrastructure markets we serve are affected by the availability of credit , lending practices , interest rates and unemployment rates . demand for new homes , farm income , commercial development and highway infrastructure spending have a direct impact on our financial condition and results of operations . accordingly , the following factors may have a direct impact on our business in the markets in which our products are sold : the strength of the economy ; the amount and type of non-residential and residential construction ; funding for infrastructure spending ; farm income and agricultural land values ; inventory of improved housing lots ; changes in raw material prices ; the availability and cost of credit ; non-residential occupancy rates ; commodity prices ; and demographic factors such as population growth and household formation . product pricing the price of our products is impacted by competitive pricing dynamics in our industry as well as by raw material input costs . our industry is highly competitive and the sales prices for our products may vary based on the sales policies of our competitors . raw material costs represent a significant portion of the cost of goods sold for our pipe products , or pipe . we aim to increase our product selling prices in order to cover raw material price increases , but the inability to do so could impact our profitability . movements in raw material costs and resulting changes in the selling prices may also impact changes in period-to-period comparisons of net sales . story_separator_special_tag historically , sales of our products have been higher in the first and second quarters of each fiscal year due to favorable weather and longer daylight conditions accelerating construction project activity during these periods while fourth quarter results are impacted by the timing of spring in the northern united states and canada . seasonal variations in operating results may also be significantly impacted by inclement weather conditions , such as cold or wet weather , which can delay projects , resulting in decreased net sales for one or more quarters , but we believe that these delayed projects generally result in increased net sales during subsequent quarters . in the non-residential , residential and infrastructure markets in the northern united states and canada , the construction season typically begins to gain momentum in late march and lasts through november , before winter sets in , significantly slowing the construction markets . in the southern and western united states , mexico , central america and south america , the construction markets are less seasonal . the agricultural drainage market is concentrated in the early spring just prior to planting and in the fall just after crops are harvested prior to freezing of the ground in winter . currency exchange rates although we sell and manufacture our products in many countries , our sales and production costs are primarily denominated in u.s. dollars . we have wholly owned facilities in canada , the netherlands , and puerto rico and joint venture facilities in mexico , chile , brazil , argentina , colombia and peru . the functional currencies in the areas in which we have wholly owned facilities and joint venture facilities other than the u.s. dollar are the canadian dollar , euro , mexican peso , chilean peso , brazilian real , argentine peso and colombian peso . from time to time , we use derivatives to reduce our exposure to currency fluctuations . in 2013 , we entered into euro-denominated forward contracts to hedge transactions related to the procurement of new equipment , which expired prior to march 31 , 2014. also in 2013 , our south american joint venture entered into multiple non-deliverable forward contracts to reduce its exposure to fluctuations in the u.s. dollar relative to the chilean peso , argentine peso , colombian peso and brazilian real . during fiscal 2015 , we began to implement hedging strategies to manage exposure to the canadian dollar and , to a lesser extent , the mexican peso , which we continued in fiscal 2016. description of our segments we operate a geographically diverse business , serving customers in approximately 80 countries . for fiscal year 2016 , approximately 86 % ( $ 1,113.8 million ) of net sales were attributable to customers located in the united states and approximately 14 % ( $ 176.9 million ) of net sales were attributable to customers outside of the united states . our operations are organized into two reportable segments based on the markets we serve : domestic and international . we generate a greater proportion of our net sales and gross profit in our domestic segment , which 55 consists of all regions of the united states . we expect the percentage of total net sales and gross profit derived from our international segment to continue to increase in future periods as we continue to expand globally . see note 21. business segment information , to our audited consolidated financial statements included in item 8. financial statements and supplementary data of this form 10-k. domestic our operating results have been , and will continue to be , impacted by macroeconomic trends in the united states . for fiscal years 2016 , 2015 , and 2014 , we generated net sales attributable to our domestic segment of $ 1,113.8 million , $ 1,027.9 million , and $ 935.3 million , respectively . unconsolidated sales for our domestic unconsolidated joint ventures ( our tigre-ads usa joint venture and our baysaver joint venture prior to july 17 , 2015 ) , were $ 20.9 million , $ 24.9 million and $ 5.2 million in fiscal years 2016 , 2015 , and 2014 , respectively . international our international segment manufactures and markets products in regions outside of the united states , with a growth strategy focused on our owned facilities in canada and those markets serviced through our joint ventures in mexico and south america . pipe manufactured in these countries is primarily sold into the same region . our joint venture strategy has provided us with local and regional access to new markets . the outlook for our international segment has improved . since 2011 , a modest recovery in the international markets , as well as the acquisition of ideal pipe in late fiscal 2015 , have had a favorable impact on our international product sales , which grew 16.3 % in fiscal 2016 and 14.8 % in fiscal 2015 , after a decline in fiscal 2014. for fiscal years 2016 , 2015 , and 2014 , we generated net sales attributable to our international segment of $ 176.9 million , $ 152.1 million , and $ 132.5 million , respectively . our investment in the south american joint venture is accounted for under the equity method and is not consolidated for financial reporting purposes . the unconsolidated sales of the south american joint venture were $ 50.3 million , $ 58.5 million , and $ 61.2 million , in fiscal years 2016 , 2015 , and 2014 , respectively . recent developments acquisition of baysaver on july 17 , 2015 , ads ventures , inc. ( ads/v ) , a wholly-owned subsidiary of the company , acquired an additional 10 % of the issued and outstanding membership interests in baysaver , for a purchase price of $ 3.2 million , subject to certain additional post-closing purchase price payments , which was financed through our existing line of credit facility .
| results of operations fiscal year ended march 31 , 2016 compared with fiscal year ended march 31 , 2015 the following table summarizes certain financial information relating to our operating results that have been derived from our consolidated financial statements for the fiscal years ended march 31 , 2016 and 2015. also included is certain information relating to the operating results as a percentage of net sales . we believe this presentation is useful to investors in comparing historical results . replace_table_token_11_th net sales net sales totaled $ 1,290.7 million in fiscal year 2016 , increasing $ 110.6 million or 9.4 % , as compared to $ 1,180.1 million in fiscal year 2015. our domestic sales increased $ 85.9 million , or 8.4 % , as compared to fiscal year 2015. domestic pipe sales increased $ 40.9 million , or 5.3 % , due to continued growth in our n-12 hdpe and high performance polypropylene product lines and further gains from conversion to our products from traditional products , offsetting lower agricultural sales . domestic pipe selling prices decreased 0.2 % as compared to the prior year . allied product sales increased $ 45.0 million , or 17.5 % , due to strong sales volume sold primarily into the non-residential , residential and infrastructure markets . in addition , approximately $ 10.2 million of the total allied product sales increase relates to the acquisition of baysaver during the second fiscal quarter of fiscal 2016. international sales increased $ 24.8 million , or 16.3 % , to $ 176.9 million in fiscal year 2016 , as compared to $ 152.1 million in the prior year . the growth was primarily due to increased sales in canada , including in particular the contribution from the acquisition of ideal pipe , which increased sales by 64 approximately $ 39.7 million , helping to offset decreased sales in mexico of $ 9.4 million .
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2017-12 , `` derivatives and hedging story_separator_special_tag the following discussion and analysis is provided to increase the understanding of , and should be read in conjunction with , the accompanying consolidated financial statements and notes . see “ item 1a . risk factors ” and the “ forward-looking statements ” included in this annual report on form 10-k for the fiscal year ended march 31 , 2018 ( “ annual report ” ) for a discussion of the risks , uncertainties and assumptions associated with these statements . unless otherwise noted , all amounts discussed herein are consolidated . executive overview our company we are a diversified industrial growth company with well-established , scalable platforms and domain expertise across two segments : industrial products and specialty chemicals . our broad portfolio of leading products provides performance optimizing solutions to our customers . cswi delivers products and systems that help contractors do their jobs better , faster and easier ; make buildings safer and more aesthetically pleasing ; protect valuable assets from corrosion ; and improve the reliability of mission critical equipment . our products include mechanical products for heating , ventilation and air conditioning ( “ hvac ” ) and refrigeration applications , sealants and high-performance specialty lubricants . markets that we serve include hvac , architecturally-specified building products , industrial , plumbing , energy , rail , mining and other general industrial markets . our manufacturing operations are concentrated in the united states ( `` u.s. '' ) and canada , and we have distribution operations in australia , canada and the united kingdom ( `` u.k. '' ) . our products are sold directly or through designated channels both domestically and internationally . many of our products are used to protect the capital assets of our customers that are expensive to repair or replace and are critical to their operations . the maintenance , repair and overhaul and consumable nature of many of our products is a source of recurring revenue for us . we also provide some custom and semi-custom products that enhance our customer relationships . the reputation of our product portfolio is built on more than 100 well-respected brand names , such as rectorseal no . 5 , kopr kote , kats coatings , jet-lube extreme , smoke guard , safe-t-switch , mighty bracket , balco , whitmore , air sentry , oil safe , deacon , ac leak freeze and greco aluminum railings . prior to the share distribution on september 30 , 2015 ( see discussion below ) , our operating companies operated as separate businesses . the consolidated financial statements included in this annual report include all revenues , costs , assets and liabilities directly attributable to the businesses discussed above . however , the combined financial statements for periods prior to the share distribution may not include all of the expenses that would have been incurred had the businesses been operating as separate publicly traded ( “ standalone ” ) companies during those periods . we believe that our broad portfolio of products and markets served and our brand recognition will continue to provide opportunities ; however , we face ongoing challenges affecting many companies , such as environmental and other regulatory compliance and overall global economic uncertainty . during the fiscal year ended march 31 , 2018 , we continued to experience strong sales growth in key end markets such as hvac and plumbing , where our innovative chemical and mechanical products have increased market penetration . we also continue to benefit from a robust commercial construction cycle . during the fiscal year ended march 31 , 2018 , we also experienced decreased spending by many of our customers in the mining and rail end markets as customers adjusted to weakened demand in response to lower market prices for coal and other natural resources . these market conditions also indirectly impacted general industrial end markets that we serve . we expect that the current environment will persist into the next fiscal year , impacting primarily the rail and mining markets . in february 2018 , we announced a strategic repositioning to enhance our operating results , simplify our operating structure , and better align our resources to support our ongoing business strategy . this strategic repositioning included several key actions , including : we initiated a plan to divest strathmore products ( the `` coatings '' business ) in the third quarter of the fiscal year ended march 31 , 2018 , the revenues of which were approximately one-third of the former coatings , sealants & adhesives ( “ cs & a ” ) segment . in connection with this plan , the coatings business was classified as assets held for sale and presented as discontinued operations . we condensed our three reportable segments into two : industrial products and specialty chemicals . as a result , the sealants and adhesives businesses , which were part of the former cs & a segment , were integrated into the specialty chemicals segment . we flattened our operational leadership structure , resulting in the departure of our president and chief operating officer , and our operational leadership reporting directly to our chairman and chief executive officer . 21 for additional information regarding discontinued operations and our segment realignment , see note 1 to our consolidated financial statements included in `` item 8. financial statements and supplementary data '' ( `` item 8 '' ) of this annual report . the share distribution on september 30 , 2015 , capital southwest corporation ( “ capital southwest ” ) spun-off certain of its industrial products , coatings , sealants and adhesives and specialty chemicals businesses by means of a distribution of the outstanding shares of common stock of cswi on a pro rata basis to holders of capital southwest common stock ( the “ share distribution ” ) . cswi became an independent , publicly-traded company on october 1 , 2015 following the share distribution . story_separator_special_tag energy the energy market represented approximately 7 % and 6 % of our net sales in the fiscal years ended march 31 , 2018 and 2017 , respectively . we provide market-leading lubricants and anti-seize compounds , as well as greases , for use in maintenance of oilfield drilling equipment . the outlook for the energy industry is heavily dependent on the demand growth from both mature markets and developing geographies . we saw robust growth in the energy market in the fiscal year ended march 31 , 2018 due in large part to increased drilling driven by increased global rig count activity and market share gains . we do not expect a similar expansion in drilling activity in the fiscal year ending march 31 , 2019 . rail the rail market represented approximately 4 % and 5 % of our net sales in the fiscal years ended march 31 , 2018 and 2017 , respectively . we provide an array of products into the rail industry , including lubricants and lubricating devices for rail lines , which increase efficiency and reduce noise for and extend the life of rail cars . we leverage our technical expertise to build relationships with key decision-makers to ensure that our products meet required specifications . for the fiscal year ending march 31 , 2019 , we anticipate ongoing challenges in the rail industry as it continues to be impacted by the mining and energy markets . the reduction in north american coal consumption and transport coupled with the increased use of pipelines for transport of gas and oil is expected to continue to adversely impact the class 1 rail providers ' operating margins , which tends to drive cost containment activity that limits the use of maintenance consumables . mining the mining market represented approximately 4 % of our net sales in both fiscal years ended march 31 , 2018 and 2017 . we provide market-leading lubricants to open gears used in large mining excavation equipment , primarily through our distribution network . the north american mining industry has experienced headwinds due to continued low coal demand , which is caused by lower oil and gas prices and increased regulations . we are not anticipating a significant improvement in the coal or non-coal related ( e.g . iron , diamond , etc . ) mining market conditions within north america in the fiscal year ending march 31 , 2019 ; however , the mining industry outside of north america is expected to see growth in the fiscal year ending march 31 , 2019 . results of operations the following discussion provides an analysis of our consolidated results of operations and results for each of our segments . the acquisitions listed below impact comparability : acquisition effective date segment greco february 28 , 2017 industrial products leak freeze december 16 , 2015 specialty chemicals deacon october 1 , 2015 specialty chemicals the operations of each acquired business have been included in the applicable segment since the effective date of the acquisition . all acquisitions are described in note 2 to our consolidated financial statements included in item 8 of this annual report . throughout this discussion , we refer to costs incurred related to “ restructuring and realignment. ” these costs represent both restructuring and non-restructuring charges incurred as a result of manufacturing footprint optimization activities , including those activities described in note 1 to our consolidated financial statements included in item 8 of this annual report . 23 net revenues replace_table_token_3_th net revenues for the fiscal year ended march 31 , 2018 increased $ 38.8 million , or 13.5 % , as compared with the fiscal year ended march 31 , 2017 , including $ 16.5 million related to the greco acquisition . excluding the impact of acquisitions , increased sales volumes of both existing products and new products , particularly into the hvac and plumbing end markets as well as thread sealants and firestopping products ( $ 16.4 million ) and increases in the energy market ( $ 8.6 million ) , were partially offset by decreased sales into the legacy architecturally-specified building products and industrial ( $ 2.7 million ) end markets . net revenues for the fiscal year ended march 31 , 2017 increased $ 20.5 million , or 7.7 % , as compared with the fiscal year ended march 31 , 2016 , including $ 5.1 million related to acquisitions . excluding the impact of acquisitions , increased sales volume of both existing products and new products , particularly into the hvac ( $ 11.8 million ) , architecturally-specified building products ( $ 8.1 million ) and plumbing ( $ 2.3 million ) markets , partially offset by decreased sales into the energy and rail ( $ 4.4 million ) markets and mining ( $ 2.4 million ) market . net revenues into the americas , europe , middle east and africa , and asia pacific represented approximately 90 % , 6 % , and 4 % , respectively , of net revenues for the fiscal year ended march 31 , 2018 ; 89 % , 7 % and 4 % , respectively , of net revenues for the fiscal year ended march 31 , 2017 ; and 87 % , 8 % , and 5 % , respectively , of net revenues for the fiscal year ended march 31 , 2016 . the presentation of net revenues by geographic region is based on the location of the customer . for additional information regarding net revenues by geographic region , see note 18 to our consolidated financial statements included in item 8 of this annual report . gross profit and gross profit margin replace_table_token_4_th gross profit for the fiscal year ended march 31 , 2018 increased $ 19.0 million , or 14.7 % , as compared with the fiscal year ended march 31 , 2017 , including $ 6.4 million related to the greco acquisition .
| specialty chemicals segment results specialty chemicals includes pipe thread sealants , firestopping sealants and caulks , adhesives/solvent cements , lubricants and greases , drilling compounds , anti-seize compounds , chemical formulations and degreasers and cleaners . replace_table_token_8_th net revenues for the fiscal year ended march 31 , 2018 increased $ 11.0 million , or 8.6 % , as compared with the fiscal year ended march 31 , 2017 . the increase was attributable to increased sales volumes into the energy market ( $ 7.6 million ) and increased sales volumes and prices of thread sealants and firestopping products ( $ 3.4 million ) . net revenues for the fiscal year ended march 31 , 2017 increased $ 0.7 million , or 0.5 % , as compared with the fiscal year ended march 31 , 2016 , net of $ 3.9 million contributed by acquisitions . excluding the impact of acquisitions , the decrease was due to decreases in sales volumes into the energy ( $ 6.7 million ) , industrial ( $ 1.9 million ) and rail ( $ 1.8 million ) markets , partially offset by increased sales of thread sealants and firestopping products ( $ 7.1 million ) . operating income for the fiscal year ended march 31 , 2018 increased $ 4.9 million , or 36.4 % , as compared with the fiscal year ended march 31 , 2017 . the increase was attributable to the impact of increased net revenues and a decline in restructuring and realignment costs ( $ 5.3 million ) , partially offset by negative product mix . operating income for the fiscal year ended march 31 , 2017 decreased $ 8.6 million , or 38.9 % , as compared with the fiscal year ended march 31 , 2016 , net of $ 2.2 million contributed by acquisitions .
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our financial statements include the results of operations of those businesses from the date acquired or when they commenced operations . this management 's discussion and analysis of financial condition and results of operations has been updated to reflect the revision of our financial statements for entities which have been treated as discontinued operations . overview we are a diversified international transportation services company that operates automotive and commercial truck dealerships principally in the united states , canada and western europe , and distributes commercial vehicles , diesel engines , gas engines , power systems and related parts and services principally in australia and new zealand . we employ more than 26,000 people worldwide . in 2017 , our business generated $ 21.4 billion in total revenue , which is comprised of approximately $ 19.8 billion from retail automotive dealerships , $ 1.0 billion from retail commercial truck dealerships and $ 0.5 billion from commercial vehicle distribution and other operations . we generated $ 3.2 billion in gross profit , which is comprised of $ 2.9 billion from retail automotive dealerships , $ 165.8 million from retail commercial truck dealerships and $ 131.9 million from commercial vehicle distribution and other operations . retail automotive dealership . we believe we are the second largest automotive retailer headquartered in the u.s. as measured by the $ 19.8 billion in total retail automotive dealership revenue we generated in 2017. as of december 31 , 2017 , we operated 343 retail automotive franchises , of which 155 franchises are located in the u.s. and 188 franchises are located outside of the u.s. the franchises outside the u.s. are located primarily in the u.k. in 2017 , we retailed and wholesaled more than 618,900 vehicles . we are diversified geographically , with 59 % of our total retail automotive dealership revenues in 2017 generated in the u.s. and puerto rico and 41 % generated outside the u.s. we offer over 40 vehicle brands , with 70 % of our retail automotive dealership revenue in 2017 generated from premium brands , such as audi , bmw , mercedes-benz and porsche . each of our dealerships offers a wide selection of new and used vehicles for sale . in addition to selling new and used vehicles , we generate higher-margin revenue at each of our dealerships through maintenance and repair services and the sale and placement of third-party finance and insurance products , third-party extended service and maintenance contracts , and replacement and aftermarket automotive products . in the first quarter of 2017 , we acquired carsense in the u.s. and carshop in the u.k. , both businesses representing stand-alone used vehicle dealerships , which we believe complement our existing franchised retail automotive dealership operations and provide scalable opportunities across our market areas . our carsense operations consist of five locations operating in the philadelphia and pittsburgh , pennsylvania market areas , including southern new jersey . our carshop operations consist of five retail locations and a vehicle preparation center operating principally throughout southern england . in january 2018 , we expanded our u.k. stand-alone used vehicle dealerships by acquiring the car people , one of the u.k. 's leading retailers of used vehicles . the car people has four retail locations operating across northern england , which complements carshop 's locations principally in southern england . retail automotive dealerships represented 92.7 % of our total revenues and 90.8 % of our total gross profit in 2017. retail commercial truck dealership . we operate a heavy and medium-duty truck dealership group known as premier truck group ( “ ptg ” ) with locations in texas , oklahoma , tennessee , georgia , and canada . as of december 31 , 2017 , ptg operated twenty locations , including fourteen full-service dealerships and six collision centers , offering primarily freightliner and western star branded trucks . four of these locations were acquired in april 2016 in the greater toronto , canada market area , and two of these locations were acquired in december 2016 in the niagara falls , canada market area . ptg also offers a full range of used trucks available for sale as well as service and parts departments , providing a full range of maintenance and repair services . 34 this business represented 4.9 % of our total revenues and 5.1 % of our total gross profit in 2017. commercial vehicle distribution . we are the exclusive importer and distributor of western star heavy-duty trucks ( a daimler brand ) , man heavy and medium-duty trucks and buses ( a vw group brand ) , and dennis eagle refuse collection vehicles , together with associated parts , across australia , new zealand and portions of the pacific . this business , known as penske commercial vehicles australia ( “ pcv australia ” ) , distributes commercial vehicles and parts to a network of more than 70 dealership locations , including eight company-owned retail commercial vehicle dealerships . we are also a leading distributor of diesel and gas engines and power systems , principally representing mtu , detroit diesel , mercedes-benz industrial , allison transmission and mtu onsite energy . this business , known as penske power systems ( “ pps ” ) , offers products across the on- and off-highway markets in australia , new zealand and portions of the pacific and supports full parts and aftersales service through a network of branches , field locations and dealers across the region . the on-highway portion of this business complements our pcv australia distribution business , including integrated operations at retail locations selling pcv brands . these businesses represented 2.4 % of our total revenues and 4.1 % of our total gross profit in 2017. penske truck leasing . we currently hold a 28.9 % ownership interest in penske truck leasing co. , l.p. ( “ ptl ” ) , a leading provider of transportation services and supply chain management . story_separator_special_tag equity in earnings of affiliates represents our share of the earnings from our investments in joint ventures and other non-consolidated investments , including ptl . during the first quarter of 2015 , we divested our car rental business that included hertz car rental franchises in the memphis , tennessee market and certain markets throughout indiana in light of our perceived inability to grow that business . the results of operations of our car rental business are included in discontinued operations for the year ended december 31 , 2015. the future success of our business is dependent upon , among other things , general economic and industry conditions ; our ability to consummate and integrate acquisitions ; the level of vehicle sales in the markets where we operate ; our ability to increase sales of higher margin products , especially service and parts sales ; our ability to realize returns on our significant capital investment in new and upgraded dealership facilities ; the success of our distribution of commercial vehicles , engines , and power systems ; and the return realized from our investments in various joint ventures and other non-consolidated investments . see item 1a . “ risk factors ” and “ forward-looking statements ” below . critical accounting policies and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires the application of accounting policies that often involve making estimates and employing judgments . such judgments influence the assets , liabilities , revenues and expenses recognized in our financial statements . management , on an ongoing basis , reviews these estimates and assumptions . management may determine that modifications in assumptions and estimates are required , which may result in a material change in our results of operations or financial position . 36 the following are the accounting policies applied in the preparation of our financial statements that management believes are most dependent upon the use of estimates and assumptions . revenue recognition dealership vehicle , parts and service sales . we record revenue for vehicle sales when vehicles are delivered , which is when the transfer of title and risks and rewards of ownership are considered passed to the customer . we record revenue for service or repair work when the work is completed , and record parts sales when parts are delivered to our customers . sales promotions that we offer to customers are accounted for as a reduction of revenues at the time of sale . rebates and other incentives offered directly to us by manufacturers are recognized as a reduction of cost of sales . reimbursements of qualified advertising expenses are treated as a reduction of selling , general and administrative expenses . the amounts received under certain manufacturer rebate and incentive programs are based on the attainment of program objectives , and such earnings are recognized either upon the sale of the vehicle for which the award was received , or upon attainment of the particular program goals if not associated with individual vehicles . taxes collected from customers and remitted to governmental authorities are recorded on a net basis ( excluded from revenue ) . during 2017 , 2016 , and 2015 , we earned $ 693.9 million , $ 654.9 million , and $ 628.9 million , respectively , of rebates , incentives and reimbursements from manufacturers , of which $ 675.3 million , $ 638.2 million , and $ 611.7 million , respectively , was recorded as a reduction of cost of sales . the remaining $ 18.6 million , $ 16.7 million , and $ 17.2 million , was recorded as a reduction of selling , general and administrative expenses during 2017 , 2016 , and 2015 , respectively . dealership finance and insurance sales . subsequent to the sale of a vehicle to a customer , we sell installment sale contracts to various financial institutions on a non-recourse basis ( with specified exceptions ) to mitigate the risk of default . we receive a commission from the lender equal to either the difference between the interest rate charged to the customer and the interest rate set by the financing institution or a flat fee . we also receive commissions for facilitating the sale of various products to customers , including guaranteed vehicle protection insurance , vehicle theft protection and extended service contracts . these commissions are recorded as revenue at the time the customer enters into the contract . in the case of finance contracts , a customer may prepay or fail to pay their contract , thereby terminating the contract . customers may also terminate extended service contracts and other insurance products , which are fully paid at purchase , and become eligible for refunds of unused premiums . in these circumstances , a portion of the commissions we received may be charged back based on the terms of the contracts . the revenue we record relating to these transactions is net of an estimate of the amount of chargebacks we will be required to pay . our estimate is based upon our historical experience with similar contracts , including the impact of refinance and default rates on retail finance contracts and cancellation rates on extended service contracts and other insurance products . aggregate reserves relating to chargeback activity were $ 24.9 million and $ 23.5 million as of december 31 , 2017 and 2016 , respectively . commercial vehicle distribution . we record revenue from the distribution of vehicles , engines , and products when the goods are delivered , which is when the transfer of title and risks and rewards of ownership are considered passed to the customer . we record revenue for service or repair work when the work is completed , and record parts sales when parts are delivered to our customers . for our long-term power generation contracts , we record revenue as services are provided in accordance with contract milestones .
| results of operations the following tables present comparative financial data relating to our operating performance in the aggregate and on a “ same-store ” basis . dealership results are included in same-store comparisons when we have consolidated the acquired entity during the entirety of both periods being compared . as an example , if a dealership were acquired on january 15 , 2015 , the results of the acquired entity would be included in annual same-store comparisons beginning with the year ended december 31 , 2017 and in quarterly same-store comparisons beginning with the quarter ended june 30 , 2016 . 39 retail automotive dealership new vehicle data ( in millions , except unit and per unit amounts ) replace_table_token_6_th units retail unit sales of new vehicles decreased from 2016 to 2017 due to a 10,222 unit , or 4.2 % , decrease in same-store new retail unit sales , offset by a 9,301 unit increase from net dealership acquisitions . new units decreased 1.7 % in the u.s. and increased 1.8 % internationally . same-store units decreased 3.3 % in the u.s. , primarily due to a decrease in premium and domestic brand sales . same-store units decreased 5.8 % internationally , primarily due to a decline in unit sales in germany that offset the strength of unit sales in the u.k. while new vehicle unit sales declined in 2017 , our premium brand sales , particularly in the u.k. , are being positively impacted by low levels of unemployment , strong credit availability , and vehicle innovation through the introduction of new models and evolving technology . the increase from 2015 to 2016 is due to a 13,908 unit increase from net dealership acquisitions , coupled with a 2,263 unit , or 1.0 % , increase in same-store new retail unit sales during the year . new units decreased 0.5 % in the u.s. and increased 21.4 % internationally .
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diluted earnings per common share incorporates the incremental shares issuable , calculated using the treasury stock method story_separator_special_tag the following discussion and analysis of our financial condition and operating results should be read in conjunction with item 6 `` selected consolidated financial data '' and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this annual report on form 10-k contains `` forward-looking statements '' within the meaning of the `` safe harbor '' provisions of the private securities litigation reform act of 1995 , as amended , based on our current expectations , estimates and projections about our operations , industry , financial condition , performance , operating results , and liquidity . forward-looking statements are statements other than historical information or statements of current condition and relate to matters such as future financial performance , future operational performance , the anticipated impact of specific items on future earnings , and our plans , objectives and expectations . statements containing words such as `` may , '' `` believe , '' `` anticipate , '' `` expect , '' `` intend , '' `` plan , '' `` project , '' `` estimate , '' `` should , '' `` will , '' `` designed to , '' `` projections , '' or `` business outlook , '' or other similar expressions constitute forward-looking statements . forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and events to differ materially from those projected . please see special note regarding forward-looking and cautionary statements elsewhere in this annual report on form 10-k for potential factors that could cause actual results to differ materially from those in the forward-looking statements . 37 overview we are a leading global supplier of analog and mixed-signal semiconductor products and were incorporated in delaware in 1960. we design , develop , manufacture and market a broad range of products that are sold principally into applications within the high-end consumer , industrial , enterprise computing and communications end-markets . the high-end consumer end-market includes handheld devices , smartphones , tablets , wireless charging , set-top boxes , digital televisions , digital video recorders , thunderbolt cables and other consumer equipment . applications for the industrial market include video broadcast studio equipment , automated meter reading , smart grid , wireless charging , military and aerospace , medical , security systems , automotive , iot , industrial and home automation and other industrial equipment . enterprise computing end-markets include datacenter related equipment , passive optical networks , storage networks , desktops , notebooks , servers , printers , monitors and computer peripherals . communications end-market applications include wireless base stations , long-haul optical networks , carrier networks , switches and routers , cable modems , backplane signal conditioners , wireless lan , and other communication infrastructure equipment . we report results on the basis of 52 and 53 week periods and our fiscal year ends on the last sunday in january . the fiscal years ended january 29 , 2017 and january 25 , 2015 ea ch consisted of 52 weeks . the fiscal year ended january 31 , 2016 consisted of 53 weeks . our end-customers are primarily oems and their suppliers , including cisco systems , inc. , alphabet inc. , huawei technologies co. ltd. , itron , lg electronics , samsung electronics co. ltd. , sharp corporation , sonova international and zte corporation . on march 4 , 2015 , we completed the acquisition of triune , a privately-held supplier of wireless charging , isolated switching and power management platforms targeted at high and low power , high efficiency applications . under the terms of the purchase agreement , we acquired all of the outstanding equity interests of triune for an aggregate purchase price of $ 45.0 million consisting of $ 35.0 million cash paid at closing , with an additional cash consideration of $ 10.0 million which has since been paid . subject to achieving certain future financial goals ( `` triune earn-out '' ) , up to an additional $ 70.0 million of additional contingent consideration could have been paid over three years if certain revenue targets were achieved in each of the fiscal years 2016 through 2018. an additional payment of up to $ 16.0 million could have been paid after fiscal year 2018 if certain cumulative revenue and operating income targets are achieved . the triune earn-out targets for fiscal year 2017 and 2016 were not met and we do not expect to make any payments with regards to these periods which represented $ 36.0 million of the total $ 70.0 million opportunity . we do not expect fiscal year 2018 targets to be achieved . see note 3 and note 14 to our consolidated financial statements included in item 8 of this annual report on form 10-k. our primary reason for the acquisition was to broaden our existing portfolio with platforms that are very complementary to our current market focus , including triune 's isolated switching platform and wireless charging platform . on january 13 , 2015 , we completed the acquisition of select assets from enverv , a privately-held supplier of plc and smart grid solutions targeted at advanced metering infrastructure , home energy management systems and iot applications . we paid $ 4.9 million in cash at closing . see note 3 to our consolidated financial statements included in item 8 of this annual report on form 10-k. we operate and account for results in one reportable segment . see note 17 to our consolidated financial statements included in item 8 of this annual report on form 10-k. in fiscal year 2016 , we identified a total of five operating segments . four of these operating segments aggregate into one reportable segment , the semiconductor products group . story_separator_special_tag additionally , certain long-lived assets were determined to be impaired . the financial impact of these actions for the twelve month period ended january 25 , 2015 , is presented below : restructuring charges ( in thousands ) employee terminations and related costs $ 662 contract termination costs 623 total restructuring charges $ 1,285 impairment of finite-lived intangibles ( in thousands ) finite-lived intangible assets intangible asset impairments $ 11,636 replace_table_token_11_th as a result of these restructuring actions , we realized operating cost savings of approximately $ 6.4 million in fiscal year 2016 . 40 story_separator_special_tag in the past few years has been insignificant . the slightly higher expense in fiscal year 2017 was primarily related to the impact of unfavorable movements in foreign exchange rates . provision for taxes . the provision for income taxes was $ 18.4 million for fiscal year 2017 compared to $ 8.9 million for fiscal year 2016 . the effective tax rates for fiscal years 2017 and 2016 were a tax provision of 25.2 % and 43.6 % , respectively . the effective tax rates for fiscal years 2017 and 2016 reflect the adverse impact of $ 5.6 million and $ 1.8 million respecti vely , related to a valuation reserve against our deferred tax assets . our effective tax rate in fiscal year 2017 differs from the statutory federal income tax rate of 35 % due primarily to a valuation reserve against our deferred tax assets and certain undistributed foreign earnings for which no u.s. taxes are provided , because such earnings are indefinitely reinvested outside of the u.s. the effective tax rate in fiscal year 2017 is lower than the statutory federal income tax rate due to regional mix of income causing a portion of the earnings to be taxed at foreign tax rates which are less than the federal rate . during fiscal year 2017 , we also received an income tax rate benefit for our research and development tax credits in the united kingdom ( `` u.k '' ) and canada . we account for income taxes using the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of the assets and liabilities . as of january 29 , 2017 , we have a valuation allowance against our u.s. deferred tax assets of approximately $ 83.0 million . we are required to assess whether a valuation allowance should be recorded against our deferred tax assets ( `` dtas '' ) based on the consideration of all available evidence , using a `` more likely than not '' realization standard . the four sources of taxable income that must be considered in determining whether dtas will be realized are ; ( 1 ) future reversals of existing taxable temporary differences ( i.e . offset of gross deferred tax assets against gross deferred tax liabilities ) ; ( 2 ) taxable income in prior carryback years , if carryback is permitted under the tax law ; ( 3 ) tax planning strategies and ( 4 ) future taxable income exclusive of reversing temporary differences and carry-forwards . in assessing whether a valuation allowance is required , significant weight is to be given to evidence that can be objectively verified . we have evaluated our dtas each reporting period , including an assessment of our cumulative income or loss over the prior three-year period , to determine if a valuation allowance was required . a significant negative factor in our assessment was our three-year cumulative loss history in the u.s. as of january 29 , 2017 . in fiscal years 2013 through 2015 , our canadian operations were in a cumulative loss position due to a loss generated in fiscal year 2013. however , as of the end of fiscal year 2016 , gennum was in a three year cumulative income position , since the loss that was generated in fiscal year 2013 was no longer included in the three year window for measuring income or loss . we are forecasting pretax income growth for gennum over the next five years , and correspondingly estimated our canadian-based taxes over the next five years . we compared the amount of taxes that we will owe in this period to our net deferred tax assets and concluded that we would be able to utilize our deferred tax assets without any concerns related to expiration . 43 we are forecasting pretax income growth for gennum over the next five years , and correspondingly estimated our canadian based taxes over the next five years . we compared the amount of taxes that we will owe in this period to our net deferred tax assets and concluded that we would be able to utilize our deferred tax assets without any concerns related to expiration . we were able to conclude that the positive evidence related to long-term profitability and utilization of all deferred tax assets was sufficient to warrant a full release of the reserve on our canadian deferred tax assets . as such , we released the entire reserve of approximately $ 7.2 million on our canadian deferred tax asset in fiscal year 2016. after a review of the four sources of taxable income described above and in view of our three-year cumulative loss , we were not able to conclude that it is more likely than not that our u.s. dtas will be realized . as a result , we continue to record a full valuation allowance on our dtas in the u.s , with a corresponding charge to the income tax provision .
| results of operations fiscal year 2017 compared with fiscal year 2016 all periods presented in the following summary of sales by major end-market reflect our current classification methodology ( see note 1 to our consolidated financial statements in this annual report on form 10-k for a description of each market category ) : replace_table_token_12_th net sales . net sales for fiscal year 2017 were $ 544.3 million , an increase of 11 % compared to $ 490.2 million for fiscal year 2016 which had benefited from an additional week compared to fiscal year 2017 . the net sales from this additional week were not significant . fiscal year 2017 revenues within the enterprise computing end-market benefited from particular strength from our optical products which are well positioned for the current cycle of datacenter upgrades and increased deployments of pons , particularly in china . the continued decline of 40gbps and 100gbps serdes devices going into the long-haul optical market in the communications end-market was offset by strength in the wireless base station market primarily in china . net sales increased in our high-end consumer end-market due to higher demand from our largest korean customers as well as strong growth from our china smartphone customers . in fiscal year 2018 , activity in the communications , enterprise computing and industrial end-markets is expected to improve , due to continued demand for datacenter upgrades , and the build-out of metro communications infrastructure , including wireless base stations ( specifically in china ) and iot applications . gross profit . gross profit was $ 324.9 million and $ 293.1 million in fiscal years 2017 and 2016 , respectively . our gross margin was 59.7 % for fiscal year 2017 , comparable with 59.8 % in fiscal year 2016 . fiscal year 2017 performance benefited from a more favorable mix of higher margin product sales , the benefit of which was offset by the $ 5.4
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the operating partnership is the entity through which we conduct substantially all of our business and own , directly or through subsidiaries , substantially all of our assets . we commenced operations in november 2012. as of december 31 , 2018 , we owned 52,783 single-family properties in selected sub-markets of msas in 22 states , including 1,945 properties held for sale , compared to 51,239 single-family properties in 22 states , including 310 properties held for sale , as of december 31 , 2017 . as of december 31 , 2018 , 48,206 , or 94.8 % , of our total properties ( excluding properties held for sale ) were leased , compared to 46,996 , or 92.3 % , of our total properties ( excluding properties held for sale ) as of december 31 , 2017 . our portfolio of single-family properties is internally managed through our proprietary property management platform . our properties and key operating metrics the following table provides a summary of our single-family properties as of december 31 , 2018 : replace_table_token_11_th ( 1 ) excludes 1,945 held for sale properties as of december 31 , 2018 . ( 2 ) represents 26 markets in 20 states . 40 the following table summarizes certain key leasing metrics as of december 31 , 2018 : replace_table_token_12_th ( 1 ) leasing information excludes 1,945 held for sale properties as of december 31 , 2018 . ( 2 ) includes properties under initial renovation and excludes vacant properties available for lease or in the turn process . ( 3 ) leased percentage , average original lease term and average remaining lease term are reflected as of period end . ( 4 ) for the year ended december 31 , 2018 , represents the number of days a property is occupied in the period divided by the total number of days the property is owned during the same period . ( 5 ) for the year ended december 31 , 2018 , average monthly realized rent is calculated as rents from single-family properties divided by the product of ( a ) number of properties and ( b ) average occupied days percentage , divided by the number of months . for properties partially owned during the year , this is adjusted to reflect the number of days of ownership . ( 6 ) represents the percentage change in rent on all non-month-to-month lease renewals and re-leases during the year ended december 31 , 2018 , compared to the annual rent of the previously expired non-month-to-month lease for each property . ( 7 ) represents 26 markets in 20 states . factors that affect our results of operations and financial condition our results of operations and financial condition are affected by numerous factors , many of which are beyond our control . key factors that impact our results of operations and financial condition include our ability to identify and acquire properties ; our pace of property acquisitions ; the time and cost required to gain access to the properties and then to renovate and lease a newly acquired property at acceptable rental rates ; occupancy levels ; rates of tenant turnover ; the length of vacancy in properties between tenant leases ; our expense ratios ; our ability to raise capital ; and our capital structure . property acquisitions and dispositions since our formation , we have rapidly but systematically grown our portfolio of single-family homes . our ability to identify and acquire single-family homes that meet our investment criteria is impacted by home prices in our target markets , the inventory of properties available-for-sale through our acquisition channels , competition for our target assets and our available capital . additionally , opportunities from new construction acquisition channels are impacted by the availability of vacant developed lots , development land assets and inventory of homes currently under construction or newly developed . our level of acquisition activity has fluctuated based on the number of suitable investments and the level of capital available to invest . during the year ended december 31 , 2018 , our total portfolio increased by 1,544 homes , including 1,483 homes acquired through broker acquisitions , 91 homes acquired through trustee acquisitions and 663 homes acquired through new construction acquisitions , of which 121 were developed through our internal construction program , offset by 693 homes sold , rescinded or contributed to an unconsolidated joint venture . during the fourth quarter of 2018 , our total portfolio increased by 319 homes , including 479 homes acquired through broker acquisitions and 220 homes acquired through new construction acquisitions , of which 34 were developed through our internal construction program , offset by 380 homes sold or rescinded . rescinded properties represent properties for which the sale has been unwound , as in certain jurisdictions , our purchases of single-family properties at foreclosure and judicial auctions are subject to the right of rescission , which is generally caused by the borrower filing for bankruptcy . the company 's disposition program is comprised of properties classified as held for sale and properties identified for future sale . during 2018 , we expanded our disposition program , which identified approximately 1,500 properties to be disposed from six of our smaller markets that we are fully exiting based on market analysis . our remaining properties to be disposed were identified based on sub-market analysis , as well as individual property-level operational review . as of december 31 , 2018 and 2017 , our disposition 41 program was comprised of 1,945 and 310 properties , respectively , all of which were classified as held for sale . we will continue to evaluate our properties for potential disposition going forward as a normal course of business . property operations the acquisition of properties involves expenditures in addition to payment of the purchase price , including property inspections , closing costs , liens , title insurance , transfer taxes , recording fees , broker commissions , property taxes and hoa fees , when applicable . story_separator_special_tag also included in general and administrative expense is noncash share-based compensation expense related to corporate administrative employees . story_separator_special_tag man ; font-size:10pt ; '' > ( 1 ) includes 38,054 properties that have been stabilized longer than 90 days prior to january 1 , 2017 . ( 2 ) presented net of tenant charge-backs . ( 3 ) includes $ 1.0 million of repair costs related to hurricanes florence and michael in 2018 , of which $ 0.5 million relates to our same-home properties . ( 4 ) presented net of tenant charge-backs and excludes noncash share-based compensation expense related to centralized and field property management employees . 44 the following are reconciliations of core revenues , core property operating expenses , core noi , same-home core noi and same-home core noi after capital expenditures to their respective gaap metrics for the years ended december 31 , 2018 and 2017 ( amounts in thousands ) : replace_table_token_14_th replace_table_token_15_th replace_table_token_16_th total revenues total revenues increased 11.7 % to $ 1.1 billion for the year ended december 31 , 2018 , from $ 960.4 million for the year ended december 31 , 2017 . revenue growth was primarily driven by continued strong leasing activity , as our average leased portfolio grew to 47,735 homes for the year ended december 31 , 2018 , compared to 45,839 homes for the year ended december 31 , 2017 , as well as higher rental rates . property operating expenses property operating expenses increased 16.3 % to $ 412.9 million for the year ended december 31 , 2018 , from $ 355.1 million for the year ended december 31 , 2017 . this increase was primarily attributable to growth in the number of homes in our portfolio , higher property tax expense associated with annual rate increases and re-assessments and temporarily elevated turnover costs incurred from the beginning of the year through april 2018 as part of the company 's strategic initiative to strengthen occupancy . property management expenses for the year ended december 31 , 2018 and 2017 , property management expenses were $ 74.6 million and $ 69.7 million , respectively , which included $ 1.4 million and $ 1.6 million , respectively , of noncash share-based compensation expense related to 45 centralized and field property management employees . while property management expenses increased $ 4.9 million as a result of our growing portfolio , property management expenses as a percentage of total revenues , net of other revenues , decreased to 7.0 % for the year ended december 31 , 2018 , from 7.3 % for the year ended december 31 , 2017 , which was primarily attributable to greater efficiencies within our property management function . core revenues from same-home properties core revenues from same-home properties for the year ended december 31 , 2018 , increased $ 25.6 million , or 3.9 % , to $ 683.1 million from $ 657.5 million for the year ended december 31 , 2017 . this rise was primarily attributable to higher average monthly realized rent , which increased to $ 1,571 per month for the year ended december 31 , 2018 , compared to $ 1,516 per month for the year ended december 31 , 2017 , and higher average occupied days percentage , which increased to 95.0 % for the year ended december 31 , 2018 from 94.6 % for the year ended december 31 , 2017 . core property operating expenses from same-home properties core property operating expenses consist of direct property operating expenses , net of tenant charge-backs , and property management costs , net of tenant charge-backs and excluding noncash share-based compensation expense . core property operating expenses from same-home properties for the year ended december 31 , 2018 , increased $ 13.4 million , or 5.8 % , to $ 243.2 million from $ 229.8 million for the year ended december 31 , 2017 . this increase was primarily attributable to higher property tax expense associated with annual rate increases and re-assessments and temporarily elevated turnover costs incurred from the beginning of the year through april 2018 as part of the company 's strategic initiative to strengthen occupancy . general and administrative expense for the years ended december 31 , 2018 and 2017 , general and administrative expense , which primarily consists of corporate payroll and personnel costs , state taxes , trustees ' and officers ' insurance expense , audit and tax fees , trustee fees and other expenses associated with our corporate and administrative functions , was $ 36.6 million and $ 34.7 million , respectively , which included $ 2.1 million and $ 2.6 million , respectively , of noncash share-based compensation expense related to corporate administrative employees . the increase in general and administrative expense was primarily attributable to higher legal and personnel costs , partially offset by nonrecurring rating agency fees incurred during 2017 associated with the company receiving inaugural investment grade corporate ratings . interest expense interest expense was $ 122.9 million and $ 112.6 million for the years ended december 31 , 2018 and 2017 , respectively . this increase was primarily related to the unsecured senior notes issued in february 2018 and additional borrowings on our revolving credit facility during 2018 , partially offset by the payoff of the ah4r 2014-sfr1 asset-backed securitization in april 2017 , payoff of the secured note payable in may 2018 , higher capitalized interest , the $ 100.0 million paydown on the term loan facility in june 2018 and the payoff of the exchangeable senior notes in november 2018. acquisition fees and costs expensed all costs of our internal acquisition function are expensed in accordance with gaap . for the year ended december 31 , 2018 , acquisition fees and costs expensed totaled $ 5.2 million , including $ 4.8 million of costs associated with purchases of single-family properties and $ 0.4 million of other acquisition fees and costs expensed .
| results of operations net income totaled $ 112.4 million for the year ended december 31 , 2018 , compared to net income of $ 76.5 million for the year ended december 31 , 2017 . this improvement was primarily attributable to higher revenues resulting from a larger number of leased properties and higher rental rates as well as an increase in gain on sale of single-family properties and other , net , partially offset by higher property operating expenses and higher depreciation and amortization expenses . net income totaled $ 76.5 million for the year ended december 31 , 2017 , compared to net income of $ 10.4 million for the year ended december 31 , 2016 . this improvement was primarily attributable to higher revenues and lower interest expense , partially offset by higher property operating expenses . as we continue to grow our portfolio with a portion of our homes still recently acquired and or renovated , we distinguish our portfolio of homes between same-home properties and non-same-home and other properties in evaluating our operating performance . we classify a property as same-home if it has been stabilized longer than 90 days prior to the beginning of the earliest period presented under comparison and if it has not been classified as held for sale , identified for future sale or taken out of service as a result of a casualty loss , which allows the performance of these properties to be compared between periods . single-family properties that we acquire individually ( i.e. , not through a bulk purchase ) are classified as either stabilized or non-stabilized . a property is classified as stabilized once it has been renovated or newly constructed and then initially leased or available for rent for a period greater than 90 days .
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the following table provides certain information as of february 25 , 2012 with respect to the company 's equity compensation plans : plan category number of securities to be issued upon exercise of outstanding options , warrants and rights ( a ) weighted-average exercise price of outstanding story_separator_special_tag overview bed bath & beyond inc. and subsidiaries ( the company ) is a chain of retail stores , operating under the names bed bath & beyond ( bbb ) , christmas tree shops ( cts ) , harmon and harmon face values ( harmon ) and buybuy baby . in addition , the company is a partner in a joint venture which operates two stores in the mexico city market under the name home & more. the company sells a wide assortment of domestics merchandise and home furnishings . domestics merchandise includes categories such as bed linens and related items , bath items and kitchen textiles . home furnishings include categories such as kitchen and tabletop items , fine tabletop , basic housewares , general home furnishings , consumables and certain juvenile products . the company 's objective is to be a customer 's first choice for products and services in the categories offered , in the markets in which the company operates . the company 's strategy is to achieve this objective through excellent customer service , an extensive breadth and depth of assortment , everyday low prices and introduction of new merchandising offerings , supported by the continuous development and improvement of its infrastructure . operating in the highly competitive retail industry , the company , along with other retail companies , is influenced by a number of factors including , but not limited to , general economic conditions including the housing market , the overall macroeconomic environment and related changes in the retailing environment , consumer preferences and spending habits , unusual weather patterns and natural disasters , competition from existing and potential competitors , and the ability to find suitable locations at acceptable occupancy costs to support the company 's expansion program . the company continues to face a number of economic challenges impacting consumer confidence and spending , including relatively high unemployment and commodity prices and a sluggish housing market . the company can not predict whether , when or the manner in which these economic conditions will change . the company remains committed to making the required investments in its infrastructure to help position the company for continued success . the company continues to review and prioritize its capital needs while continuing to make investments , principally for new stores , existing store improvements , information technology enhancements including increased spending on its interactive platforms , and other projects whose impact is considered important to its future . the following represents an overview of the company 's financial performance for the periods indicated : · net sales in fiscal 2011 increased approximately 8.5 % to $ 9.500 billion ; net sales in fiscal 2010 increased approximately 11.9 % to $ 8.759 billion over net sales of $ 7.829 billion in fiscal 2009 . · comparable store sales for fiscal 2011 increased by approximately 5.9 % as compared with an increase of approximately 7.8 % in fiscal 2010 and an increase of approximately 4.4 % in fiscal 2009. a store is considered a comparable store when it has been open for twelve full months following its grand opening period ( typically four to six weeks ) . stores relocated or expanded are excluded from comparable store sales if the change in square footage would cause meaningful disparity in sales over the prior period . in the case of a store to be closed , such store 's sales are not considered comparable once the store closing process has commenced . · gross profit for fiscal 2011 was $ 3.931 billion or 41.4 % of net sales compared with $ 3.623 billion or 41.4 % of net sales for fiscal 2010 and $ 3.208 billion or 41.0 % of net sales for fiscal 2009 . 16 · selling , general and administrative expenses ( sg & a ) for fiscal 2011 were $ 2.363 billion or 24.9 % of net sales compared with $ 2.334 billion or 26.7 % of net sales for fiscal 2010 and $ 2.227 billion or 28.5 % of net sales for fiscal 2009 . · the effective tax rate was 37.0 % , 38.8 % and 39.1 % for fiscal years 2011 , 2010 and 2009 , respectively . the tax rate included discrete tax items of an approximate $ 20.7 million net benefit , $ 0.9 million net expense and $ 3.2 million net expense , respectively , for fiscal 2011 , 2010 and 2009 . · for the fiscal year ended february 25 , 2012 , net earnings per diluted share were $ 4.06 ( $ 989.5 million ) , an increase of approximately 32 % , as compared with net earnings per diluted share of $ 3.07 ( $ 791.3 million ) for fiscal 2010 , which was an increase of approximately 33 % from net earnings per diluted share of $ 2.30 ( $ 600.0 million ) for fiscal 2009. for fiscal year ended february 25 , 2012 , the increase in net earnings per diluted share is the result of the items described above , as well as the impact of the company 's repurchases of its common stock . for the fiscal year ended february 26 , 2011 , the increase in net earnings per diluted share primarily reflects the favorable movements in gross profit and sg & a expenses . during fiscal 2011 , 2010 and 2009 , the company 's capital expenditures were $ 243.4 million , $ 183.5 million and $ 153.7 million , respectively . story_separator_special_tag in fiscal 2010 , net cash used in investing activities was due to $ 157.5 million of purchases of investment securities , net of redemptions , and $ 183.5 million of capital expenditures . net cash used in financing activities for fiscal 2011 was $ 1.042 billion , compared with $ 559.0 million in fiscal 2010. the increase in net cash used was primarily due to a $ 530.4 million increase in common stock repurchases partially offset by a $ 45.4 million increase in cash proceeds from the exercise of stock options . fiscal 2010 compared to fiscal 2009 net cash provided by operating activities in fiscal 2010 was $ 987.4 million , compared with $ 905.4 million in fiscal 2009. year-over-year , the company experienced an increase in net earnings , partially offset by an increase in cash used for the net components of working capital ( primarily merchandise inventories and income taxes payable , partially offset by deferred rent and other liabilities ) . inventory per square foot was $ 56.17 as of february 26 , 2011 , as compared to $ 52.15 as of february 27 , 2010. this increase of approximately 7.7 % was primarily due to increased inventory levels required to support recent increases in comparable store sales and the timing of merchandise receipts . net cash used in investing activities in fiscal 2010 was $ 341.0 million , compared with $ 488.7 million in fiscal 2009. in fiscal 2010 , net cash used in investing activities was due to $ 157.5 million of purchases of investment securities , net of redemptions , and $ 183.5 million of capital expenditures . in fiscal 2009 , net cash used in investing activities was due to $ 335.0 million of purchases of investment securities , net of redemptions , and $ 153.7 million of capital expenditures . net cash used in financing activities for fiscal 2010 was $ 559.0 million , compared with net cash provided by financing activities of $ 11.2 million in fiscal 2009. the increase in net cash used was primarily due to a $ 592.7 million increase in common stock repurchases partially offset by a $ 26.0 million increase in cash proceeds from the exercise of stock options . auction rate securities as of february 25 , 2012 , the company held approximately $ 80.2 million of net investments in auction rate securities . beginning in mid-february 2008 , the auction process for the company 's auction rate securities failed and continues to fail . these failed auctions result in a lack of liquidity in the securities but do not affect the underlying collateral of the securities . all of these investments carry triple-a credit ratings from one or more of the major credit rating agencies and the company believes that given their high credit quality , it will ultimately recover at par all amounts invested in these securities . as of february 25 , 2012 , these securities had a temporary valuation adjustment of approximately $ 3.7 million to reflect their current lack of liquidity . since this valuation adjustment is deemed to be temporary , it was recorded in accumulated other comprehensive ( loss ) income , net of a related tax benefit , and did not affect the company 's net earnings for fiscal 2011. as of february 25 , 2012 , the company classified approximately $ 6.5 million of these securities as short term investment securities due to expected redemptions at par during fiscal 2012. during fiscal 2011 , approximately $ 29.0 million of auction rate securities were redeemed at par . subsequent to the end of fiscal 2011 through april 13 , 2012 , the company redeemed approximately $ 6.5 million at par . 20 the company does not anticipate that any potential lack of liquidity in its auction rate securities , even for an extended period of time , will affect its ability to finance its operations , including its expansion program , share repurchase program , and planned capital expenditures . the company continues to monitor efforts by the financial markets to find alternative means for restoring the liquidity of these investments . these investments will remain primarily classified as non-current assets until the company has better visibility as to when their liquidity will be restored . the classification and valuation of these securities will continue to be reviewed quarterly . other fiscal 2011 information at february 25 , 2012 , the company maintained two uncommitted lines of credit of $ 100 million each , with expiration dates of february 29 , 2012 and september 2 , 2012 , respectively . subsequent to the end of fiscal 2011 , the expiration date on the line of credit that would have otherwise expired on february 29 , 2012 was extended to february 28 , 2013. these uncommitted lines of credit are currently and are expected to be used for letters of credit in the ordinary course of business . during fiscal 2011 , the company did not have any direct borrowings under the uncommitted lines of credit . as of february 25 , 2012 , there was approximately $ 8.5 million of outstanding letters of credit . although no assurances can be provided , the company intends to renew both uncommitted lines of credit before the respective expiration dates . in addition , as of february 25 , 2012 , the company maintained unsecured standby letters of credit of $ 61.3 million , primarily for certain insurance programs . between december 2004 and december 2010 , the company 's board of directors authorized , through several share repurchase programs , the repurchase of $ 4.950 billion of the company 's common stock . since 2004 through the end of fiscal 2011 , the company has repurchased approximately $ 4.0 billion of its common stock through several share repurchase programs . the company has approximately $ 919 million remaining of authorized share repurchases as of february 25 , 2012. the execution of the company 's share repurchase program will consider current business and market conditions .
| results of operations the following table sets forth for the periods indicated ( i ) selected statement of earnings data of the company expressed as a percentage of net sales and ( ii ) the percentage change in dollar amounts from the prior year in selected statement of earnings data : replace_table_token_6_th 17 net sales net sales in fiscal 2011 increased $ 741.4 million to $ 9.500 billion , representing an increase of 8.5 % over $ 8.759 billion of net sales in fiscal 2010 , which increased $ 929.7 million or 11.9 % over the $ 7.829 billion of net sales in fiscal 2009. for fiscal 2011 , approximately 68.6 % of the increase in net sales was attributable to an increase in the company 's comparable store sales and the balance of the increase was primarily attributable to an increase in the company 's new store sales . for fiscal 2010 , approximately 65.2 % of the increase in net sales was attributable to an increase in the company 's comparable store sales and the balance of the increase was primarily attributable to an increase in the company 's new store sales . for fiscal 2011 , comparable store sales for 1,076 stores represented $ 9.157 billion of net sales ; for fiscal 2010 , comparable store sales for 1,013 stores represented $ 8.339 billion of net sales ; and for fiscal 2009 , comparable store sales for 942 stores represented $ 7.409 billion of net sales . comparable store sales increased by approximately 5.9 % for fiscal 2011 and increased by approximately 7.8 % for fiscal 2010. the increase in comparable store sales for fiscal 2011 was due to increases in both the number of transactions and the average transaction amount .
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for a description of the deficiencies in control over financial reporting identified by management as a result of the investigation and our internal reviews , and management 's plan to remediate those deficiencies , see part ii—item 9a— controls and procedures . the previously filed annual reports for the period ended march 31 , 2010 filed on form 10-k and quarterly report for the period ended december 31 , 2009 filed on form 10-q were affected by the restatement and have not been amended . instead the amended statements are presented here . accordingly , investors should no longer rely upon the company 's previously released financial statements for these periods and any earnings releases or other previous communications relating to these periods . all amounts in this annual report for the period ended march 31 , 2010 are the amounts as restated . forward-looking statements this report contains forward-looking statements within the definition of the private securities litigation reform act of 1995 , including , among others , ( a ) our expectations about possible business combinations , ( b ) our growth strategies , ( c ) our future financing plans , and ( d ) our anticipated needs for working capital . forward-looking statements , which involve assumptions and describe our future plans , strategies , and expectations , are generally identifiable by use of the words “ may , ” “ should , ” “ expect , ” “ anticipate , ” “ approximate , ” “ estimate , ” “ believe , ” “ intend , ” “ plan , ” or “ project , ” or the negative of these words or other variations on these words or comparable terminology . this information may involve known and unknown risks , uncertainties , and other factors that may cause our actual results , performance , or achievements to be materially different from the future results , performance , or achievements expressed or implied by any forward-looking statements . these statements may be found in this report . actual events or results may differ from those discussed in forward-looking statements as a result of various factors , including , without limitation , the risks outlined under our “ description of business ” and matters described in this report generally . in light of these risks and uncertainties , the events anticipated in the forward-looking statements may or may not occur . these statements are based on current expectations and speak only as of the date of such statements . we undertake no obligation to publicly update or revise any forward-looking statement , whether as a result of future events , new information or otherwise . 20 the information contained in this report identifies important factors that could adversely affect actual results and performance . all forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statements . background igc , a maryland corporation , was organized on april 29 , 2005 as a blank check company formed for the purpose of acquiring one or more businesses with operations primarily in india through a merger , capital stock exchange , asset acquisition or other similar business combination or acquisition . on march 8 , 2006 , we completed an initial public offering . on february 19 , 2007 , we incorporated india globalization capital , mauritius , limited ( igc-m ) , a wholly owned subsidiary , under the laws of mauritius . on march 7 , 2008 , we consummated the acquisition of 63 % of the equity of sricon infrastructure private limited ( sricon ) and 77 % of the equity of techni bharathi limited ( tbl ) . the shares of the two indian companies , sricon and tbl , are held by igc-m. most of the shares of sricon and tbl acquired by igc were purchased directly from the companies . igc purchased a portion of the shares from the existing owners of the companies . the founders and management of sricon own 78 % of sricon ( after giving effect to the deconsolidation described below ) and the founders and management of tbl own 23 % of tbl . subsequent to the acquisitions , igc borrowed , through an intermediary , approximately $ 17.9 million from sricon . the acquisitions were accounted for under the purchase method of accounting . under this method of accounting , for accounting and financial purposes , igc-m , limited was treated as the acquiring entity and sricon and tbl as the acquired entities . however since no premium was paid for the acquisition of these entities and since these entities had no operations at the time of purchase , there was no goodwill recorded on acquisition relating to these entities . on february 19 , 2009 igc-m beneficially purchased 100 % of igc mining and trading , limited based in chennai india . igc-imt was formed on december 16 , 2008 as a privately held start-up company engaged in the business of mining and trading . its current activity is to operate a shipping hub and to export iron ore to china . on july 4 , 2009 igc-m beneficially purchased 100 % of igc materials , private limited , and 100 % of igc logistics , private limited . both these companies are based in nagpur , india , which will be involved in the transport and delivery of ore , cement , aggregate and other material . each of igc-imt , igc-mpl and igc-lpl were formed by third parties at the behest of igc-m to facilitate the creation of the subsidiaries , and the purchase price paid for each of igc-imt . igc-mpl and igc-lpl was equal to the expenses incurred in incorporating the respective entities with no premium paid . no officer or director of igc had a financial interest in the subsidiaries at the time of their acquisition by igc-m. india globalization capital , inc. ( the registrant , the company , or we ) and its subsidiaries are significantly engaged in one segment , infrastructure construction . story_separator_special_tag excluding the impact of the above write-offs , the selling , general and administrative expenses as a proportion of revenue was 64.37 % in the current year as compared to 31.37 % in the previous year . the increase is due to the fixed overheads incurred for the operations that are not proportionate to the revenue generated . depreciation – the depreciation expense was $ 0.7 million in 2011 as compared to $ 0.6 million in 2010. income from operations - loss from operations increased from $ 3.99 million for the year ended march 31 , 2010 to a loss of $ 7.91 million for the year ended march 31 , 2011 , which is an increase of $ 3.92 million in losses . 24 interest and other financial expense– the interest expense for the year ended march 31 , 2011 was $ 1.59 million as compared to $ 1.58 million for the year ended march 31 , 2010. for the previous year ended march 31 , 2010 , interest expense relating to sricon amounting to $ 0.29 million was recorded in the books of the company . as explained earlier , sricon was deconsolidated effective october 1 , 2009 and therefore no such interest expense was recorded in the books during the current year . however , there is a corresponding increase of $ 0.28 million in the interest expense primarily due to the modification of the notes payable which were due in the current year . the company has extended the term of repayment for these notes and the consideration for the modification was settled through the issue of equity shares . interest income – the interest income for the year ended march 31 , 2011 was $ 0.26 million as compared to $ 0.21 million for the year ended march 31 , 2010. impairment loss – investment – during the current year , the company performed an impairment analysis relating to its investment in sricon . as a background , the company sold a majority part of its stake in sricon effective october 1 , 2009. following the sale , the equity interest of the company in sricon was reduced from 63 % to 22 % . in the current year , the company has had a dispute with the management of sricon . igc has therefore moved to a cost basis of accounting for the investment in sricon given the lack of significant influence in the management of sricon despite our 22 % stake . the company conducted an impairment test on the investment based on the information available with it and as a result has provided for $ 2.18 million as impairment loss . impairment loss – goodwill – the goodwill balance in the books of the company is allocated to the tbl reporting unit . during the current year , in the fourth quarter , the company performed its annual impairment test on the goodwill balance . the company assessed the fair value of the reporting unit based on the recoverable values of the assets and the expected settlement values of its liabilities . based on the impairment analysis , the company has provided for a loss amounting to $ 5.79 million relating to the goodwill balance for the year ended march 31 , 2011. factors that influence the analysis include contracts , potential contracts , collection of claims , ability to grow the quarry and ore business , and other factors . while there is an overall liquidity constraint and we require more cash to grow , the market potential for the infrastructure business in india remains strong and unabated . loss on dilution of stake – the charge for the year ended march 31 , 2010 included a significant one-time charge of $ 2.86 million relating to the deconsolidation of sricon . this charge relating to deconsolidation consists of a one-time charge of about $ 2.10 million , which represents a portion of the other comprehensive income of sricon that accumulated from the time that igc acquired 63 % of sricon . this also consists of a one-time loss of $ 0.76 million as a result of decreasing our ownership from 63 % to 22.3 % in sricon and extinguishing the loan of $ 17.9 million due to sricon . other income – other income primarily consists of foreign exchange gain arising from the restatement of the inter-company receivables , denominated in indian rupees , regarding payables to igc . further during the current year , the company has re-recorded liabilities relating to the promoters of tbl amounting to approximately $ 0.26 million . this liability was disputed by the company in the previous year and in the current year , based on an internal assessment , the company has concluded that the same is no longer payable . income tax expense – we had an income tax expense of $ 4.1 million for the year ended march 31 , 2011 as compared to an income tax benefit of $ 3.11 million for the year ended march 31 , 2010. the income tax benefit for the previous year was primarily on account of losses incurred in the previous year , which we believed would be offset against taxable profits in the future years due to the execution of the substantial orders received from china . during the current year , considering the continued ban on import of low grade iron ore by china and the shut down on mining and exports from karnataka , the company believes that the timing of the execution of the orders is not estimable . therefore , from the perspective of prudence the company has provided a valuation on the entire deferred tax asset balance during the current year resulting in the substantial income tax expense . we however continue to expect to perform and deliver ore to our customer and earn sufficient taxable income to utilize all the deferred tax assets that we have recorded . we have not relied on any specific tax planning strategies in the recognition of the deferred tax assets .
| steel industry executive summary by the u.s. international trade administration , china 's february 2011 steel production level increased by 2.8 % to 54.3 million metric tons from 52.8 million metric tons in january . the same source asserts that china 's share of total world steel production increased from 44 % to 47 % between january 2011 and february 2011 , accounting for nearly half of monthly total world production . we believe that these trends will continue to be favorable to our business . our model is as follows : 1. we supply iron ore to china and trade in steel in the indian markets . 2. we supply rock aggregate to the construction industry in india and trade in other construction materials in the indian markets , and 3. we bid and execute construction and engineering contracts . our expansion plans include building out 10 rock aggregate quarries to create a one-stop shop for rock aggregate ( a business currently not prevalent in india ) ; obtaining licenses for the mining of iron ore in india in order to fill customer orders from china ; and winning and executing construction contracts . there is seasonality in our business as outdoor construction activity slows down during the indian monsoons . the heavy rains typically continue intermittently from june through september . industry overview the cia 2011 world fact book estimated the indian gdp to be approximately $ 1.43 trillion in 2010. according to the world bank , only fifteen economies including india , mexico and australia generated more than $ 1 trillion in gdp in 2010. according to the cia 2011 world fact book , “ strong headline gdp growth and quarter-on-quarter results indicate that the recovery of the indian economy is robust . backed by strong growth of 8.9 percent y-o-y in the first half of fy2010-11 , the economy is estimated to grow by 8.6 percent during the fiscal year.
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expected long-term rate of return to develop the expected long-term rate of return on assets assumption , the story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand the company 's results of operations and financial condition for the three years ended july 31 , 2018 , 2017 and 2016. the md & a should be read in conjunction with the company 's consolidated financial statements and notes included in item 8 of this annual report . this discussion contains forward-looking statements that involve risks and uncertainties . the company 's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed elsewhere in this annual report , particularly item 1a , `` risk factors '' and in the safe harbor statement under the securities reform act of 1995 below . throughout this md & a , the company refers to measures used by management to evaluate performance , including a number of financial measures that are not defined under accounting principles generally accepted in the united states of america ( gaap ) . excluding foreign currency translation from net sales and net earnings ( i.e . constant currency ) and excluding the impact of one-time transactions are not measures of financial performance under gaap ; however , the company believes they are useful in understanding its financial results and provide comparable measures for understanding the operating results of the company between different fiscal periods . reconciliations within this md & a provide more details on the use and derivation of these measures . overview net sales for the year ended july 31 , 2018 were $ 2,734.2 million , as compared with $ 2,371.9 million for the year ended july 31 , 2017 , an increase of $ 362.3 million , or 15.3 % . net sales were positively impacted by foreign currency translation , which increased sales by $ 78.3 million . on a constant currency basis , net sales for the year ended july 31 , 2018 increased 12.0 % from the prior fiscal year . net earnings for the year ended july 31 , 2018 were $ 180.3 million , as compared with $ 232.8 million for the year ended july 31 , 2017 , a decrease of $ 52.5 million , or 22.6 % . net earnings for the current year includes a provisional estimate for tax charges of $ 84.1 million related to the u.s. tax cuts and jobs act ( tcja ) , which was enacted into law during the period . prior year net earnings do not include tcja tax charges . diluted earnings per share were $ 1.36 for the year ended july 31 , 2018 , as compared with $ 1.74 for the year ended july 31 , 2017 , a decrease of 21.8 % . excluding the impact of the tcja , diluted earnings per share were $ 2.00 for the year ended july 31 , 2018 . 11 consolidated results of operations the following table summarizes consolidated results of operations for each of the three fiscal years ended july 31 , 2018 , 2017 and 2016 ( in millions , except per share data ) : replace_table_token_8_th net sales net sales by operating segment are as follows ( in millions ) : replace_table_token_9_th net sales by origination ( 1 ) for the years ended july 31 , 2018 , 2017 and 2016 are as follows ( in millions ) : replace_table_token_10_th ( 1 ) net sales by origination is based on the country of the company 's legal entity where the customer 's order was placed . 12 the company 's net sales are impacted by fluctuations in foreign currency exchange rates . the following table reflects the impact of these fluctuations on net sales for the years ended july 31 , 2018 , 2017 and 2016 ( in millions ) : replace_table_token_11_th ( 1 ) the impact of foreign currency translation is calculated by translating current period foreign currency revenue into u.s. dollars using the average foreign currency exchange rates for the prior fiscal year period rather than actual current period foreign currency exchange rates . the fiscal 2018 net sales increase of $ 362.3 million from fiscal 2017 was primarily driven by the engine products segment , which increased $ 295.7 million due to strong growth in the aftermarket , off-road and on-road product groups . the company 's industrial products segment contributed $ 66.6 million to the fiscal 2018 total year-over-year increase , driven primarily by the industrial filtration solutions product group . foreign currency translation increased total sales by $ 78.3 million , reflecting increases in the engine and industrial products segments of $ 45.9 million and $ 32.4 million , respectively . acquisitions completed during the prior year increased total sales by $ 25.6 million . the company 's primary engine-related markets , including global agriculture , mining and construction are in various stages of cyclical growth , and certain industrial markets exhibited further signs of recovery during the fiscal year . fiscal 2018 net sales reflected typical seasonality , with a larger percent of full-year revenue realized during the second half of the fiscal year . gross margin cost of sales for the year ended july 31 , 2018 was $ 1,798.7 million , compared with $ 1,548.8 million for the year ended july 31 , 2017 , an increase of $ 249.9 million or 16.1 % . gross margin for the year ended july 31 , 2018 was 34.2 % , or a 0.5 percentage point decrease from 34.7 % for the year ended july 31 , 2017 . the decrease in gross margin reflects higher raw materials and supply chain costs combined with an unfavorable mix of sales . cost of sales for the year ended july 31 , 2017 was $ 1,548.8 million , compared with $ 1,465.5 million for the year ended july 31 , 2016 , an increase of $ 83.3 story_separator_special_tag for the year ended july 31 , 2017 , as compared with $ 1.42 for the year ended july 31 , 2016 , an increase of 22.5 % . the favorable settlement of claims associated with general representations and warranties in connection with the company 's acquisition of northern technical benefited fiscal 2017 net earnings per share by $ 0.05. the company 's net earnings are impacted by fluctuations in foreign currency exchange rates . the following table reflects the impact of these fluctuations on net earnings for the years ended july 31 , 2018 , 2017 and 2016 ( in millions ) : replace_table_token_12_th ( 1 ) the impact of foreign currency translation is calculated by translating current period foreign currency net earnings into u.s. dollars using the average foreign currency exchange rates for the prior fiscal year period rather than actual current period foreign currency exchange rates . 14 segment results of operation net sales and earnings before income taxes by operating segment for each of the three years ended july 31 , 2018 , 2017 and 2016 are summarized as follows ( in millions ) : replace_table_token_13_th ( 1 ) corporate and unallocated includes corporate expenses determined to be non-allocable to the segments , such as interest expense . engine products segment the following is a summary of net sales by product group within the company 's engine products segment for the years ended july 31 , 2018 , 2017 and 2016 ( in millions ) : replace_table_token_14_th fiscal 2018 compared with fiscal 2017 net sales for the engine products segment for the year ended july 31 , 2018 were $ 1,849.0 million , as compared with $ 1,553.3 million for the year ended july 31 , 2017 , an increase of $ 295.7 million , or 19.0 % . excluding the $ 45.9 million benefit from foreign currency translation , fiscal 2018 sales increased 16.1 % . worldwide sales from off-road were $ 327.4 million , an increase of 29.9 % from fiscal 2017 . in constant currency , sales increased $ 63.9 million , or 25.3 % . the increase in off-road sales was driven by continued strength in demand for heavy-duty off-road equipment production across all regions and industries , including global mining , agriculture and construction . sales also benefited from the company 's success in winning new programs for air and liquid filtration systems with innovative products . worldwide sales of on-road were $ 154.2 million , an increase of 39.3 % from fiscal 2017 . in constant currency , sales increased $ 40.6 million , or 36.6 % . the increase in on-road sales reflects increasing production of heavy-duty trucks compared with a sales decline in the prior year , primarily in the u.s. , combined with benefits from new first-fit program wins . worldwide sales of aftermarket were $ 1,261.9 million , an increase of 16.2 % from fiscal 2017 . in constant currency , sales increased $ 147.0 million , or 13.5 % . within aftermarket , sales increased in all major regions as the company benefited from strong market conditions and end-user demand and growth in innovative product categories , including both air and liquid filtration products . additionally , aftermarket sales included $ 25.6 million of incremental sales from the company 's acquisitions of partmo and hy-pro , which were both completed during fiscal 2017 ( refer to note 2 in the notes to consolidated financial statements included in item 8 of this report for further discussion of the acquisitions ) . 15 worldwide sales of aerospace and defense were $ 105.5 million , an increase of 1.1 % from fiscal 2017 . in constant currency , sales decreased $ 1.6 million , or 1.5 % . sales within aerospace and defense were mixed , with growing sales of aerospace replacement parts partially offset by declining sales of ground defense vehicle products , due in part to strong sales in the prior year . earnings before income taxes for the engine products segment for the year ended july 31 , 2018 were $ 261.3 million , or 14.1 % of engine products ' sales , consistent with 14.1 % of sales for the year ended july 31 , 2017 . the rate reflects higher raw materials and supply chain costs combined with an unfavorable mix of products , offset by operating expense leverage on higher sales than the prior year . fiscal 2017 compared with fiscal 2016 net sales for the engine products segment for the year ended july 31 , 2017 were $ 1,553.3 million , as compared with $ 1,391.3 million for the year ended july 31 , 2016 , an increase of $ 162.0 million , or 11.6 % . excluding the $ 0.6 million benefit from foreign currency translation , fiscal 2018 sales increased 11.6 % . worldwide sales from off-road were $ 252.1 million , an increase of 16.4 % from fiscal 2016 . in constant currency , sales increased $ 37.2 million , or 17.2 % . sales in fiscal 2017 benefited from the company 's success in winning new programs for air and liquid filtration systems with innovative products , combined with improving market conditions in the global mining , agriculture and construction industries . worldwide sales of on-road were $ 110.7 million , a decrease of 13.0 % from fiscal 2016 . in constant currency , sales decreased $ 17.2 million , or 13.5 % . decreasing production of heavy-duty trucks in all regions drove the year-over-year decline . worldwide sales of aftermarket were $ 1,086.2 million , an increase of 14.2 % from fiscal 2016 . in constant currency , sales increased $ 132.3 million , or 13.9 % . the increase was primarily driven by strength in the company 's innovative air and liquid filtration products combined with benefits from further geographic expansion of distribution and production of aftermarket products . aftermarket sales also included a combined benefit of approximately $ 21.7 million from the acquisitions of hy-pro and partmo .
| cash flow summary cash flows for the years ended july 31 , 2018 , 2017 and 2016 are summarized as follows ( in millions ) : replace_table_token_16_th operating activities cash provided by operating activities for the year ended july 31 , 2018 was $ 262.9 million , as compared with $ 317.8 million for the year ended july 31 , 2017 , a decrease of $ 54.9 million . this decrease is primarily the result of $ 35.0 million of discretionary pension plan contributions and changes in working capital , as cash flows provided by accounts payable decreased by $ 34.3 million and cash flows used in accounts receivable increased by $ 9.9 million . the decrease is partially offset by an increase in pretax earnings of $ 41.6 million . cash provided by operating activities for the year ended july 31 , 2017 was $ 317.8 million , as compared with $ 291.3 million for the year ended july 31 , 2016 , an increase of $ 26.5 million . the increase in cash generated by operating activities resulted from higher net earnings of $ 42.0 million , partially offset by several changes in working capital items that resulted in a net cash reduction . 18 investing activities cash used in investing activities for the year ended july 31 , 2018 was $ 95.4 million , as compared with $ 95.7 million for the year ended july 31 , 2017 , a decrease of $ 0.3 million . the primary changes in cash used in investing activities include an increase in capital expenditures of $ 31.6 million to expand capacity and invest in technology , offset by a decrease in net cash used for acquisitions of $ 32.7 million .
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common stock warrants in june 2014 , the company entered into a story_separator_special_tag financial condition and results of operations you should read the following discussion and analysis of financial condition and results of operations together with item 6 “ selected consolidated financial data ” and our consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report on form 10-k contain forward-looking statements that involve risks and uncertainties , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to such differences include , but are not limited to , those discussed in item 1a . risk factors . overview we are a microbiome therapeutics platform company developing a novel class of biological drugs , which are designed to treat disease by restoring the function of a dysbiotic microbiome . our lead product candidate , ser-109 , is designed to prevent further recurrences of clostridium difficile infection , or cdi , a debilitating infection of the colon , by treating the dysbiosis of the colonic microbiome and , if approved by the u.s. food and drug administration , or fda , could be a first-in-field drug . using our microbiome therapeutics platform , we are developing additional product candidates , including ser-262 to prevent an initial recurrence of primary cdi , ser-287 to treat inflammatory bowel disease , or ibd , including ulcerative colitis and ser-155 to treat enteric bacterial pathogens . we are also conducting research on metabolic diseases , such as early-stage , non-insulin dependent diabetes ; non-alcoholic steatohepatitis ; obesity and metabolic syndrome ; other inflammatory diseases , such as crohn 's disease ; cancer chemotherapy and immune suppression ; rare genetic diseases ; and immune-oncology related applications . since our inception in october 2010 , we have devoted substantially all of our resources to developing ser-109 , researching ser-262 and ser-287 , building our intellectual property portfolio , developing our supply chain , business planning , raising capital and providing general and administrative support for these operations . from our inception through june 30 , 2015 , we had financed our operations through private placements of our convertible preferred stock , the issuance of convertible promissory notes and borrowings under a loan and security agreement with comerica bank , or the loan and security agreement . through june 30 , 2015 , we had received gross proceeds of $ 137.0 million from such transactions . on july 1 , 2015 , we completed an initial public offering , or ipo , of our common stock , and issued and sold 8.5 million shares of common stock at a public offering price of $ 18.00 per share , resulting in net proceeds of approximately $ 139.3 million after deducting underwriting discounts and commissions and offering expenses . upon the listing of our common stock on the nasdaq global select market , or nasdaq , on june 26 , 2015 , all outstanding shares of our convertible preferred stock automatically converted into 22.9 million shares of our common stock . the shares issued upon closing of the ipo included 1.1 million shares of our common stock , pursuant to the underwriters ' full exercise of their option to purchase additional shares of common stock . as of december 31 , 2015 we had repaid all amounts of the total $ 3.0 million borrowed under the loan and security agreement . we are a development stage company and have not generated any revenue . all of our product candidates other than ser-109 and ser-287 are still in pre-clinical development . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . since our inception , we have incurred significant operating losses . our net loss was $ 6.1 million for the year ended december 31 , 2013 , $ 16.7 million for the year ended december 31 , 2014 and $ 54.8 million for the year ended december 31 , 2015. as of december 31 , 2015 , we had an accumulated deficit of $ 82.6 million . we expect that our expenses will increase substantially in connection with our ongoing activities , particularly as we : · advance the clinical development of ser-109 for the prevention of further recurrences of cdi in patients suffering from recurrent cdi , through a phase 2 clinical study and beyond ; · initiate clinical development of ser-262 to be used following antibiotic treatment of primary cdi to prevent an initial recurrence of cdi ; · continue the phase 1b clinical study of ser-287 for the treatment of ulcerative colitis ; · conduct research and continue pre-clinical development of additional ecobiotic microbiome therapeutics , including ser-155 for the treatment of enteric bacterial pathogens ; · make strategic investments in manufacturing capabilities , including potentially planning and building a small-scale commercial manufacturing facility ; 72 · maintain our current intellectual property portfolio and opportunistically acquire complementary intellectual property ; and · seek to obtain regulatory approvals for our product candidates . in addition , if we obtain marketing approval for any of our product candidates , we expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . furthermore , we expect to continue to incur additional costs associated with operating as a public company . as a result , we will need additional financing to support our continuing operations . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . story_separator_special_tag product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect that our research and development expenses will continue to increase in the foreseeable future as we advance the clinical development of ser-287 and initiate clinical trials for certain product candidates , including ser-262 , continue to discover and develop additional product candidates , including ser-155 , and pursue later stages of clinical development of our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in our executive , finance , corporate and business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters ; professional fees for accounting , auditing , tax and consulting services ; insurance costs ; travel expenses ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . 74 we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and deve lopment activities and the potential commercialization of our product candidates . we also expect to incur increased expenses associated with being a public company , including increased costs of accounting , audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance costs and investor and public relations costs . other income ( expense ) , net interest income . interest income consists of interest earned on our cash , cash equivalents and investments . interest expense . interest expense consists of interest expense incurred on our debt . during the years ended december 31 , 2015 , 2014 and 2013 , interest expense consisted of interest at the stated rate on borrowings under our loan and security agreement , amortization of deferred financing costs and interest expense related to the accretion of debt discount associated with ( 1 ) the fair value of preferred stock warrant we issued in connection with the loan and security agreement and ( 2 ) a final payment due at maturity . revaluation of preferred stock warrant liability . revaluation of preferred stock warrant liability consists of the net gain or loss associated with the change in the fair value of our preferred stock warrant liability . in connection with the loan and security agreement , we issued a warrant for the purchase of our series a-2 convertible preferred stock , which we believe is a financial instrument that may have required a transfer of assets because of the redemption feature of the underlying stock . therefore , we classified this warrant as a liability that we re-measured to fair value at each reporting period , and we recorded the changes in the fair value as a component of other income ( expense ) , net . upon the listing of our common stock on the nasdaq on june 26 , 2015 , the preferred stock warrant became a warrant to purchase common stock . the company performed the final mark to market adjustment on the preferred stock warrant using the fair value of the underlying common shares of $ 18.00 per share on june 26 , 2015 and recorded the change in fair value in other income ( expense ) , net in the consolidated statement of operations and comprehensive loss . the preferred stock warrant liability was then reclassified to additional paid-in-capital as it became a warrant to purchase common stock . income taxes since our inception in 2010 , we have not recorded any u.s. federal or state income tax benefits for the net losses we have incurred in each year or our earned research and development tax credits , due to our uncertainty of realizing a benefit from those items . as of december 31 , 2015 , we had federal and state net operating loss carryforwards of $ 65.4 million and $ 64.3 million , respectively , both of which begin to expire in 2031. as of december 31 , 2015 , we also had federal and state research and development tax credit carryforwards of $ 3.0 million and $ 1.3 million , respectively , which begin to expire in 2031 and 2027 , respectively . critical accounting policies and significant judgments and estimates our consolidated financial statements are prepared in accordance with generally accepted accounting principles , or gaap , in the united states of america . the preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets , liabilities , revenue , costs and expenses and related disclosures . we believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and , therefore , consider these to be our critical accounting policies . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions and conditions . accrued research and development expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advanced payments .
| results of operations comparison of the years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2014 and 2015 : replace_table_token_7_th research and development expenses replace_table_token_8_th research and development expenses were $ 38.1 million for the year ended december 31 , 2015 , compared to $ 10.7 million for the year ended december 31 , 2014. the increase of $ 27.4 million was due primarily to the following : · an increase of $ 13.0 million in research expenses related to our microbiome therapeutics platform , due primarily to higher payroll and consultant costs of $ 10.0 million , which included an increase in stock-based compensation expense of $ 4.2 million , due primarily to an increase in employee headcount , an increase in laboratory consumables and supply costs of $ 1.2 million , facility- related costs of $ 1.4 million and travel costs of $ 0.4 million ; · an increase of $ 10.7 million in expenses related to our ser-109 program , due primarily to higher clinical trial costs of $ 6.0 million , higher bioprocess development costs of $ 3.0 million , higher laboratory consumables and supply costs of $ 1.2 million and higher sequencing costs of $ 0.5 million ; · an increase of $ 1.5 million in expenses of our ser-262 program in connection with various pre- clinical , development and clinical activities related to the program ; and · an increase of $ 2.1 million in expenses of our ser-287 program in connection with various pre- clinical , development , and clinical activities related to the program .
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we have assembled a seasoned team with extensive expertise in drug discovery and development in endocrine gpcrs and built a highly productive drug discovery organization . we have discovered a pipeline of oral nonpeptide ( small molecule ) new chemical entities that target peptide gpcrs to treat a variety of rare endocrine diseases where treatment options have significant efficacy , safety and or tolerability limitations . our product candidates include paltusotine ( formerly crn00808 ) , which is in clinical development for the treatment of acromegaly and neuroendocrine tumors , or nets , crn04777 , which is in clinical development for congenital hyperinsulinism , or hi , and crn04894 , which is in clinical development for diseases of excess adrenocorticotrophic hormone , or acth , including cushing 's disease , congenital adrenal hyperplasia , ectopic acth syndrome . we are advancing additional product candidates through preclinical studies in parallel . our vision is to build the leading endocrine company which consistently pioneers new therapeutics to help patients better control their disease and improve their daily lives . we focus on the discovery and development of oral nonpeptide therapeutics that target peptide gpcrs with well-understood biological functions , validated biomarkers and the potential to substantially improve the treatment of endocrine diseases and or endocrine-related tumors . to date , we have devoted substantially all of our resources to drug discovery , conducting preclinical studies and clinical trials , obtaining and maintaining patents related to our product candidates , and the provision of general and administrative support for these operations . we have recognized revenues from various research and development grants , but do not have any products approved for sale and have not generated any product sales . we have funded our operations to date primarily through our grant revenues , the private placement of our preferred stock , and sales of our common stock . as of december 31 , 2020 , we had unrestricted cash , cash equivalents and investment securities of $ 170.9 million . we have incurred cumulative net losses since our inception and , as of december 31 , 2020 , we had an accumulated deficit of $ 167.6 million . our net losses may fluctuate significantly from quarter-to-quarter and year-to-year , depending on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities . we expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials , continue our research and development activities and conduct preclinical studies , hire additional personnel , protect our intellectual property and incur costs associated with being a public company , including audit , legal , regulatory , and tax-related services associated with maintaining compliance with exchange listing and securities and exchange commission , or sec , requirements , director and officer insurance premiums , and investor relations costs . we do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates , which we expect will take a number of years . if we obtain regulatory approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , until such time as we can generate significant revenue from sales of our product candidates , if ever , we expect to finance our cash needs through equity offerings , debt financings or other capital sources , including potentially collaborations , licenses and other similar arrangements . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay , scale back or discontinue the development of our existing product candidates or our efforts to expand our product pipeline . australian operations in january 2017 , we established crinetics australia pty ltd , or capl , a wholly-owned subsidiary which was formed to conduct various preclinical and clinical activities for our product and development candidates . we believe capl will be eligible for certain financial incentives made available by the australian government for research and development expenses . specifically , the australian taxation office provides for a refundable tax credit in the form of a cash refund equal to 43.5 % of qualified research and development expenditures under the australian research and development tax incentive program , or the australian tax incentive , to australian companies that operate the majority of their research and development activities associated with such projects in australia . a wholly-owned australian subsidiary of a non-australian parent company is eligible to receive the refundable tax credit , provided that the australian subsidiary retains the rights to the data 69 and intellectual property generated in australia , and provided that the total revenues of the parent company and its consolidated subsidiaries during the period for which the refundable tax credit is claimed are less than $ 20.0 million australian dollars . if we lose our ability to operate capl in australia , or if we are ineligible or unable to receive the research and development tax credit , or the australian government significantly reduces or eliminates the tax credit , the actual refund amounts we receive may differ from our estimates . financial operations overview grant revenues to date , we have not generated any revenues from the commercial sale of approved products , and we do not expect to generate revenues from the commercial sale of our product candidates for at least the foreseeable future , if ever . revenues for 2020 , 2019 and 2018 were derived from small business innovation research grants , or sbir grants , awarded to us by the national institute of diabetes and digestive and kidney diseases of the national institutes of health . story_separator_special_tag while our significant accounting policies are described in more detail in note 2 to our consolidated financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements . australian research and development tax incentive capl is eligible to obtain a cash refund from the australian taxation office for eligible research and development expenditures under the australian tax incentive . the australian tax incentive is recognized as a reduction to research and development expense when there is reasonable assurance that the australian tax incentive will be received , the relevant expenditure has been incurred , and the amount can be reliably measured . although we do not expect our estimates to be materially different from amounts actually received , if our estimates of the amounts and timing of the receipt of the australian tax incentive differ from actual amounts received , it could result in us reporting amounts that are too high or too low in any particular period . accrued expenses as part of the process of preparing our consolidated financial statements , we are required to estimate our accrued expenses as of each balance sheet date . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . we make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced . we base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . 71 there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense . in accruing service fees , we estimate the time period over which services will be performed and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or prepaid expense accordingly . advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made . although we do not expect our estimates to be materially different from amounts actually incurred , if our estimates of the status and timing of services performed differ from the actual status and timing of services performed , it could result in us reporting amounts that are too high or too low in any particular period . to date , there have been no material differences between our estimates of such expenses and the amounts actually incurred . operating leases the company determines if an arrangement is a lease at the inception of the arrangement . leases with a term longer than 12 months that are determined to be operating leases are included in operating lease assets , accrued expenses and other current liabilities and noncurrent operating lease liabilities in the consolidated balance sheets based on the present value of the minimum lease payments called for under the arrangement . lease expense for minimum lease payments is recognized on a straight-line basis over the lease term . stock-based compensation expense stock-based compensation expense represents the cost of the estimated grant date fair value of stock option awards and employee stock purchase plan rights amortized over the requisite service period of the awards ( usually the vesting period ) on a straight-line basis . we estimate the fair value of all stock option grants using the black-scholes option pricing model and recognize forfeitures as they occur . estimating the fair value of equity awards as of the grant date using valuation models , such as the black-scholes option pricing model , is affected by assumptions regarding a number of complex variables , including the expected stock price volatility , the risk-free interest rate , the expected term of stock options , the expected dividend yield and the fair value of the underlying common stock on the date of grant . changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized . these inputs are subjective and generally require significant analysis and judgment to develop . due to the lack of an adequate history of a public market for the trading of our common stock and a lack of adequate company-specific historical and implied volatility data , we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded . for these analyses , we have selected companies with comparable characteristics to ours , including enterprise value , risk profiles , and position within the industry , and with historical share price information sufficient to meet the expected life of the stock-based awards . we compute the historical volatility data using the daily close prices for the selected companies ' shares during the equivalent period of the calculated expected term of our stock-based awards .
| results of operations comparison of the years ended december 31 , 2020 and 2019 . the following table summarizes our results of operations for the years ended december 31 , 2020 and 2019 ( in thousands ) : replace_table_token_1_th 72 grant revenues . grant revenues relate to reimbursable expenses incurred in connection with our sbir grants and totaled $ 71,000 and $ 1.2 million for the years ended december 31 , 2020 and 2019 , respectively . our 2020 and 2019 revenues were primarily associated with research activities for one sbir grant , which was completed during the first quarter of 2020. we do not expect grant revenues to be significant in future periods . research and development expenses . research and development expenses were $ 57.0 million and $ 41.5 million for the years ended december 31 , 2020 and 2019 , respectively . the increase was primarily due to increased spending on manufacturing and development activities of $ 8.4 million associated with our clinical and nonclinical activities for paltusotine and our other clinical and preclinical research programs . additionally , our 2020 results reflect an increase in costs of $ 6.3 million primarily due to the hiring of additional personnel ( which includes $ 2.0 million of additional stock-based compensation ) and additional expenditures for consulting services of $ 1.1 million . general and administrative expenses . general and administrative expenses were $ 18.0 million and $ 13.5 million for the years ended december 31 , 2020 and 2019 , respectively . the increase was primarily due to increases in personnel-related costs of $ 4.0 million ( which includes $ 2.1 million of additional stock-based compensation ) and spending on recruiting costs and pre-commercialization activities of $ 0.5 million . other income ( expense ) . other income ( expense ) , net was $ 1.1 million and $ 3.4 million for the years ended december 31 , 2020 and 2019 , respectively .
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you should review the “ risk factors ” and `` note about forward-looking statements '' sections of this annual report on form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . we generally refer to loans , customers and other information and data associated with each of rise , elastic , sunny and today card as elevate 's loans , customers , information and data , irrespective of whether elevate directly originates the credit to the customer or whether such credit is originated by a third party . overview we provide online credit solutions to consumers in the us and the uk who are not well-served by traditional bank products and who are looking for better options than payday loans , title loans , pawn and storefront installment loans . non-prime consumers now represent a larger market than prime consumers but are risky to underwrite and serve with traditional approaches . we 're succeeding at it - and doing it responsibly - with best-in-class advanced technology and proprietary risk analytics honed by serving more than 2.2 million customers with $ 6.7 billion in credit . our current online credit products , rise , elastic and sunny , and our recently test launched today card reflect our mission to provide customers with access to competitively priced credit and services while helping them build a brighter financial future with credit building and financial wellness features . we call this mission `` good today , better tomorrow . '' we earn revenues on the rise and sunny installment loans , on the rise and elastic lines of credit and on the today card credit card product . our revenue primarily consists of finance charges and line of credit fees . finance charges are driven by our average loan balances outstanding and by the average annual percentage rate ( “ apr ” ) associated with those outstanding loan balances . we calculate our average loan balances by taking a simple daily average of the ending loan balances outstanding for each period . line of credit fees are recognized when they are assessed and recorded to revenue over the life of the loan . we present certain key metrics and other information on a “ combined ” basis to reflect information related to loans originated by us and by our bank partners that license our brands , republic bank and finwise bank , as well as loans originated by third-party lenders pursuant to cso programs , which loans originated through cso programs are not recorded on our balance sheet in accordance with us gaap . see “ —key financial and operating metrics ” and “ —non-gaap financial measures. ” we have experienced rapid growth since launching our current generation of product offerings . since their introduction , through december 31 , 2018 , rise , elastic , sunny and today card , together , have provided approximately $ 5.2 billion in credit to more than 1.4 million customers and generated strong growth in revenues and loans outstanding . our revenues for the year ended december 31 , 2018 grew 17 % compared to revenues for 2017 . our combined loan principal balances grew 5 % from $ 618.4 million as of december 31 , 2017 to $ 648.5 million as of december 31 , 2018 . for additional information about our combined loan balances please see “ —non-gaap financial measures—combined loan information. ” during the year ended december 31 , 2018 , we experienced delays in rolling out new technology and credit models that are needed to drive continued improvements in credit quality for our us products . as a result of these and other issues , new customer acquisition and credit quality were both relatively flat with the prior year and anticipated improvements in margins were not realized . additionally , we experienced a significant increase in uk costs related to complaints by claims management companies as well as higher legal costs related to several company initiatives . we expect to implement the new technology and credit models during the first half of 2019 , with full benefits realized by the second quarter of 2019 . 79 we use our working capital , funds provided by third-party lenders pursuant to cso programs and our credit facility with victory park management , llc ( `` vpc ” ) to fund the loans we make to our customers . prior to january 2014 , we funded all of our loans to customers out of our existing cash flows . on january 30 , 2014 , we entered into an agreement with vpc to provide a credit facility ( “ vpc facility ” ) in order to fund our rise and sunny products and provide working capital . since originally entering into the vpc facility , it has been amended several times to increase the maximum total borrowing amount available from the original amount of $ 250 million to approximately $ 433 million at december 31 , 2018 . on february 7 , 2019 , both the vpc facility and the espv facility were amended to , among other things : reduce the facilities ' pricing ; provide over $ 1 billion in commitments split between the various vpc facilities ; provide for a 20 % revolver in the first quarter of each year for each product facility and a 25 bps reduction in cost of funds in both 2020 and 2021 subject to meeting certain net income thresholds ; and extend the maturity date to january 1 , 2024 ( except for the $ 35 million in 4th tranche term note which continues to have a maturity date of february 2021 ) . the february 7 , 2019 amendments also provided for additional financial covenants applicable to the company under the facilities . see “ —liquidity and capital resources—debt facilities. story_separator_special_tag see “ —non-gaap financial measures ” for a reconciliation of our non-gaap measures to us gaap . revenue growth replace_table_token_8_th _ ( 1 ) combined loans receivable is defined as loans owned by the company and consolidated vies plus loans originated and owned by third-party lenders pursuant to our cso programs . see “ —non-gaap financial measures ” for more information and for a reconciliation of combined loans receivable to loans receivable , net , the most directly comparable financial measure calculated in accordance with us gaap . ( 2 ) average combined loans receivable – principal is calculated using an average of daily principal balances . ( 3 ) average customer loan balance is a weighted average of all three products and is calculated for each product by dividing the ending combined loans receivable – principal by the number of loans outstanding at period end ( excluding today card as balances are immaterial ) . revenues . our revenues are composed of rise finance charges , rise cso fees ( which are fees we receive from customers who obtain a loan through the cso program for the credit services , including the loan guaranty , we provide ) , finance charges on sunny installment loans and revenues earned on the rise and elastic lines of credit . finance charge and fee revenues from the recently test launched today card credit card product were immaterial . see “ —components of our results of operations—revenues. ” ending and average combined loans receivable – principal . we calculate the average combined loans receivable – principal by taking a simple daily average of the ending combined loans receivable – principal for each period . key metrics that drive the ending and average combined loans receivable – principal include the amount of loans originated in a period and the average customer loan balance . all loan balance metrics include only the 90 % participation in the related elastic line of credit advances ( we exclude the 10 % held by republic bank ) and the 95 % participation in finwise originated rise installment loans , but include the full loan balances on cso loans , which are not presented on our consolidated balance sheets . total combined loans originated- principal . the amount of loans originated in a period is driven primarily by loans to new customers as well as new loans to prior customers , including refinancings of existing loans to customers in good standing . 82 average customer loan balance and effective apr of combined loan portfolio . the average loan amount and its related apr are based on the product and the underlying credit quality of the customer . generally , better credit quality customers are offered higher loan amounts at lower aprs . additionally , new customers have more potential risk of loss than prior or existing customers due to lack of payment history and the potential for fraud . as a result , newer customers typically will have lower loan amounts and higher aprs to compensate for that additional risk of loss . the effective apr is calculated based on the actual amount of finance charges generated from a customer loan divided by the average outstanding balance for the loan and can be lower than the stated apr on the loan due to waived finance charges and other reasons . for example , a rise customer may receive a $ 2,000 installment loan with a term of 24 months and a stated rate of 180 % . in this example , the customer 's monthly installment loan payment would be $ 310.86. as the customer can prepay the loan balance at any time with no additional fees or early payment penalty , the customer pays the loan in full in month eight . the customer 's loan earns interest of $ 2,337.81 over the eight-month period and has an average outstanding balance of $ 1,948.17. the effective apr for this loan is 180 % over the eight-month period calculated as follows : ( $ 2,337.81 interest earned / $ 1,948.17 average balance outstanding ) x 12 months per year = 180 % 8 months in addition , as an example for elastic , if a customer makes a $ 2,500 draw on the customer 's line of credit and this draw required bi-weekly minimum payments of 5 % ( equivalent to 20 bi-weekly payments ) , and if all minimum payments are made , the draw would earn finance charges of $ 1,148. the effective apr for the line of credit in this example is 109 % over the payment period and is calculated as follows : ( $ 1,148.00 fees earned / $ 1,369.05 average balance outstanding ) x 26 bi-weekly periods per year = 109 % 20 payments the actual amount of revenue we realize on a loan portfolio is also impacted by the amount of prepayments and charged-off customer loans in the portfolio . for a single loan , on average , we typically expect to realize approximately 60 % of the revenues that we would otherwise realize if the loan were to fully amortize at the stated apr . from the rise example above , if we waived $ 400 of interest for this customer , the effective apr for this loan would decrease to 149 % . number of new customer loans . we define a new customer loan as the first loan made to a customer for each of our products ( so a customer receiving a rise installment loan and then at a later date taking their first cash advance on an elastic line of credit would be counted twice ) . the number of new customer loans is subject to seasonal fluctuations . new customer acquisition is typically slowest during the first six months of each calendar year , primarily in the first quarter , compared to the latter half of the year , as our existing and prospective us customers usually receive tax refunds during this period and , thus , have less of a need for loans from us .
| results of operations the following table sets forth our consolidated statements of operations data for each of the periods indicated : replace_table_token_20_th 96 replace_table_token_21_th comparison of the years ended december 31 , 2018 and 2017 revenues replace_table_token_22_th 97 revenues increased by $ 113.6 million , or 17 % , from $ 673.1 million for the year ended december 31 , 2017 to $ 786.7 million for the year ended december 31 , 2018 . this growth in revenues was primarily attributable to increased finance charges driven by growth in our average loan balances . the decrease in other revenues was due primarily to a decrease in marketing and licensing fees related to the rise cso programs . the tables below break out this change in revenue ( including cso fees and cash advance fees ) by product : replace_table_token_23_th _ ( 1 ) includes loans originated by third-party lenders through the cso programs , which are not included in the company 's consolidated financial statements . ( 2 ) includes immaterial balances related to the today card , which expanded its test launch in november 2018 . ( 3 ) average combined loans receivable – principal is calculated using daily principal balances . not a financial measure prepared in accordance with us gaap . see reconciliation table accompanying this annual report on form 10-k for a reconciliation of non-gaap financial measures to the most directly comparable financial measure calculated in accordance with us gaap . 98 during the year ended december 31 , 2018 , our average combined loans receivable – principal increased $ 100.8 million compared to the prior year period as we continued to market our rise , sunny and elastic products in the us and uk . as a result of the increased average combined loans receivable – principal , finance charges increased $ 130.1 million during the year ended december 31 , 2018 compared to the prior year .
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story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and applicable notes to the financial statements and supplementary data , item 8 , and other information in this report , including risk factors set forth in item 1a and critical accounting policies and cautionary information at the end of this item 7. the railroad , along with its subsidiaries and rail affiliates , is our one reportable business segment . although revenue is analyzed by commodity , we analyze the net financial results of the railroad as one segment due to the integrated nature of the rail network . executive summary 2015 results · safety – during 2015 , we continued our focus on safety to reduce risk and eliminate incidents for our employees , our customers and the public . we achieved our best ever reportable personal injury incidents per 200,000 employee-hours of 0.87. in addition , we finished 2015 with a 3 % improvement in our crossing incident rate per million train miles compared to the prior year . these results demonstrate our employees ' dedication to our safety initiatives and our efforts to further engage the workforce through programs such as courage to care , total safety culture , and up way ( our continuous improvement culture ) . · financial performance – in 2015 , we generated operating income of $ 8.1 billion , an 8 % decrease compared to a record-setting 2014. despite a 6 % decrease in carloads , it was our second-best financial performance ever . core pricing gains of 3.7 % , productivity , and improved network operations partially offset the lower volumes . our operating ratio for 2015 of 63.1 % was an all-time best , improving from last year 's operating ratio of 63.5 % . net income of $ 4.8 billion translated into earnings of $ 5.49 per diluted share for 2015 . · freight revenues – our freight revenues declined 10 % year-over-year to $ 20.4 billion as a result of lower volume levels in five of our six commodity groups and overall lower fuel surcharge revenue , partially offset by core pricing gains . volume declines in coal , international intermodal , frac sand , metals , crude oil , and grain shipments more than offset volume growth in domestic intermodal , finished vehicles , automotive parts , industrial chemicals and plastics shipments . · network operations – significant improvements were made in our operating and service metrics , as our average train speed , as reported to the aar , increased 6 % in 2015 compared to 2014 , and our average terminal dwell time decreased 3 % , both reflecting the impact of lower volumes and improved network fluidity . · fuel prices – our average price per gallon of diesel fuel in 2015 decreased 38 % from the average price in 2014 , as both crude oil and the conversion spreads between crude oil and diesel declined in 2015. the lower price decreased operating expenses by $ 1.2 billion ( excluding any impact from year-over-year volume declines ) . gross-ton miles decreased 9 % , which also d ecreased fuel expense . these declines were partially offset by a 1 % increase in our fuel consumption rate , computed as gallons of fuel consumed divided by gross ton-miles in thousands . · free cash flow – cash generated by operating activities totaled $ 7.3 billion , yielding free cash flow of $ 524 million after reductions of $ 4.5 billion for cash used in investing activities and a 1 5 % increase in dividends declared per share . in 2015 , the timing of the dividend declaration and payable dates was aligned to occur within the same quarter , which resulted in two payments in the first quarter of 2015 . free cash flow is defined as cash provided by operating activities less cash used in investing activities and dividends paid . free cash flow is not considered a financial measure under accounting principles generally accepted in the u.s. ( gaap ) by sec regulation g and item 10 of sec regulation s-k and may not be defined and calculated by other companies in the same manner . we believe free cash flow is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financings . free cash flow should be considered in addition 23 to , rather than as a substitute for , cash provided by operating activities . the following table reconciles cash provided by operating activities ( gaap measure ) to free cash flow ( non-gaap measure ) : replace_table_token_9_th 2016 outlook · safety – operating a safe railroad benefits all our constituents : our employees , customers , shareholders and the communities we serve . we will continue using a multi-faceted approach to safety , utilizing technology , risk assessment , quality control , training and employee engagement , and targeted capital investments . we will continue using and expanding the deployment of total safety culture and courage to care throughout our operations , which allows us to identify and implement best practices for employee and operational safety . we will continue our efforts to increase detection of rail defects ; improve or close crossings ; and educate the public and law enforcement agencies about crossing safety through a combination of our own programs ( including risk assessment strategies ) , industry programs and local community activities across our network . · network operations – in 2016 , we will continue to align resources with customer demand , continue to improve network performance , and maintain our surge capability . · fuel prices – with the dramatic drop in fuel prices during 2015 , fuel price projections continue to be uncertain in the current environment . we again could see volatile fuel prices during the year , as they are sensitive to global and u.s. domestic demand , refining capacity , geopolitical events , weather conditions and other factors . story_separator_special_tag 28 intermodal – lower fuel surcharge revenue and volume declines , partially offset by core pricing gains , resulted in a decline in freight revenue from intermodal shipments in 2015 compared to 2014. international shipments declined 8 % resulting from the supply chain disruptions stemming from the west coast port work disruptions and historically high retail inventories . domestic volume increased 3 % driven by continued conversions from trucks and new premium services , more than offsetting the impact of high retail inventory levels and modest retail sales activity . freight revenue from intermodal shipments increased in 2014 compared to 2013 driven by 2015 intermodal carloads volume growth , core pricing improvements and positive business mix . domestic traffic increased 11 % due to continued conversions from truck transportation to rail and new premium services . international traffic grew 5 % versus 2013 , driven primarily by new business and improving economic conditions . international gains in the last three quarters of the year offset the declines in the first quarter due to severe weather that negatively impacted consumer demand . mexico business – each of our commodity groups includes revenue from shipments to and from mexico . freight revenue from mexico business decreased 4 % to $ 2.2 billion in 2015 compared to 2014 primarily due to lower fuel surcharge revenue . volume levels were flat compared to 2014 as lower shipments of intermodal , agricultural , and industrial products were offset by growth in automotive , coal , and chemical shipments . revenue from mexico business increased 8 % to $ 2.3 billion in 2014 versus 2013. volume levels increased 8 % from 2013 , as increases in agricultural products , chemicals , intermodal , automotive and industrial products offset lower export coal shipments . 29 operating expenses replace_table_token_14_th operating expenses decreased nearly $ 1.5 b illion compared to 2014 driven by s ignificantly lower fuel prices and volume-related cost savings . p roductivity gains in the second half of the year also drove expenses lower . these decreases were partially offset by wage inflation , higher depreciation , and property tax es . in addition , we incurred approximately $ 35 million of weather-related costs in 2014. operating expenses increased $ 718 million in 2014 versus 2013. volume-related expenses , incremental costs associated with operating a slower network , depreciation , wage and benefit inflation , and locomotive and freight car 2015 operating expenses materials contributed to the higher costs . lower fuel price partially offset these increases . in addition , there were approximately $ 35 million of weather-related costs in the first quarter of 2014. compensation and benefits – compensation and benefits include wages , payroll taxes , health and welfare costs , pension costs , other postretirement benefits , and incentive costs . in 2015 , l ower volume-related costs and second half productivity gains were more than offset by general wage inflation and increased hiring and training expenses related to a larger workforce in the first half of the year . volume-related expenses , including training , and a slower network increased our train and engine work force , which , along with general wage and benefit inflation , resulted in increased wages in 2014 compared to 2013. weather-related costs in the first quarter of 2014 also increased costs . purchased services and materials – expense for purchased services and materials includes the costs of services purchased from outside contractors and other service providers ( including equipment maintenance and contract expenses incurred by our subsidiaries for external transportation services ) ; materials used to maintain the railroad 's lines , structures , and equipment ; costs of operating facilities jointly used by uprr and other railroads ; transportation and lodging for train crew employees ; trucking and contracting costs for intermodal containers ; leased automobile maintenance expenses ; and tools and supplies . purchased services and materials decreased $ 137 million compared to 2014 primarily due to lower volume-related costs , including a decrease in external transportation expenses incurred by our logistics subsidiaries . expenses also decreased due to lower locomotive and freight car repair costs . expenses for purchased services in 2014 increased 8 % compared to 2013 primarily due to volume-related expenses incurred by our logistics subsidiaries for external transportation and increased crew transportation and lodging due to volumes and a slower network . in addition , higher consulting fees and higher contract expenses ( including equipment maintenance ) increased costs compared to 2013. locomotive and freight car material expenses increased in 2014 compared to 2013 due to additional volumes , including the impact of activating stored equipment to address operational issues caused by demand and a slower network . fuel – fuel includes locomotive fuel and gasoline for highway and non-highway vehicles and heavy equipment . locomotive diesel fuel prices , which averaged $ 1.84 per gallon ( including taxes and transportation costs ) in 2015 , compared to $ 2.97 per gallon in 2014 , decreased expenses $ 1.2 billion . in 30 addition , fuel costs were lower as gross-ton miles decreased 9 % . the fuel consumption rate ( c-rate ) , computed as gallons of fuel consumed divided by gross ton-miles in thousands , increased 1 % compared to 2014. decreases in heavier , more fuel-efficient shipments , decreased gross-ton mile s and increased the c- rate . volume growth of 7 % , as measured by gross ton-miles , drove the increase in fuel expense in 2014 compared to 2013. this was essentially offset by lower locomotive diesel fuel prices , which averaged $ 2.97 per gallon ( including taxes and transportation costs ) in 2014 , compared to $ 3.15 in 2013 , along with a slight improvement in c-rate , computed as gallons of fuel consumed divided by gross ton-miles . depreciation – the majority of depreciation relates to road property , including rail , ties , ballast , and other track material .
| results of operations operating revenues replace_table_token_10_th we generate freight revenues by transporting freight or other materials from our six commodity groups . freight revenues vary with volume ( carloads ) and average revenue per car ( arc ) . changes in price , traffic mix and fuel surcharges drive arc . we provide some of our customers with contractual incentives for meeting or exceeding specified cumulative volumes or shipping to and from specific locations , which we record as reductions to freight revenues based on the actual or projected future shipments . we recognize freight revenues as shipments move from origin to destination . we allocate freight revenues between reporting periods based on the relative transit time in each reporting period and recognize expenses as we incur them . other revenues include revenues earned by our subsidiaries , revenues from commuter rail operations that we manage , accessorial revenues , which we earn when customers retain equipment owned or controlled by us or when we perform additional services such as switching or storage , and miscellaneous contract revenue . we recognize other revenues as we perform services or meet contractual obligations . freight revenues from five of our six commodity groups decreased in 2015 compared to 2014 due to a 6 % decline in carloadings and lower fuel surcharge revenue , partially offset by core pricing gains . volume declines in coal , international intermodal , frac sand , metals , crude oil , and grain shipments more than offset volume growth in domestic intermodal , finished vehicles , automotive parts , industrial chemicals and plastics shipments . freight revenues from all six commodity groups increased during 2014 compared to 2013 driven by 7 % volume growth and core pricing gains of 2.5 % . volume growth from grain , frac sand , rock , and intermodal ( domestic and international ) shipments offset declines in crude oil .
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