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this asu is effective for public entities for interim and annual reporting periods beginning after december 15 , 2017. the company has evaluated the impact of this revised guidance on its financial statements and determined it had no material impact . in july 2017 , the fasb issued asu no . 2017-11 , earnings per share ( topic 260 ) , distinguishing liabilities from equity ( topic 480 ) , derivatives and hedging ( topic 815 ) . the amendments in part i of this update change the classification analysis of certain equity-linked financial instruments ( or story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements included elsewhere in this annual report . this discussion contains forward-looking statements , which are based on our assumptions about the future of our business . our actual results will likely differ materially from those contained in the forward-looking statements . please read “ cautionary note regarding forward-looking statements ” included at the beginning of this annual report for additional information . overview we exist for the primary purpose of advancing the commercial development of our proprietary polyamine analogue for pancreatic cancer and for a second indication in pancreatitis . we have exclusively licensed the worldwide rights to this compound , which has been designated as sbp-101 , from the university of florida research foundation , inc. ( “ ufrf ” ) . in august 2015 , the fda accepted our investigational new drug ( “ ind ” ) application for our sbp-101 product candidate . we have completed an initial clinical trial of sbp-101 in patients with previously treated locally advanced or metastatic pancreatic cancer . this was a phase 1 , first-in-human , dose-escalation , safety study . from january 2016 through september 2017 , we enrolled 29 patients into six cohorts , or groups , in the dose-escalation phase of this phase 1 trial . twenty-four of the patients received at least two prior chemotherapy regimens . no drug-related serious adverse events occurred during the first four cohorts . in cohort five , serious adverse events ( klebsiella sepsis with metabolic acidosis in one patient , renal and hepatic toxicity in one patient , and mesenteric vein thrombosis with metabolic acidosis in one patient ) were observed in three of the ten patients , two of whom exhibited progressive disease at the end of their first cycle of treatment and were determined by the data safety monitoring board ( “ dsmb ” ) to be dose-limiting toxicities ( “ dlts ” ) . consistent with the study protocol , the dsmb recommended continuation of the study by expansion of cohort 4 , one level below that at which dlts were observed . four patients were enrolled in this expansion cohort . one patient developed focal pancreatitis at the site of the primary tumor after 2.3 months , but otherwise sbp-101 was considered well tolerated below dose level five . the most common drug related adverse events were nausea , vomiting , diarrhea , injection site pain and abdominal pain , which were mostly mild , grades 1 or 2 , and are symptoms common in patients with pancreatic cancer . no drug-related bone marrow toxicity or peripheral neuropathy was observed at any dose level . in addition to being evaluated for safety , 23 of the 29 patients were evaluable for preliminary signals of efficacy prior to or at the eight-week conclusion of their first cycle of treatment using the response evaluation criteria in solid tumors ( “ recist ” ) , the current standard for evaluating changes in the size of tumors . eight of the 23 patients ( 35 % ) had stable disease ( “ sd ” ) and 15 of 24 ( 65 % ) had progressive disease ( “ pd ” ) . it should be noted that of the 15 patients with pd , six came from cohorts 1 and 2 and are considered to have received less than potentially therapeutic doses of sbp-101 . we also noted that 28 of the 29 patients had follow-up blood tests measuring the tumor marker ca 19-9 associated with pancreatic ductal adenocarcinoma . eleven of these patients ( 39 % ) had reductions in the ca 19-9 levels , as measured at least once after the baseline assessment . seven of the remaining 17 patients who showed no reduction in ca 19-9 came from cohorts one and two . by cohort , stable disease occurred in two patients in cohort 3 , two patients in cohort 4 and four patients in cohort 5. the best response outcomes and best median survival were observed in the group of patients who received total cumulative doses of approximately 6 mg/kg ( cohort 3 ) . two of four patients ( 50 % ) showed sd at week eight . median survival in this group was 5.9 months , with two patients surviving 8 and 10 months , respectively . by total cumulative dose received , 5 of 12 patients ( 42 % ) who received total cumulative doses between 2.5 mg/kg and 8.0 mg/kg had reductions in the ca19-9 levels , as measured at least once after the baseline assessment . nine of these patients ( 67 % ) exceeded 3 months of overall survival ( “ os ” ) , three patients ( 25 % ) exceeded 9 months of os and two patients ( 17 % ) exceeded 1 year of os and were still alive at the end of the study . 40 this study was conducted at clinical sites in both australia and the united states including the mayo clinic scottsdale and honorhealth in scottsdale , az , the austin health olivia newton-john cancer wellness & research centre in melbourne , australia and the ashford cancer centre in adelaide , australia . story_separator_special_tag research and development costs include expenses incurred in the conduct of our human clinical trials , for third-party service providers performing various testing and accumulating data related to our preclinical studies ; sponsored research agreements ; developing and scaling the manufacturing process necessary to produce sufficient amounts of the sbp-101 compound for use in our pre-clinical studies and human clinical trials ; consulting resources with specialized expertise related to execution of our development plan for our sbp-101 product candidate ; personnel costs , including salaries , benefits and stock-based compensation ; and costs to license and maintain our licensed intellectual property . during 2018 and 2017 , research and development expenditures were focused primarily on costs related to the execution of our now completed phase 1 first-in-human clinical trial and our current phase 1a /1b front line clinical trial . we can not determine with certainty the timing of initiation , the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates . at this time , due to the inherently unpredictable nature of preclinical and clinical development , we are unable to estimate with any certainty the costs we will incur and the timelines we will require in the continued development of our initial product candidate for pancreatic cancer and our other potential pipeline programs . clinical and preclinical development timelines , the probability of success and development costs can differ materially from expectations . our future research and development expenses will depend on the preclinical and clinical success of each product candidate that we develop , as well as ongoing assessments of the commercial potential of such product candidates . in addition , we can not forecast whether our current or future product candidates may be subject to future collaborations , when such arrangements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . completion of clinical trials may take several years or more , and the length of time generally varies according to the type , complexity , novelty and intended use of a product candidate . the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others : ● per patient trial costs ; ● the number of trials required for approval ; ● the number of sites included in the trials ; ● the length of time required to enroll suitable patients ; 42 ● the number of doses that patients receive ; ● the number of patients that participate in the trials ; ● the drop-out or discontinuation rates of patients ; ● the duration of patient follow-up ; ● potential additional safety monitoring or other studies requested by regulatory agencies ; ● the number and complexity of analyses and tests performed during the trial ; ● the phase of development of the product candidate ; and ● the efficacy and safety profile of the product candidate . our expenses related to clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple clinical trial sites and for contract research organizations , ( “ cro ” ) , which administer clinical trials on our behalf . the financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows . generally , these agreements set forth the scope of work to be performed at a fixed fee or unit price . payments under the contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . expenses related to clinical trials generally are accrued based on contracted amounts and the achievement of milestones , such as number of patients enrolled . if timelines or contracts are modified based upon changes to the clinical trial design or scope of work to be performed , we modify our estimates of accrued expenses accordingly . we expense costs associated with obtaining licenses for patented technologies when it is determined there is no alternative future use of the intellectual property subject to the license . other income ( expense ) other income ( expense ) consists of interest income , cash and non-cash interest expense and transaction gains and losses resulting from transactions denominated in other than our functional currency . grant income grant income is derived from a one-time grant awarded to the company by the national institute of diabetes and digestive and kidney diseases of the national institutes of health ( the “ grant agreement ” ) . the total grant awarded under the grant agreement was $ 225,000 and funded studies of sbp-101 as a potential treatment for pancreatitis . grant income is recognized as a non-operating income when the related research and development expenses are incurred , terms of the grant have been complied with and the company has received reimbursement under the grant agreement . critical accounting policies and estimates our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses . on an ongoing basis , we evaluate these estimates and judgments , including those described below . we base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results and experiences may differ materially from these estimates .
| results of operations comparison of the results of operations ( in thousands ) for the years ended december 31 , 2018 and 2017 replace_table_token_3_th general and administrative and research and development expenses include non-cash stock-based compensation expense as a result of our issuance of stock options . the terms and vesting schedules for stock-based awards vary by type of grant and the employment status of the grantee . the awards granted through december 31 , 2018 vest based upon time-based and performance conditions . we expect to record additional non-cash compensation expense in the future , which may be significant . the following table summarizes the stock-based compensation expense in our consolidated statements of operations and comprehensive loss for the years ended december 31 , 2018 and 2017 ( in thousands ) : replace_table_token_4_th general and administrative expense our general and administrative ( “ g & a ” ) expenses decreased 38.4 % to $ 2.1 million in 2018 , down from $ 3.4 million in 2017. the increase in stock compensation expense associated with the officer 's waiver of accrued compensation was mostly offset by the corresponding decrease in salary expense . the net remaining decrease in g & a expenses is primarily the result of a decrease in stock-based compensation expense excluding the expense of options granted for the waiver of contingent payment rights , fewer staff members in the year and voluntary salary reductions taken at the end of 2018. research and product development expense our research and development ( “ r & d ” ) expenses decreased 31.2 % to $ 1.8 million in 2018 , down from $ 2.6 million in 2017. the decrease in r & d expenses resulted from a decrease in salary expense versus the prior year due to lower staff levels and less spending on clinical studies as the spending on the 2018 clinical trial did not begin until mid-2018 .
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business—overview '' and `` item 7. md & a—general overview—overview '' ) from the largest u.s. wireless carriers . historically , our net cash provided by operating activities has exceeded our capital expenditures . for the foreseeable future , we expect to generate net cash provided by operating activities ( exclusive of movements in working capital ) that exceeds our capital expenditures . we seek to allocate the net cash generated from our business in a manner that we believe drives value for our member . from a cash management perspective , we currently distribute cash on hand above amounts required pursuant to the management agreement to our member . if any future event would occur that would leave us with a deficiency in our operating cash flow , while not required , ccic may contribute cash back to us . ccic operates as a reit for u.s. federal income tax purposes . for u.s. federal income tax purposes , our assets and operations are included in the ccic reit . we expect to continue to pay minimal cash income taxes as a result of ccic 's reit status and nols . `` item 1a . risk factors '' and notes 3 and 9 to our consolidated financial statements . liquidity position . the following is a summary of our capitalization and liquidity position as of december 31 , 2019 : ( in thousands of dollars ) december 31 , 2019 cash and cash equivalents 20,407 debt $ 995,431 total equity 2,096,954 over the next 12 months : we expect that our net cash provided by operating activities should be sufficient to cover our expected capital expenditures . we have no scheduled contractual debt maturities . long-term strategy . we may increase our debt in nominal dollars , subject to the provisions of the 2012 secured notes outstanding and various other factors , such as the state of the capital markets and ccic 's targeted capital structure , including with respect to leverage ratios . from a cash management perspective , we currently distribute cash on hand above amounts required pursuant to the management agreement to our member . if any future event would occur that would leave us with a deficiency in our operating cash flow , while not required , ccic may contribute cash back to us . 17 see note 6 to our consolidated financial statements for additional information regarding our debt . story_separator_special_tag term . the majority of our lease agreements have certain termination rights that provide for cancellation after a notice period and multiple renewal options exercisable at our option . we include certain renewal option periods in the lease term when we determine that the options are reasonably certain to be exercised . operating lease expense is recognized on a ratable basis , regardless of whether the payment terms require us to make payments annually , quarterly , monthly , or for the entire term in advance . certain of our ground lease agreements contain fixed escalation clauses ( such as fixed dollar or fixed percentage increases ) or inflation-based escalation clauses ( such as those tied to the change in consumer price index ( `` cpi '' ) ) . if the payment terms include fixed escalator provisions , the effect of such increases is recognized on a straight-line basis . we calculate the straight-line expense over the contract 's estimated lease term , including any renewal option periods that we deem reasonably certain to be exercised . in conjunction with the adoption of asc 842 , we recognized a right-of-use ( `` rou '' ) asset and lease liability for each of our operating leases . rou assets represent our right to use an underlying asset for the estimated lease term , and lease liabilities represent the present value of our future lease payments . in assessing our leases and determining our lease liability at lease commencement or upon modification , we are not able to readily determine the rate implicit for our lessee arrangements and thus use ccic 's incremental borrowing rate on a collateralized basis to determine the present value of our lease payments . our rou assets are measured as the balance of the lease liability plus any prepaid or accrued lease payments and any unamortized initial direct costs . we review the carrying value of our rou assets for impairment , similar to our other long-lived assets , whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable . we could record impairments in the future if there are changes in ( 1 ) long-term market conditions , ( 2 ) expected future operating results or ( 3 ) the utility of the assets that negatively impact the fair value of our rou assets . revenue recognition . our revenue consists of site rental revenues , which includes both revenue from tenant contracts and amortization of tower installations and modifications . site rental revenues are recognized on a ratable basis over the fixed , non-cancelable term of the relevant tenant contract generally ranging from five to 15 years , regardless of whether the payments from the tenant are received in equal monthly amounts during the life of a tenant contract . certain of our tenant contracts contain ( 1 ) fixed escalation clauses ( such as fixed-dollar or fixed-percentage increases ) or inflation-based escalation clauses ( such as those tied to cpi ) , ( 2 ) multiple renewal periods exercisable at the tenant 's option , and ( 3 ) only limited termination rights at the applicable tenant 's option through the current term . if the payment terms call for fixed escalations , upfront payments , or rent-free periods , the revenue is recognized on a straight-line basis over the fixed , non-cancelable term of the tenant contract . when calculating our straight-line rental revenues , we consider all fixed elements of tenant contractual escalation provisions , even if such escalation story_separator_special_tag business—overview '' and `` item 7. md & a—general overview—overview '' ) from the largest u.s. wireless carriers . historically , our net cash provided by operating activities has exceeded our capital expenditures . for the foreseeable future , we expect to generate net cash provided by operating activities ( exclusive of movements in working capital ) that exceeds our capital expenditures . we seek to allocate the net cash generated from our business in a manner that we believe drives value for our member . from a cash management perspective , we currently distribute cash on hand above amounts required pursuant to the management agreement to our member . if any future event would occur that would leave us with a deficiency in our operating cash flow , while not required , ccic may contribute cash back to us . ccic operates as a reit for u.s. federal income tax purposes . for u.s. federal income tax purposes , our assets and operations are included in the ccic reit . we expect to continue to pay minimal cash income taxes as a result of ccic 's reit status and nols . `` item 1a . risk factors '' and notes 3 and 9 to our consolidated financial statements . liquidity position . the following is a summary of our capitalization and liquidity position as of december 31 , 2019 : ( in thousands of dollars ) december 31 , 2019 cash and cash equivalents 20,407 debt $ 995,431 total equity 2,096,954 over the next 12 months : we expect that our net cash provided by operating activities should be sufficient to cover our expected capital expenditures . we have no scheduled contractual debt maturities . long-term strategy . we may increase our debt in nominal dollars , subject to the provisions of the 2012 secured notes outstanding and various other factors , such as the state of the capital markets and ccic 's targeted capital structure , including with respect to leverage ratios . from a cash management perspective , we currently distribute cash on hand above amounts required pursuant to the management agreement to our member . if any future event would occur that would leave us with a deficiency in our operating cash flow , while not required , ccic may contribute cash back to us . 17 see note 6 to our consolidated financial statements for additional information regarding our debt . story_separator_special_tag term . the majority of our lease agreements have certain termination rights that provide for cancellation after a notice period and multiple renewal options exercisable at our option . we include certain renewal option periods in the lease term when we determine that the options are reasonably certain to be exercised . operating lease expense is recognized on a ratable basis , regardless of whether the payment terms require us to make payments annually , quarterly , monthly , or for the entire term in advance . certain of our ground lease agreements contain fixed escalation clauses ( such as fixed dollar or fixed percentage increases ) or inflation-based escalation clauses ( such as those tied to the change in consumer price index ( `` cpi '' ) ) . if the payment terms include fixed escalator provisions , the effect of such increases is recognized on a straight-line basis . we calculate the straight-line expense over the contract 's estimated lease term , including any renewal option periods that we deem reasonably certain to be exercised . in conjunction with the adoption of asc 842 , we recognized a right-of-use ( `` rou '' ) asset and lease liability for each of our operating leases . rou assets represent our right to use an underlying asset for the estimated lease term , and lease liabilities represent the present value of our future lease payments . in assessing our leases and determining our lease liability at lease commencement or upon modification , we are not able to readily determine the rate implicit for our lessee arrangements and thus use ccic 's incremental borrowing rate on a collateralized basis to determine the present value of our lease payments . our rou assets are measured as the balance of the lease liability plus any prepaid or accrued lease payments and any unamortized initial direct costs . we review the carrying value of our rou assets for impairment , similar to our other long-lived assets , whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable . we could record impairments in the future if there are changes in ( 1 ) long-term market conditions , ( 2 ) expected future operating results or ( 3 ) the utility of the assets that negatively impact the fair value of our rou assets . revenue recognition . our revenue consists of site rental revenues , which includes both revenue from tenant contracts and amortization of tower installations and modifications . site rental revenues are recognized on a ratable basis over the fixed , non-cancelable term of the relevant tenant contract generally ranging from five to 15 years , regardless of whether the payments from the tenant are received in equal monthly amounts during the life of a tenant contract . certain of our tenant contracts contain ( 1 ) fixed escalation clauses ( such as fixed-dollar or fixed-percentage increases ) or inflation-based escalation clauses ( such as those tied to cpi ) , ( 2 ) multiple renewal periods exercisable at the tenant 's option , and ( 3 ) only limited termination rights at the applicable tenant 's option through the current term . if the payment terms call for fixed escalations , upfront payments , or rent-free periods , the revenue is recognized on a straight-line basis over the fixed , non-cancelable term of the tenant contract . when calculating our straight-line rental revenues , we consider all fixed elements of tenant contractual escalation provisions , even if such escalation
| summary cash flows information replace_table_token_3_th operating activities the increase in net cash provided by operating activities for 2019 of $ 24.2 million , or 6 % , from 2018 was primarily due to growth in cash revenues , including cash escalations that are subject to straight-line accounting . the increase in net cash provided by operating activities from 2017 to 2018 was primarily due to growth in cash revenues , including cash escalations that are subject to straight-line accounting . changes in working capital contribute to variability in net cash provided by operating activities , largely due to the timing of advanced payments by us and advanced receipts from tenants . investing activities capital expenditures our capital expenditures are recorded as a result of certain ccic transactions that result in permanent improvements to our towers . ccl is not a party to such transactions , and does not make cash payments in connection with such transactions . such capital expenditures include the following : discretionary capital expenditures primarily consist of expansion or development of sites ( including capital expenditures related to ( 1 ) enhancing sites in order to add new tenants for the first time or support subsequent tenant equipment augmentations , or ( 2 ) modifying the structure of a site asset to accommodate additional tenants ) .
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certain relationships and related transactions consulting agreement with david rector on january 9 , 2015 , we entered into a consulting agreement with the david stephen group llc , an entity wholly-owned and controlled by david rector , our interim president and chief executive officer , setting forth mr. rector 's monthly compensation amount for the provision of his services as our interim president and chief executive officer , as well as certain other standard provisions , such as confidentiality and invention assignment . under this agreement story_separator_special_tag the discussion in “ management 's discussion and analysis of financial condition and results of operations ” contains trend analysis , estimates and other forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the securities exchange act of 1934 , as amended . these forward-looking statements include , without limitation , statements containing the words “ believes , ” “ anticipates , ” “ expects , ” “ continue , ” and other words of similar import or the negative of those terms or expressions . such forward-looking statements are subject to known and unknown risks , uncertainties , estimates and other factors that may cause our actual results , performance or achievements , or industry results , to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . actual results could differ materially from those set forth in such forward-looking statements as a result of , but not limited to , the “ risk factors ” described in part i , item 1a . you should read the following discussion and analysis along with the “ selected financial data ” and the financial statements and notes attached to those statements included elsewhere in this report . overview we do not expect to generate significant revenues for several years , during which time we will engage in significant research and development efforts . our protein biologics technology comprises ( i ) a platform to discover and engineer human antibodies directly on the cell surface , ( ii ) antibodies derived from cows that contain ultralong binding regions that may be useful in binding certain therapeutic epitopes , and ( iii ) a chimerasome nanocage capable of encapsulating therapeutic payloads for drug delivery . our preclinical antibody development program comprises an antibody against the ion channel kv1.3 , which is an important molecule in regulating t-cell activation in a number of autoimmune diseases . we have performed experiments showing that this antibody potently blocks activation of human t-cells in vitro . future development efforts will include a phase i clinical trial . consistent with our commercialization strategy , we may license our technology as the opportunities may arise , that may result in additional license fees , revenues from contract research and other related revenues . successful future operations will depend on our and our partners ' ability to transform our research and development activities into a commercially feasible technology . on may 31 , 2017 , we entered into an agreement , or the agreement , which was amended on august 1 , 2017 , with sevion acquisition co. ltd. , an israeli company and our wholly-owned subsidiary , or acquisition subsidiary , and eloxx pharmaceuticals ltd. , an israeli company , or eloxx , pursuant to which eloxx will merge with and into acquisition subsidiary , with eloxx surviving as our wholly-owned subsidiary . we refer to the transaction with eloxx herein as the “ transaction. ” consummation of the transaction is subject to certain closing conditions , including , among other things : ( i ) approval of the transaction by the stockholders of eloxx ; and ( ii ) the successful consummation of separate equity financings resulting in cash investments in our business and eloxx of no less than $ 12,000,000 each , or the financing covenant . pursuant to the agreement , the transaction must close , if it closes , on or prior to december 31 , 2017 , and we will not be entitled to receive any portion of the money that we ultimately raise in fulfillment of our financing covenant unless the transaction closes . 27 on july 28 , 2017 , we received gross proceeds of $ 1,500,000 from opko health , inc. , or opko , one of our existing shareholders , pursuant to a subscription agreement , which we refer to as the subscription agreement , by and among us , eloxx , opko and certain other subscribers that we entered into in connection with the transaction . the funds we received from opko satisfied a portion of our financing covenant . if the transaction does not close , we will not be entitled to keep any portion of the money that we ultimately raise in fulfillment of our financing covenant , with the exception of the $ 1.5 million in gross proceeds we received from opko , which is not conditioned upon closing of the transaction . accordingly , if we do not complete the transaction and are unable to raise additional funds ( apart from any funds we raise in satisfaction of our financing covenant , which funds are conditioned upon closing of the transaction ) , we do not believe that we will have enough cash to continue as a going concern past december 31 , 2017. however , we believe we currently have enough cash to fund operations through december 31 , 2017. critical accounting policies and estimates revenue recognition we record revenue under technology license and development agreements related to the following . actual fees received may vary from the recorded estimated revenues . · nonrefundable upfront license fees that are received in exchange for the transfer of our technology to licensees , for which no further obligations to the licensee exist with respect to the basic technology transferred , are recognized as revenue on the earlier of when payments are received or collections are assured . story_separator_special_tag prior to the fourth quarter of fiscal 2015 , certain patent related costs were capitalized . we concluded , based upon historical write offs of patent costs , that the future beneficial value of our patent assets were uncertain and as such made a change to our accounting policy . this change is considered a change in estimate for accounting purposes and is reflected on a prospective basis beginning in the fourth quarter of fiscal 2015. accordingly , we incurred approximately $ 508,205 expense impact from expensing patent-related assets during the fourth quarter of fiscal 2015 as a result of this change in estimate and our basic and diluted earnings per share for fiscal 2015 decreased by $ 0.03. patent expense incurred during fiscal year 2016 and 2017 were $ 421,287 and $ 176,655 , respectively . goodwill and intangible assets goodwill represents the excess of purchase price over the fair value of net assets acquired by us . goodwill is not amortized , but assessed for impairment on an annual basis or more frequently if impairment indicators exist . the impairment model for goodwill prescribes a two-step method for determining impairment . the first step compares a reporting unit 's fair value to its carrying amount to identify potential goodwill impairment . if the carrying amount of a reporting unit exceeds the reporting unit 's fair value , the second step of the impairment test must be completed to measure the amount of the reporting unit 's goodwill impairment loss , if any . step two requires an assignment of the reporting unit 's fair value to the reporting unit 's assets and liabilities to determine the implied fair value of the reporting unit 's goodwill and intangible assets . the implied fair value of the reporting unit 's goodwill and intangible assets is then compared with the carrying amount of the reporting unit 's goodwill and intangible assets to determine the impairment loss to be recognized , if any . we recorded an impairment of goodwill in the amount of $ 5,780,951 and $ 0 for the year ended june 30 , 2016 and 2017 , respectively . 30 intangible assets include in-process research and development ( ipr & d ) of pharmaceutical product candidates . ipr & d are considered indefinite-lived intangible assets and are assessed for impairment annually or more frequently if impairment indicators exist . if the associated research and development effort is abandoned , the related assets will be written-off and we will record a non-cash impairment loss on its consolidated statement of operations . for those compounds that reach commercialization , the ipr & d assets will be amortized over their estimated useful lives . ipr & d are assessed for impairment annually , or more frequently if necessary . if an indicator is identified for potential impairment , we will record an impairment for any excess of the carrying value over the fair value of the ipr & d . for the years ended june 30 , 2016 and 2017 , we determined that there was impairment to in process research and development in the amount of $ 1,700,000 and $ 2,600,000 , respectively . derivative liabilities the company has financial instruments that contain embedded features subject to derivative accounting . embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the company 's balance sheet . the company measures derivative liabilities at their estimated fair value using the black-scholes option pricing model , and recognizes changes in their estimated fair value in other non-operating income or loss in the statement of operations . the black-scholes option pricing model requires management to develop significant estimates and assumptions . any changes in these assumptions and estimates may materially affect the amount of the derivative liabilities recorded on our consolidated balance sheet . warrant liability and stock rights the fair value of warrant liability and stock rights are estimated using a monte carlo valuation model . the unobservable input used by us is the estimation of the likelihood of a reset occurring on the warrants and the anti-dilutive rights . these estimates of the likelihood of completing an equity raise that would meet the criteria to trigger the reset provisions and anti-dilutive rights are based on numerous factors , including the remaining term of the financial instruments and our overall financial condition . changes in these assumptions may materially affect the amount of the warrant liability recorded on our consolidated balance sheet . in addition , the monte carlo valuation model also requires use of estimates such as volatility , interest rates , and expected term . 31 liquidity and capital resources overview for the fiscal year ended june 30 , 2017 , net cash of $ 1,925,110 was used in operating activities primarily due to a net loss of $ 5,796,363 which was reduced by non-cash expenses of $ 3,732,166 and increased by changes in operating assets and liabilities in the amount of $ 139,087. the $ 139,087 change in operating assets and liabilities was the result of an increase in accounts payable and accrued expenses in the amount of $ 177,520 due to the timing of expenses and payments and a reduction in security deposits of $ 40,970 , which were partially offset by an increase in prepaid expenses of $ 79,403. during the fiscal year ended june 30 , 2017 , there was $ 47,500 provided by investing activities which consisted of $ 50,000 provided from the sale of patents , which was offset by $ 2,500 for the purchase of equipment . cash provided by financing activities during the fiscal year ended june 30 , 2017 amounted to $ 1,100,000 , as a result of proceeds from the issuance of convertible promissory notes .
| results of operations fiscal year ended june 30 , 2017 revenue during the fiscal year ended june 30 , 2017 , there was no revenue . operating expenses replace_table_token_2_th general and administrative expenses general and administrative expenses consist of the following : replace_table_token_3_th 34 · payroll and benefits for the fiscal year ended june 30 , 2017 were higher than for the fiscal year ended june 30 , 2016 due to reversal of an accrual for severance benefits during the fiscal year ended june 30 , 2016 . · professional fees for the fiscal year ended june 30 , 2017 was higher than for the fiscal year ended june 30 , 2016 due to legal and accounting fees related to ongoing strategic alliance and financing efforts . · stock-based compensation for the fiscal years ended june 30 , 2017 and june 30 , 2016 consisted of the amortized portion of the black-scholes value of options and warrants granted to directors , employees and consultants . during the fiscal years ended june 30 , 2017 and 2016 , 436,363 and 485,682 options , respectively , were granted to such individuals . in addition , during the fiscal years ended june 30 , 2017 and 2016 , 34,334 and 195,363 options , respectively , expired or were forfeited . stock-based compensation for the fiscal year ended june 30 , 2017 was lower than the fiscal year ended june 30 , 2016 primarily due to previously issued options fully vested . · consulting fees for the fiscal year ended june 30 , 2017 were lower than for the fiscal year ended june 30 , 2016 as a result of salary reductions with respect to our chief executive officer , who is treated as a consultant rather than an employee , along with reduced utilization of other consultants to preserve cash .
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the remaining $ 484.6 million of other intangible assets consists of $ 371.1 million customer relationships , which are being amortized over a period of 17 to 20 years and $ 113.5 million of purchased technology , which is being amortized over a period of 15 to 17 years . amortization expense for each of the next five years for the 2019 acquisitions is expected to approximate $ 28 million per year . the company is in the process of finalizing the measurement of certain tangible and intangible assets and liabilities for its 2019 acquisitions of pdt and gatan including inventory , property , plant and equipment , goodwill , trade names , customer relationships and purchased technology and the accounting for income taxes . the 2019 acquisitions had an immaterial impact on reported net sales , net income and diluted earnings per share for the year ended december 31 , 2019. had the 2019 acquisitions been made at the story_separator_special_tag this report includes forward-looking statements based on the company 's current assumptions , expectations and projections about future events . when used in this report , the words “ believes , ” “ anticipates , ” “ may , ” “ expect , ” “ intend , ” “ estimate , ” “ project ” and similar expressions are intended to identify forward-looking statements , although not all forward-looking statements contain such words . in this report , the company discloses important factors that could cause actual results to differ materially from management 's expectations . for more information on these and other factors , see “ forward-looking information ” herein . the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with “ item 1a . risk factors , ” “ item 6. selected financial data ” and the consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. business overview ametek 's operations are affected by global , regional and industry economic factors . however , the company 's strategic geographic and industry diversification , and its mix of products and services , have helped to mitigate the potential adverse impact of any unfavorable developments in any one industry or the economy of any single country on its consolidated operating results . in 2019 , the company posted record backlog , orders , sales , operating income , net income , diluted earnings per share and operating cash flow . the company 's record backlog , contributions from recent acquisitions , and continued focus on and implementation of operational excellence initiatives , had a positive impact on 2019 results . the company also benefited from its strategic initiatives under ametek 's four key strategies : operational excellence , strategic acquisitions , global & market expansion and new products . story_separator_special_tag roman ; font-size : 10pt ; margin-top : 12pt ; margin-bottom : 0px ; '' > selling , general and administrative expenses for 2019 were $ 610.3 million or 11.8 % of net sales , an increase of $ 26.3 million or 4.5 % , compared with $ 584.0 million or 12.1 % of net sales in 2018. selling , general and administrative expenses increased primarily due to the increase in net sales noted above . consolidated operating income was $ 1,177.4 million or 22.8 % of net sales for 2019 , an increase of $ 101.9 million or 9.5 % , compared with $ 1,075.5 million or 22.2 % of net sales in 2018. interest expense was $ 88.5 million for 2019 , an increase of $ 6.3 million or 7.7 % , compared with $ 82.2 million in 2018. the interest expense increase for 2019 was primarily driven by the 2018 private placement senior notes issued in december 2018 ( $ 475 million and 75 million euros ) and january 2019 ( $ 100 million ) , partially offset by a decrease related to the repayment in full , at maturity , of $ 80 million in aggregate principal amount of 6.35 % private placement senior notes and $ 160 million in aggregate principal amount of 7.08 % private placement senior notes in the third quarter of 2018 , $ 65 million in aggregate principal amount of 7.18 % private placement senior notes in the fourth quarter of 2018 , and $ 100 million in aggregate principal amount of 6.03 % private placement senior notes in the fourth quarter of 2019. other expense , net was $ 19.2 million for 2019 , an increase of $ 13.6 million , compared with $ 5.6 million in 2018. the other expense , net increase for 2019 was primarily due to lower defined benefit pension income included in other expenses . 26 the effective tax rate for 2019 was 19.5 % , compared with 21.2 % in 2018. the lower rate for 2019 mainly reflects higher year over year tax benefits related to share-based payment transactions as well as lower tax cost on foreign source income . the 2019 and 2018 effective tax rates also reflect the release of uncertain tax position liabilities primarily relating to statute expirations for u.s. federal and state jurisdictions totaling $ 23.3 million and $ 11.4 million , respectively . see note 9 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . story_separator_special_tag the 2018 private placement senior notes carry a weighted average interest rate of 3.93 % and are subject to certain customary covenants , including financial covenants that , among other things , require the company to maintain certain debt-to-ebitda and interest coverage ratios . the proceeds from the 2018 private placement fundings were used to pay down domestic borrowings under the company 's revolving credit facility . in the fourth quarter of 2019 , $ 100 million of 6.30 % senior notes matured and were paid . in the third quarter of 2018 , $ 80 million of 6.35 % senior notes and $ 160 million of 7.08 % senior notes matured and were paid . in the fourth quarter of 2018 , $ 65 million of 7.18 % senior notes matured and were paid . the debt-to-capital ratio was 35.1 % at december 31 , 2019 , compared with 38.3 % at december 31 , 2018. the net debt-to-capital ratio ( total debt , net less cash and cash equivalents divided by the sum of net debt and stockholders ' equity ) was 31.7 % at december 31 , 2019 , compared with 34.9 % at december 31 , 2018. the net debt-to-capital ratio is presented because the company is aware that this measure is used by third parties in evaluating the company . ( see the “ notes to selected financial data ” included in item 6 in this annual report on form 10-k for a reconciliation of u.s. gaap measures to comparable non-gaap measures ) . in 2019 , the company repurchased approximately 133,000 shares of its common stock for $ 11.9 million , compared with $ 367.7 million used for repurchases of approximately 5,079,000 shares in 2018. at december 31 , 2019 , $ 489.1 million was available under the company 's board of directors authorization for future share repurchases . on february 12 , 2019 , the company 's board of directors approved an increase of $ 500 million in the authorization for the repurchase of the company 's common stock . additional financing activities for 2019 included cash dividends paid of $ 127.5 million , compared with $ 128.9 million in 2018. proceeds from the exercise of employee stock options were $ 90.4 million in 2019 , compared with $ 30.0 million in 2018. in the fourth quarter of 2018 , the company made a $ 30.0 million contingent payment related to the rauland acquisition . cash provided by financing activities includes $ 25.5 million related to the acquisition date estimated fair value of the contingent payment liability , which was based on a probabilistic approach using level 3 inputs . see note 6 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . as a result of all of the company 's cash flow activities in 2019 , cash and cash equivalents at december 31 , 2019 totaled $ 393.0 million , compared with $ 354.0 million at december 31 , 2018. at december 31 , 2019 , the 28 company had $ 357.9 million in cash outside the united states , compared with $ 311.2 million at december 31 , 2018. the company utilizes this cash to fund its international operations , as well as to acquire international businesses . the company is in compliance with all covenants , including financial covenants , for all of its debt agreements . the company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources , available credit facilities and access to long-term capital funds to enable it to meet its operating needs and contractual obligations in the foreseeable future . subsequent event effective february 12 , 2020 , the company 's board of directors approved a 29 % increase in the quarterly cash dividend on the company 's common stock to $ 0.18 per common share from $ 0.14 per common share . the following table summarizes ametek 's contractual cash obligations and the effect such obligations are expected to have on the company 's liquidity and cash flows in future years at december 31 , 2019. replace_table_token_9_th ( 1 ) the liability for uncertain tax positions was not included in the table of contractual obligations as of december 31 , 2019 because the timing of the settlements of these uncertain tax positions can not be reasonably estimated at this time . see note 9 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . ( 2 ) see note 10 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . ( 3 ) although not contractually obligated , the company expects to have the capability to repay the revolving credit loan within one year as permitted in the credit agreement . accordingly , $ 384.8 million was classified as short-term debt at december 31 , 2019 . ( 4 ) excludes debt issuance costs of $ 7.4 million , of which $ 2.7 million is classified as current and $ 4.7 million is classified as long-term . see note 10 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . ( 5 ) the leases expire over a range of years from 2020 to 2034 , except for a single land lease with 64 years remaining . most of the leases contain renewal or purchase options , subject to various terms and conditions . ( 6 ) purchase obligations primarily consist of contractual commitments to purchase certain inventories at fixed prices . other commitments the company has standby letters of credit and surety bonds of $ 63.8 million related to performance and payment guarantees at december 31 , 2019. based on experience with these arrangements , the company believes that any obligations that may arise will not be material to its financial position .
| highlights of 2019 were : orders for 2019 were $ 5,274.3 million , an increase of $ 222.5 million or 4.4 % , compared with $ 5,051.8 million in 2018. as a result , the company 's backlog of unfilled orders at december 31 , 2019 was $ 1,717.9 million . net sales for 2019 were $ 5,158.6 million , an increase of $ 312.7 million or 6.5 % , compared with $ 4,845.9 million in 2018. the increase in net sales for 2019 was due to 2 % organic sales growth , a 5 % increase from the 2019 and 2018 acquisitions , partially offset by unfavorable foreign currency translation . net income for 2019 was $ 861.3 million , an increase of $ 83.4 million or 10.7 % , compared with $ 777.9 million in 2018. diluted earnings per share for 2019 were $ 3.75 , an increase of $ 0.41 or 12.3 % , compared with $ 3.34 per diluted share in 2018. cash flow provided by operating activities for 2019 was $ 1,114.4 million , an increase of $ 188.9 million or 20.4 % , compared with $ 925.5 million in 2018. during 2019 , the company spent $ 1,061.9 million in cash , net of cash acquired , to acquire two businesses : in september 2019 , ametek acquired pacific design technologies , inc. ( “ pdt ” ) , a provider of advanced , mission-critical thermal management solutions ; and in october 2019 , ametek acquired gatan , a provider of instrumentation and software used to enhance and extend the operation and performance of electron telescopes . 24 in the fourth quarter of 2019 , the company paid in full , at maturity , $ 100 million in aggregate principal amount of 6.30 % private placement senior notes . a $ 100 million second funding of the december 2018 private placement occurred in january 2019. in 2019 , the company repurchased approximately 133,000 shares of its common stock for $ 11.9 million .
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ugi utilities fiscal 2015 total margin increased $ 7.0 million principally reflecting higher gas utility core market total margin ( $ 4.0 million ) on the higher core market sales and higher large firm delivery service total margin ( $ 5.7 million ) . these increases were partially offset principally by lower margin from gas utility interruptible customers ( $ 7.0 million ) . electric utility total margin increased $ 3.8 million principally reflecting an increase in transmission revenue . ugi utilities operating income and income before income taxes during fiscal 2015 decreased $ 4.7 million and $ 7.4 million , respectively . a $ 9.7 million decrease in gas utility operating income , notwithstanding a $ 3.9 million increase in gas utility total margin , principally reflects higher operating and administrative expenses and higher depreciation expense partially offset by an increase in other operating income . gas utility fiscal 2015 operating and administrative expenses were higher than in fiscal 2014 principally reflecting , among other things , higher fiscal 2015 gas utility distribution system expenses ( $ 4.8 million ) , and higher gas utility employee benefits , uncollectible accounts and other general administrative expenses . gas utility depreciation and amortization expense increased $ 4.2 million reflecting the effects of greater distribution system capital expenditures . gas utility other operating income increased $ 3.4 million reflecting , among other things , incremental income from gas utility construction services . electric utility fiscal 2015 operating income increased $ 4.5 million reflecting the higher electric utility total margin ( $ 3.8 million ) and lower distribution and uncollectible accounts expense . the $ 7.4 million decrease in ugi utilities income before income taxes reflects the lower operating income ( $ 4.7 million ) and higher long-term debt interest expense . interest expense and income taxes . our interest expense in fiscal 2015 was higher than in fiscal 2014 principally reflecting interest on the 4.98 % senior notes which were issued in march 2014 , the proceeds of which were used to refinance ugi utilities ' 364-day term loan credit agreement . our effective income tax rate in fiscal 2015 was slightly lower than in the prior year . financial condition and liquidity capitalization and liquidity ugi utilities ' total debt outstanding was $ 783.9 million at september 30 , 2016 , which includes $ 112.5 million of short-term borrowings , compared with total debt outstanding of $ 691.5 million at september 30 , 2015 , which includes $ 71.7 million of short-term borrowings . ugi utilities ' total long-term debt outstanding at september 30 , 2016 , comprises $ 575.0 million of senior notes and $ 100.0 million of medium-term notes , and is net of $ 3.6 million of unamortized debt issuance costs . in april 2016 , ugi utilities entered into a note purchase agreement ( the “ 2016 note purchase agreement ” ) with a consortium of lenders . pursuant to the 2016 note purchase agreement , ugi utilities issued $ 100 million aggregate principal amount of 2.95 % senior notes due june 2026 and $ 200 million aggregate principal amount of 4.12 % senior notes due september 2046 in june 2016 and september 2016 , respectively . in october 2016 , ugi utilities issued $ 100 million aggregate principal amount of 4.12 % senior notes due in october 2046. the net proceeds of the issuance of these senior notes were used 1 ) to repay ugi utilities ' maturing 5.75 % senior notes , 7.37 % medium-term notes and 5.64 % medium-term notes ; 2 ) to provide additional financing for ugi utilities ' infrastructure replacement and betterment capital program and information technology initiatives ; and 3 ) for general corporate purposes . 17 ugi utilities has a credit agreement ( the “ credit agreement ” ) with a group of banks providing for borrowings of up to $ 300 million ( including a $ 100 million sublimit for letters of credit ) which expires in march 2020. borrowings under the credit agreement are classified as short-term borrowings on the consolidated balance sheets . during fiscal 2016 and fiscal 2015 , average daily short-term borrowings under the credit agreement were $ 150.8 million and $ 61.7 million , respectively , and peak short-term borrowings totaled $ 232.0 million and $ 163.6 million , respectively . peak short-term borrowings typically occur during the heating season months of december and january when ugi utilities ' investment in working capital , principally accounts receivable and inventories , is generally greatest . the credit agreement requires ugi utilities to not exceed a ratio of consolidated debt to consolidated total capital , as defined , of 0.65 to 1.00 . ugi utilities was in compliance with this covenant at september 30 , 2016 . based upon cash expected to be generated from operations and borrowings under the credit agreement , management believes the company will be able to meet its anticipated contractual and projected cash commitments during fiscal 2017 . for additional discussion of ugi utilities ' long-term debt and the credit agreement , see note 7 to consolidated financial statements . cash flows operating activities . due to the seasonal nature of ugi utilities ' businesses , cash flows from our operating activities are generally greatest during the second and third fiscal quarters when customers pay for natural gas and electricity consumed during the peak heating season months . conversely , operating cash flows are generally at their lowest levels during the first and fourth fiscal quarters when the company 's investment in working capital , principally accounts receivable and inventories , is generally greatest . ugi utilities uses borrowings under its credit agreement to manage seasonal cash flow needs . story_separator_special_tag at september 30 , 2016 and 2015 , the underfunded positions of the pension plan , defined as the excess of the projected benefit obligations ( “ pbos ” ) over the pension plan 's assets , were $ 182.0 million and $ 132.8 million , respectively . we believe we are in compliance with regulations governing defined benefit pension plans , including employee retirement income security act of 1974 ( “ erisa ” ) rules and regulations . required minimum contributions to the u.s. pension plan in fiscal 2017 are not expected to be material . pre-tax pension cost associated with the pension plan in fiscal 2016 was $ 11.4 million . pre-tax pension cost associated with pension plan in fiscal 2017 is expected to be approximately $ 15.4 million . generally accepted accounting principles ( “ gaap ” ) guidance associated with pension and other postretirement plans generally requires recognition of an asset or liability in the statement of financial position reflecting the funded status of pension and other postretirement benefit plans with current year changes recognized in shareholder 's equity unless such amounts are subject to regulatory recovery . through september 30 , 2016 , we have recorded cumulative after-tax charges to stockholder 's equity of $ 11.8 million and regulatory assets of $ 183.1 million in order to reflect the funded status of our pension and postretirement benefit plans . 19 for a more detailed discussion of the pension plans and other postretirement benefit plans , see note 9 to consolidated financial statements . regulatory matters ugi gas base rate filing . on january 19 , 2016 , ugi utilities filed a rate request with the puc to increase ugi gas 's annual base operating revenues for residential , commercial and industrial customers by $ 58.6 million . the increased revenues would fund ongoing system improvements and operations necessary to maintain safe and reliable natural gas service . on june 30 , 2016 , a joint petition for approval of settlement of all issues providing for a $ 27.0 million ugi gas annual base distribution rate increase , to be effective october 19 , 2016 , was filed with the puc ( “ joint petition ” ) . on october 14 , 2016 , the puc approved the joint petition with a minor modification which had no effect on the $ 27.0 million base distribution rate increase . the increase became effective on october 19 , 2016. distribution system improvement charge . on april 14 , 2012 , legislation became effective enabling gas and electric utilities in pennsylvania , under certain circumstances , to recover the cost of eligible capital investment in distribution system infrastructure improvement projects between base rate cases . the charge enabled by the legislation is known as a distribution system improvement charge ( “ dsic ” ) . the primary benefit to a company from a dsic charge is the elimination of regulatory lag , or delayed rate recognition , that occurs under traditional ratemaking relating to qualifying capital expenditures . to be eligible for a dsic , a utility must have filed a general rate filing within five years of its petition seeking permission to include a dsic in its tariff , and not exceed certain earnings tests . absent puc permission , the dsic is capped at five percent of the amount billed to customers . png and cpg received puc approval on a dsic tariff , initially set at zero , in 2014. png and cpg began charging a dsic at a rate other than zero , beginning april 1 , 2015 and april 1 , 2016 , respectively . in march 2016 , png and cpg filed petitions , seeking approval to increase the maximum allowable dsic from five percent to ten percent of billed distribution revenues . to date , no action has been taken by the puc on either of these petitions . the company can not predict the timing or outcome of these petitions . on november 9 , 2016 , ugi gas received puc approval to establish a dsic tariff mechanism effective january 1 , 2017. revenue collected pursuant to the mechanism will be subject to refund and recoupment based on the puc 's final resolution of certain matters set aside for hearing before an administrative law judge . to commence recovery of revenue under the mechanism , ugi gas must first place into service a threshold level of dsic-eligible plant agreed upon in the settlement of its recent base rate case . achievement of that threshold is not likely to occur prior to september 30 , 2017. manufactured gas plants from the late 1800s through the mid-1900s , ugi utilities and its current and former subsidiaries owned and operated a number of mgps prior to the general availability of natural gas . some constituents of coal tars and other residues of the manufactured gas process are today considered hazardous substances under the superfund law and may be present on the sites of former mgps . between 1882 and 1953 , ugi utilities owned the stock of subsidiary gas companies in pennsylvania and elsewhere and also operated the businesses of some gas companies under agreement . by the early 1950s ugi utilities divested all of its utility operations other than certain pennsylvania operations , including those which now constitute ugi gas and electric utility . ugi utilities also has two acquired subsidiaries ( cpg and png ) which have similar histories of owning , and in some cases operating , mgps in pennsylvania . ugi utilities and its subsidiaries have entered into agreements with the pennsylvania department of environmental protection ( “ dep ” ) to address the remediation of former mgps in pennsylvania . cpg is party to a consent order and agreement ( “ cpg-coa ” ) with the dep requiring cpg to perform a specified level of activities associated with environmental investigation and remediation work at certain properties in pennsylvania on
| analysis of results of operations the following analyses compare the company 's results of operations for fiscal 2016 , fiscal 2015 and the year ended september 30 , 2014 ( “ fiscal 2014 ” ) . fiscal 2016 compared with fiscal 2015 replace_table_token_0_th bcf — billions of cubic feet . gwh — millions of kilowatt-hours . ( a ) gas utility 's total margin represents total revenues less total cost of sales . electric utility 's total margin represents total revenues less total cost of sales and electric utility gross receipts taxes , of $ 4.8 million and $ 5.6 million during fiscal 2016 and fiscal 2015 , respectively . gross receipt taxes are included in taxes other than income taxes on the consolidated statements of income . ( b ) deviation from average heating degree days for the 15-year period 2000-2014 based upon weather statistics provided by the national oceanic and atmospheric administration ( “ noaa ” ) for airports located within gas utility 's service territory . ( c ) amounts exclude png gas ' heating , ventilation and air-conditioning service business sold in june 2015 ( see note 16 to consolidated financial statements ) . temperatures in gas utility 's service territory during fiscal 2016 based upon heating degree days were 13.6 % warmer than normal and 17.8 % warmer than fiscal 2015. in particular , gas utility temperatures in the critical heating-season month of december were 37 % warmer than normal . gas utility core market volumes declined 15.1 bcf ( 18.6 % ) reflecting the effects of the significantly warmer weather . total gas utility fiscal 2016 distribution system throughput was about equal to fiscal 2015 as the lower core market volumes were substantially offset by higher large firm delivery service volumes .
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the amendment revised the revolving credit agreement to , among other things , ( i ) remove the current ratio , interest coverage ratio and debt service coverage ratio financial covenants , ( ii ) add a financial covenant requiring the company to maintain a secured debt ratio below a certain level , ( iii ) increase story_separator_special_tag overview royal gold , together with its subsidiaries , is engaged in the business of acquiring and managing precious metals royalties , precious metals streams and similar interests . royalties are non-operating interests in mining projects that provide the right to revenue or metals produced from the project after deducting specified costs , if any . we use the term `` royalty interest '' in this annual report on form 10-k to refer to royalties , gold , silver or other metal stream interests , and other similar interests . we seek to acquire existing royalty interests or to finance projects that are in production or in development stage in exchange for royalty interests . in the ordinary course of business , we engage in a continual review of opportunities to acquire existing royalty interests , to create new royalty interests through the financing of mine development or exploration , or to acquire companies that hold royalty interests . we currently , and generally at any time , have acquisition opportunities in various stages of active review , including , for example , our engagement of consultants and advisors to analyze particular opportunities , analysis of technical , financial and other confidential information , submission of 35 indications of interest , participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes . as of june 30 , 2013 , the company owned royalties on 36 producing properties , 21 development stage properties and 147 exploration stage properties , of which the company considers 50 to be evaluation stage projects . the company uses `` evaluation stage '' to describe exploration stage properties that contain mineralized material and on which operators are engaged in the development of reserves . we do not conduct mining operations nor are we required to contribute to capital costs , exploration costs , environmental costs or other mining , processing or other operating costs on the properties in which we hold royalty interests . during the fiscal year ended june 30 , 2013 , we focused on the management of our existing royalty interests and the acquisition of royalty interests . our financial results are primarily tied to the price of gold and , to a lesser extent , the price of silver , copper and nickel , together with the amounts of production from our producing stage royalty interests . the price of gold , silver , copper , nickel and other metals have fluctuated widely in recent years and most recently have experienced declines from highs experienced in the first half of our fiscal year 2013. the marketability and the price of metals are influenced by numerous factors beyond the control of the company and significant declines in the price of gold , silver , copper or nickel could have a material and adverse effect on the company 's results of operations and financial condition . for the fiscal years ended june 30 , 2013 , 2012 and 2011 , gold , silver , copper and nickel price averages and percentage of royalty revenues by metal were as follows : replace_table_token_14_th operators ' production estimates by royalty for calendar year 2013 we received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2013. the following table shows such production estimates for our principal producing properties for calendar 2013 as well as the actual production reported to us by the various operators through june 30 , 2013. the estimates and production reports are prepared by the operators of the mining properties . we do not participate in the preparation or calculation of the operators ' estimates or production reports and have not independently assessed or verified the accuracy of such information . please refer to part i , item 2 , properties , of this report for further discussion on any updates at our principal producing and development properties . 36 operators ' production estimate by royalty for calendar year 2013 and reported production principal producing properties for the period january 1 , 2013 through june 30 , 2013 replace_table_token_15_th ( 1 ) there can be no assurance that production estimates received from our operators will be achieved . please refer to our cautionary language regarding forward-looking statements following this md & a , as well as the risk factors identified in part i , item 1a , of this report for information regarding factors that could affect actual results . ( 2 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the period january 1 , 2013 through june 30 , 2013 , as reported to us by the operators of the mines . ( 3 ) the company did not receive calendar 2013 production guidance from the operator . 37 historical production the following table discloses historical production for the past three fiscal years for the principal producing properties that are subject to our royalty interests , as reported to us by the operators of the mines : historical production ( 1 ) by royalty principal producing properties for the fiscal years ended june 30 , 2013 , 2012 and 2011 replace_table_token_16_th ( 1 ) historical production relates to the amount of metal sales , subject to our royalty interests for each fiscal year presented , as reported to us by the operators of the mines . critical accounting policies listed below are the accounting policies that the company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . story_separator_special_tag if such impairment is determined by the company to be other-than-temporary , the investment 's cost basis is written down to fair value and recorded in net income during the period the company determines such impairment to be other-than-temporary . the new cost basis is not changed for subsequent recoveries in fair value . the most significant available-for-sale security is the investment in seabridge common stock , acquired in june 2011 and discussed in greater detail within note 3 of our notes to consolidated financial statements . during the fiscal year ended june 30 , 2013 , the company corrected the original cost basis of the shares , which was overstated by $ 2.4 million . based on the company 's quarterly impairment analysis , including the severity of the market decline in seabridge common stock during the fiscal year ended june 30 , 2013 , the company determined that the impairment of its investment in seabridge common stock is other-than-temporary . as a result of the impairment , the company recognized a loss on available-for-sale securities of $ 12.1 million during our fiscal year ended june 30 , 2013. there were no impairments recognized on our available-for-sale securities during our fiscal year ended june 30 , 2012. the company will continue to evaluate its investment in seabridge common stock considering additional facts and circumstances as they arise , including , but not limited to , the progress of development of seabridge 's ksm project . royalty revenue royalty revenue is recognized pursuant to guidance in asc 605 and based upon amounts contractually due pursuant to the underlying royalty agreement . specifically , revenue is recognized in accordance with the terms of the underlying royalty agreements subject to ( i ) the pervasive evidence of the existence of the arrangements ; ( ii ) the risks and rewards having been transferred ; ( iii ) the royalty being fixed or determinable ; and ( iv ) the collectability of the royalty being reasonably assured . for royalty payments received in-kind , royalty revenue is recorded at the average spot price of gold for the period in which the royalty was earned . revenue recognized pursuant to the robinson royalty agreement is based upon 3.0 % of revenue received by the operator of the mine , kghm , for the sale of minerals from the robinson mine , reduced by certain costs incurred by kghm . kghm 's concentrate sales contracts with third-party smelters , in general , provide for an initial sales price payment based upon provisional assays and quoted metal prices at the date of shipment . final true-up sales price payments to kghm are subsequently based upon final assay and market metal prices on a specified future date , typically one to three months after the date the concentrate arrives at the third-party smelter ( which generally occurs four to five months after the shipment date from the robinson mine ) . we do not have all the key information regarding the terms of the operator 's smelter contracts , such as the terms of specific 40 concentrate shipments to a smelter or quantities of metal or expected settlement arrangements at the time of an operator 's shipment of concentrate . each monthly payment from kghm is typically a combination of revenue received by kghm for provisional payments during the month and any upward or downward adjustments for final assays and commodity prices for earlier shipments . whether the payment to royal gold is based on kghm 's revenue in the form of provisional or final payments , royal gold records royalty revenue and the corresponding receivable based on the monthly amounts it receives from kghm , as determined pursuant to the royalty agreement . the royalty contract does not provide royal gold with rights or obligations to settle any final assay and commodity price adjustments with kghm . therefore , once a given monthly payment is received by royal gold it is not subject to later adjustment based on adjustments for assays or commodity prices . under the royalty agreement , kghm may include such final adjustments as a component of future royalty payments . income taxes the company accounts for income taxes in accordance with the guidance of asc 740. the company 's deferred income taxes reflect the impact of temporary differences between the reported amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations . the deferred tax assets and liabilities reflect management 's best assessment of estimated future tax return consequences of those differences , which will either be taxable or deductible when the assets and liabilities are recovered or settled . actual income taxes could vary from these estimates due to future changes in income tax law , significant changes in the jurisdictions in which we operate or unpredicted results from the final determination of each year 's liability by taxing authorities . a valuation allowance is provided for deferred tax assets when management concludes it is more likely than not that some portion or all of the deferred tax assets will not be realized . the company 's operations may involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions . the final taxes paid are dependent upon many factors , including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal , state , and international tax audits . the company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the united states and other tax jurisdictions based on its estimate of whether , and the extent to which , additional taxes will be due . the company adjusts these reserves in light of changing facts and circumstances ; however , due to the complexity of some of these uncertainties , the ultimate resolution could result in a payment that is materially different from our current estimate of the tax liabilities .
| summary of cash flows operating activities net cash provided by operating activities totaled $ 172.6 million for the fiscal year ended june 30 , 2013 , compared to $ 162.2 million for the fiscal year ended june 30 , 2012. the increase was primarily due to an increase in proceeds received from our royalty interests , net of production taxes , of approximately $ 14.8 million . the increase was partially offset by an increase in interest payments made of approximately $ 5.9 million . net cash provided by operating activities totaled $ 162.2 million for the fiscal year ended june 30 , 2012 , compared to $ 147.0 million for the fiscal year ended june 30 , 2011. the increase was primarily due to an increase in proceeds received from our royalty interests , net of production taxes , of approximately $ 48 million . this increase was partially offset by an increase in tax payments of approximately $ 20.7 million . investing activities net cash used in investing activities totaled $ 309.4 million for the fiscal year ended june 30 , 2013 , compared to $ 271.4 million for the fiscal year ended june 30 , 2012. the increase in cash used in investing activities is primarily due to an increase in acquisitions of royalty interests in mineral properties ( primarily mt .
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the new standard requires : ( 1 ) excess tax benefits and tax deficiencies related to share-based awards to be recognized as income tax benefit or expense on a prospective basis in the reporting period in which they vest ; ( 2 ) excess tax benefits from share-based payment arrangements to be presented within operating activities and withholding tax payments upon vesting of restricted stock units to be presented within financing activities within the cash flow statement ; ( 3 ) permits the employer to repurchase more of an employee 's shares for tax withholding purposes and not classify the award as a liability that requires valuation on a mark-to-market basis ; and ( 4 ) allows for a policy election to account for forfeitures as they occur . the company will adopt this guidance beginning in the first quarter of story_separator_special_tag the following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the company 's consolidated results of operations and financial condition . the discussion should be read in conjunction with the accompanying consolidated financial statements and notes thereto . business overview newell brands is a global marketer of consumer and commercial products that help people get more out of life every day , where they live , learn , work and play . our products are marketed under a strong portfolio of leading brands , including paper mate ® , sharpie ® , dymo ® , expo ® , parker ® , elmer 's ® , coleman ® , jostens ® , marmot ® , rawlings ® , irwin ® , lenox ® , oster ® , sunbeam ® , foodsaver ® , mr. coffee ® , rubbermaid commercial products ® , graco ® , baby jogger ® , nuk ® , calphalon ® , rubbermaid ® , contigo ® , first alert ® , waddington and yankee candle ® . acquisition of jarden corporation on april 15 , 2016 , jarden corporation ( “ jarden ” ) became a direct wholly-owned subsidiary of newell brands , as a result of a series of merger transactions ( the “ jarden acquisition ” ) . the jarden acquisition was effected pursuant to an agreement and plan of merger , dated as of december 13 , 2015 ( the “ merger agreement ” ) between the company , jarden and two wholly-owned subsidiaries of the company . following the jarden acquisition , the company was renamed newell brands inc. jarden is a leading , global consumer products company with leading brands such as yankee candle ® , crock-pot ® , foodsaver ® , mr. coffee ® , oster ® , coleman ® , first alert ® , rawlings ® , jostens ® , k2 ® , marker ® , marmot ® , völkl ® and many others . this transformative transaction created a global consumer goods company named newell brands with estimated annual pro forma sales for 2016 of $ 16 billion and a portfolio of leading brands in large , growing , unconsolidated , global markets . the scaled enterprise is expected to accelerate profitable growth with leading brands in a global market that exceeds $ 100 billion , with business and capability development supported by the efficiencies of the combined company . management believes the scale of newell brands in key categories , channels and geographies creates a much broader opportunity to deploy the company 's advantaged set of brand development and commercial capabilities for accelerated growth and margin expansion . the company 's intent is to design a benchmarked , efficient set of structures that support long-term business development . the company anticipates incremental annualized cost synergies of at least $ 500 million over four years , driven by efficiencies of scale and new efficiencies in procurement , cost to serve and infrastructure that the combination unlocks . the company currently expects to incur approximately $ 500 million of restructuring and integration-related costs over the same period to generate and unlock the more than $ 500 million of annualized cost synergies . pursuant to the merger agreement , each share of jarden common stock was converted into the right to receive and became exchangeable for merger consideration consisting of ( 1 ) 0.862 of a share of the company 's common stock plus ( 2 ) $ 21.00 in cash . on april 15 , 2016 , the company provided for the issuance of up to 189.4 million shares of common stock and the payment of up to $ 4.6 billion for 100 % of the outstanding equity interests of jarden , which consisted of 219.7 million shares of jarden common stock outstanding and eligible to receive the merger consideration . based on the closing price of a share of the company 's common stock on april 15 , 2016 of $ 44.33 per share and after conversion of substantially all of jarden 's convertible notes , the total consideration paid or payable for shares of jarden common stock was approximately $ 15.3 billion , including $ 5.4 billion of cash and $ 9.9 billion of common stock . stockholders of newell rubbermaid and former jarden stockholders ( including holders of jarden convertible notes ) owned 55 % and 45 % , respectively , of newell brands upon completion of the merger . the company paid $ 5.2 billion in addition to $ 4.1 billion for the repayment of certain jarden debt , net of $ 661.9 million of cash acquired . a total of $ 222.2 million in cash otherwise payable in connection with the acquisition has not been paid as of december 31 , 2016 , as this amount was payable in respect of shareholders who have exercised their judicial rights of appraisal under delaware law . the total merger consideration otherwise payable to the dissenting stockholders was approximately $ 626.5 million based on the company 's stock price as of the closing date . story_separator_special_tag in june 2016 , the company sold its décor business , including levolor ® and kirsch ® window coverings and drapery hardware , for consideration , net of fees , of $ 223.5 million . the net assets of the décor business were $ 63.3 million , including $ 19.2 million of goodwill , resulting in a pretax gain of $ 160.2 million , which is included in other ( income ) expense , net for the year ended december 31 , 2016 . during 2016 , the company committed to plans to divest several businesses and brands to strengthen the portfolio to better align with the long-term growth plan . the affected businesses and brands , which will all be reported in future periods continuing operations , are as follows : the tools business , including the irwin ® , lenox ® , and hilmor tm brands in the tools segment ; the winter sports business , including the völkl ® and k2 ® brands and the zoot ® and squadra ® brands in the outdoor solutions segment ; the heaters , fans , and humidifiers business with related brands in the consumer solutions segment ; the rubbermaid ® consumer storage totes business in the home solutions segment ; the lehigh business , primarily ropes , cordage and chains under the lehigh ® brand and firebuilding business , primarily under the pine mountain ® brand , in the branded consumables segment ; and the stroller business under the teutonia ® brand in the baby and parenting segment . during october 2016 , the company entered into an agreement to sell the tools business for an estimated price of $ 1.95 billion , subject to working capital adjustments . the transaction is expected to close in early 2017 , subject to certain customary conditions , including regulatory approvals , and the company anticipates this will result in a pretax gain of approximately $ 0.9 billion . the tools business generated 5.5 % and 12.9 % of the company 's consolidated net sales for the year ended december 31 , 2016 and 2015 , respectively . during 2015 , the company divested its rubbermaid medical cart business . the rubbermaid medical cart business focused on optimizing nurse work flow and medical records processing in hospitals and was included in the commercial products segment . the company sold substantially all of the assets of the rubbermaid medical cart business in august 2015. the rubbermaid medical cart business was included in the company 's consolidated results from continuing operations , including net sales of $ 26.5 million , until it was sold in august 2015. the endicia on-line postage and the culinary electrics and retail businesses were classified as discontinued operations since 2014 when the company committed to sell these businesses . endicia was included in our writing segment , and the culinary businesses were included in our home solutions segment . during 2015 , the company sold endicia for a sales price of $ 208.7 million , subject to customary working capital adjustments . during 2015 , the company ceased operations in its culinary electrics and retail businesses . market and performance overview the company operates in the consumer and commercial products markets , which are generally impacted by overall economic conditions in the regions in which the company operates . the following is a summary of the company 's results for the year ended 2016 : reported net sales increased 124.2 % . net sales were favorably impacted by volume growth , pricing , the acquisition of elmer 's , and the jarden acquisition , which , contributed a 123.3 % increase in net sales . net sales were adversely impacted by foreign currency , divestitures and the deconsolidation of the company 's venezuelan operations on december 31 , 2015 . reported net sales increased 125.4 % , 180.7 % , 57.6 % and 93.0 % in north america , europe , latin america and asia pacific , respectively , primarily due to the jarden acquisition . gross margin was 33.2 % , a decline of 580 basis points compared to the prior year period . the decline was primarily due to the negative impact of the $ 479.5 million inventory step-up for the jarden acquisition that is included in cost of products sold for the year ended december 31 , 2016 , foreign currency , mix from the deconsolidation of venezuela and mix from acquisitions , including the jarden acquisition , which were partially offset by the benefits of synergies , productivity and pricing . 29 selling , general and administrative expenses ( “ sg & a ” ) increased $ 1,647.2 million to $ 3,221.1 million , due primarily to the sg & a of the jarden business from the acquisition date and costs associated with the jarden acquisition . sg & a also increased due to increases in advertising and promotion in support of the company 's brands and innovation , costs associated with increased incentive and other compensation and costs associated with the acquisition and integration of jarden . these costs were partially offset by a reduction in overhead costs due to project renewal initiatives , costs associated with the graco product recall in the prior year period and the impacts of foreign currency . the company 's advertising and promotion strategy is to invest behind innovation , including new product launches , and in building brands . during 2016 , the company increased advertising and promotion investments by $ 24.5 million ( excluding the impacts of the jarden acquisition ) . the company plans to continue increasing advertising and promotion in support of its brands to drive growth .
| consolidated results of operations the company believes the selected data and the percentage relationship between net sales and major categories in the consolidated statements of operations are important in evaluating the company 's operations . the following table sets forth items from the consolidated statements of operations as reported and as a percentage of net sales for the years ended december 31 , ( in millions , except percentages ) : replace_table_token_5_th results of operations — 2016 vs. 2015 net sales for the year ended december 31 , 2016 were $ 13,264.0 million , representing an increase of $ 7,348.3 million , or 124.2 % , from $ 5,915.7 million for the year ended december 31 , 2015 . the jarden acquisition contributed $ 7,296.9 million of the increase in net sales , or 123.3 % of the increase . net sales were also favorably impacted by volume growth , pricing and the acquisition of elmer 's . net sales were adversely impacted by foreign currency , divestitures and the deconsolidation of the company 's venezuelan operations on december 31 , 2015. gross margin , as a percentage of net sales , for the year ended december 31 , 2016 was 33.2 % , or $ 4,398.8 million , compared to 39.0 % , or $ 2,304.6 million , for the year ended december 31 , 2015 . the 580 basis point decline was driven primarily by the negative impact of the $ 479.5 million charge for the inventory step-up related to the jarden acquisition , foreign currency , and mix effect of the jarden acquisition and deconsolidation of venezuela , partially offset by the benefits of productivity , input cost deflation and pricing . sg & a expenses for the year ended december 31 , 2016 were 24.3 % of net sales , or $ 3,221.1 million , versus 26.6 % of net sales , or $ 1,573.9 million , for the year ended december 31 , 2015 .
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we account for these transfers of financial assets as sales when control over the transferred financial assets has story_separator_special_tag the following discussion of financial condition as of december 31 , 2020 and 2019 and results of operations for each of the years in the two-year period ended december 31 , 2020 should be read in conjunction with our consolidated financial statements and related notes thereto , included in part ii item 8 of this report . average balances , including balances used in calculating certain financial ratios , are generally comprised of average daily balances . all share and per share data have been adjusted to reflect the stock split effective november 27 , 2018. forward-looking statements the disclosures set forth in this item are qualified by important factors detailed in part i captioned forward-looking statements and item 1a captioned risk factors of this report and other cautionary statements set forth elsewhere in the report . critical accounting policies and estimates the sec requires us to disclose `` critical accounting policies '' defined as those that are both most important to the presentation of our financial condition and results of operations and require management 's most difficult , subjective , or complex judgments , often because of the need to make estimates about the effect of matters that are inherently uncertain and imprecise . we consider accounting estimates to be critical to our financial results if ( i ) the accounting estimate requires management to make assumptions about matters that are highly uncertain , ( ii ) management could have applied different assumptions during the reported period , and ( iii ) changes in the accounting estimate are reasonably likely to occur in the future and could have a material impact on our financial statements . management has determined the following accounting policies to be critical : allowance for credit losses on loans and unfunded commitments - for information regarding critical estimates related to our allowance methodology , the provision for credit losses , and risks to asset quality and lending activity , including the transition from the incurred loss method to the current expected credit loss ( `` cecl '' ) method under asu no . 2016-13 , financial instruments - credit losses ( topic 326 ) and related amendments , which we adopted as of december 31 , 2020 , see item 1a - risk factors , the allowance for credit losses section in item 7 - management 's discussion and analysis of financial condition and results of operations , note 1 - summary of significant accounting policies , and note 3 - loans and allowance for credit losses in item 8 - financial statements and supplementary data of this form 10‑k . allowance for credit losses on investment securities - for information regarding our investment securities and risks associated with identifying impairment and estimating the allowance for credit losses under the new cecl method , see item 1a - risk factors , note 1 - summary of significant accounting policies , and note 2 - investment securities in item 8 - financial statements and supplementary data of this form 10‑k . accounting for income taxes - for information on our tax assets and liabilities , and related provision for income taxes , see note 1 - summary of significant accounting policies and note 11 - income taxes in item 8 - financial statements and supplementary data of this form 10-k. fair value measurements - for information on our use of fair value measurements and our related valuation methodologies , see note 1 - summary of significant accounting policies and note 9 - fair value of assets and liabilities in item 8 - financial statements and supplementary data of this form 10-k. 25 story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:700 ; line-height:120 % '' > paycheck protection program - while the ppp affords us an opportunity to assist our customers and community and requires a large of amount of human resources , the ppp loans do not pose a significant amount of risk of loss to the bank as they are 100 % guaranteed by the sba . as of december 31 , 2020 , there were 1,777 ppp loans outstanding totaling $ 291.6 million , net of $ 5.4 million in unearned fees . during the fourth quarter bank of marin opened a secure ppp loan forgiveness application portal and gave all ppp borrowers access to apply . as of december 31 , 2020 we received sba loan forgiveness payments totaling $ 10.9 million for 35 loans that were forgiven . of the total ppp loans rem aining , 74 % ( 1,309 loans ) totaling $ 58.7 million are less than or equal to $ 150 thousand and have access to streamlined forgiveness processing . on january 19 , 2021 , the bank launched the application process and began accepting loan requests for the second round of ppp , as revised by the economic aid act . as of march 11 , 2021 , we have received 974 loan applications totaling $ 131.6 million . payment relief - during 2020 , in accordance with section 4013 of the cares act , subsequently amended by the economic aid act , we elected to apply the temporary accounting relief provisions for loan modifications that met certain criteria , which would otherwise be designated as tdrs under existing gaap . of the 269 loans totaling $ 402.9 million granted payment relief since the onset of the pandemic , 222 loans or $ 324.2 million have resumed normal payments and 18 loans or $ 7.7 million paid off . as of december 31 , 2020 , 21 borrowing relationships with 29 loans totaling $ 71.0 million had requested additional payment relief . we know each of these clients very well and monitor their loans closely , and anticipate that the vast majority will work through current adverse conditions and resume making full payments . the following table summarizes these loans by industry or collateral type . story_separator_special_tag 2020 compared to 2019 2019 compared to 2018 ( in thousands , unaudited ) volume yield/rate mix total volume yield/rate mix total interest-earning deposits with banks $ 1,702 $ ( 1,120 ) $ ( 1,442 ) $ ( 860 ) $ ( 204 ) $ 75 $ ( 11 ) $ ( 140 ) investment securities 1 ( 610 ) 555 ( 22 ) ( 77 ) ( 288 ) 897 ( 19 ) 590 loans 1 11,884 ( 10,337 ) ( 1,211 ) 336 3,340 1,263 53 4,656 total interest-earning assets 12,976 ( 10,902 ) ( 2,675 ) ( 601 ) 2,848 2,235 23 5,106 interest-bearing transaction accounts 39 ( 180 ) ( 20 ) ( 161 ) ( 15 ) 147 ( 11 ) 121 savings accounts 5 ( 7 ) — ( 2 ) ( 3 ) 1 — ( 2 ) money market accounts 422 ( 1,655 ) ( 197 ) ( 1,430 ) 150 1,741 193 2,084 time accounts , including cdars ( 56 ) 15 — ( 41 ) ( 120 ) 223 ( 50 ) 53 borrowings and other obligations ( 72 ) ( 12 ) 11 ( 73 ) 58 1 16 75 subordinated debentures 6 ( 76 ) ( 1 ) ( 71 ) ( 627 ) ( 909 ) 426 ( 1,110 ) total interest-bearing liabilities 344 ( 1,915 ) ( 207 ) ( 1,778 ) ( 557 ) 1,204 574 1,221 tax-equivalent net interest income $ 12,632 $ ( 8,987 ) $ ( 2,468 ) $ 1,177 $ 3,405 $ 1,031 $ ( 551 ) $ 3,885 1 yields and interest income on tax-exempt securities and loans are presented on a taxable-equivalent basis using the federal statutory rate of 21 % . 2020 compared to 2019 net interest income totaled $ 96.7 million and $ 95.7 million in 2020 and 2019 , respectively . the $ 1.0 million increase in 2020 was primarily due to sba ppp loans and lower rates on interest-bearing deposits , largely offset by lower yields on earning-assets , except for investment securities where we collected prepayment penalties on called securities in 2020. notable balance increases occurred in interest-earning deposits with other banks , commercial real estate loans and deposits . the tax-equivalent net interest margin decreased 43 basis points to 3.55 % in 2020 , from 3.98 % in 2019 for the reasons already mentioned and as shown in the above table . additionally , the sba ppp loans lowered the 2020 net interest margin by 6 basis points . on march 15 , 2021 , we redeemed the $ 2.8 million subordinated debenture . the redemption consisted of $ 4.1 million principal balance , quarterly interest due , and $ 1.3 million in accelerated accretion of purchase discount . the contractual interest rate on the subordinated debenture was 3-month libor plus 1.40 % , or 1.62 % as of december 31 , 2020 . 2019 compared to 2018 net interest income totaled $ 95.7 million and $ 91.5 million in 2019 and 2018 , respectively . the increase of $ 4.2 million in 2019 was primarily due to higher average loan balances and assets yields across all categories and the early redemption of a high-rate subordinated debenture in the fourth quarter of 2018. positive variances were partially offset by higher balances and rates on money market accounts . the tax-equivalent net interest margin increased eight basis points to 3.98 % in 2019 compared to 3.90 % in 2018 for the same reasons . market interest rates market interest rates are , in part , based on the target federal funds interest rate ( the interest rate banks charge each other for short-term borrowings ) implemented by the federal reserve open market committee ( `` fomc '' ) . in response to the evolving risks to economic activity posed by the covid-19 pandemic , the fomc made two emergency cuts totaling 150 basis points to the federal funds rate in march 2020. the federal funds target rate range resided between 0.0 % to 0.25 % for the majority of 2020 , putting downward pressure on our asset yields and net interest margin . in each of its july , september and october 2019 meetings , the fomc lowered the federal 29 funds target rate by 0.25 % to a range of 1.50 % to 1.75 % at the end of 2019. during 2018 , the fomc made four 25-basis-point increases to a range of 2.25 % to 2.50 % as of december 2018. a low interest rate environment will continue to put downward pressure on asset yields and net interest margin to be fully seen in future periods . see item 7a . quantitative and qualitative disclosure about market risk for further information . provision for credit losses on loans management assesses the adequacy of the allowance for credit losses on loans quarterly based on several factors including growth of the loan portfolio , past events , current conditions , and reasonable and supportable forecasts to estimate expected losses over the contractual terms of our loans . the allowance for credit losses is increased by provisions charged to expense and loss recoveries and decreased by loans charged off . for additional information about the allowance for credit losses and transition from the incurred loss method to the cecl method in 2020 , see notes 1 and 3 to the consolidated financial statements in item 8 of this report . we recorded a $ 4.6 million provision for credit losses in 2020 , compared to a $ 900 thousand provision in 2019 and no provision for credit losses in 2018. the provision for credit losses in 2020 was largely due to the impact of the covid-19 pandemic and its effect on the local and regional economies and economic outlook . in addition , under the cecl method , we increased our allowance for credit losses by approximately $ 925 thousand for previously acquired loans ( i.e.
| executive summary annual earnings were $ 30.2 million in 2020 compared to $ 34.2 million in 2019. diluted earnings were $ 2.22 per share in 2020 , compared to $ 2.48 per share in 2019. the following are highlights of operating and financial performance for the year ended december 31 , 2020 : the bank achieved total loan growth of $ 245.3 million , or 13 % in 2020 , to $ 2.089 billion at december 31 , 2020 , from $ 1.843 billion at december 31 , 2019. sba ppp loans outstanding at december 31 , 2020 were $ 291.6 million . credit quality remains strong with non-accrual loans representing 0.44 % of the bank 's loan portfolio as of december 31 , 2020. the adoption of cecl in the fourth quarter of 2020 resulted in an increase to the allowance for credit losses on loans of $ 748 thousand and a $ 1.1 million increase to the allowance for unfunded loan commitments . see note 1 , summary of significant accounting policies , for additional information . deposits grew $ 167.8 million , or 7 % , to $ 2.504 billion at december 31 , 2020 , compared to $ 2.336 billion at december 31 , 2019. non-interest bearing deposits grew by $ 225.8 million in 2020 , or 20 % , and made up 54 % of total deposits at year-end . cost of deposits remained low at 0.11 % in 2020 , compared to 0.20 % in 2019. net interest income totaled $ 96.7 million and $ 95.7 million in 2020 and 2019 , respectively . the $ 1.0 million increase in 2020 was primarily due to sba ppp loans and lower rates on interest-bearing deposits , largely offset by lower yields on earning-assets . the tax-equivalent net interest margin decreased to 3.55 % in 2020 , compared to 3.98 % in 2019. the 43 basis point decrease was primarily due to lower yields across interest-earning asset categories , partially offset by lower rates on interest-bearing deposits .
| 3,007 |
” throughout md & a , we refer to our leadership brands , which are brands that have number-one and number-two positions in their respective categories and include oxo , honeywell , braun , pur , hydro flask , vicks , and hot tools . this md & a , including the tables under the headings “ operating income , operating margin , adjusted operating income ( non-gaap ) and adjusted operating margin ( non-gaap ) by segment '' and “ income from continuing operations , diluted eps from continuing operations , adjusted income from continuing operations ( non-gaap ) , and adjusted diluted eps from continuing operations ( non-gaap ) , ” respectively , reports operating income , operating margin , income from continuing operations and diluted earnings per share from continuing operations without the impact of non-cash asset impairment charges , restructuring charges , the tru bankruptcy charge , the patent litigation charge , amortization of intangible assets , and non-cash share-based compensation for the periods presented , as applicable . these measures may be considered non-gaap financial information as set forth in sec regulation g , rule 100. the tables reconcile these measures to their corresponding gaap-based measures presented in our condensed consolidated statements of income . we believe that adjusted operating income , adjusted operating margin , adjusted income from continuing operations , and adjusted diluted eps from continuing operations provide useful information to management and investors regarding financial and business trends relating to our financial condition and results of operations . we believe that these non-gaap financial measures , in combination with our financial results calculated in accordance with gaap , provide investors with additional perspective regarding the impact of such charges on applicable income , margin and earnings per share measures . we also believe that these non-gaap measures facilitate a more direct comparison of our performance to our competitors . we further believe that including the excluded charges would not accurately reflect the underlying performance of our continuing operations for the period in which the charges are incurred , even though such charges may be incurred and reflected in our gaap financial results in the near future . the material limitation associated with the use of the non-gaap financial measures is that the non-gaap measures do not reflect the full economic impact of our activities . our adjusted operating income , adjusted operating margin , adjusted income from continuing operations , and adjusted diluted eps from continuing operations are not prepared in accordance with gaap , are not an alternative to gaap financial information and may be calculated differently than non-gaap financial information disclosed by other companies . accordingly , undue reliance should not be placed on non-gaap information . these measures are discussed further and reconciled to their applicable gaap based measures contained in this md & a beginning on page 35. overview we are a leading global consumer products company offering creative products and solutions for our customers through a diversified portfolio of well-recognized and widely-trusted brands . we have built leading market positions through new product innovation , product quality and competitive pricing . we currently operate in three segments consisting of housewares , health & home and beauty . in fiscal 2015 , we launched a five-year transformational strategy designed to improve the performance of our business segments and strengthen our shared service capabilities . this strategy has driven our decisions on where we will operate and how we will achieve our goals in markets around the world . the 25 overall design of our business and organizational plan is intended to create sustainable and profitable growth and improve organizational capability . fiscal 2019 marked the completion of phase i of our multi-year transformation strategy , which delivered performance across a wide range of measures . we improved core sales growth by focusing on our leadership brands , made strategic acquisitions , became a more efficient operating company with strong global shared services , upgraded our organization and culture , improved inventory turns and return on invested capital , and returned capital to shareholders . fiscal 2020 begins phase ii of our transformation and is designed to drive the next five years of progress . the long-term objectives of phase ii include improved organic sales growth , continued margin expansion , and strategic and effective capital deployment . we expect phase ii will include continued investment in our leadership brands , with a focus on growing them through consumer-centric innovation , expanding them more aggressively outside the united states , and adding new brands through acquisition . we anticipate building further shared service capability and operating efficiency , as well as attracting , retaining , unifying and training the best people . in fiscal 2018 , we announced a restructuring plan ( referred to as “ project refuel ” ) intended to enhance the performance primarily in the beauty and former nutritional supplements segments . project refuel includes charges for a reduction-in-force and the elimination of certain contracts . during the first quarter of fiscal 2019 , we expanded project refuel to include the realignment and streamlining of our supply chain structure . we are targeting total annualized profit improvements of approximately $ 8.0 million to $ 10.0 million over the duration of the plan . we estimate the plan to be completed during fiscal 2020 and expect to incur total restructuring charges of approximately $ 7.0 million . restructuring provisions are determined based on estimates prepared at the time the restructuring actions are approved by management and are revised periodically . see note 12 to the accompanying consolidated financial statements for additional information . significant trends impacting the business potential impact of tariffs during fiscal 2019 , the office of the u.s. trade representative ( ‘ ‘ ustr '' ) imposed additional tariffs on products imported from china . we purchase a high concentration of our products from unaffiliated manufacturers located in china . this concentration exposes us to risks associated with doing business globally , including changes in tariffs . story_separator_special_tag ( 3 ) fiscal 2017 includes eleven and one-half months of operating results for hydro flask , acquired on march 18 , 2016. fiscal 2018 includes a full year of operating results for hydro flask . for additional information see note 7 to the accompanying consolidated financial statements . * calculation is not meaningful . 28 fiscal 2019 story_separator_special_tag > 2017 . 30 consolidated and segment net sales the following table summarizes the impact that acquisitions and foreign currency had on our net sales revenue by segment : replace_table_token_8_th replace_table_token_9_th ( 1 ) we adopted asu 2014-09 in the first quarter of fiscal 2019 and have reclassified amounts in the prior years ' statements of income to conform to the current period 's presentation . for additional information see note 3 to the accompanying consolidated financial statements . ( 2 ) includes approximately one-half month of incremental operating results for hydro flask , which was acquired on march 18 , 2016. for additional information see note 7 to the accompanying consolidated financial statements . in the above tables core business refers to our net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand is acquired , excluding the impact that foreign currency re-measurement had on reported net sales . net sales revenue from internally developed brands or product lines is considered core business activity . leadership brand and other net sales the following tables summarizes our leadership brand and other net sales : replace_table_token_10_th 31 consolidated net sales revenue comparison of fiscal 2019 to 2018 consolidated net sales revenue increased $ 85.3 million , or 5.8 % , to $ 1,564.2 million in fiscal 2019 compared to $ 1,478.8 million in fiscal 2018 . growth in consolidated net sales was primarily driven by a core business increase of $ 86.5 million , or 5.9 % , primarily due to overall point of sale growth in the brick and mortar channel , incremental distribution , growth in online sales , increased international sales , and new product introductions . this growth was partially offset by a consumption decline in the personal care category , the discontinuation of certain brands and products within our beauty segment and the unfavorable impact from foreign currency fluctuations of approximately $ 1.2 million , or 0.1 % . net sales from our leadership brands were $ 1,243.6 million in fiscal 2019 , compared to $ 1,142.2 million in fiscal 2018 , representing a growth of 8.9 % . comparison of fiscal 2018 to 2017 consolidated net sales revenue increased $ 81.3 million , or 5.8 % , to $ 1,478.8 million in fiscal 2018 , compared to $ 1,397.5 million in fiscal 2017 . growth in consolidated net sales was primarily driven by : a core business increase of $ 70.0 million , or 5.0 % , primarily due to new product introductions , online customer growth , incremental distribution and growth in international sales ; growth from acquisitions of $ 6.1 million or 0.4 % ; and the favorable impact from foreign currency fluctuations of approximately $ 5.2 million , or 0.4 % . these factors were partially offset by a consumption decline in the personal care category and the impact of lower store traffic and soft consumer spending at traditional brick and mortar retail . net sales from our leadership brands were $ 1,142.2 million in fiscal 2018 , compared to $ 1,044.2 million in fiscal 2017 , representing growth of 9.4 % . segment net sales revenue housewares comparison of fiscal 2019 to 2018 net sales revenue in the housewares segment increased $ 64.8 million , or 14.1 % , to $ 523.8 million in fiscal 2019 , compared to $ 459.0 million in fiscal 2018. growth was primarily driven by a core business increase of $ 64.9 million , or 14.1 % , due to point of sale growth with existing customers , an increase in online sales , higher sales in the club channel , and new product introductions . these factors were partially offset by lower closeout sales . comparison of fiscal 2018 to 2017 net sales revenue in the housewares segment increased $ 40.4 million , or 9.7 % , to $ 459.0 million in fiscal 2018 , compared to $ 418.6 million in fiscal 2017 . growth was primarily driven by : a core business increase of $ 34.2 million , or 8.2 % , due to an increase in online sales , incremental distribution with existing customers , expanded international and u.s. distribution , new product introductions for both the hydro flask and oxo brands , increased marketing investments and promotional activity , and higher sales in the discount channel ; and growth from acquisitions of $ 6.1 million , or 1.5 % , representing an incremental one-half month of operating results from hydro flask in fiscal 2018 , compared to fiscal 2017. these factors were partially offset by lower store traffic and soft consumer spending at traditional brick and mortar retail and the unfavorable comparative impact of retail pipeline fill and strong sales into the club channel in the prior year period . 32 health & home comparison of fiscal 2019 to 2018 net sales revenue in the health & home segment increased $ 21.2 million , or 3.1 % , to $ 695.2 million in fiscal 2019 compared to $ 674.1 million in fiscal 2018. growth was driven by a core business increase of 3.1 % , primarily due to higher sales of seasonal products and growth in international sales . these factors were partially offset by an unfavorable comparison to fiscal 2018 , which benefited from strong cough/cold/flu incidence along with unseasonably cold fall and winter weather . net foreign currency fluctuations were not meaningful . comparison of fiscal 2018 to 2017 net sales revenue in the health & home segment increased $ 47.1 million , or 7.5 % , to $ 674.1 million in fiscal 2018 compared to $ 627.0 million in fiscal 2017 .
| financial results consolidated net sales revenue increased 5.8 % , or $ 85.3 million , to $ 1,564.2 million in fiscal 2019 compared to $ 1,478.8 million in fiscal 2018 . consolidated operating income increased 17.9 % , or $ 30.3 million , to $ 199.4 million in fiscal 2019 compared to $ 169.1 million in fiscal 2018 . consolidated operating margin increased 1.3 percentage points to 12.7 % of consolidated net sales revenue in fiscal 2019 compared to 11.4 % in fiscal 2018 . fiscal 2019 includes pre-tax restructuring charges of $ 3.6 million related to project refuel . consolidated operating income for fiscal 2018 included pre-tax non-cash impairment charges of $ 15.4 million , a pre-tax charge of $ 3.6 million related to the bankruptcy of toys `` r '' us ( `` tru '' ) , and pre-tax restructuring charges of $ 1.9 million . consolidated adjusted operating income increased 6.9 % , or $ 15.3 million , to $ 239.2 million in fiscal 2019 compared to $ 223.9 million in fiscal 2018 . consolidated adjusted operating margin increased 0.2 percentage points to 15.3 % of consolidated net sales revenue in fiscal 2019 compared to 15.1 % in fiscal 2018 . income from continuing operations increased 35.2 % , or $ 45.3 million , to $ 174.2 million in fiscal 2019 compared to $ 128.9 million in fiscal 2018 . diluted earnings per share ( “ eps ” ) from continuing operations increased 40.0 % to $ 6.62 in fiscal 2019 compared to $ 4.73 in fiscal 2018 . adjusted income from continuing operations increased 7.5 % to $ 212.1 million in fiscal 2019 , compared to $ 197.2 million in fiscal 2018 . adjusted diluted eps from continuing operations increased 11.3 % to $ 8.06 in fiscal 2019 compared to $ 7.24 in fiscal 2018 .
| 3,008 |
the exercise price per share shall not be less than the fair value of the company 's underlying common stock on the grant date and no option may have a term in excess of ten years . further , pursuant to nasdaq listing rules , the company issued inducement awards in december 2017 to the company 's president outside of the plan in the form of an option to purchase 775,000 shares of story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes appearing elsewhere in this annual report on form 10-k. some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties . for example , statements regarding our expectations as to our plans and strategy for our business , future financial performance , expense levels and liquidity sources are forward-looking statements . our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors , including those set forth under the “ risk factors ” section and elsewhere in this annual report on form 10-k. please also see the section entitled “ special note regarding forward-looking statements. ” overview we are a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat patients suffering from central nervous system , or cns , diseases . leveraging our scientific insights and clinical experience , we have acquired or in-licensed three proprietary compounds that are currently in development . we believe these compounds have innovative mechanisms of action and therapeutic profiles that potentially address the unmet needs of patients with these diseases . our product portfolio and potential indications include : roluperidone for the treatment of schizophrenia ; seltorexant ( also known as min-202 or jnj-42847922 ) , which we are co-developing with janssen pharmaceutica nv ( “ janssen ” ) , for the treatment of insomnia disorder and major depressive disorder ( “ mdd ” ) ; and min-301 for the treatment of parkinson 's disease . we believe our product candidates have significant potential to improve the lives of a large number of affected patients and their families who are currently not well-served by available therapies . in november 2013 , cyrenaic pharmaceuticals , inc. ( “ cyrenaic ” ) , and sonkei pharmaceuticals , inc. ( “ sonkei ” ) , merged , and the combined company was renamed minerva neurosciences , inc. cyrenaic had been incorporated in 2007 and had exclusively licensed roluperidone from mitsubishi tanabe pharma corporation ( “ mtpc ” ) . sonkei had been incorporated in 2008 and had exclusively licensed min-117 from mtpc . we executed the merger as we saw an opportunity to better serve an underserved patient population through combining a portfolio of promising product candidates targeting cns diseases . as a result of the merger , we have the rights to develop and commercialize roluperidone and min-117 globally , excluding most of asia . we further expanded our product candidate portfolio in february 2014 by acquiring the shares of mind-nrg sa ( “ mind-nrg ” ) , which had exclusive rights to develop and commercialize min-301 . in addition , in february 2014 we entered into a co-development and license agreement with janssen , one of the janssen pharmaceutical companies of johnson & johnson , for the co-development of seltorexant . we entered into an amendment to this agreement in june 2017 that took effect on august 29 , 2017. under the amended agreement , we gained global strategic control of the development of seltorexant to treat insomnia , and janssen waived its right to royalties on seltorexant insomnia sales in the minerva territory , which includes the european union , switzerland , liechtenstein , iceland and norway ( the “ minerva territory ” ) . we retain our rights to seltorexant as adjunctive therapy for mdd , which include an exclusive license in the minerva territory with royalties payable by us to janssen , and royalties on sales payable by janssen to minerva elsewhere worldwide . ( see seltorexant – amendment to co-development and license agreement below . ) we have not received regulatory approvals to commercialize any of our product candidates , and we have not generated any revenue from the sales or license of our product candidates . we have incurred significant operating losses since inception . we expect to incur net losses and negative cash flow from operating activities for the foreseeable future in connection with the clinical development and the potential regulatory approval , infrastructure development and commercialization of our product candidates . financial overview revenue none of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates . as a result of the amendment to our co-development and license agreement with janssen , we have deferred revenue that will be recognized in future periods , the timing of which is subject to certain future events that will be evaluated in conjunction with the relevant revenue recognition pronouncements . 56 research and development expenses research and development expenses consists of costs incurred in connection with the development of our product candidates , including : fees paid to consultants and clinical research organizations , or cros , including in connection with our non-clinical and clinical trials , and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; licensing fees ; costs related to acquiring clinical trial materials ; costs related to compliance with regulatory requirements ; and costs related to salaries , benefits , bonuses and stock-based compensation granted to employees in research and development functions . we expense research and development costs as they are incurred . story_separator_special_tag after the legislative change , federal net operating loss incurred after december 31 , 2017 will have an indefinite life . as a result , our deductible temporary differences will reverse and create unlimited lived deferred tax assets which may be available to offset indefinite lived deferred tax liabilities . accordingly , we have recognized a tax benefit for the period ending december 31 , 2017 to reflect this reversal pattern . the internal revenue code , or irc , limits the amounts of net operating loss carryforwards that a company may use in any one year in the event of certain cumulative changes in ownership over a three‑year period as described in section 382 of the irc . we have not performed a detailed analysis to determine whether an ownership change occurred upon consummation of the merger between us and sonkei or the acquisition of mind‑nrg . however , as a result of these transactions , our initial public offering and the shares issued to johnson & johnson innovation-jjdc inc. and shareholders of mind‑nrg as part of the private placements consummated concurrently with our initial public offering , it is likely that an ownership change would occur or has occurred . such an ownership change could also be triggered by subsequent sales of securities by us or our stockholders . such a change in ownership would limit the utilization of our net operating losses . as a result , we may not be able to take full advantage of these tax carryforwards for federal tax purposes . 58 story_separator_special_tag shares issued and sold in this public offering were registered under the securities act pursuant to a registration statement on form s-3 ( file no . 333-205764 ) and a related prospectus and prospectus supplement , in each case filed with the securities and exchange commission . we incurred $ 3.0 million in underwriting discounts and commissions and transaction costs , which will be included as a component of additional paid-in capital , resulting in net proceeds of approximately $ 41.6 million . uses of funds to date , we have not generated any revenue . we do not know when , or if , we will generate any revenue from sales of our products or royalty payments from our collaboration with janssen . we do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our product candidates . at the same time , we expect our expenses to increase in connection with our ongoing development activities , particularly as we continue the research , development and clinical trials of , and seek regulatory approval for , our product candidates . we also expect to continue to incur costs associated with operating as a public company . in addition , subject to obtaining regulatory approval of any of our product candidates , we expect to incur significant commercialization expenses for product sales , marketing , manufacturing and distribution . if it is determined that we are required to make a significant payment to janssen , we may not have sufficient cash to make such payment and may be required to incur additional indebtedness or to raise additional funds via an equity financing in order to make such payment to janssen . we can not be certain that we will be able to borrow or raise sufficient funds for this purpose under terms acceptable to us , if at all . while we are engaged in ongoing discussions with janssen concerning the agreement and our continued business relationship , there can be no assurance that we will be able to resolve this disagreement to our satisfaction , or at all . until such time , if ever , as we can generate substantial revenue from product sales , we expect to finance our cash needs through a combination of equity offerings , debt financings , government or other third‑party funding , commercialization , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interests of our common stockholders will be 60 diluted , and the t erms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders . additional debt financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends . if we raise additional funds through government or other third ‑party funding , commercialization , marketing and distribution arrangements or other collaborations , strategic alliances or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or to grant licenses on terms that may not be favorable to us . there can be no assurance that such additional funding , if available , can be obtained on terms acceptable to us . if we are unable to obtain additional financing , future operations would need to be scaled back or discontinued . we believe th at our existing cash , cash equivalents , restricted cash , and marketable securities will be sufficient to meet our cash commitments for at least the next 12 months after the date that the financial statements are issued . the timing of future capital require ments depends upon many factors including the size and timing of future clinical trials , the timing and scope of any strategic partnering activity and the progress of other research and development activities . cash flows the tables below set forth our significant sources and uses of cash for the periods set forth below . replace_table_token_3_th net cash used in operating activities net cash used in operating activities of approximately $ 43.4 million during the year ended december 31 , 2019 was primarily due to our net loss of $ 72.2 million , a decrease of $ 2.2
| results of operations comparison of the years ended december 31 , 2019 and december 31 , 2018 ( in thousands ) : replace_table_token_2_th research and development expenses total research and development expenses were $ 58.1 million for the year ended december 31 , 2019 compared to $ 34.9 million for the same period in 2018 , an increase of $ 23.2 million . the increase in research and development expenses primarily reflects a $ 19.0 million expense for the impairment of the min-117 in-process research and development asset and higher development expenses for the phase 3 clinical trial of roluperidone and the phase 2b clinical trial of min-117 . general and administrative expenses total general and administrative expenses were $ 17.7 million for the year ended december 31 , 2019 compared to $ 16.8 million for the same period in 2018 , an increase of approximately $ 0.9 million . this increase in general and administrative expenses was primarily due to an increase in non-cash stock-based compensation expenses and higher professional fees to support pre-commercial activities . foreign exchange losses foreign exchange losses were $ 29 thousand for the year ended december 31 , 2019 compared to a loss of $ 5 thousand for the same period in 2018 , an increased loss of $ 24 thousand . the loss was primarily due to clinical activities denominated in euros . investment income investment income was $ 1.5 million for the year ended december 31 , 2019 compared to $ 1.7 million for the same period in 2018 , a decrease of $ 0.2 million . the decrease was due to a decrease in investment income on cash equivalents and marketable securities . interest expense interest expense was zero for the year ended december 31 , 2019 compared to $ 0.1 million for the same period in 2018 , a decrease of $ 0.1 million .
| 3,009 |
the bank offers a wide variety of traditional banking services and derives the majority of its revenues from net interest income – the spread between what it earns on loans and investments and what it pays for deposits and borrowed funds . while net interest income typically increases as earning assets grow , the spread can vary up or down depending on the level and direction of movements in interest rates . management believes the bank has modest exposure to changes in interest rates , as discussed in `` interest rate risk management '' elsewhere in management 's discussion . the banking business in the bank 's market area historically has been seasonal with lower deposits in the winter and spring and higher deposits in the summer and fall . this seasonal swing is fairly predictable and has not had a materially adverse effect on the bank . non-interest income is the bank 's secondary source of revenue and includes fees and service charges on deposit accounts , income from the sale and servicing of mortgage loans , and income from investment management and private banking services through first advisors , a division of the bank . forward-looking statements this report contains statements that are `` forward-looking statements . '' we may also make written or oral forward-looking statements in other documents we file with the sec , in our annual reports to shareholders , in press releases and other written materials , and in oral statements made by our officers , directors or employees . you can identify forward-looking statements by the use of the words `` believe '' , `` expect '' , `` anticipate '' , `` intend '' , `` estimate '' , `` assume '' , `` outlook '' , `` will '' , `` should '' , `` may '' , `` might , `` could '' , and other expressions that predict or indicate future events or trends and which do not relate to historical matters . you should not rely on forward-looking statements , because they involve known and unknown risks , uncertainties and other factors , some of which are beyond the control of the company . these risks , uncertainties and other factors may cause the actual results , performance or achievements of the company to be materially different from the anticipated future results , performance or achievements expressed or implied by the forward-looking statements . some of the factors that might cause these differences include the following : changes in general national , regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets , volatility and disruption in national and international financial markets , government intervention in the u.s. financial system , reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits , reductions in the market value of wealth management assets under administration , changes in the value of securities and other assets , reductions in loan demand , changes in loan collectibility , default and charge-off rates , changes in the size and nature of the company 's competition , changes in legislation or regulation and accounting principles , policies and guidelines , and changes in the assumptions used in making such forward-looking statements . in addition , the factors described under `` risk factors '' in item 1a of this annual report on form 10-k , may result in these differences . you should carefully review all of these factors , and you should be aware that there may be other factors that could cause these differences . these forward-looking statements were based on information , plans and estimates at the date of this annual report , and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors , new information , future events or other changes . although the company believes that the expectations reflected in such forward-looking statements are reasonable , actual results may differ materially from the results discussed in these forward-looking statements . readers are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date hereof . the company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events . readers are also urged to carefully review and consider the various disclosures made by the company , which attempt to advise interested parties of the factors that affect the company 's business . critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operations is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates , including those related to the allowance for loan losses , goodwill , the valuation of mortgage servicing rights , and other-than-temporary impairment on securities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from the first bancorp - 2013 form 10-k - page 24 other sources . actual results could differ from the amounts derived from management 's estimates and assumptions under different assumptions or conditions . allowance for loan losses . management believes the allowance for loan losses requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements . the allowance for loan losses is based on management 's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio . story_separator_special_tag this adjustment is considered helpful in the comparison of one financial institution 's net interest income to that of another institution , as each will have a different proportion of tax-exempt interest from its earning assets . moreover , net interest income is a component of a second financial measure commonly used by financial institutions , net interest margin , which is the ratio of net interest income to average earning assets . for purposes of this measure as well , other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution . the company follows these practices . the following table provides a reconciliation of tax-equivalent financial information to the company 's consolidated financial statements , which have been prepared in accordance with gaap . a 35.0 % tax rate was used in 2013 , 2012 and 2011 . replace_table_token_4_th the company presents its efficiency ratio using non-gaap information . the gaap-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the consolidated statements of income and comprehensive income . the non-gaap efficiency ratio excludes securities losses and other-than-temporary impairment charges from noninterest expenses , excludes securities gains from noninterest income , and adds the tax-equivalent adjustment to net interest income . the following table provides a reconciliation between the gaap and non-gaap efficiency ratio : replace_table_token_5_th the company presents certain information based upon average tangible common shareholders ' equity instead of total average shareholders ' equity . the difference between these two measures is the company 's intangible assets , specifically goodwill from prior acquisitions , and preferred stock . management , banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets , typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions . the following table provides a reconciliation of tangible average shareholders ' equity to the company 's consolidated financial statements , which have been prepared in accordance with gaap : replace_table_token_6_th the first bancorp - 2013 form 10-k - page 26 executive summary this was a very busy and very good year for the first bancorp , with most of the company 's performance metrics moving in a positive direction . net income was the best the company has posted since 2009 and the fourth best year ever . in february , the company 's sixteenth office was opened on exchange street in bangor , which gives the company the opportunity to enter one of the most important and growing banking markets in the state of maine . the company had a very successful stock offering in the first quarter which enabled full repayment to the u.s. treasury for its 2009 investment in the company under the capital purchase program . credit quality improved significantly in 2013 , with non-performing assets at their lowest level in nearly five years and net chargeoffs down $ 3.1 million from 2012. and perhaps the most important happening for our shareholders in 2013 was the increase in our dividend in the fourth quarter to $ 0.20 per share per quarter . net income for the year ended december 31 , 2013 was $ 13.0 million , up $ 277,000 or 2.2 % from the $ 12.7 million posted for the year ended december 31 , 2012 . earnings per common share on a fully diluted basis were $ 1.20 for the year ended december 31 , 2013 , down $ 0.02 or 1.6 % from the $ 1.22 posted for the year ended december 31 , 2012 , due to the higher number of shares outstanding in 2013 as a result of the company 's public offering of 760,771 shares on march 28 , 2013. net interest income on a tax-equivalent basis declined $ 1.0 million or 2.4 % for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 . this decrease was attributable to a $ 1.1 million decline from margin compression experienced in the first half of the year that stabilized in the second half of the year , and this compression was partially offset by a $ 109,000 increase due to higher levels of earning assets . as a result , our net interest margin slipped from 3.14 % in 2012 to 3.05 % in 2013 . this year-over-year decline in net interest income was offset by a lower provision for loan losses . non-interest income for the year ended december 31 , 2013 was $ 12.1 million or 7.2 % higher than non-interest income posted for the year ended december 31 , 2012 . this was attributable to an increase in origination income from the sale of refinanced mortgage loans into the secondary market as well as an increase in other operating income . non-interest expense for the year ended december 31 , 2013 was $ 28.9 million or 10.1 % higher than non-interest expense posted for the year ended december 31 , 2012 , due to higher operating costs related to the opening of the de novo bangor office in the first quarter of 2013 , as well as from the union street branch in rockland that we acquired in the fourth quarter of 2012. during 2013 , total assets increased $ 49.0 million or 3.5 % . after five years of declining balances , the loan portfolio grew $ 7.1 million or 0.8 % in 2013. the investment portfolio was up $ 39.6 million or 8.8 % for the year . on the liability side of the balance sheet , low-cost deposits increased $ 33.7 million or 9.0 % for the year . this year-over-year increase is the result of healthy deposit inflows in 2013. local certificates of deposit increased $ 7.6 million or 3.5 % . as noted before , credit quality improved significantly in 2013 .
| results of operations net interest income net interest income on a tax-equivalent basis decreased 2.4 % or $ 1.0 million to $ 41.0 million for the year ended december 31 , 2013 from the $ 42.0 million reported for the year ended december 31 , 2012 . this decrease was attributable to a $ 1.1 million decline from margin compression experienced in the first half of the year that stabilized in the second half of the year , and this compression was partially offset by a $ 109,000 increase due to higher levels of earning assets , resulting in a decrease in the net interest margin from 3.14 % in 2012 to 3.05 % in 2013 . total interest income in 2013 was $ 49.9 million , a decrease of $ 1.9 million or 3.6 % from the $ 51.8 million posted by the company in 2012 . total interest expense in 2013 was $ 12.5 million , a decrease of $ 442,000 or 3.4 % from the $ 12.9 million posted by the company in 2012 . the decrease in both interest income and interest expense was attributable to lower interest the first bancorp - 2013 form 10-k - page 27 rates . tax-exempt interest income amounted to $ 6.6 million for the year ended december 31 , 2013 , $ 5.8 million for the year ended december 31 , 2012 and $ 5.0 million for the year ended december 31 , 2011 . the following tables present changes in interest income and expense attributable to changes in interest rates , volume , and rate/volume 1 for interest-earning assets and interest-bearing liabilities . tax-exempt income is calculated on a tax-equivalent basis , using a 35.0 % tax rate . replace_table_token_7_th replace_table_token_8_th 1 represents the change attributable to a combination of change in rate and change in volume .
| 3,010 |
overview with more than 6,600 employees across north america , australia , new zealand , and singapore , applied industrial technologies ( “ applied , ” the “ company , ” “ we , ” “ us ” or “ our ” ) is a leading value-added distributor of bearings , power transmission products , engineered fluid power components and systems , specialty flow control solutions , and other industrial supplies , serving mro ( maintenance , repair & operations ) and oem ( original equipment manufacturer ) customers in virtually every industry . in addition , applied provides engineering , design and systems integration for industrial , fluid power , and flow control applications , as well as customized mechanical , fabricated rubber , fluid power , and flow control shop services . applied also offers storeroom services and inventory management solutions that provide added value to its customers . we have a long tradition of growth dating back to 1923 , the year our business was founded in cleveland , ohio . at june 30 , 2019 , business was conducted in the united states , puerto rico , canada , mexico , australia , new zealand , and singapore from 600 facilities . the following is management 's discussion and analysis of significant factors that have affected our financial condition , results of operations and cash flows during the periods included in the accompanying consolidated balance sheets , statements of consolidated income , consolidated comprehensive income and consolidated cash flows in item 8 under the caption `` financial statements and supplementary data . '' when reviewing the discussion and analysis set forth below , please note that the majority of skus ( stock keeping units ) we sell in any given year were not sold in the comparable period of the prior year , resulting in the inability to quantify certain commonly used comparative metrics analyzing sales , such as changes in product mix and volume . our fiscal 2019 consolidated sales were $ 3.5 billion , an increase of $ 399.5 million or 13.0 % compared to the prior year , with the acquisitions of fcx performance inc. ( fcx ) , fluid power sales inc. ( fps ) , milroc distribution ( milroc ) , and woodward steel ( woodward ) , increasing sales by $ 360.0 million or 11.7 % and unfavorable foreign currency translation of $ 19.2 million decreasing sales by 0.6 % . gross profit margin increased to 29.0 % for fiscal 2019 from 28.8 % for fiscal 2018 primarily due to the impact of the acquisitions , which favorably impacted the gross profit margin by 48 basis points in fiscal 2019 , offset by an unfavorable impact of 26 basis points from the change in lifo expense in fiscal 2019 compared to fiscal 2018 . operating margin decreased to 6.7 % in fiscal 2019 from 7.3 % in fiscal 2018 . the reduction in operating margin is primarily due to a non-cash impairment charge recorded during fiscal 2019 totaling $ 31.6 million related to the long-lived intangible assets associated with the company 's upstream oil and gas operations in canada within the service center based distribution segment . the non-cash impairment charge decreased net income by $ 23.1 million and earnings per share by $ 0.59 per share . during the third quarter of fiscal 2019 , the company recorded charges of $ 2.3 million for restructuring activities within the service center based distribution segment to reduce headcount and consolidate locations , primarily related to the company 's oil and gas operations . of the total , $ 0.7 million related to inventory reserves for excess and obsolete inventory recorded within cost of sales and $ 1.6 million related to severance and facility consolidation recorded within selling , distribution and administrative expense . total restructuring charges reduced gross profit for the year by $ 0.7 million , operating income by $ 2.3 million , and earnings per share by $ 0.04 per share . our earnings per share was $ 3.68 in fiscal 2019 versus $ 3.61 in fiscal year 2018 . shareholders ' equity was $ 897.0 million at june 30 , 2019 compared to $ 815.0 million at june 30 , 2018 . working capital increased $ 98.9 million from june 30 , 2018 to $ 724.3 million at june 30 , 2019 . the current ratio was 2.7 to 1 at june 30 , 2019 and 2.4 to 1 at june 30 , 2018 . applied monitors several economic indices that have been key indicators for industrial economic activity in the united states . these include the industrial production ( ip ) and manufacturing capacity utilization ( mcu ) indices published by the federal reserve board and the purchasing managers index ( pmi ) published by the institute for supply management ( ism ) . historically , our performance correlates well with the mcu , which measures productivity and calculates a ratio of actual manufacturing output versus potential full capacity output . when manufacturing plants are running at a high rate of capacity , they tend to wear out machinery and require replacement parts . 15 the mcu ( total industry ) and ip indices have gradually decreased during the second half of fiscal 2019 correlating with an overall decline in the industrial economy in the same period . the ism pmi registered 51.7 in june 2019 , a decrease from the june 2018 revised reading of 60.0. a reading above 50 generally indicates expansion . the index readings for the months during the current quarter , along with the revised indices for previous quarter ends , were as follows : replace_table_token_1_th story_separator_special_tag style= '' font-family : frutiger lt 45 light , sans-serif ; font-size:10pt ; '' > $ 225.8 million during fiscal 2018 , and as a percentage of sales , decreased to 6.7 % from 7.3 % , primarily as a result of the impairment expense recorded during the current year . story_separator_special_tag net cash used in financing activities in fiscal 2019 included $ 175.0 million of cash from borrowings under the new trade receivable securitization facility , offset by $ 19.5 million of net payments under the revolving credit facility , and $ 161.7 million of long-term debt repayments . further uses of cash were $ 47.3 million for dividend payments , $ 11.2 million used to repurchase 192,082 shares of treasury stock , $ 3.5 million used to pay taxes for shares withheld , and $ 2.6 million used for acquisition holdback payments . net cash provided by financing activities in fiscal 2018 included $ 780.0 million of cash borrowings under the new credit facility and $ 19.5 million of net borrowings under the revolving credit facility , offset by $ 125.4 million of long-term debt repayments . further uses of cash were $ 45.9 million for dividend payments , $ 22.8 million used to repurchase 393,300 shares of treasury stock , and $ 3.3 million used for the payment of debt issuance costs . the increase in dividends over the year is the result of regular increases in our dividend payout rates . we paid dividends of $ 1.22 and $ 1.18 per share in fiscal 2019 and 2018 , respectively . capital expenditures we expect capital expenditures for fiscal 2020 to be in the $ 20.0 million to $ 25.0 million range , primarily consisting of capital associated with additional information technology equipment and infrastructure investments . depreciation for fiscal 2020 is expected to be in the range of $ 21.0 million to $ 22.0 million . share repurchases the board of directors has authorized the repurchase of shares of the company 's stock . these purchases may be made in open market and negotiated transactions , from time to time , depending upon market conditions . at june 30 , 2019 , we had authorization to purchase an additional 864,618 shares . in fiscal 2019 , 2018 and 2017 , we repurchased 192,082 , 393,300 , and 162,500 shares of the company 's common stock , respectively , at an average price per share of $ 58.10 , $ 57.92 , and $ 50.72 , respectively . borrowing arrangements in january 2018 , in conjunction with the acquisition of fcx , the company refinanced its existing credit facility and entered into a new five-year credit facility with a group of banks expiring in january 2023 . this agreement provides for a $ 780.0 million unsecured term loan and a $ 250.0 million unsecured revolving credit facility . fees on this facility range from 0.10 % to 0.20 % per year based upon the company 's leverage ratio at each quarter end . borrowings under this agreement carry variable interest rates tied to either libor or prime at the company 's discretion . at june 30 , 2019 and june 30 , 2018 , the company had $ 613.6 million and $ 775.1 million outstanding under the term loan , respectively . the company had no amount outstanding under the revolver as of june 30 , 2019 and $ 19.5 million was outstanding under the revolver as of june 30 , 2018 . unused lines under this facility , net of outstanding letters of credit of $ 3.2 million and $ 3.6 million , respectively , to secure certain insurance obligations , totaled $ 246.8 million and $ 226.9 million at june 30 , 2019 and june 30 , 2018 , respectively , and were available to fund future acquisitions or other capital and operating requirements . in january 2019 , the company entered into an interest rate swap on $ 463.0 million of unsecured variable debt to mitigate variability in forecasted interest payments . 19 the interest rate on the term loan was 4.19 % and 4.13 % as of june 30 , 2019 and june 30 , 2018 , respectively . the weighted average interest rate on the amount outstanding under the revolving credit facility as of june 30 , 2018 was 3.93 % . additionally , the company had letters of credit outstanding with a separate bank , not associated with the revolving credit agreement , in the amount of $ 2.7 million as of june 30 , 2019 and june 30 , 2018 , in order to secure certain insurance obligations . in august 2018 , the company established a trade receivable securitization facility ( the “ ar securitization facility ” ) with a termination date of august 31 , 2021 . the maximum availability under the ar securitization facility is $ 175.0 million . availability is further subject to changes in the credit ratings of our customers , customer concentration levels or certain characteristics of the accounts receivable being transferred and , therefore , at certain times , we may not be able to fully access the $ 175.0 million of funding available under the ar securitization facility . the ar securitization facility effectively increases the company 's borrowing capacity by collateralizing a portion of the amount of the service center based distribution reportable segment 's u.s. operations ' trade accounts receivable . the collateralized trade accounts receivable is equal to the borrowed amount outstanding under the ar securitization facility and there are no restrictions on cash or other assets . the company uses the proceeds from the ar securitization facility as an alternative to other forms of debt , effectively reducing borrowing costs . borrowings under this facility carry variable interest rates tied to libor and fees on the ar securitization facility are 0.90 % per year . as of june 30 , 2019 , the company borrowed $ 175.0 million under the ar securitization facility , and the interest rate was 3.33 % . at june 30 , 2019 and june 30 , 2018 , the company had borrowings outstanding under its unsecured shelf facility agreement with prudential investment management of $ 170.0 million . fees on this facility range from 0.25 % to 1.25 % per year based on the company 's leverage ratio at each quarter end .
| results of operations this discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended june 30 , 2019 and 2018 . for the comparison of the years ended june 30 , 2018 and 2017 , see the management 's discussion and analysis of financial condition and results of operations in part ii , item 7 of our 2018 annual report on form 10-k. the following table is included to aid in review of applied 's statements of consolidated income . replace_table_token_2_th sales in fiscal 2019 were $ 3.5 billion , which was $ 399.5 million or 13.0 % above the prior year , with sales from acquisitions accounting for $ 360.0 million or 11.7 % of the increase , and unfavorable foreign currency translation accounting for a decrease of $ 19.2 million or 0.6 % . there were 251.5 selling days in both fiscal 2019 and fiscal 2018 . excluding the impact of businesses acquired and the impact of foreign currency translation , sales were up $ 58.7 million or 1.9 % during the year , which is driven by growth of 3.5 % from the service center based distribution segment , offset by a 1.6 % decline from the fluid power & flow control segment . the following table shows changes in sales by reportable segment . replace_table_token_3_th sales of our service center based distribution segment , which operates primarily in mro markets , increased $ 106.5 million , or 4.5 % . acquisitions within this segment increased sales by $ 17.6 million or 0.7 % , and unfavorable foreign currency translation decreased sales by $ 19.2 million or 0.8 % . excluding the impact of businesses acquired and the impact of foreign currency translation , sales increased $ 108.1 million or 4.6 % due to overall growth in the industrial economy . 16 sales of our fluid power & flow control segment increased $ 293.0 million or 40.3 % .
| 3,011 |
the company assesses its tax positions for all open tax years and determines whether the company has any material unrecognized liabilities in accordance with asc topic 740. the company records these liabilities , if any , to the extent they are deemed more likely than not to have been incurred . cash and cash equivalents cash and cash equivalents include cash on hand and highly liquid investments with original maturities of three months or less . restricted cash restricted cash consists of cash the company has pledged to cover initial and variation margin with its counterparties . mortgage-backed securities in accordance with asc topic 320 , the company story_separator_special_tag the following discussion should be read in conjunction with our financial statements and the related notes included in item 8 . “ financial statements and supplementary data ” in this annual report on form 10-k. this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including , but not limited to , those disclosed in item 1a . “ risk factors ” elsewhere in this annual report on form 10-k and in other documents filed with the sec and otherwise publicly disclosed . please refer to “ forward-looking statements ” contained within this item 7 for additional information . this discussion also contains non-gaap financial measures . please refer to item 6 of this annual report on form 10-k for reconciliations of these non-gaap measures and additional information about why management believes these non-gaap measures are useful for shareholders . executive overview for a complete description of our business including our operating policies , investment philosophy and strategy , financing and hedging strategies , and other important information , please refer to item 1 of part 1 of this annual report on form 10-k. highlights of the 2014 fiscal year and outlook for 2015 we believe we were successful in meeting the challenges presented during 2014 to the mortgage reit industry from an increasingly complex global macroeconomic environment . while we reduced the assets on our balance sheet and lowered our leverage and spread risk , we generated a total economic return of 15.3 % for 2014 , which consisted of $ 1.00 in common dividends plus a $ 0.33 increase in book value per common share divided by book value per common share of $ 8.69 at december 31 , 2013. the increase in book value was primarily driven by the increase in fair value of our investments as a result of asset credit spread tightening . we believe our balance sheet as of december 31 , 2014 reflects a stronger liquidity and capital profile versus december 31 , 2013. entering 2015 with a stronger balance sheet is important to us as we anticipate the market in 2015 will likely hold surprises similar to 2014 , given the potential for federal reserve action , the low level of absolute rates , the flatter yield curve , and the tighter spread environment . despite some fluctuations during 2014 , yields available on rmbs and cmbs in the market place generally trended lower during 2014 , as market valuations for such bonds generally trended upward in 2014. we believe valuations continue to be supported by market technicals , such as us central bank and global central bank policies which have contributed to excess global liquidity and complacency around risk . we delevered our balance sheet throughout the year by selling investments which we believed were at a higher risk for spread widening and by not fully reinvesting principal payments received on our investments . we have continued to maintain our duration exposure within our guidelines of 0.5-1.5 years , predominantly on the short-end of the curve . we made minimal changes to our hedging portfolio during the fourth quarter of 2014 , but our hedging portfolio as of december 31 , 2014 has changed significantly since december 31 , 2013. we had a lower weighted average net fixed-pay rate and therefore lower net periodic interest costs from derivative instruments . we have continued to extend the maturities of our repurchase agreements to protect us from increased financing costs due to either fomc action or from higher regulatory costs on our lenders . the following table provides quarterly information on weighted average effective yields by type of mbs investment as well as other information : 31 replace_table_token_8_th ( 1 ) represents a non-gaap financial measure . please refer to the discussion regarding the use of non-gaap financial measures and to the corresponding reconciliations of gaap to non-gaap financial measures provided in item 6 of this annual report on form 10-k. trends and recent market impacts there are certain conditions and prospective trends in the marketplace that have impacted our financial condition and results of operations and which may continue to impact us in the future . conditions and trends that had significant developments during 2014 and that may impact us in 2015 are discussed below . federal reserve monetary policy the fomc has held the targeted federal funds rate in a range of 0.00 % - 0.25 % since the end of 2008. the fomc has indicated that it will assess progress towards its objectives of maximum employment and 2 % inflation in determining how long to maintain the current target range . the fomc has also indicated that it believes that it can be patient in beginning to normalize the stance of monetary policy , although the pace of normalization will depend on the speed of progress toward its objectives . recent fomc releases seem to indicate that the fomc may begin monetary policy normalization in mid-2015 . given the uneven economic performance in the u.s. , the lack of consistent global economic growth , and current and developing geopolitical risks , it is possible that the fomc delays policy normalization or perhaps only modestly increases the targeted rate by 0.25 % or 0.50 % while it evaluates the impact of tighter credit on the u.s. economy . story_separator_special_tag the transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date , considered from the perspective of a market participant that holds the asset or liability . asc topic 820 provides a consistent definition of fair value which focuses on exit price and prioritizes , within a measurement of fair value , the use of 33 market-based inputs over entity-specific inputs . in addition , asc topic 820 provides a framework for measuring fair value and establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date . our agency mbs , as well a majority of our non-agency mbs , are substantially similar to securities that either are currently actively traded or have been recently traded in their respective market . their fair values are derived from an average of multiple pricing services and dealer quotes . pricing services and dealers will have access to observable market information through their trading desks . we typically receive a total of three to six prices from pricing services and brokers for each of our securities ; prices obtained from brokers are not binding on either the broker or us . management does not adjust the prices received , but , for securities on which we receive five or more prices , the high and low prices are excluded from the calculation of the average price . in addition , management reviews the prices received for each security by comparing those prices to actual purchase and sale transactions , our internally modeled prices that are calculated based on observable market rates and credit spreads , and the prices that our borrowing counterparties use in financing the our securities . for any security for which significant variations in price exist ( from other external prices received or from our internal price ) , management may exclude such prices from the calculation of the average price . the decision to exclude any price from use in the calculation of the fair values used in our consolidated financial statements is reviewed and approved by management independent of the pricing process . the average of the remaining prices received is used for the fair values included in our consolidated financial statements . if the price of a security is obtained from quoted prices for similar instruments or model-derived valuations whose inputs are observable , the security is classified as a level 2 security . if the inputs are unobservable , the security would be classified as a level 3 security . as of december 31 , 2014 , less than 8 % of our non-agency mbs ( and less than 2 % of our total mbs ) are comprised of securities for which there are not substantially similar securities that trade frequently , and therefore , estimates of fair value for those level 3 securities are based primarily on management 's judgment . management determines the fair value of those securities by discounting the estimated future cash flows derived from cash flow models using assumptions that are confirmed to the extent possible by third party dealers or other pricing indicators . significant inputs into those pricing models are level 3 in nature due to the lack of readily available market quotes . information utilized in those pricing models include the security 's credit rating , coupon rate , estimated prepayment speeds , expected weighted average life , collateral composition , estimated future interest rates , expected credit losses , and credit enhancement as well as certain other relevant information . generally , level 3 assets are most sensitive to the default rate and severity assumptions . significant changes in any of these inputs in isolation would result in a significantly different fair value measurement , and accordingly , there is no assurance that our estimates of fair value are indicative of the amounts that would be realized on the ultimate sale or exchange of these assets . amortization of investment premiums . we amortize premiums and accrete discounts associated with the purchase of our mbs into interest income over the projected lives of our securities , including contractual payments and estimated prepayments , using the effective yield method . estimates and judgments related to future levels of prepayments are critical to this determination , and they are difficult for management to predict . with respect to both rmbs and cmbs , mortgage prepayment expectations can change based on how changes in current and projected interest rates impact a borrower 's likelihood of refinancing as well as other factors , including but not limited to real estate prices , borrowers ' credit quality , changes in the stringency of loan underwriting practices , and lending industry capacity constraints . with respect to rmbs , modifications to existing programs such as harp , or the implementation of new programs can have a significant impact on the rate of prepayments . further , gse buyouts of loans in imminent risk of default , loans that have been modified , or loans that have defaulted will generally be reflected as prepayments on our securities and increase the uncertainty around management 's estimates . we utilize a third party service to assist in estimating prepayment rates on all mbs . we review these estimates monthly and compare the results to any available market consensus prepayment speeds . we also consider historical prepayment rates and current market conditions to assess the reasonableness of the prepayment rates estimated by the third party service . actual and anticipated prepayment experience is reviewed monthly and effective yields are adjusted for differences between the previously estimated future prepayments and the amounts actually received as well as changes in estimated future prepayments . other-than-temporary impairments . when the fair value of an available-for-sale security is less than its amortized cost as of the reporting date , the security is considered impaired .
| results of operations in addition to our operating results presented in accordance with gaap , our results of operations discussed below contain certain non-gaap financial measures including core net operating income , adjusted net interest income , and effective borrowing cost and certain financial metrics derived from non-gaap information , such as adjusted net interest spread and effective borrowing rate . schedules reconciling these non-gaap financial measures to gaap financial measures are provided in item 6 within part ii of this annual report on from 10-k. as discussed in more detail below , management believes these non-gaap financial measures are useful because they provide investors greater transparency to the information we use in our financial and operational decision-making processes . management also believes the presentation of these measures , when analyzed in conjunction with the our gaap operating results , allows investors to more effectively evaluate and compare our performance to that of our peers . however , because such measures are incomplete measures of our financial performance and involve differences from results computed in accordance with gaap , these non-gaap measures should be considered as a supplement to , and not as a substitute for , our gaap results as reported in our consolidated statements of comprehensive income ( loss ) . in addition , because not all companies use identical calculations , our presentation of such non-gaap measures may not be comparable to other similarly-titled measures of other companies . interest income and asset yields interest income includes gross interest earned from the coupon rate on the securities , effects of premium amortization and discount accretion , and other interest income resulting from prepayment penalty income or other yield maintenance items .
| 3,012 |
the commercial alliance agreement with adm limited the rights of both adm and metabolix to work with other parties or alone in developing or commercializing certain phas story_separator_special_tag the following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in this annual report on form 10-k. all dollar amounts are stated in thousands . overview metabolix is an innovation-driven bioscience company focused on delivering sustainable solutions to the plastics and chemicals industries . we have core capabilities in microbial genetics , fermentation process engineering , chemical engineering , polymer science , plant genetics and botanical science , and we have assembled these capabilities in a way that has allowed us to integrate our biotechnology research with real world chemical engineering and industrial practice . in addition , we have created an extensive intellectual property portfolio to protect our innovations and , together with our technology , to serve as a valuable foundation for future industry collaborations . our targeted markets of plastics and chemicals offer substantial opportunity for innovation and value creation . our strategy is based on the performance and differentiation of our materials . with proprietary biopolymer formulations we aim to address unmet needs of our customers and leverage the distinctive properties of our phas to improve critical product qualities and enable our customers to enhance the value of their products and or achieve savings through their value chain . as such , we are positioning our biopolymers as advanced specialty materials that offer a broad and attractive range of properties and processing options compared to other bioplastics or performance additives . in addition , we are also leveraging our technology to utilize renewable feedstocks to produce biobased industrial chemicals for high value applications as alternatives to the primary synthetic routes currently deployed by the chemical industry . we believe that a substantial global market opportunity exists to develop and commercialize our technology to produce advanced biopolymer and biobased industrial chemical products . metabolix was formed to leverage the ability of natural systems to produce complex biopolymers from renewable resources . we have focused on a family of biopolymers found in nature called polyhydroxyalkanoates ( `` phas '' ) , which occur naturally in living organisms and are chemically similar to polyesters . we have demonstrated the production of phas at industrial scale to produce pha biopolymers and pha precursors to biobased industrial chemicals . we have also demonstrated the production of polyhydroxybutyrate ( `` phb '' ) , a subclass of phas , in agriculturally significant non-food crops . 44 pha biopolymers platform from 2004 through 2011 , we developed and began commercialization of our pha biopolymers through a technology alliance and subsequent commercial alliance with a wholly-owned subsidiary of archer daniels midland company ( `` adm '' ) , one of the largest agricultural processors in the world . under the commercial alliance , adm was responsible for resin manufacturing , and metabolix was primarily responsible for product development , compounding , marketing and sales . through this alliance , the companies established a joint venture company , telles , llc ( `` telles '' ) , to commercialize pha biopolymer products . after adm terminated the telles joint venture early in 2012 , we retained significant rights and assets associated with the pha biopolymers business , which we used to relaunch the business with a new business model and a restructured biopolymers team that retained core capabilities in technology , manufacturing and marketing . we hold exclusive rights to the metabolix technology and intellectual property used in the joint venture . we acquired all of telles 's product inventory and compounding raw materials , all product certifications and all product trademarks including mirel tm and mvera tm , and we retained all co-funded pilot plant equipment in locations outside of the adm commercial manufacturing facility in clinton , iowa . today , we are focused on high value performance biopolymers and are in the process of identifying and securing the manufacturing capability needed to commercialize these products . during 2012 , we took key steps toward implementing the new business model for our pha biopolymers business . we worked closely with our core customers to supply product from existing inventory as a bridge to new supply . we evaluated the potential applications for our biopolymer products and narrowed our market development focus to certain high value market segments : ( i ) performance additives , including film and bag applications ; and ( ii ) functional biodegradation . in march 2012 , we began directly recording product sales and shipping product from inventory to our customers . during the second half of 2012 , we developed , sampled and launched a compostable film grade resin , and a polymeric modifier for polyvinyl chloride ( `` pvc '' ) . we also established metabolix gmbh , a subsidiary located in cologne , germany , to serve as a focal point for our commercial activities in europe . this location is intended to enable us to directly access the european market , which is the largest for bioplastics . during 2013 , we continued to use existing biopolymer inventory as well as biobased and biodegradable polymers sourced from third parties to continue developing the market and to supply new and existing customers . in the second half of 2013 , we broadened our offering of film resins with the launch of mvera b5010 , a certified compostable resin for film and bag applications , and the launch of mvera b5011 , a certified compostable film resin for film and bag applications requiring transparency . we also launched i6003rp , a new polymeric modifier and processing aid for recycled pvc . throughout 2013 , we worked closely with customers developing applications using our materials . during 2013 we also engaged in discussions and collaborations with potential customers and suppliers in asia to expand our relationships there . story_separator_special_tag while applications for phas have focused mainly on their use as biodegradable bioplastics , these polymers have a number of other unique features that will allow their use in other applications , such as the production of chemical intermediates and their use as value-added animal feeds . we are working to create proprietary systems to produce phb in high concentration in the leaves of biomass crops or in the seeds of oilseed crops for these multiple applications . in doing this , we have been developing tools and intellectual property around enhancing the photosynthetic capacity of plants , a core capability for improved crop yield . our work in crops highlights our leading edge technical capabilities , and researchers at metabolix have designed novel , multi-gene expression systems to increase production of phb in plant tissue . the science behind this shift in metabolism is complex since the goal is to significantly increase production of phb to be viable at industrial scale without impairing the ability of the plant to thrive in its natural environment . in 2011 , metabolix was awarded a $ 6 million grant by the u.s. department of energy ( `` doe '' ) to engineer switchgrass to produce 10 percent phb , by weight , in the whole plant and to develop methods to thermally convert the phb-containing biomass to crotonic acid and a higher density residual biomass fraction for production of bioenergy . during 2012 and 2013 , metabolix was awarded additional grants for leading-edge crop research targeting multi-gene expression and transformation of plants including important biofuel and food crops . funding from these additional grants is expected to total approximately $ 1.6 million and will run through 2014. in 2014 , we plan to continue to identify additional sources of grant funding while we advance research under our existing grants , focused primarily on increasing phb production in switchgrass and developing a thermal conversion process to recover crotonic acid . we may also seek to establish alliances with industry partners to commercially exploit this platform and the intellectual property we have gained in our work in this area . however , there can be no assurance that we will be successful in establishing or maintaining suitable partnerships . we have incurred significant losses since our inception . as of december 31 , 2013 , our accumulated deficit from inception to date was $ 272,538 and total stockholders ' equity was $ 20,398. we recognized a net loss of $ 30,506 in 2013 , net income of $ 3,630 in 2012 , and a net loss of $ 38,785 in 2011. collaborative arrangements we are not currently participating in any collaborative arrangements . our historical strategy for collaborative arrangements has been to retain substantial participation in the future economic value of our technology while receiving current cash payments to offset research and development costs and working capital needs . by their nature , our collaborative agreements have been complex , containing multiple elements covering a variety of present and future activities . 47 adm collaboration from 2004 through 2011 , we developed and began commercialization of our pha biopolymers through a technology alliance and subsequent commercial alliance with adm polymer corporation , a wholly-owned subsidiary of adm , one of the largest agricultural processors in the world . the commercial alliance agreement between metabolix and adm polymer specified the terms and structure of the alliance . the agreement governed the activities and obligations of the parties to commercialize pha biopolymers , which have been marketed under the brand names mirel and mvera . these activities included the establishment of a joint venture company , telles , llc ( `` telles '' ) , to market and sell pha biopolymers , the construction of a manufacturing facility capable of producing 110 million pounds of material annually ( the `` commercial manufacturing facility '' ) , the licensing of technology to telles and to adm , and the conducting of various research , development , manufacturing , sales and marketing , compounding and administrative services by the parties . telles was formed to : ( i ) serve as the commercial entity to establish and develop the commercial market for pha biopolymers , and conduct the marketing and sales in accordance with the goals of the commercial alliance , ( ii ) assist in the coordination and integration of the manufacturing , compounding and marketing activities , and ( iii ) administer and account for financial matters on behalf of the parties . metabolix and adm each had a 50 percent ownership and voting interest in telles . under the commercial alliance agreement adm was permitted , under limited circumstances , to terminate the alliance if a change in circumstances that was not reasonably within the control of adm made the anticipated financial return from the project inadequate or too uncertain . the agreement provided that , upon termination by adm due to a change in circumstances , metabolix would be permitted to continue to produce and sell pha biopolymers , and adm would be required to perform manufacturing services for the company for a period of time following the termination ( subject to certain payment obligations to adm ) . on january 9 , 2012 , adm notified us that it was terminating the commercial alliance effective february 8 , 2012. adm had undertaken a strategic review of its business investments and activities and made the decision to focus resources outside of telles . as the basis for the decision , adm indicated to us that the projected financial returns from the alliance were too uncertain . the commercial alliance agreement with adm limited the rights of both adm and metabolix to work with other parties or alone in developing or commercializing certain phas produced through fermentation . these exclusivity obligations ended upon termination of the alliance . also , upon termination of the alliance , metabolix intellectual property licenses to adm polymer and telles ended , with metabolix retaining all rights to its intellectual property .
| results of operations comparison of the years ended december 31 , 2013 and 2012 revenue replace_table_token_6_th total revenue was $ 5,394 and $ 42,316 for the twelve months ended december 31 , 2013 and 2012 , respectively . during the twelve months ended december 31 , 2012 , we recognized $ 38,885 of previously deferred revenue related to our telles joint venture with adm that terminated effective february 8 , 2012. this deferred revenue , which was previously expected to be recognized over an estimated ten year period as we met our contractual performance obligations , became immediately recognizable upon termination of the joint venture as we had no further performance obligations following termination . during the twelve months ended december 31 , 2013 and 2012 , we also recognized $ 2,067 and $ 1,211 , respectively , related to the sale of biopolymer products . the increase of $ 856 for the twelve months ended december 31 , 2013 was primarily attributable to our implementation of our current product revenue recognition policy that resulted in a one-time shift of revenue , effectively pushing out sixty days of product revenue from 2012 to 2013. the company 's product revenue recognition policy is to defer product revenue recognition until the later of sixty days or cash receipt . at december 31 , 2013 and december 31 , 2012 , short-term deferred revenue on the company 's balance sheet included $ 537 and $ 786 of deferred product revenue , respectively .
| 3,013 |
in our opinion , such consolidated financial statements present fairly , in all material respects , the financial position of mannkind corporation and subsidiaries as of december 31 , 2015 and 2014 , and the results of their operations and their cash flows for each of the three years in the period ended december 31 , 2015 , in conformity with accounting principles generally accepted in the united states of america . the accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern . as discussed in note 1 to the consolidated financial statements , the company 's existing cash resources and its operating losses since inception raise substantial doubt about its ability to continue as a going concern . management 's plans concerning these matters are also described in note 1 to the consolidated financial statements . the consolidated financial statements do not include any story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included in this annual report on form 10-k. overview we are a biopharmaceutical company focused on the discovery and development of therapeutic products for diseases such as diabetes . our only approved product , afrezza , is a rapid-acting inhaled insulin that was approved by the fda on june 27 , 2014 to improve glycemic control in adult patients with diabetes . afrezza became available by prescription in united states retail pharmacies in february 2015. for the year ended december 31 , 2015 , sanofi reported a total of 7.0 million in annual sales of afrezza . as of december 31 , 2015 , we had an accumulated deficit of $ 2.9 billion and a stockholders ' deficit of $ 350.3 million . we incurred net losses of approximately $ 368.4 million , $ 198.4 million , and $ 191.5 million in the years ended december 31 , 2015 , 2014 , and 2013 , respectively . we have funded our operations primarily through the sale of equity securities and convertible debt securities , borrowings under the facility agreement , borrowings under the mann group loan arrangement , receipt of upfront and milestone payments under the sanofi license agreement and borrowings under the sanofi loan facility to fund our portion of the loss share . as discussed below in liquidity and capital resources , if we are unable to obtain additional funding , there will be substantial doubt about our ability to continue as a going concern . to date , all sales and marketing activities related to afrezza have been conducted by sanofi pursuant to the sanofi license agreement , and we have been responsible for manufacturing afrezza to supply sanofi 's demand for the product pursuant to the sanofi supply agreement . on january 4 , 2016 , we received written notice from sanofi of its election to terminate in its entirety the sanofi license agreement . sanofi 's notice indicated that the termination was pursuant to sanofi 's right to terminate the agreement upon sanofi 's good faith determination that the commercialization of afrezza is no longer economically viable in the united states , in which case the effective date of termination ( the termination date ) would be april 4 , 2016. in the alternative , sanofi indicated that the termination was also pursuant to its right to terminate the sanofi license agreement for any reason , in which case the termination date would be july 4 , 2016. we believe that sanofi lacks a good faith basis for determining that commercialization of afrezza is no longer economically viable in the united states . nonetheless , in the interest of an expedient transition , we are currently working with sanofi to transfer and wind down the agreement activities by april 4 , 2016 , or as soon as practicable thereafter . we intend to assume responsibility for commercializing and developing afrezza in the united states as soon as practicable following the termination date . as a result of the termination of the sanofi license agreement , the sanofi supply agreement will terminate by its terms on the termination date . we also intend to seek regional partnerships for the development and commercialization of afrezza in foreign jurisdictions where there are appropriate commercial opportunities . our business is subject to significant risks , including but not limited to our ability to successfully commercialize and manufacture sufficient quantities of arezza and the risks inherent in our ongoing clinical trials and the regulatory approval process for our product candidates . additional significant risks also include the results of our research and development efforts , competition from other products and technologies and uncertainties associated with obtaining and enforcing patent rights . research and development expenses historically our research and development expenses have consisted mainly of costs associated with research and development of our product candidates , including associated clinical trials , and manufacturing process development . this includes the salaries , benefits and stock-based compensation of research and development personnel , raw materials , laboratory supplies and materials , facility costs , costs for consultants and related contract research , licensing fees , and depreciation of equipment . we track research and development costs by the type of cost incurred . we partially offset research and development expenses with the recognition of estimated amounts receivable from the state of connecticut pursuant to a program under which we can exchange qualified research and development income tax credits for cash . 46 our research and development staff conducts our internal research and development activities , which include research , product development , clinical development , manufacturing process development and related activities . this staff is located in our facilities in valencia , california and danbury , connecticut . we expense research and development costs as we incur them . story_separator_special_tag we performed an assessment of projected sales to evaluate the lower of cost or market and the potential excess inventory on hand at december 31 , 2015. as a result of this assessment , we recorded a charge of $ 39.3 million to record the inventory raw materials on hand at the lower of cost or market , inventory expiry , and write-off other inventory related assets . in connection with the projected sales assessment , we also evaluated our inventory purchase commitments totalling $ 116.2 million for potential impairment . as a result of this assessment , we recorded a $ 66.2 million charge related to a loss on future purchase commitments both from a lower of cost or market and excess inventory perspective . the purchase commitment obligation has been reduced to reflect our expectation that a portion will be recoverable from a third party . deferred product costs from collaboration cost of product manufacturing includes costs in connection with producing commercial and clinical product for sanofi . deferred costs represent the costs of product manufactured and shipped to sanofi , not to exceed the amount of deferred product sales related to the collaboration , for which recognition of revenue has been deferred . given that the costs of inventory delivered to sanofi , but for which revenue may not yet be recognized , meet both the definition and characteristics of an asset and management believes that it is probable that the amount of future revenue will exceed the amount of deferred costs ( i.e. , the asset would be realizable through the recognition of probable future income ) , we have elected to account for the deferred costs related to the product sold to sanofi as an asset and carry forward to future periods until the related revenue is recognized . milestone rights in connection with the execution of the facility agreement on july 1 , 2013 , we issued milestone rights to the milestone purchasers . the milestone rights provide the milestone purchasers certain rights to receive payments up to $ 90.0 million upon the occurrence of specified strategic and sales milestones , including the first commercial sale of an afrezza product , and the achievement of specified net sales figures . we analyzed the milestone rights under the provisions of financial accounting standards board ( fasb ) accounting standards codification ( asc ) , 815 derivatives and hedging , referred to as asc 815 , and determined that the instruments do not meet the definition of a freestanding derivative . since we have not elected to apply the fair value option to the milestone rights , we have recorded the milestone rights at their estimated fair value and accounted for the milestone rights as a liability by applying the indexed debt guidance contained in paragraphs asc 470-10-25-3 and 35-4 . 48 the initial fair value estimate of the milestone rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjusted for both the expected timing and the probability of achieving the milestones and discounted to present value using a selected market discount rate . the expected timing and probability of achieving the milestones was developed with consideration given to both internal data , such as progress made to date and assessment of criteria required for achievement , and external data , such as market research studies . the discount rate was selected based on an estimation of required rate of returns for similar investment opportunities using available market data . the milestone rights liability will be remeasured as the specified milestone events are achieved . specifically , as each milestone event is achieved , the portion of the initially recorded milestone rights liability that pertains to such milestone event being achieved , will be remeasured to the amount of the specified related milestone payment . the resulting change in the balance of the milestone rights liability due to remeasurement will be recorded in our statement of operations as interest expense . furthermore , the milestone rights liability will be reduced upon each milestone payment being paid . as a result , each milestone payment would be effectively allocated between a reduction of the recorded milestone rights liability and an expense representing a return on a portion of the milestone rights liability paid to the investor for the achievement of the related milestone event . impairment of long-lived assets assessing long-lived assets for impairment requires us to make assumptions and judgments regarding the carrying value of these assets . we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable . the assets are considered to be impaired if we determine that the carrying value may not be recoverable based upon our assessment of the following events or changes in circumstances : significant changes in our strategic business objectives and utilization of the assets ; a determination that the carrying value of such assets can not be recovered through undiscounted cash flows ; loss of legal ownership or title to the assets ; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator ; or the impact of significant negative industry or economic trends . if we believe our assets to be impaired , the impairment we recognize is the amount by which the carrying value of the assets exceeds the fair value of the assets . any write-downs would be treated as permanent reductions in the carrying amount of the asset and an operating loss would be recognized . in addition , we base the useful lives and related amortization or depreciation expense on our estimate of the useful lives of the assets . if a change were to occur in any of the above-mentioned factors or estimates , our reported results could materially change .
| results of operations years ended december 31 , 2015 and 2014 revenues during the years ended december 31 , 2015 and 2014 , we did not recognize any revenue . due to the termination of the sanofi license agreement and based on our current operating plan , we expect to recognize , likely within 2016 , $ 17.5 million as product sales from collaboration , $ 13.5 million as product costs from collaboration and income from collaboration related to upfront and milestone payments in excess of $ 100 million , which amounts are deferred as of december 31 , 2015 due to the revenue recognition criteria not being met as of such date . 51 research and development expenses the following table provides a comparison of the research and development expense categories for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_3_th the decrease in research and development expenses of $ 70.6 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 was primarily due to a decrease of $ 36.0 million in manufacturing process development expenses resulting from the shift to commercial production of afrezza of $ 30.8 million and decreased expenses of $ 0.7 million following the completion of restructuring activities in early 2015. the decrease is also attributable to a $ 19.3 million decrease in stock-based compensation expense compared to 2014 as a result of a non-recurring modification of the settlement terms ( the modification ) of certain performance-based restricted stock units and the achievement of performance-based grants in 2014 and the first quarter of 2015. the modification resulted in the reclassification of these performance grants from equity awards to liability awards , which required re-measurement on the modification date and resulted in incremental stock-based compensation expense .
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for leases with a term of 12 months or less , a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities . if a lessee makes this election , it should recognize lease expense for such leases generally on a straight-line basis over the lease term . the amendments in this update are to be applied using a modified retrospective approach , as defined , and are effective for public business entities for fiscal years , and for interim periods within those fiscal years , beginning after december 15 , 2018. early application is permitted . the company is currently evaluating the financial statement impact of adopting the new guidance . in august 2015 , the financial accounting standards board ( fasb ) issued accounting standards update ( asu ) no . 2015-14 , revenue from contracts with customers ( topic 606 ) : deferral of the effective date . the amendments in this update defer the effective date of update 2014-09 for all entities by one year . public companies should apply the guidance in update 2014-09 to annual reporting periods beginning after december 31 , 2017 , including interim reporting periods within that reporting period . early adoption is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . 9. private placement memorandum on february 1 , 2017 , the company announced the completion of its underwritten public offering of 6,500,000 shares of its common stock at a public offering price of $ 3.00 per share . in addition , the underwriters exercised an option to purchase an additional 975,000 shares of common stock at the public offering price , less the underwriting discounts and commissions . all of the shares in the offering were sold by workhorse group , with gross proceeds to workhorse group of approximately $ 22.4 million and net proceeds of approximately $ 20.5 million , after deducting underwriting discounts and commissions and estimated offering expenses . on june 22 , 2017 , workhorse entered into an at the market issuance sales agreement ( the “ cowen agreement ” ) with cowen and company , llc ( “ cowen ” ) under which the company may offer and sell , from time to time at its sole discretion , shares of its common stock having an aggregate offering price of up to $ 25,000,000 through cowen as its sales agent . as of december 31 , 2017 , the company issued 1,060,783 shares from this facility . on september 14 , 2017 , the company entered into an underwriting agreement ( the “ underwriting agreement ” ) with cowen relating to the public offering and sale ( the “ offering ” ) of 3,749,996 shares of the company 's common stock , and five-year warrants ( exercisable beginning on the date of issuance ) to purchase up to an aggregate of 2,812,497 shares of the company 's common stock . each investor received a warrant to purchase 0.75 shares of the company 's common stock at an exercise price of $ 3.80 per share , for each share of common stock purchased . pursuant to the underwriting agreement , cowen purchased 3,749,996 shares of the company 's common stock and accompanying warrants at a price per share of $ 3.20 . the net proceeds to the company were approximately $ 10.9 million after deducting underwriting discounts and commissions and offering expenses . the sale of such shares and accompanying warrants closed on september 18 , 2017. the warrants contain full ratchet anti-dilution protection upon the issuance of any common stock , securities convertible into common stock or certain other issuances at a price below the then existing exercise price of the warrants , with certain exceptions . 10. quarterly financial data ( unaudited ) replace_table_token_18_th f- 18 item 9. changes in and disagreements with accountants on accounting and financial disclosure none . item 9a . controls and procedures ( a ) evaluation of disclosure controls and procedures ou r management , with the participation of our principal story_separator_special_tag the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this annual report on form 10-k overview and 2017 highlights we are a technology company focused on providing sustainable and cost-effective solutions to the commercial transportation sector . as an american manufacturer , we design and build high performance battery-electric vehicles and aircraft that make movement of people and goods more efficient and less harmful to the environment . as part of our solution , we also develop cloud-based , real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency . although we operate as a single unit through our subsidiaries , we approach our development through two divisions , automotive and aviation . our core products , under development and or in manufacture , are the last mile step and cargo vans , the w-15 pickup truck , the delivery drone and the manned multicopter , surefly . workhorse electric delivery vans are currently in production and are in use by our customers on u.s. roads . our delivery customers include companies such as ups , fedex express , alpha baking and wb mason . data from our in-house developed telematics system demonstrates our vehicles on the road are averaging approximately a 500 % increase in fuel economy as compared to conventional gasoline-based trucks of the same size and duty cycle . story_separator_special_tag the additional funding will allow us to continue to deliver vehicles associated with existing and expected orders , further develop our n-gen platform resulting in a “ production ready vehicle ” and further develop our w-15 pickup truck resulting in a “ production intent vehicle ” . unless and until we are able to generate a sufficient amount of revenue , reduce our costs and or enter a strategic relationship , we expect to finance future cash needs through public and or private offerings of equity securities and or debt financings . we do not currently have any committed future funding . to the extent we raise additional capital by issuing equity securities , our stockholders could at that time experience substantial dilution . any debt financing that we are able to obtain may involve operating covenants that restrict our business . our future funding requirements will depend upon many factors , including , but not limited to : ● our ability to acquire or license other technologies or compounds that we may seek to pursue ; ● our ability to manage our growth ; ● competing technological and market developments ; ● the costs and timing of obtaining , enforcing and defending our patent and other intellectual property rights ; and ● expenses associated with any unforeseen litigation . insufficient funds may require us to delay , scale back or eliminate some or all of our research or development programs , limit our sales activities , limit or cease production or negatively impact our operations . for the years ended december 31 , 2017 and 2016 , we maintained an investment portfolio primarily in money market funds , u. s. treasury bills , government-sponsored enterprise securities , and corporate bonds and commercial paper . cash in excess of immediate requirements is invested with regard to liquidity and capital preservation . wherever possible , we seek to minimize the potential effects of concentration and degrees of risk . we will continue to monitor the impact of the changes in the conditions of the credit and financial markets to our investment portfolio and assess if future changes in our investment strategy are necessary . summary of cash flows replace_table_token_4_th cash flows from operating activities our cash flows from operating activities are affected by our cash investments to support the business in research and development , manufacturing , selling , general and administration . our operating cash flows are also affected by our working capital needs to support fluctuations in inventory , personnel expenses , accounts payable and other current assets and liabilities . 29 during the year ended december 31 , 2017 and 2016 , cash used in operating activities was $ 38.7 million and $ 19.0 million , respectively . the decrease in operating cash flows in 2017 as compared to 2016 was mainly due to an increase in net losses . cash flows from investing activities cash flow from investing activities primarily relates to capital expenditures to support our future growth in operations . during the years ended december 31 , 2017 and 2016 , cash used by investing activities was $ 143 thousand and $ 528 thousand , respectively . the decrease in cash used by investing activities during the year is mainly due to reduced capital spending . cash flows from financing activities during the years ended december 31 , 2017 and 2016 , net cash provided by financing activities was $ 42.4 million and $ 12.4 million , respectively . cash flows from financing activities during the year ended december 31 , 2017 consisted mainly of $ 37.0 million of proceeds from the issuance of common stock and $ 4.8 million of senior secured notes as part of the initial efforts to spin-off surefly . credit facility presently we have no revolving credit facility established . there is no guarantee that we will be able to enter into an agreement to establish a line of credit or that if we do enter into such agreement that it will be on favorable terms . off-balance sheet arrangements the company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company 's financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . federal tax credit qualification by the irs the company has been qualified by the irs for a vehicle federal tax credit of up to $ 7,500. the company joins a list of plug-in electric drive motor vehicle manufacturers , including ford motor company , general motors corporation , tesla , toyota , and 13 ev manufacturers in all , qualifying purchasers for up to a $ 7,500 tax credit when purchasing an electric vehicle . additionally , many states offer additional sales tax exemptions and zero emission tax credits of up to $ 5,000 that can also be applied to the purchase . california air resources board approval on february 20 , 2013 the california air resource board ( carb ) approved the company 's e-100 all-electric commercial truck for sale in the state of california . most other states use this approval for sale of vehicles in their state . 30 critical accounting policies and estimates the following accounting principles and practices of the company are set forth to facilitate the understanding of data presented in the consolidated financial statements : nature of operations we are a technology company focused on providing sustainable and cost-effective solutions to the commercial transportation sector . as an american manufacturer we design and build high performance battery-electric electric vehicles and aircraft that make movement of people and goods more efficient and less harmful to the environment . as part of our solution , we also develop cloud-based , real-time telematics performance monitoring systems that enable fleet operators to optimize energy and route efficiency . although we operate as
| results of operations our condensed consolidated statement of operations data for the period presented follows : replace_table_token_3_th revenue sales for the years ended december 31 , 2017 and 2016 were $ 10.8 million and $ 6.4 million , respectively , were related to delivery of the production vehicles for ups and other customers . selling , general and administrative expenses selling , general and administrative ( “ sg & a ” ) expenses consist primarily of personnel and facilities costs related to our development including , marketing , sales , executive , finance , human resources , information technology and professional , legal and contract services . sg & a expenses during year ended december 31 , 2017 were $ 10.3 million , an increase from $ 6.2 million for the year ended december 31 , 2016. the increase in our sg & a expenses consisted primarily of employee salaries and benefits , consulting and investor relations , due to the increased activity in the period . research and development expenses research and development ( “ r & d ” ) expenses consist primarily of personnel costs for our teams in engineering and research , prototyping expense , and contract and professional services . r & d expenses during the year ended december 31 , 2017 were $ 18.1 million , an increase from $ 6.1 million for the year ended december 31 , 2016. the r & d expenses consisted primarily in employee salaries and benefits , consulting and materials related to the start of the next generation delivery vehicles ( ngdvs ) , and pick-up truck projects and the manned multicopter . interest expenses our interest expense is incurred primarily from our mortgage on the 100 commerce drive , loveland , ohio property mentioned before in the long-term debt note to the financial statements .
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overview we are a clinical-stage biopharmaceutical company focused on the discovery , development and commercialization of novel small molecule therapeutics for the treatment of patients with cancer . our product portfolio is built on a drug discovery platform that targets key cellular pathways with proprietary medicinal chemistry . our therapies are designed to enable more effective combination treatment strategies and improve outcomes for patients across multiple oncology indications . product pipeline our product pipeline includes several product candidates with the potential to significantly improve the treatment of patients with cancer . our two clinical candidates , trilaciclib and g1t38 , are based on our core understanding of cyclin-dependent kinases 4 and 6 , or cdk4/6 , a pair of proteins that play an important role in the growth and proliferation of all human cells . g1t48 is a potential first-in-class oral selective estrogen receptor degrader , or serd , which we plan to develop as a single agent and in combination with other agents , including g1t38 for the treatment of er-positive , or er+ , her2- breast cancer . we own the global rights to all our product candidates . replace_table_token_5_th trilaciclib : our novel approach to preserve hspcs from damage by chemotherapy trilaciclib is a potential first-in-class , short-acting cdk4/6 inhibitor which we are developing to be administered intravenously prior to chemotherapy . in preclinical studies , administration of trilaciclib prior to chemotherapy has been shown to induce transient cell-cycle arrest of hspcs , protect hspcs from chemotherapy-induced damage , preserve bone marrow and immune system function , protect against bone marrow exhaustion , improve complete blood counts ( cbc ) recovery , prevent myeloid skewing and consequent lymphopenia , and enhance t-cell effector function in the tumor microenvironment . ongoing phase 1b/2a clinical trial in first-line treatment of sclc in 2015 , we initiated a phase 1b/2a clinical trial in first-line extensive-stage sclc patients across multiple sites in the united states and europe . the phase 1b segment of the trial was designed to confirm the trilaciclib dose to be used in the randomized , placebo-controlled phase 2a segment . the goals of the trial are to evaluate the safety , myelopreservation , pharmacokinetics , and anti-tumor activity of trilaciclib in combination with the existing first-line chemotherapy standard of care regimen of etoposide and carboplatin and to confirm the dose to be used in future trials . all patients in the phase 1b segment were administered three-week cycles of trilaciclib plus etoposide/carboplatin , with an estimated four to six cycles administered in total per patient based on historical practice . trilaciclib was administered as an iv infusion prior to every dose of etoposide/carboplatin . in the phase 1b section of this trial , as reported at the american society of clinical oncology meetings in june 2017 , we treated 19 patients with multiple cycles of trilaciclib and chemotherapy and did not have a single episode of febrile neutropenia – one of the most 53 common adverse consequences of these chemotherapy regimens . we also observed a dose dependent reduction in grade 3/4 hematologic adverse events . the results from the phase 1b study support the hypothesis that trilaciclib co uld ameliorate the significant acute and long-term consequences of chemotherapy-induced myelosuppression by preserving hematopoietic and immune system function . based on these results , we initiated the randomized , placebo-controlled phase 2a segment of the trial in fourth-quarter of 2016 with a trilaciclib dose of 240 mg/m 2 and completed enrollment of a total of 77 patients in the second quarter of 2017 . we expect to update the data from the phase 1b segment of the trial and to report preliminary data from the phase 2a segment of the trial in march 2018. ongoing phase 1b/2a clinical trial in second/third-line treatment of sclc in 2015 , we initiated a phase 1b/2a clinical trial in second/third-line sclc patients across multiple sites in the united states and europe . the phase 1b segment of the trial was designed to confirm the trilaciclib dose to be used in the randomized , placebo-controlled phase 2a segment of the trial . the goals of the trial are to evaluate the safety , myelopreservation , pk , and anti-tumor activity of trilaciclib in combination with the existing second/third-line chemotherapy standard of care regimen of topotecan and to confirm the dose to be used in future trials . all patients in the phase 1b segment were administered three-week cycles of trilaciclib plus topotecan until the progression of disease . trilaciclib was administered as an iv infusion prior to every dose of topotecan . trilaciclib doses of 200 to 280 mg/m 2 and topotecan doses of 0.75 to 1.5 mg/m 2 were tested across 7 cohorts in the completed phase 1b open-label segment of the trial . upon completion of the phase 1b segment of the trial , the doses chosen for the randomized , placebo-controlled phase 2a segment of this trial are trilaciclib 240 mg/m 2 + topotecan 0.75 mg/m 2 and trilaciclib 240 mg/m 2 + topotecan 1.5 mg/m 2 . in the phase 1b segment we treated 32 patients with trilaciclib and topotecan without any episodes of febrile neutropenia or treatment related saes . preliminary results from the phase 1b were reported at the iasclc world conference on lung cancer in december 2016 , and based on these results the phase 2a segment of the trial was initiated in the first quarter of 2017 and consists of a double blind-design with approximately 90 patients randomized on a 2:1 basis to receive trilaciclib plus topotecan , or placebo plus topotecan . story_separator_special_tag g1t48 : our oral serd g1t48 , is a potential first/best in-class oral serd , which we plan to initially develop as a single agent and in combination with g1t38 for the treatment of er+ , her2- breast cancer . we believe we are in a unique position as the only emerging biopharmaceutical company with a wholly owned , proprietary combination of a serd and an oral cdk4/6 inhibitor , a validated regimen in er+ , her2- breast cancer . based on compelling preclinical efficacy and safety data , we filed an investigational new drug application ( ind ) with the u.s. food and drug administration ( fda ) in the fourth quarter of 2017. with the ind now open , we expect to initiate a clinical trial in the second quarter of 2018. we plan to initiate a phase 1/2a clinical trial in the second quarter of 2018 with the goal of evaluating the safety , tolerability and pk of the drug in breast cancer patients . financial overview since our inception in 2008 , we have devoted substantially all of our resources to synthesizing , acquiring , testing and developing our product candidates , including conducting preclinical studies and clinical trials and providing general and administrative support for these operations as well as securing intellectual property protection for our product candidates . we do not have any products approved for sale and have not generated any revenues from product sales . we recorded $ 0 million , $ 0 million and $ 0.5 million of revenue for the years ended december 31 , 2017 , 2016 and 2015 , respectively . we do not expect to generate revenue in the foreseeable future . to date , we have financed our operations primarily through the ipo and private placements of convertible debt and equity securities . from inception through december 31 , 2017 , we raised an aggregate of $ 213.9 million to fund our operations . on may 22 , 2017 , we closed our ipo of 7,781,564 shares of common stock at a public offering price of $ 15 per share , including 781,564 shares of common stock issued upon exercise by the underwriters of their option to purchase additional shares . the gross proceeds from the ipo were $ 116.7 million and net proceeds were $ 107.1 million , after deducting underwriting discounts and commissions and other offering expenses payable by us . as of december 31 , 2017 , we had cash and cash equivalents of $ 103.8 million . since inception , we have incurred net losses . our net losses were $ 60.1 million , $ 30.3 million and $ 20.3 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . as of 55 december 31 , 2017 , we had an accumulated deficit of $ 129.1 million . substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations . we expect to continue to incur significant expenses and increasing operating los ses for the foreseeable future . we expect our expenses will increase substantially in connection with our ongoing activities as we : continue development of our product candidates , including initiating additional clinical trials of trilaciclib and g1t38 and completing preclinical studies and potentially initiating clinical trials of our preclinical-stage product candidate , g1t48 ; identify and develop new product candidates ; seek marketing approvals for our product candidates that successfully complete clinical trials ; establish a sales , marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval ; achieve market acceptance of our product candidates in the medical community and with third-party payors ; maintain , expand and protect our intellectual property portfolio ; hire additional personnel ; enter into collaboration arrangements , if any , for the development of our product candidates or in-license other products and technologies ; add operational , financial and management information systems and personnel , including personnel to support our product development and planned future commercialization efforts ; and incur increased costs as a result of operating as a public company . license agreement with the university of illinois in november 2016 , we entered into a license agreement with the university of illinois , or uic , pursuant to which we obtained an exclusive , worldwide license to make , have made , use , import , sell and offer for sale serds , including g1t48 , covered by certain patent rights owned uic . the rights licensed to us are for all fields of use . under the terms of the agreement we paid a one-time only , non-refundable upfront fee of $ 0.5 million , and are required to pay uic low single-digit royalties on all net sales of products and a share of any sublicensing revenues . we are also obligated to pay annual maintenance fees , which are fully creditable against any royalty payments made by us . we may also be required to pay uic milestone payments of up to an aggregate of $ 2.625 million related to the initiation and execution of clinical trials and first commercial sale of a product in multiple countries . we are responsible for all future patent prosecution costs . see “ business—intellectual property—exclusive license for g1t48. ” financial operations overview revenues to date , we have not generated any revenues from the commercial sale of approved products or out-licensing of our product candidates , and we do not expect to generate substantial revenue from the commercial sale of our products for the foreseeable future , if ever . in the future , we will seek to generate revenue primarily from product sales and , potentially , regional or global collaborations with strategic partners . we have received all of our revenues to date from government grants related to our research .
| results of operations comparison of the year ended december 31 , 2017 and december 31 , 2016 replace_table_token_6_th revenue revenue was $ 0 for the years ended december 31 , 2017 and december 31 , 2016 . 60 research and development research and development expenses were $ 53.9 million for the year ended december 31 , 2017 as compared to $ 25.2 million for the year ended december 31 , 2016. the increase of $ 28.7 million , or 114 % , was primarily due to an increase of $ 16.3 million in our clinical program costs which reflects increased costs in our ongoing clinical trials and initiation of our trial in sclc with tecentriq , as well as increased headcount-related expenses to support these trials . the increase in research and development expenses was also due to an increase in costs for manufacturing of pharmaceutical active ingredient and drug product to support our clinical trials and an increase in external costs related to preclinical development . the following table summarizes our research and development expenses allocated to trilaciclib , g1t38 and g1t48 , and unallocated research and development expenses for the periods indicated : replace_table_token_7_th general and administrative general and administrative expenses were $ 7.1 million for the year ended december 31 , 2017 as compared to $ 5.2 million for the year ended december 31 , 2016. the increase of $ 1.9 million , or 36 % , was due to an increase of $ 1.4 million in personnel related costs as a result of headcount-related costs , an increase of $ 1.5 million in professional services , insurance , board compensation and other administrative costs necessary to support our operations as a public company and offset by a decrease of $ 1.0 million in transaction related costs from our deferred public offering .
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the company elected to exclude recognition of leases with a term of 12 months or less ( short-term leases ) from the consolidated balance sheets . as of january 1 , 2019 , the company recognized operating rou lease assets and obligations in the amounts of $ 44.6 million and $ 51.2 million , respectively , on its consolidated balance sheets . the adoption of this standard did not have a material impact on the company 's consolidated financial statements . recently issued accounting pronouncements in july 2019 story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes appearing in “ item 8. financial statements and supplementary data ” of this annual report on form 10-k. overview air lease corporation is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer , steven f. udvar-házy . we are principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers , such as boeing and airbus , and leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity . in addition to our leasing activities , we sell aircraft from our operating lease portfolio to third-parties , including other leasing companies , financial services companies , airlines and other investors . we also provide fleet management services to investors and owners of aircraft portfolios for a management fee . our operating performance is driven by the growth of our fleet , the terms of our leases , the interest rates on our debt , and the aggregate amount of our indebtedness , supplemented by the gains from our aircraft sales , trading and other activities and our management fees . during the year ended december 31 , 2019 , we purchased and took delivery of 53 aircraft from our new order pipeline , purchased two incremental aircraft in the secondary market , sold 30 aircraft and transferred eight aircraft from our operating lease portfolio to flight equipment held for sale , which is included in other assets in our consolidated balance sheet , ending the period with a total of 292 aircraft in our operating lease portfolio with a net book value of $ 18.7 billion . the weighted average lease term remaining on our operating lease portfolio was 7.2 years and the weighted average age of our fleet was 3.5 years as of december 31 , 2019. our fleet grew by 19.1 % based on net book value of $ 18.7 billion as of december 31 , 2019 compared to $ 15.7 billion as of december 31 , 2018. in addition , we had a managed fleet of 83 aircraft as of december 31 , 2019 , compared to a managed fleet of 61 aircraft as of december 31 , 2018. we have a globally diversified customer base comprised of 106 airlines in 59 countries . as of february 14 , 2020 , all aircraft in our operating lease portfolio , except for two aircraft , were subject to lease agreements . during 2019 , we increased our total commitments with boeing and airbus by a net 94 aircraft . as of december 31 , 2019 , we had commitments to purchase 413 aircraft from boeing and airbus for delivery through 2026 , with an estimated aggregate commitment of $ 27.4 billion . we ended 2019 with $ 29.1 billion in committed minimum future rental payments and placed approximately 79 % of our committed order book on long-term leases for aircraft delivering through 2022. this includes $ 14.1 billion in contracted minimum rental payments on the aircraft in our existing fleet and $ 15.0 billion in minimum future rental payments related to aircraft which will deliver between 2020 and 2024. during the year ended december 31 , 2019 , we sold a total of 30 aircraft for proceeds of approximately $ 1.0 billion . in november 2019 , we entered into an agreement to sell 19 aircraft through our thunderbolt platform to investors . our thunderbolt platform facilitates the sale of mid-life aircraft to investors while allowing to continue the management of these aircraft for a fee . through this transaction , we retained a non-controlling interest of approximately 5.0 % in the entity . during the year ended december 31 , 2019 , we completed the sales of 11 of the 19 aircraft and expect to complete the sale of the remaining eight aircraft in 2020. as of december 31 , 2019 , these eight aircraft were classified as held for sale and included in other assets on our consolidated balance sheets . we finance the purchase of aircraft and our business with available cash balances , internally generated funds , including through aircraft sales and trading activities and debt financings . our debt financing strategy is focused on raising unsecured debt in the global bank and debt capital markets , with a limited utilization of government guaranteed export credit or other forms of secured financing . in 2019 , we issued approximately $ 3.2 billion in senior unsecured notes bearing interest at fixed rates ranging from 2.25 % to 4.25 % with one note bearing interest at a floating rate of three-month libor plus 0.67 % , with maturities ranging from 2021 to 2029. in addition , we increased our unsecured revolving credit facility capacity to approximately $ 5.8 billion , representing a 27.9 % increase from 2018 and extended the final maturity date to may 5 , 2023 bearing interest at a floating rate of libor plus 1.05 % . we ended 2019 with total 49 debt outstanding , net of discounts and issuance costs , of $ 13.6 billion , of which 88.4 % was at a fixed rate and 96.6 % of which was unsecured . as of december 31 , 2019 , our composite cost of funds was 3.34 % . story_separator_special_tag if exercised , deliveries of these aircraft are scheduled to commence in 2023 and continue through 2028. pursuant to our purchase agreements with boeing and airbus for new aircraft , the company and each manufacturer agrees to contractual delivery dates for each aircraft ordered . however , these dates can change for a variety of reasons . in the last few years , airbus and boeing have had delivery delays , and these delays have significantly impacted when our aircraft have been delivered . 52 our leases typically provide that we and our airline customers each have a cancellation right related to aircraft delivery delays . the lease cancellation rights typically parallel our cancellation rights in our purchase agreements with boeing and airbus , and typically provide for cancellation rights starting at one year after the original contractual delivery date , regardless of cause . for several years , we have experienced delivery delays for certain of our airbus orderbook aircraft , primarily the a321neo aircraft and , to a lesser extent , a330neo aircraft . airbus has told us to continue to expect several months of delivery delays relating to such aircraft scheduled to deliver through 2022. the worldwide grounding of the boeing 737 max began on march 10 , 2019 , and remains in effect . as a result , boeing has temporarily halted production and delivery of all boeing 737 max aircraft . lifting of the grounding is subject to approval of global regulatory authorities and we are unable to speculate as to when this may occur . boeing 737 max deliveries may be impacted by the duration of the grounding and the speed by which boeing can deliver aircraft following the lifting of the grounding . we expect that if the grounding continues for an extended time , or if there are significant boeing 737 max delivery delays even after the grounding is lifted , some of our customers may seek to cancel their lease contracts with us . it is unclear at this point if we will cancel some of our boeing 737 max delivery positions with boeing or attempt to find replacement lessees . we are currently in discussions with boeing regarding the mitigation of possible damages resulting from the grounding of and the delivery delays associated with the boeing 737 max aircraft that we own and have on order . the following table , which is subject to change based on airbus delivery delays and the boeing 737 max grounding , shows the number of new aircraft scheduled to be delivered as of december 31 , 2019 , along with the lease placements of such aircraft as of february 14 , 2020 : replace_table_token_17_th aircraft industry and sources of revenues our revenues are principally derived from operating leases with scheduled and charter airlines throughout the world . we have a globally diversified customer base comprised of 106 airlines in 59 countries and in each of the last four calendar years , we derived more than 95 % of our revenues from airlines domiciled outside of the u.s. , and we anticipate that most of our revenues in the future will be generated from foreign customers . demand for air travel has consistently grown in terms of both passenger traffic and number of aircraft in service . the international air transport association ( “ iata ” ) reported that passenger traffic for the year 2019 grew 4.2 % compared to 2018. the number of aircraft in service has grown steadily and the number of leased aircraft in the global fleet has increased . the long-term outlook for aircraft demand remains robust due to increased passenger traffic and the need to replace aging aircraft . from time to time , our airline customers face financial difficulties . in september 2019 , thomas cook airlines , a british airline , ceased all operations and filed for bankruptcy . at the time of the filing , we had seven aircraft from our owned fleet and four aircraft from our managed fleet leased to thomas cook airlines . despite the bankruptcy of thomas cook airlines , we continue to see airlines globally performing well . we experienced strong demand for the aircraft that were previously leased to thomas cook airlines and we have entered into leases for all of these aircraft . 53 the worldwide grounding of the boeing 737 max began on march 10 , 2019 , and remains in effect . as a result , boeing has temporarily halted production and delivery of all boeing 737 max aircraft . as of december 31 , 2019 , we owned and leased 15 boeing 737 max aircraft and we have 135 boeing 737 max aircraft on order . lifting of the grounding is subject to global regulatory authorities and we are unable to speculate as to when this may occur . because of this uncertainty , we have curtailed our leasing of our orderbook aircraft since the grounding . with respect to the 15 boeing 737 max aircraft we own and lease , our airline customers are obligated to continue to make payments under the lease , irrespective of any difficulties in which the lessees may encounter , including an aircraft fleet grounding . however , the airlines affected by this grounding have had to adjust flight schedules or cancel flights , back fill aircraft with other aircraft types or keep older aircraft in service longer . these operational changes and the uncertainty of when the boeing 737 max aircraft will return to service and when boeing will resume deliveries have impacted the profitability of certain airlines . we expect that if the grounding continues for an extended time , or if there are significant boeing 737 max delivery delays even after the grounding is lifted , some of our customers may seek to cancel their lease contracts with us . it is unclear at this point if we will cancel some of our boeing 737 max delivery positions with boeing or attempt to find replacement lessees .
| results of operations replace_table_token_19_th ( 1 ) on december 22 , 2017 , the u.s. tax cuts and jobs act ( the “ tax reform act ” ) was signed into law . the tax reform act significantly revised the u.s. corporate income tax law by , among other things , lowering the u.s. corporate tax rate from 35 % to 21 % , effective january 1 , 2018. accounting standards codification ( “ asc ” ) 740 requires that the impact of tax legislation be recognized in the period in which the law was enacted . as a result of the tax reform act , we recorded a tax benefit of $ 354.1 million due to the remeasurement of deferred tax assets and liabilities in the year ended december 31 , 2017 . ( 2 ) adjusted net income before income taxes ( defined as net income available to common stockholders excluding the effects of certain non-cash items , one-time or non-recurring items , such as settlement expense , net of recoveries , that are not expected to continue in the future and certain other items ) , adjusted pre-tax profit margin ( defined as adjusted net income before income taxes divided by total revenues , excluding insurance recoveries ) , adjusted diluted earnings per share before income taxes ( defined as adjusted net income before income taxes plus assumed conversions divided by the weighted average diluted common shares outstanding ) and adjusted pre-tax return on common equity ( defined as adjusted net income before income taxes divided by average common shareholders ' equity ) are measures of operating performance that are not defined by gaap and should not be considered as an alternative to net income available to common stockholders , pre-tax profit margin , earnings per share , diluted 62 earnings per share and pre-tax return on common equity , or any other performance measures derived in accordance with gaap .
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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 part i , item 1a , `` risk factors . '' our audited consolidated financial statements have been prepared in accordance with u.s. gaap and are presented in u.s. dollars . overview revance is a biotechnology company focused on innovative aesthetic and therapeutic offerings , including its next-generation neuromodulator product , daxibotulinumtoxina for injection . daxibotulinumtoxina for injection combines a proprietary stabilizing peptide excipient with a highly purified botulinum toxin that does not contain human or animal-based components . we have successfully completed a phase 3 program for daxibotulinumtoxina for injection in glabellar ( frown ) lines and are pursuing u.s. regulatory approval . we are also evaluating daxibotulinumtoxina for injection in the full upper face , including glabellar lines , forehead lines and crow 's feet , as well as in two therapeutic indications—cervical dystonia and adult upper limb spasticity . to accompany daxibotulinumtoxina for injection , we own a unique portfolio of premium products and services for u.s. aesthetics practices , including the exclusive u.s. distribution rights to teoxane sa 's line of resilient hyaluronic acid® collection of dermal fillers , the first and only range of fda-approved fillers for correction of dynamic facial wrinkles and folds , and the hintmd platform , which provides an integrated smart payment solution that supports aesthetic practice management , practice economics and practice loyalty . we have also partnered with viatris to develop an onabotulinumtoxina biosimilar , which would compete in the existing short-acting neuromodulator marketplace . we are dedicated to making a difference by transforming patient experiences . impact of the covid-19 pandemic on our operations the covid-19 pandemic caused general business disruption worldwide beginning in january 2020. the health and safety of our team , their families and our communities remains our top priority . in response to the covid-19 pandemic , we curtailed employee travel and implemented a corporate work-from-home policy in march 2020. we have continued to monitor the situation and have gradually resumed essential on-site corporate operations in accordance with local and regional restrictions . we have adopted remote working tools to minimize the disruption to the achievement of our goals and objectives for employees whose job duties do not require physical presence to complete their work . certain manufacturing , quality and laboratory-based employees have continued to work onsite , and certain employees with customer-facing roles are onsite for training and interfacing in-person with customers in connection with the product launch of the rha® collection of dermal fillers . if the severity , duration or nature of the covid-19 pandemic changes , it may have an impact on our ability to continue on-site operations , which could disrupt our clinical trials and sales activities . the covid-19 pandemic has and may continue to negatively affect our ability to obtain approval of product candidates from the fda or other regulatory authorities , supply chain , end user demand for our products and commercialization activities . in november 2020 , the fda deferred a decision on the bla for daxibotulinumtoxina for injection for the treatment of moderate to severe glabellar ( frown ) lines . the fda reiterated that an inspection of our manufacturing facility is required as part of the bla approval process , but the fda was unable to conduct the required inspection of our manufacturing facility in newark , california , due to the fda 's travel restrictions associated with the covid-19 pandemic . the fda did not indicate there were any other review issues at the time beyond the on-site inspection . in addition , the product supply of the rha® collection of dermal fillers was delayed by distribution partner teoxane as they temporarily suspended production in geneva , switzerland as a precaution surrounding the covid-19 pandemic . teoxane resumed manufacturing operations at the end of april 2020 and delivered the first shipment of the rha® collection of dermal fillers to us in june 2020. as a result , our initial product launch of the rha® collection of dermal fillers was delayed by one quarter to september 2020. in addition , port closures and other restrictions resulting from the 86 covid-19 pandemic may disrupt our supply chain or limit our ability to obtain sufficient materials for the production of our products . we have taken steps to build sufficient levels of inventory to help mitigate potential future supply chain disruptions . our clinical trials have been and may continue to be affected by the covid-19 pandemic . the covid-19 pandemic has and may further delay enrollment in and the progress of our current and future clinical trials . patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services . site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the covid-19 pandemic . for example , enrollment in the juniper phase 2 adult upper limb spasticity trial was paused in march 2020 due to challenges related to the covid-19 pandemic . the trial was originally designed to include 128 subjects . due to the covid-19 challenges related to continued subject enrollment and the scheduling of in-person study visits , in june 2020 , we announced the decision to end screening and complete the juniper trial with the 83 patients enrolled to date . we released topline results from the phase 2 study in february 2021. to ensure proper clinical trial coordination and completion , in line with the fda-issued guidance of march 18 , 2020 on the conduct of clinical trials of medical products during the covid-19 pandemic , we are evaluating and implementing risk-based approaches for remote clinical trial monitoring and activities , including remote patient assessment , for those subjects who can not physically visit clinic sites , to ensure the full completion of trials . story_separator_special_tag the most common adverse events were injection site erythema ( 6.3 % ) , facial discomfort ( 4.2 % ) and headache ( 2.1 % ) . no eyelid or brow ptosis was reported . forehead lines . in june 2020 , we released top-line results of the forehead lines trial . the objective was to understand the potential dosing and injection patterns of daxibotulinumtoxina for injection in other areas of the upper face in addition to the lead indication in glabellar lines . we released top-line results from the forehead lines trial in june 2020. the primary endpoint for efficacy was the proportion of subjects achieving a score of none or mild in wrinkle or line severity at week 4 at maximum eyebrow elevation for forehead lines . in the forehead lines trial , 100 % of subjects achieved a score of none or mild at week 4 in at least one treatment group . daxibotulinumtoxina for injection was well-tolerated at all dose levels . adverse events were mild , localized and transient , and there were no treatment-related serious adverse events , as is common with other approved neuromodulators in the treatment of upper facial lines . one of the exploratory endpoints in the forehead lines trial was duration of effect , defined as the median time to return to baseline wrinkle severity based on both investigator and patient assessment . at least one dose in the study demonstrated a median duration of effect of 27 weeks on forehead lines . interim data from the forehead lines trial was used in the final design of our upper facial lines trial to optimize dosing and injection patterns , which is discussed above . lateral canthal lines . in june 2020 , we released top-line results of the lcl trial . the primary endpoint for efficacy was the proportion of subjects achieving a score of none or mild in wrinkle or line severity at week 4 at maximum smile for crow 's feet . in the lcl trial , 88 % of subjects achieved a score of none or mild at week 4 in at least one treatment group . daxibotulinumtoxina for injection was well-tolerated at all dose levels . adverse events were mild , localized and transient as expected and there were no treatment-related serious adverse events , as is common with other approved neuromodulators in the treatment of upper facial lines . one of the exploratory endpoints in the lcl trial was duration of effect , defined as the median time to return to baseline wrinkle severity based on both investigator and patient assessment . at least one dose in the study demonstrated a median duration of effect of 24 weeks on crow 's feet . interim data from the lcl trial was used in the final design of the upper facial lines trial to optimize dosing and injection patterns , which is discussed above . 88 daxibotulinumtoxina for injection therapeutics cervical dystonia ( aspen ) . the aspen phase 3 clinical program consists of two trials to evaluate the safety and efficacy of daxibotulinumtoxina for injection for the treatment of cervical dystonia in adults including a randomized , double-blind , placebo-controlled , parallel group trial ( aspen-1 ) , and an open-label , long-term safety trial ( aspen-ols ) . in october 2020 , we announced positive topline results from the aspen-1 trial . this pivotal study enrolled a total of 301 subjects at 60 sites in the u.s. , canada and europe . subjects were randomized 3:3:1 to receive a single treatment of either 125 units or 250 units of daxibotulinumtoxina for injection , or placebo and were followed for up to 36 weeks . the drug appeared to be well-tolerated at both doses . the study met its primary efficacy endpoint at both doses , demonstrating a clinically meaningful improvement in the signs and symptoms of cervical dystonia at the average of weeks 4 and 6. compared to placebo , subjects treated with either 125 units or 250 units showed a statistically significant greater change from baseline as measured on the toronto western spasmodic torticollis rating scale total score . median duration of effect was 24.0 and 20.3 weeks , for the 125 unit and 250 unit dose groups respectively , based on the median time to loss of 80 % of the peak treatment effect . there were no serious treatment-related adverse events and no dose-dependent increase in adverse events was observed . treatment-related adverse events were generally transient and mild to moderate in severity , with one case of neck pain reported as severe , which resolved two days after onset . the three most common treatment-related adverse events were ( for 125 units and 250 units , respectively ) : injection site pain ( 7.9 % , 4.7 % ) , headache ( 4.7 % , 4.7 % ) , and injection site erythema ( 4.7 % , 2.3 % ) . the incidence of dysphagia ( difficulty swallowing ) and muscle weakness , which are considered adverse events of particular interest with neuromodulator treatments for cervical dystonia , was low ( for 125 units and 250 units , respectively ) : dysphagia ( 1.6 % , 3.9 % ) and muscular weakness ( 4.7 % , 2.3 % ) . we completed the enrollment for aspen-ols , a long-term safety study for cervical dystonia , with a total of 354 subjects and expect to release topline results in the second half of 2021. daxibotulinumtoxina for injection for cervical dystonia is expected to be our first therapeutic indication of which we are aiming for regulatory approval in 2023. adult upper limb spasticity . in december 2018 , we initiated the juniper phase 2 randomized , double-blind , placebo-controlled , multi-center clinical trial to evaluate the efficacy and safety of daxibotulinumtoxina for injection for adults with moderate to severe upper limb spasticity due to stroke or traumatic brain injury . in february 2021 , we announced topline data from the juniper phase 2 trial .
| results of operations a discussion regarding our financial condition and results of operations for the year ended december 31 , 2020 compared to the same period in 2019 is presented below . for a discussion regarding our financial condition and results of operations for the year ended december 31 , 2019 compared to the same period in 2018 , see part ii , item 7 . “ management 's discussion and analysis of financial condition and results of operations—results of operations ” of our annual report on form 10-k for the year ended december 31 , 2019 , as filed with the sec on february 26 , 2020. as a result of the hintmd acquisition in july 2020 , we have two reportable segments : the product segment and the service segment . our product segment refers to the business that includes the research and development of innovative aesthetic and therapeutic products , including daxibotulinumtoxina for injection for various indications , the u.s. distribution of the rha® collection of dermal fillers , and the onabotulinumtoxina biosimilar program in partnership with viatris . both product and collaboration revenues and related expenses are included in product segment . our service segment refers to the business of the hintmd platform , which is a registered payfac and enables practices to process payments for their patients and provides subscription and pay-over-time solutions that support practices ' aesthetic treatment plans . revenue replace_table_token_1_th n/m - percentage not meaningful product revenue we currently generate product revenue primarily from the sale of the rha® collection of dermal fillers . we made initial sales of the rha® collection of dermal fillers in june 2020 as a part of the prevu program and the formal commercial launch took place in september 2020. for additional information on the prevu program , please read part i , item 1 . “ business — sales and marketing ” .
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note 7 – commitments and contingencies operating leases at december 31 , 2011 , we had commitments under non-cancelable operating leases for our dallas office and research and development facilities until december 31 , 2012 totaling $ 77,000 . we had commitments under non-cancelable operating leases for our new york office until august 31 , 2012 totaling $ 130,000 . rent expense for the years ended december 31 , 2011 and 2010 was $ 266,000 and $ 110,000 , respectively . we also have one non-cancelable operating lease – for a copier with future obligations totaling approximately $ 30,000 ending in 2014. legal we are not currently subject to any material pending legal proceedings . note 8 - fair value measurements the carrying value of cash , cash equivalents , receivables , accounts payable and accruals approximate fair value due to the short maturity of these items . the carrying value of the convertible long-term debt is at book value which approximates the fair value as the interest rate is at market value . effective january 1 , 2008 , we adopted fair value measurement guidance issued by the fasb related to financial assets and liabilities which define fair value as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date . this guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value . the hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs . the three levels of inputs used to measure fair value are as follows : · level 1 – quoted prices in active markets for identical assets or liabilities . · level 2 – observable inputs other than quoted prices included in level 1 , such as quoted prices for similar assets and liabilities in active markets ; quoted prices for identical or similar assets and liabilities in markets that are not active ; or other inputs that are observable or can be corroborated by observable market data . · level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities . this includes certain pricing models , discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs . the guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . we have segregated all financial assets and liabilities that are measured at fair value on a recurring basis ( at least annually ) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below . financial assets and liabilities measured at fair value on a recurring basis as of december 31 , 2011 and december 31 , 2010 are summarized below : f-11 replace_table_token_9_th in order to calculate the level 3 derivative liability - preferred stock , we used the monte carlo simulation to estimate future stock prices . the use of valuation techniques requires the company to make various key assumptions for inputs into the model , including assumptions about the expected future volatility of the price of the company 's stock . in estimating the fair value at december 31 , 2011 , we based story_separator_special_tag story_separator_special_tag as of march 23 , 2012 , we did not have enough capital to achieve our long-term goals . if we raise additional funds by selling equity securities , the relative equity ownership of our existing investors will be diluted and the new investors could obtain terms more favorable than previous investors . a failure to obtain necessary additional capital in the future could jeopardize our operations and our ability to continue as a going concern . 29 we have incurred negative cash flows from operations since inception , and have expended , and expect to continue to expend in the future , substantial funds to complete our planned product development efforts . since inception , our expenses have significantly exceeded revenues , resulting in an accumulated deficit as of december 31 , 2011 of $ 255,441,000. we expect that our capital resources , revenues from mugard sales and expected receipts due under our license agreements will be adequate to fund our current level of operations into the third quarter of 2012. however , our ability to fund operations over this time could change significantly depending upon changes to future operational funding obligations or capital expenditures . as a result , we are required to seek additional financing sources within the next twelve months . we can not assure you that we will ever be able to generate significant product revenue or achieve or sustain profitability . since our inception , we have devoted our resources primarily to fund our research and development programs . we have been unprofitable since inception and to date have received limited revenues from the sale of products . we can not assure you that we will be able to generate sufficient product revenues to attain profitability on a sustained basis or at all . we expect to incur losses for the next several years as we continue to invest in product research and development , preclinical studies , clinical trials and regulatory compliance . we plan to expend substantial funds to conduct research and development programs , preclinical studies and clinical trials of potential products , including research and development with respect to our acquired and developed technology . story_separator_special_tag our future capital requirements and adequacy of available funds will depend on many factors , including : · the successful development and commercialization of prolindac , mugard and our other product candidates ; · the ability to convert , repay or restructure our outstanding convertible note and debentures ; · the ability to establish and maintain collaborative arrangements with corporate partners for the research , development and commercialization of products ; · continued scientific progress in our research and development programs ; · the magnitude , scope and results of preclinical testing and clinical trials ; · the costs involved in filing , prosecuting and enforcing patent claims ; · the costs involved in conducting clinical trials ; · competing technological developments ; · the cost of manufacturing and scale-up ; · the ability to establish and maintain effective commercialization arrangements and activities ; and · successful regulatory filings . we have devoted substantially all of our efforts and resources to research and development conducted on our own behalf . the following table summarizes research and development spending by project category , which spending includes , but is not limited to , payroll and personnel expense , lab supplies , preclinical expense , development cost , clinical trial expense , outside manufacturing expense and consulting expense : replace_table_token_2_th ( 1 ) cumulative spending from inception of the company or project through december 31 , 2011 . ( 2 ) includes : coboral , cobacyte , thiarabine and other projects . 30 due to uncertainties and certain of the risk factors described above , including those relating to our ability to successfully commercialize our drug candidates , our ability to obtain necessary additional capital to fund operations in the future , our ability to successfully manufacture our products and our product candidates in clinical quantities or for commercial purposes , government regulation to which we are subject , the uncertainty associated with preclinical and clinical testing , intense competition that we face , market acceptance of our products and protection of our intellectual property , it is not possible to reliably predict future spending or time to completion by project or product category or the period in which material net cash inflows from significant projects are expected to commence . if we are unable to timely complete a particular project , our research and development efforts could be delayed or reduced , our business could suffer depending on the significance of the project and we might need to raise additional capital to fund operations , as discussed in the risk factors above , including without limitation those relating to the uncertainty of the success of our research and development activities and our ability to obtain necessary additional capital to fund operations in the future . as discussed in such risk factors , delays in our research and development efforts and any inability to raise additional funds could cause us to eliminate one or more of our research and development programs . we plan to continue our policy of investing any available funds in certificates of deposit , money market funds , government securities and investment-grade interest-bearing securities . we do not invest in derivative financial instruments . we do not believe inflation or changing prices have had a material impact on our revenue or operating income in the past three years . climate change we do not believe there is anything unique to our business which would result in climate change regulations having a disproportional effect on us as compared to u.s. industry overall . critical accounting policies and estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the united states of america requires us to make estimates and assumptions 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 amount of revenues and expenses during the reported period . in applying our accounting principles , we must often make individual estimates and assumptions regarding expected outcomes or uncertainties . as you might expect , the actual results or outcomes are often different than the estimated or assumed amounts . these differences are usually minor and are included in our consolidated financial statements as soon as they are known . our estimates , judgments and assumptions are continually evaluated based on available information and experience . because of the use of estimates inherent in the financial reporting process , actual results could differ from those estimates . asset impairment our intangible assets at december 31 , 2011 consisted primarily of patents acquired in acquisitions and licenses which were recorded at fair value on the acquisition date . we perform an impairment test when indications of impairment exist . at december 31 , 2011 and for the year then ended , management believes no impairment of our intangible assets exists . receivables receivables are reported in the balance sheets at the outstanding amount net of an allowance for doubtful accounts . we continually evaluate the creditworthiness of our customers and their financial condition and generally do not require collateral . the allowance for doubtful accounts is based upon reviews of specific customer balances , historic losses , and general economic conditions . as of december 31 , 2011 and 2010 , no allowance was recorded as all accounts are considered collectible . revenues our revenues are generated from licensing , research and development agreements , royalties and product sales . we recognize revenue in accordance with sec staff accounting bulletin no . 104 ( sab 104 ) , revenue recognition . license revenue is recognized over the remaining life of the underlying patent . research and development revenues are recognized as services are performed . royalties are recognized in the period of sales . we recognize revenue for mugard product sales at the time title transfers to our customers , which occurs at the time product is delivered to
| results of operations the following discussion should be read in conjunction with our consolidated financial statements and related notes included in this form 10-k. access pharmaceuticals , inc. ( together with our subsidiaries , “ we , ” “ access ” or the “ company ” ) is a delaware corporation . we are an emerging biopharmaceutical company focused on developing a range of pharmaceutical products primarily based upon our nanopolymer chemistry technologies and other drug delivery technologies . we currently have one marketed product , two products in phase 2 of clinical development and several products in pre-clinical development . results of operations comparison of years ended december 31 , 2011 and 2010 our licensing revenue for the year ended december 31 , 2011 was $ 1,181,000 as compared to $ 347,000 for the same period of 2010 , an increase of $ 834,000. we recognize licensing revenue over the period of the performance obligation under our licensing agreements . in the third quarter 2011 , we regained licenses from our former korean partner for prolindac and mugard and recognized all of the previously received license fees ( $ 849,000 ) that were recorded in deferred revenue . product sales of mugard in the united states totaled $ 548,000 for the year ended december 31 , 2011 as compared with $ 8,000 for the same period of 2010 , an increase of $ 540,000. our first sales were recorded in the fourth quarter of 2010. we recorded royalty revenue for mugard in europe of $ 89,000 for the year ended december 31 , 2011 as compared to $ 76,000 for the same period of 2010 , an increase of $ 13,000. sponsored research and development revenues were $ 30,000 for the year ended december 31 , 2011 as compared to $ 50,000 for the same period of 2010 , a decrease of $ 20,000. the revenues in 2011 and 2010 are for research various collaborations on our coboral and cobacyte projects .
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this discussion should be read in conjunction with our historical consolidated financial statements and notes to consolidated financial statements in part ii — item 8 . “ financial statements and supplementary data ” of this 2020 form 10-k. this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under part i — item 1a . “ risk factors ” or in other parts of this 2020 form 10-k. for discussion related to the results of operations and changes in financial condition for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 , refer to part ii — item 7 . “ management 's discussion and analysis of financial condition and results of operations — year ended december 31 , 2019 compared to year ended december 31 , 2018 ” in our 2019 form 10-k , which was filed with the sec on march 3 , 2020 , and which is incorporated herein by reference . overview northwest pipe company is a leading manufacturer for water related infrastructure products . in addition to being the largest manufacturer of engineered steel water pipeline systems in north america , we produce high-quality precast and reinforced concrete products , permalok® steel casing pipe , bar-wrapped concrete cylinder pipe , as well as linings , coatings , joints , and one of the largest offerings of fittings and specialized components . our ten manufacturing facilities are strategically positioned to meet growing water and wastewater infrastructure needs . we provide solution-based products for a wide range of markets including water transmission and infrastructure , water and wastewater plant piping , structural stormwater and sewer systems , trenchless technology , and pipeline rehabilitation . our prominent position is based on a widely-recognized reputation for quality , service , and manufacturing to meet performance expectations in all categories including highly-corrosive environments . we have manufacturing facilities located in portland , oregon ; adelanto , california ; saginaw , texas ; tracy , california ; parkersburg , west virginia ; salt lake city , utah ; orem , utah ; st. george , utah ; st. louis , missouri ; and san luis río colorado , mexico . 20 on january 31 , 2020 , we completed the acquisition of 100 % of geneva pipe and precast company ( fka geneva pipe company , inc. ) for a purchase price of $ 49.4 million . geneva is a concrete pipe and precast concrete products manufacturer based in utah . this acquisition expanded our water infrastructure product capabilities by adding additional reinforced concrete pipe capacity and a full line of precast concrete products including storm drains and manholes , catch basins , vaults , and curb inlets as well as innovative lined products that extend the life of concrete pipe and manholes for sewer applications . operations have continued with geneva 's previous management and workforce at its three manufacturing facilities . our water infrastructure products are sold generally to installation contractors , who include our products in their bids to federal , state , and municipal agencies , privately-owned water companies , or developers for specific projects . we believe our sales are substantially driven by spending on urban growth and new water infrastructure with a recent trend towards spending on water infrastructure replacement , repair , and upgrade . within the total range of products , our steel pipe tends to fit larger-diameter , higher-pressure pipeline applications , while our precast concrete products mainly serve stormwater and sanitary sewer systems . our current economic environment we operate our business with a long-term time horizon . projects are often planned for many years in advance , and are sometimes part of 50-year build-out plans . long-term demand for water infrastructure projects in the united states appears strong . however , in the near term , we expect that strained governmental and water agency budgets and financing along with increased manufacturing capacity from competition could impact the business . fluctuating steel costs will also be a factor , as the ability to adjust our selling prices as steel costs fluctuate depends on market conditions . purchased steel represents a substantial portion of our cost of sales , and changes in our selling prices often correlate directly to changes in steel costs . impact of the covid-19 p andemic on o ur business while the covid-19 pandemic has not had a material adverse effect on our reported results for the year ended december 31 , 2020 , we are unable to predict the ultimate impact that the covid-19 pandemic may have on our business , future results of operations , financial position , or cash flows . for additional details , refer to the information set forth under the caption “ impact of the covid‑19 pandemic on our business ” in part i — item 1 . “ business ” and discussions in part i — item 1a . “ risk factors ” of this 2020 form 10-k. story_separator_special_tag 22 fluctuations in our working capital accounts result from timing differences between production , shipment , invoicing , and collection , as well as changes in levels of production and costs of materials . we typically have a relatively large investment in working capital , as we generally pay for materials , labor , and other production costs in the initial stages of a project , while payments from our customers are generally received after finished product is delivered . a portion of our revenues are recognized over time as the manufacturing process progresses ; therefore , cash receipts typically occur subsequent to when revenue is recognized and the elapsed time between when revenue is recorded and when cash is received can be significant . story_separator_special_tag the amended credit agreement also provides a mechanism for determining an alternative benchmark rate to the libor , which may include sofr . the term loan requires monthly principal payments of $ 0.3 million plus accrued interest . we are obligated to prepay the term loan to the extent that the outstanding principal balance at any time exceeds 60 % of the fair market value of specified real property securing the loan . we are also obligated to prepay the term loan in an amount equal to 20 % of excess cash flow ( as defined in the amended credit agreement ) . the prepayment from excess cash flow generated in 2020 that is required in 2021 is $ 4.6 million . subject to certain limitations , we may also voluntarily prepay the balance upon ten business days ' written notice . revolving loan borrowings under the amended credit agreement bear interest at rates related to the daily three month libor plus 1.5 % to 2.0 % . the amended credit agreement requires the payment of an unused line fee of between 0.25 % and 0.375 % , based on the amount by which the revolver commitment exceeds the average daily balance of outstanding borrowings ( as defined in the amended credit agreement ) during any month . such fee is payable monthly in arrears . the letters of credit outstanding as of december 31 , 2020 relate to workers ' compensation insurance . based on the nature of these arrangements and our historical experience , we do not expect to make any material payments under these arrangements . the amended credit agreement contains customary representations and warranties , as well as customary affirmative and negative covenants , events of default , and indemnification provisions in favor of the lender . the negative covenants include restrictions regarding the incurrence of liens and indebtedness and certain acquisitions and dispositions of assets and other matters , all subject to certain exceptions . the amended credit agreement also requires us to regularly provide financial information to wells fargo . under the terms of the amended credit agreement , mandatory prepayments may be required to the extent the revolving loans exceed the borrowing base or the maximum revolver amount ( as defined in the amended credit agreement ) , or in the event we or our named affiliates receive cash proceeds from the sale or disposition of assets ( including proceeds of insurance or arising from casualty losses ) , subject to certain limitations and exceptions , including sales of assets in the ordinary course of business . the amended credit agreement imposes financial covenants requiring us to maintain a senior leverage ratio ( as defined in the amended credit agreement ) not greater than 3.00 and a fixed charge coverage ratio ( as defined in the amended credit agreement ) of at least 1.10 to 1.00. we were in compliance with all financial covenants as of december 31 , 2020. based on our business plan and forecasts of operations , we believe we will remain in compliance with our financial covenants for the next twelve months . our obligations under the amended credit agreement are secured by a security interest in certain real property owned by us and our subsidiaries and substantially all of our and our subsidiaries ' other assets . recent accounting pronouncements for a description of recent accounting pronouncements affecting our company , including the dates of adoption and estimated effects on financial position , results of operations , and cash flows , see note 2 of the notes to consolidated financial statements in part ii — item 8 . “ financial statements and supplementary data ” of this 2020 form 10-k. 24 critical accounting estimates management estimates the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , and expenses , and disclosure of contingent assets and liabilities . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . on an ongoing basis , we evaluate all of our estimates including those related to revenue recognition , business combinations , goodwill , inventories , property and equipment , including depreciation and valuation , share-based compensation , income taxes , allowance for doubtful accounts , and litigation and other contingencies . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies and related judgments and estimates affect the preparation of our consolidated financial statements . revenue recognition revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses because of our right to payment for work performed to date plus a reasonable profit on cancellations for unique products that have no alternative use to us . revenue is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract ( cost-to-cost method ) . contract costs include all material , labor , and other direct costs incurred in satisfying performance obligations . the cost of steel material is recognized as a contract cost when the steel is introduced into the manufacturing process . estimated total costs of each contract are reviewed on a monthly basis by project management and operations personnel for all active projects . all cost revisions that result in a material change in gross profit are reviewed by senior management personnel . significant judgment is required in estimating total costs and measuring the progress of project completion , as well as whether a loss is expected to be incurred on the contract . we use certain assumptions and develop estimates based on a number of factors , including the degree of required product customization , our historical experience , the project plans , and an assessment of the risks and uncertainties inherent in the contract related to implementation delays or performance issues that may or may not be within our control .
| results of operations the following table sets forth , for the periods indicated , certain financial information regarding costs and expenses expressed in dollars ( in thousands ) and as a percentage of total net sales . replace_table_token_3_th 21 we have one operating segment , water infrastructure , which produces high-quality engineered steel water pipe , precast and reinforced concrete products , permalok® steel casing pipe , bar-wrapped concrete cylinder pipe , as well as linings , coatings , joints , fittings , and specialized components . these products are primarily used in water infrastructure including water transmission , water and wastewater plant piping , structural stormwater and sewer systems , trenchless technology , and pipeline rehabilitation . see note 3 of the notes to consolidated financial statements in part ii — item 8 . “ financial statements and supplementary data ” of this 2020 form 10-k for information on our acquisition of geneva in january 2020. year ended december 31 , 20 20 compared to year ended december 31 , 201 9 net sales . net sales increased 2.4 % to $ 285.9 million in 2020 compared to $ 279.3 million in 2019 as the $ 44.2 million contribution from our acquired geneva operations was nearly entirely offset by the decrease in net sales at our legacy steel pipe facilities . the decrease at our legacy steel pipe facilities was due to a 28 % decrease in tons produced resulting from changes in project timing , partially offset by a 20 % increase in selling price per ton due to a change in product mix . additionally , the pandemic-related shut-down of our slrc facility negatively impacted our sales in the second quarter of 2020. bidding activity , backlog , and production levels may vary significantly from period to period affecting sales volumes . gross profit .
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the remaining lease expense of $ 79,000 will be recognized over the remaining lease term of approximately 20 months . clinical equipment financing lease the company uses certain vendor supplied equipment in connection with its on-going clinical trial . the company has analyzed the vendor agreements and determined that they contain embedded finance leases . the story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto included elsewhere in this annual report of form 10-k. this discussion contains forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations , and intentions , that are based on the beliefs of our management . 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 the “ risk factors ” section of this annual report on form 10-k this discussion and analysis generally covers our financial condition and results of operations for the year ended december 31 , 2020 , including year-over-year comparisons versus the year ended december 31 , 2019. our annual report on form 10-k for the year ended december 31 , 2019 includes a discussion and analysis of our financial condition and results of operations for the year ended december 31 , 2018 in item 7 of part ii , “ management 's discussion and analysis of financial condition and results of operations. ” overview we are a clinical stage biopharmaceutical company pioneering a novel disease-modifying therapeutic approach to treat what we believe to be a key underlying cause of alzheimer 's and other degenerative diseases . our approach is based on the seminal discovery of the presence of porphyromonas gingivalis , or p. gingivalis , and its secreted toxic virulence factor proteases , called gingipains , in the brains of greater than 90 % of more than 100 alzheimer 's patients observed across multiple studies to date . additionally , we have observed that p. gingivalis infection causes alzheimer 's pathology in animal models , and these effects have been successfully treated with a gingipain inhibitor in preclinical studies . our proprietary lead drug candidate , atuzaginstat ( cor388 ) , is an orally administered , brain-penetrating small molecule gingipain inhibitor . atuzaginstat was well-tolerated with no concerning safety signals in our phase 1a and phase 1b clinical trials conducted to date , which enrolled a total of 67 subjects , including nine patients with mild to moderate alzheimer 's disease . we initiated a global phase 2/3 clinical trial of atuzaginstat , called the gain trial , in mild to moderate alzheimer 's patients in april 2019 in the united states and in september 2019 in europe and expect top-line results by the end of 2021. partial clinical hold on february 12 , 2021 the company received a letter from the fda stating that a partial clinical hold has been placed on atuzaginstat ( cor388 ) impacting the open-label extension ( ole ) phase of the company 's ongoing phase 2/3 study , the gain trial . under the hold , no new participants will be enrolled in the ole and currently enrolled ole participants will be discontinued . participants in the fully enrolled ( n=643 ) double-blind , placebo-controlled randomized phase of the gain trial will continue to receive study drug at their assigned dose . the partial clinical hold was initiated following the review of hepatic adverse events in the atuzaginstat trial by the fda . these events have been reversible and without any known long-term adverse effects for the participants . cortexyme will continue to collaborate with the fda on the overall development program for atuzaginstat . for additional information on the various risks posed by the partial clinical hold , please read item 1a . risk factors included in this report . business update regarding covid-19 the current covid-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees , patients , communities and business operations , as well as the u.s. economy and financial markets . the full extent to which the covid-19 pandemic will directly or indirectly impact our business , results of operations and financial condition will depend on future developments that are highly uncertain and can not be accurately predicted , including new information that may emerge concerning covid-19 , the actions taken to contain it or treat its impact and the economic impact on local , regional , national and international markets . to date , our employees , vendors and clinical trial sites have been able to advance our gain clinical trial , complete enrollment and continue the open label extension for eligible patients completing the gain trial . at this time the impact of the covid-19 pandemic has not resulted in changes to our previously stated analysis timelines for the gain trial . we are continuing to assess the potential impact of the covid-19 pandemic on our business and operations , including our expenses , preclinical operations and clinical trials . our office-based employees have been working primarily from home since mid-march 2020 , while ensuring essential staffing levels in our operations remain in place , including maintaining key personnel in our lab facility . we have developed plans to enable all employees to voluntarily return to work in our offices and lab facility which include safety protocols , such as face coverings , social distancing , frequent cleaning , and covid-19 testing . we continue to assess the risks which take into account 61 applicable public health authority and local government guidelines and are designed to ensure community and employee safety . story_separator_special_tag we expect that at least for the foreseeable future , a substantial majority of our research and development expense will support the clinical and regulatory development of atuzaginstat . we expect our research and development expenses to increase substantially during the next few years as we seek to complete existing and initiate additional clinical trials , pursue regulatory approval of atuzaginstat and advance other drug candidates into preclinical and clinical development . over the next few years , we expect our preclinical , clinical and contract manufacturing expenses to increase significantly relative to what we have incurred to date . predicting the timing or the final cost to complete our clinical program or validation of our manufacturing and supply processes is difficult and delays may occur because of many factors . general and administrative expenses general and administrative expenses consist principally of personnel-related costs , including payroll and stock-based compensation , for personnel in executive , finance , human resources , business and corporate development , and other administrative functions , professional fees for legal , consulting , insurance and accounting services , allocated rent and other facilities costs , depreciation , and other general operating expenses not otherwise classified as research and development expenses . we anticipate that our general and administrative expenses will increase as the size of our business operations grows to support additional research and development activities . interest income interest and other income , net consists primarily of interest earned on our short-term and long-term investments portfolio , change in fair value of derivative liability the change in the fair value of the derivative liability is the change in valuation of the bifurcated redemption premium related to the convertible promissory notes which fully settled upon completion of series b financing . critical accounting policies , significant judgments and use of estimates our financial statements have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported revenue and expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . 63 while our significant accounting policies are described in the notes to our financial statements , we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results . research and development expenses research and development costs are expensed as incurred . research and development expenses consist primarily of clinical trial and contract manufacturing expenses related to development of atuzaginstat . also included are personnel costs for our research and product development employees , non-personnel costs such as professional fees payable to third parties for preclinical studies and research services , laboratory supplies and equipment maintenance , product licenses , and other consulting costs . we estimate preclinical and clinical study and research expenses based on the services performed , pursuant to arrangements with contract research organizations , or cros that conduct and manage preclinical and clinical studies and research services on our behalf . we estimate these expenses based on regular reviews with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services . based upon the combined inputs of internal and external resources , if the actual timing of the performance of services or the level of effort varies from the original estimates , we will adjust the accrual accordingly . payments associated with licensing agreements to acquire exclusive licenses to develop , use , manufacture and commercialize products that have not reached technological feasibility and do not have alternate commercial use are expensed as incurred . payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered . stock-based compensation expense we measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options and performance-based awards granted to our directors and employees . the fair value of stock options is determined by using the black-scholes option-pricing model . the fair value of performance stock option awards is estimated at the date of grant , using the monte carlo simulation model . the black-scholes and monte carlo simulation valuation models incorporate assumptions as to stock price volatility , the expected life of options or awards , a risk-free interest rate and dividend yield . in valuing our stock options and market-based stock awards , significant judgment is required in determining the expected volatility of our common stock and the expected life that individuals will hold their stock options prior to exercising . expected volatility for stock options is based on the historical volatility of our own stock and the stock of companies within our defined peer group . further , our expected volatility may change in the future , which could substantially change the grant-date fair value of future awards and , ultimately , the expense we record . we expense stock-based compensation for stock options and performance awards over the requisite service period . for awards with only a service condition , we expense stock-based compensation using the straight-line method over the requisite service period for the entire award .
| summary statement of cash flows the following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below ( in thousands ) : replace_table_token_4_th cash used in operating activities net cash used in operating activities was $ 50.8 million for the year ended december 31 , 2020 , $ 33.3 million for the year ended december 31 , 2019. cash used in operating activities in the year ended december 31 , 2020 was primarily due to our net loss for the period of $ 76.8 million , which included non-cash expenses of $ 15.8 million and changes to operating assets and liabilities of $ 10.2 million . cash used in operating activities in the year ended december 31 , 2019 was primarily due to our net loss for the period of $ 37.0 million , which included non-cash expenses of $ 2.6 million and changes to operating assets and liabilities of $ 1.9 million offset by non-cash interest income of $ 0.8 million . cash used in investing activities cash used in investing activities was $ 52.4 million in the year ended december 31 , 2020 , primarily related to the purchase of investments of $ 187.1 million and maturities of debt investments of $ 134.8 million .
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a reit must distribute at least 90 % of its taxable income to its stockholders of which 85 % plus any undistributed story_separator_special_tag management 's discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of new residential . the following should be read in conjunction with the consolidated financial statements and notes thereto included herein , and with part i , item 1a , risk factors. general new residential is a publicly traded reit primarily focused on investing in residential mortgage related assets . we are externally managed by an affiliate of fortress . our goal is to drive strong risk-adjusted returns primarily through investments in servicing related assets , residential securities and loans and other investments including , but not limited to , excess msrs , servicer advances , real estate securities and real estate loans . new residential 's investment guidelines are purposefully broad to enable us to make investments in a wide array of assets in diverse markets , including non-real estate related assets such as consumer loans . we generally target assets that generate significant current cash flows and or have the potential for meaningful capital appreciation . we aim to generate attractive returns for our stockholders without the excessive use of financial leverage . our portfolio is currently composed of servicing related assets , residential securities and loans and other investments . our asset allocation and target assets may change over time , depending on our manager 's investment decisions in light of prevailing market conditions . the assets in our portfolio are described in more detail below under our portfolio. on may 15 , 2013 , newcastle completed the distribution of shares of new residential to newcastle stockholders of record as of may 6 , 2013. following the distribution , new residential is an independent , publicly-traded reit ( nyse : nrz ) . market considerations various market factors , which are outside of our control , affect our results of operations and financial condition . one such factor is developments in the u.s. residential housing market , which we believe are generating significant investment opportunities . since the 2008 financial crisis , the residential mortgage industry has been undergoing major structural changes that are transforming the way mortgages are originated , owned and serviced . 62 since 2010 , banks have sold or committed to sell msrs totaling more than $ 1 trillion of the approximately $ 10 trillion mortgage market . an msr provides a mortgage servicer with the right to service a pool of mortgages in exchange for a portion of the interest payments made on the underlying mortgages . this amount typically ranges from 25 to 50 bps multiplied by the upb of the mortgages . approximately 77 % of msrs were owned by banks as of the fourth quarter of 2013 , according to inside mortgage finance . we expect this number to decline as banks face pressure to reduce their msr exposure as a result of heightened capital reserve requirements under basel iii , regulatory scrutiny and a more challenging servicing environment . as a result , we believe the volume of msr sales is likely to be substantial for some period of time . we estimate that msrs on approximately $ 200 300 billion of mortgages are currently for sale , which would require a capital investment of approximately $ 2 3 billion based on current pricing dynamics . we believe many non-bank servicers , who acquire msrs and are constrained by capital limitations , will continue to sell a portion of the excess msrs . we also estimate that approximately $ 1 2 trillion of msrs could be sold over the next several years . in addition , approximately $ 1.2 trillion of new loans are expected to be created annually , according to the mortgage bankers association . we believe this creates an opportunity to enter into flow arrangements , whereby loan originators agree to sell excess msrs on newly originated loans on a recurring basis ( often monthly or quarterly ) . we believe that msrs are being sold at a discount to historical pricing levels , although increased competition for these assets has driven prices higher recently . there can be no assurance that any future investment in excess msrs will generate returns similar to the returns on our current investments in excess msrs . as of the fourth quarter of 2013 , approximately $ 7 trillion of the $ 10 trillion of residential mortgages outstanding has been securitized , according to inside mortgage finance . approximately $ 6 trillion are agency rmbs according to inside mortgage finance , which are securities issued or guaranteed by a u.s. government agency , such as ginnie mae , or by a gse , such as fannie mae or freddie mac . the balance has been securitized by either public trusts or pls , and are referred to as non-agency rmbs . since the financial crisis , there has been significant volatility in the prices for non-agency rmbs , which resulted from a widespread contraction in capital available for this asset class , deteriorating housing fundamentals , and an increase in forced selling by institutional investors ( often in response to rating agency downgrades ) . while the prices of these assets have started to recover from their lows , we believe a meaningful gap still exists between current prices and the recovery value of many non-agency rmbs . accordingly , we believe there are opportunities to acquire non-agency rmbs at attractive risk-adjusted yields , with the potential for meaningful upside if the u.s. economy and housing market continue to strengthen . we believe the value of existing non-agency rmbs may also rise if the number of buyers returns to pre-2007 levels . the primary causes of mark-to-market changes in our rmbs portfolio are changes in interest rates and credit spreads . story_separator_special_tag 64 each of our excess msr investments to date is subject to a recapture agreement with nationstar . under the recapture agreements , we are generally entitled to a pro rata interest in the excess msrs on any initial or subsequent refinancing by nationstar of a loan in the original portfolio . in other words , we are generally entitled to a pro rata interest in the excess msrs on both ( i ) a loan resulting from a refinancing by nationstar of a loan in the original portfolio , and ( ii ) a loan resulting from a refinancing by nationstar of a previously recaptured loan . the tables below summarize the terms of our investments in excess msrs completed as of december 31 , 2013. summary of direct excess msr investments as of december 31 , 2013 replace_table_token_10_th ( a ) the msr is a weighted average as of december 31 , 2013 , and the excess msr represents the difference between the weighted average msr and the basic fee ( which fee remains constant ) . ( b ) as of december 31 , 2013 . ( c ) gse refers to loans in fannie mae or freddie mac securitizations . pls refers to loans in private label securitizations . ( d ) pool in which we also invested in related servicer advances , including the basic fee component of the related msr subsequent to december 31 , 2013 ( note 18 to our consolidated financial statements included herein ) . ( e ) a portion of our investment in pool 11 was made as a direct investment , and the remainder was made as an investment through a joint venture accounted for as an equity method investee , as described in the chart below . the direct investment in pool 11 includes loans that , upon refinancing by a third-party , became serviced by nationstar and subject to a 67 % excess msr owned by us . ( f ) pool in which we also invested in related servicer advances , including the basic fee component of the related msr as of december 31 , 2013 ( note 6 to our consolidated financial statements included herein ) . summary of excess msr investments through equity method investees as of december 31 , 2013 replace_table_token_11_th ( a ) the msr is a weighted average as of december 31 , 2013 , and the excess msr represents the difference between the weighted average msr and the basic fee ( which fee remains constant ) . ( b ) as of december 31 , 2013 . ( c ) gm refers to loans in ginnie mae securitizations . gse refers to loans in fannie mae or freddie mac securitizations . pls refers to loans in private label securitizations . ( d ) the equity method investee purchased an additional interest in a portion of pool 10. investee interest in excess msr and nrz effective ownership in pool 10 represent the range of ownership interests in the pool . 65 ( e ) pool in which we also invested in related servicer advances , including the basic fee component of the related msr as of december 31 , 2013 ( note 6 to our consolidated financial statements included herein ) . ( f ) a portion of our investment in pool 11 was made as a direct investment and the remainder was made as an investment through a joint venture accounted for as an equity method investee , as described in the chart above . the tables below summarize the terms of our investments in excess msrs that were not yet completed as of december 31 , 2013. summary of pending excess msr investments ( committed but not closed ) replace_table_token_12_th ( a ) the msr is a weighted average as of the commitment date , and the excess msr represents the difference between the weighted average msr and the basic fee ( which fee remains constant ) . ( b ) as of commitment date . ( c ) pls refers to loans in private label securitizations . gse refers to loans in fannie mae or freddie mac securitizations . ( d ) the actual amount invested will be based on the upb at the time of close . ( e ) pool in which we also invested in related servicer advances , including the basic fee component of the related msr as of december 31 , 2013 ( note 6 to our consolidated financial statements included herein ) . subsequent to december 31 , 2013 , we invested approximately $ 19.1 million in excess msrs on a portfolio of pls residential mortgage loans with an upb of approximately $ 8.1 billion . we have remaining commitments of approximately $ 1.5 million to fund additional investments in this portfolio of pls residential mortgage loans , which have not yet closed and will increase the upb by approximately $ 0.9 billion . in addition , we have committed $ 32.3 million to invest in excess msrs on portfolios of gse residential mortgage loans with an aggregate outstanding upb of $ 13.1 billion . in each transaction , we agreed to acquire a one-third interest in excess msrs on the portfolio . fortress-managed funds and nationstar each agreed to acquire a one-third interest in the excess msrs . nationstar as servicer will perform all servicing and advancing functions , and retain the ancillary income , servicing obligations and liabilities as the servicer of the underlying loans in the portfolios . commitments related to gse residential mortgage loans are contingent upon gse approval of nationstar to service such loans and transfer excess msrs to us . the following table summarizes our excess msr investments closed subsequent to december 31 , 2013 : replace_table_token_13_th ( a ) the msr is a weighted average as of the date the transaction closed and the excess msr represents the difference between the weighted average msr and the basic fee ( which fee remains constant ) . ( b ) as of the date the transaction closed .
| results of operations we have a limited operating history and we acquired our first portfolio of excess msrs in december 2011 and as a result , a comparison of the year ended december 31 , 2012 against the one month ended december 31 , 2011 would not be meaningful . because we were not operating as a separate , stand-alone entity during the period from our formation to the date of our separation from newcastle , our results of operations for this period are not necessarily indicative of our future performance . 85 the following tables summarize the changes in our results of operations from year-to-year ( dollars in thousands ) : comparison of results of operations for the years ended december 31 , 2013 and 2012 ( a ) replace_table_token_28_th ( a ) the results of operations from december 8 , 2011 to december 31 , 2011 do not represent a meaningful measure of results for comparative purposes . interest income interest income increased by $ 53.8 million primarily as a result of new investments in real estate securities and excess mortgage servicing rights . interest expense interest expense increased by $ 14.3 million primarily due to repurchase agreement financing entered into since september 2012 on our agency arm rmbs and non-agency rmbs .
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the company recorded $ 1,000,000 as research and development expense during 2010. the agreement includes terms for potential future milestone payments including up to an aggregate of $ 21 million upon the achievement of certain regulatory and development milestones for a first licensed product for oa indications , or up to an aggregate of $ 15 million upon the achievement of certain regulatory and development milestones for a first-licensed product for non-oa indications . upon commercialization of a product that results from the technology licensed under the agreement , the company will owe astrazeneca tiered royalty story_separator_special_tag the following discussion and analysis of financial condition and results of operations should be read in conjunction with item 6. selected financial data and our consolidated financial statements and related notes appearing elsewhere in this annual report . this discussion and analysis and other parts of this annual report contain forward-looking statements based upon current beliefs , plans and expectations that involve risks , uncertainties and assumptions , such as statements regarding our plans , objectives , expectations , intentions and projections . our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors , including those set forth under item 1a . risk factors . you should carefully read the risk factors section of this annual report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements . please also see the section entitled special note regarding forward-looking statements. overview we are a specialty pharmaceutical company focused on the development and commercialization of novel , injectable pain therapies . we are targeting anti-inflammatory and analgesic therapies for the treatment of patients with musculoskeletal conditions , beginning with osteoarthritis , a type of degenerative arthritis , referred to as oa . our broad and diversified portfolio of product candidates addresses the oa pain treatment spectrum , from moderate to severe pain , and provides us with multiple unique opportunities to achieve our goal of commercializing novel , patient-focused pain therapies . our pipeline consists of three proprietary product candidates : fx006 , a sustained-release , intra-articular steroid ; fx007 , a trka receptor antagonist for post-operative pain ; and fx005 , a sustained-release intra-articular p38 map kinase inhibitor . we retain the exclusive worldwide rights to our product candidates . we were incorporated in delaware in november 2007 , and to date we have devoted substantially all of our resources to our development efforts relating to our product candidates , including conducting clinical trials with our product candidates , providing general and administrative support for these operations and protecting our intellectual property . we are a development stage company and do not have 72 any products approved for sale and have not generated any revenue from product sales . from our inception through december 31 , 2013 , we have funded our operations primarily through the sale of our convertible preferred stock and , to a lesser extent , debt financing . from our inception through december 31 , 2013 , we have raised $ 80.0 million from such transactions . on february 18 , 2014 , we completed the initial public offering of our common stock , which resulted in net proceeds to us of approximately $ 67.2 million , after deducting underwriting discounts , commissions and offering costs . we have incurred net losses in each year since our inception in 2007. our net losses were $ 18.2 million , $ 15.0 million and $ 11.4 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . as of december 31 , 2013 , we had an accumulated deficit of $ 66.2 million . substantially all of our net losses resulted from costs incurred in connection with our development programs and from general and administrative expenses associated with our operations . we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future . we anticipate that our expenses will increase substantially in connection with our ongoing activities , as we : continue the development of our lead product candidate , fx006 , including the planned and future clinical trials ; seek to obtain regulatory approvals for fx006 ; prepare for the potential launch and commercialization of fx006 , if approved ; establish a sales and marketing infrastructure for the commercialization of fx006 , if approved ; expand our development activities and advance additional product candidates ; maintain , expand and protect our intellectual property portfolio ; and add operational , financial and management information systems and personnel , including personnel to support our product development and commercialization efforts and operations as a public company . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . accordingly , we anticipate that we will need to raise additional capital prior to completing clinical development of fx006 or any of our other product candidates . until such time that we can generate substantial revenue from product sales , if ever , we expect to finance our operating activities through a combination of equity offerings , debt financings , government or other third-party funding and collaborations , and licensing arrangements . however , we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms , or at all , which would have a negative impact on our financial condition and could force us to delay , limit , reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves . failure to receive additional funding could cause us to cease operations , in part or in full . story_separator_special_tag income taxes as of december 31 , 2013 , we had $ 35.1 million and $ 32.8 million of federal and state net operating loss carryforwards , respectively , and $ 1.6 million and $ 1.1 million of federal and state research and development tax credit carryforwards , respectively , available to offset our future taxable income , if any . these federal net operating loss carryforwards and research and development tax credit carryforwards expire at various dates beginning in 2028 and 2029 , respectively , if not utilized and are subject to review and possible adjustment by the internal revenue service . the state net operating loss carryforwards and research and development tax credit carryforwards expire at various dates beginning in 2014 and 2024 , respectively , if not utilized and are subject to review and possible adjustment by the state tax authorities . at december 31 , 2013 , a full valuation allowance was recorded against our net operating loss carryforwards and our research and development tax credit carryforwards . if we experience a greater than 50 percent aggregate change in ownership of certain stockholders over a three-year period , utilization of our then-existing net operating loss carryforwards and research and development tax credit carryforwards will be subject to an annual limitation . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , and the reported revenue and expenses during the reported periods . we evaluate these estimates and judgments , including those described below , on an ongoing basis . we base our estimates on historical experience , known trends and events , contractual milestones and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 3 to our financial statements appearing elsewhere in this form 10-k , we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements and , therefore , consider these to be critical for fully understanding and evaluating our financial condition and results of operations . research and development costs as part of the process of preparing our financial statements , we are required to estimate our accrued and prepaid research and development expenses . we base our accrued expenses related to clinical trials 76 on estimates of patient enrollment and related expenses at clinical investigator sites , as well as estimates for services received and efforts expended pursuant to contracts with multiple research institutions and cros that conduct and manage clinical trials on our behalf . we review new and open contracts and communicate with applicable internal and vendor personnel to identify services that have been performed on our behalf and estimate the level of service performed and the associated costs incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost for accrued expenses . the majority of our service providers invoice us monthly in arrears for services performed ; however , some require advanced payments . for any services that require such advanced payments , we perform a review , with applicable internal and vendor personnel , to estimate the level of services that have been performed and the associated costs that have been incurred at each reporting period . we accrue expenses related to clinical trials based on contractual amounts applied to the level of patient enrollment and activity according to the protocol . we make estimates of our accrued and prepaid expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us . if timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed , we modify our estimates of accrued expenses accordingly on a prospective basis . if we do not identify costs that we have begun to incur , or if we underestimate or overestimate the level of services performed or the costs of these services , our actual expenses could differ from our estimates . to date , we have not adjusted our estimates at any particular balance sheet date in any material amount . stock-based compensation we measure stock-based awards granted to employees and directors at fair value on the date of the grant and recognize the corresponding compensation expense for those awards , net of estimated forfeitures , over the requisite service period , which is generally the vesting period of the respective award , using the straight-line method . we measure stock-based awards granted to non-employees for services received based on the fair value of the equity instrument issued . the measurement date of the fair value of the equity instrument issued to non-employees is the earlier of the date on which the counterparty 's performance is complete or the date on which there is a commitment to perform . the fair value of each stock-based award granted is estimated using the black-scholes option-pricing model . until february 11 , 2014 , we were a private company and we lacked company-specific historical and implied volatility information .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 the following table summarizes our results of operations for the years ended december 31 , 2013 and 2012 ( certain items may not foot due to rounding ) : replace_table_token_6_th 78 research and development expenses replace_table_token_7_th research and development expenses were $ 11.1 million and $ 11.1 million for the years ended december 31 , 2013 and 2012 , respectively . the lack of any significant change in research and development expenses year over year was primarily due to an increase of $ 0.3 million in development expense related to our fx007 program and an increase of $ 0.9 million in personnel and other costs , both offset by a decrease in development expenses related to our fx006 and fx005 programs . the increase of $ 0.3 million in fx007 program expenses related to expenses for our non-clinical toxicology study and material costs related to this study . the increase of $ 0.9 million in personnel and other costs primarily related to employee related costs due to an increase in headcount , stock compensation expense and consulting costs . the decrease of $ 0.8 million in fx006 program expenses was due to the completion of the phase 2b clinical trial and toxicology studies partially offset by an increase in manufacturing expenses . the decrease of $ 0.4 million in fx005 program expenses was due to the completion of the phase 2a clinical trial partially offset by an increase in toxicology studies . general and administrative expenses general and administrative expenses were $ 6.7 million and $ 3.9 million for the years ended december 31 , 2013 and 2012 , respectively .
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the aggregate fair value of the shares of restricted common stock , as determined on the date of the transaction , will be recognized as post-combination stock-based compensation in the statement of operations over two years based on an accelerated attribution method . see note 11 for further details . 4. cash equivalents and short-term investments the amortized costs , unrealized gains and losses and estimated fair values of story_separator_special_tag operations 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. in addition to historical financial information , the following discussion contains forward-looking statements that is based upon current plans , expectations and beliefs that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those set forth under the section titled “ risk factors ” under part i , item 1a in this annual report on form 10-k. our fiscal year ends january 31. overview okta is the leading independent provider of identity for the enterprise . the okta identity cloud is our category-defining platform that enables our customers to securely connect people to technology , anywhere , anytime and from any device . every day , people use okta to securely access a wide range of cloud applications , websites , mobile applications and services from a multitude of devices . workforces sign into our platform to seamlessly access the applications they need to do their most important work . organizations use our platform to provide their customers with more modern experiences online and via mobile devices , and to connect with partners to streamline their operations . developers leverage our platform to securely embed identity into their software . our approach to identity eliminates duplicative , sprawling credentials and disparate authentication policies , allowing our customers to simplify and scale their it and security infrastructures more efficiently as the number of users , devices , clouds and other technologies in their ecosystem grows . our customers are able to achieve fast time to value , lower costs and increased efficiency while improving compliance and providing security that is persistent , perimeter-less and context-aware . these benefits are delivered through multiple products on a unified platform , our superior cloud architecture and a vast and increasing network of integrations . we founded the company in 2009 to reinvent identity for the modern cloud era , where identity is the critical foundation for connection and trust between users and technology . since our inception , we have consistently innovated to enhance our platform and our product offerings . in parallel to this product innovation , we have rapidly expanded the breadth and depth of the okta integration network , which provides customers with a pre-integrated set of cloud , mobile and web applications that spans the functionality of our products . as of january 31 , 2018 , we had over 5,500 integrations with cloud , mobile and web applications and it infrastructure providers . we employ a saas business model . we focus on acquiring and retaining our customers and increasing their spending with us through expanding the number of users who access our platform and up-selling additional products . we sell our products directly through our field and inside sales teams , as well as indirectly through our network of isvs and channel partners . our subscription fees include the use of our service and our technical support and management of our platform . we base subscription fees primarily on the products used and the number of users on our platform . we generate subscription fees pursuant to noncancelable contracts with a weighted-average duration of 2.4 years as of january 31 , 2018 . our customers use our platform to manage and secure their extended enterprise ( employees , contractors and partners ) , which we previously referred to as the internal use case . organizations also use our platform to manage and secure their customers ' identities via the powerful apis we have developed , which we previously referred to as the external use case . we typically invoice customers in advance in annual installments for subscriptions to our platform . financial information and segments we operate our business as one reportable segment . our revenue has grown significantly . for the years ended january 31 , 2018 , 2017 and 2016 , our revenue was $ 260.0 million , $ 160.3 million and $ 85.9 million , respectively , representing a growth rate of 62 % and 87 % , respectively . for the years ended january 31 , 2018 , 2017 and 2016 , we generated net losses of $ 114.4 million , $ 83.5 million and $ 76.3 million , respectively . our accumulated deficit as of january 31 , 2018 was $ 402.5 million . key business metrics we review a number of operating and financial metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans , and make strategic decisions . replace_table_token_7_th replace_table_token_8_th number of customers with annual contract value above $ 100,000 as of january 31 , 2018 , we had over 4,350 customers on our platform . we believe that our ability to increase the number of customers on our platform is an indicator of our market penetration , the growth of our business , and our potential future business opportunities . increasing awareness of our platform and capabilities , coupled with the mainstream adoption of cloud technology , has expanded the diversity of our customer base to include organizations of all sizes across all industries . over time , larger customers have constituted a greater share of our revenue , which has contributed to an increase in average revenue per customer . story_separator_special_tag the level and timing of investment in these areas could affect our cost of subscription revenue in the future . cost of professional services and other . cost of professional services consists primarily of employee-related costs for our professional services delivery team , travel-related costs , and costs of outside services associated with supplementing our professional services delivery team . the cost of providing professional services has historically been higher than the associated revenue we generate . gross margin . gross margin is gross profit expressed as a percentage of total revenue . our gross margin may fluctuate from period to period as our revenue fluctuates , and as a result of the timing and amount of investments to expand our hosting capacity , our continued efforts to build platform support and professional services teams , increased stock-based compensation expenses , as well as the amortization of costs associated with capitalized internal-use software and acquired intangible assets . 48 operating expenses research and development . research and development expenses consist primarily of employee compensation costs and overhead allocation . we believe that continued investment in our platform is important for our growth . we expect our research and development expenses will increase in absolute dollars as our business grows . sales and marketing . sales and marketing expenses consist primarily of employee compensation costs , costs of general marketing activities and promotional activities , travel-related expenses and allocated overhead . commissions earned by our sales force that are direct and incremental and can be associated specifically with a noncancelable subscription contract are deferred and amortized over the same period that revenue is recognized for the related noncancelable contract . we expect our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future as we expand our sales and marketing efforts . however , we expect our sales and marketing expenses to decrease as a percentage of our revenue as our revenue grows . general and administrative . general and administrative expenses consist primarily of employee compensation costs for finance , accounting , legal and human resources personnel . in addition , general and administrative expenses include non-personnel costs , such as legal and other professional fees , charitable contributions and all other supporting corporate expenses not allocated to other departments . we expect to incur additional expenses as a result of operating as a public company , including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange , costs related to compliance and reporting obligations pursuant to the rules and regulations of the sec , and increased expenses for insurance , investor relations and professional services . we expect our general and administrative expenses will increase in absolute dollars as our business grows . other income ( expense ) , net other income ( expense ) , net consists of interest income from our investment holdings , interest expense and expenses resulting from the revaluation of our redeemable convertible preferred stock warrant liability . provision for ( benefit from ) income taxes provision for ( benefit from ) income taxes consists of federal and state income taxes in the united states and income taxes in certain foreign jurisdictions . 49 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:0px ; text-indent:0px ; font-size:10pt ; '' > year ended january 31 , 2018 2017 $ change % change ( dollars in thousands ) other income ( expense ) , net $ 1,682 $ 39 $ 1,643 n/a other income ( expense ) , net increased $ 1.6 million for the year ended january 31 , 2018 compared to the year ended january 31 , 2017 . the increase was primarily due to interest income earned on higher cash and short-term investment balances from the completion of our ipo . 53 provision for ( benefit from ) income taxes year ended january 31 , 2018 2017 $ change % change ( dollars in thousands ) provision for ( benefit from ) income taxes $ ( 321 ) $ 425 $ ( 746 ) n/a we recorded a benefit from income taxes of $ ( 0.3 ) million for the year ended january 31 , 2018 , compared to a provision for income taxes of $ 0.4 million for the year ended january 31 , 2017 . the income tax provision for the year ended january 31 , 2017 was related to foreign taxes and tax amortization of goodwill . the $ ( 0.3 ) million benefit from income taxes for the year ended january 31 , 2018 resulted from $ 1.3 million of excess tax deductions related to option exercises by foreign employees , a portion of which we intend to use to claim a refund of taxes paid in prior years . comparison of the years ended january 31 , 2017 and 2016 revenue replace_table_token_17_th subscription revenue increased by $ 66.7 million , or 87 % , for the year ended january 31 , 2017 compared to the year ended january 31 , 2016 . the increase was primarily due to the addition of new customers , as our number of customers increased by 40 % from january 31 , 2016 to january 31 , 2017 , as well as an increase in users and sales of additional products to existing customers as reflected by our dollar-based retention rate of 123 % for the year ended january 31 , 2017 . professional services and other revenue increased by $ 7.7 million , or 82 % , for the year ended january 31 , 2017 compared to the year ended january 31 , 2016 . the increase in professional services revenue primarily related to an increase in implementation services associated with an increase in the number of new customers purchasing our subscription services .
| results of operations the following table sets forth our results of operations for the periods presented in dollars and as a percentage of our revenue : replace_table_token_9_th _ ( 1 ) includes stock-based compensation expense as follows : replace_table_token_10_th 50 the following table sets forth our results of operations for the periods presented as a percentage of our revenue : replace_table_token_11_th comparison of the years ended january 31 , 2018 and 2017 revenue replace_table_token_12_th subscription revenue increased by $ 96.0 million , or 67 % , for the year ended january 31 , 2018 compared to the year ended january 31 , 2017 . the increase was primarily due to the addition of new customers as well as an increase in users and sales of additional products to existing customers . professional services and other revenue increased by $ 3.6 million , or 21 % , for the year ended january 31 , 2018 compared to the year ended january 31 , 2017 . the increase in professional services revenue primarily related to an increase in implementation services priced on a time and materials basis , associated with an increase in the number of new customers purchasing our subscription services .
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the allowance is increased by the provision for loan and lease losses , which is charged against current period operating results , and recoveries of loans and leases story_separator_special_tag the following discussion and analysis contains forward-looking statements that are based upon current expectations . forward-looking statements involve risks and uncertainties . our actual results and the timing of events could differ materially from those expressed or implied in our forward-looking statements due to various important factors , including those set forth under “ risk factors ” in item 1a . and elsewhere in this form 10-k. the following discussion and analysis should be read together with the “ selected financial data ” and consolidated financial statements , including the related notes included elsewhere in this form 10-k. overview bofi holding , inc. is the holding company for bofi federal bank , a diversified financial services company with approximately $ 9.5 billion in assets that provides innovative banking and lending products and services to customers nationwide through scalable low cost distribution channels and affinity partners . the bank has deposit and loan and lease customers nationwide including consumer and business checking , savings and time deposit accounts and financing for single family and multifamily residential properties , small-to-medium size businesses in target sectors , and selected specialty finance receivables . the bank generates fee income from consumer and business products including fees from loans originated for sale and transaction fees earned from processing payment activity . bofi holding , inc. 's common stock is listed on the nasdaq global select market and is a component of the russell 2000 ® index , the s & p smallcap 600 ® index and the kbw nasdaq financial technology index . net income for the fiscal year ended june 30 , 2018 was $ 152.4 million compared to $ 134.7 million and $ 119.3 million for the fiscal years ended june 30 , 2017 and 2016 , respectively . net income attributable to common stockholders for the fiscal year ended june 30 , 2018 was $ 152.1 million , or $ 2.37 per diluted share compared to $ 134.4 million , or $ 2.10 per diluted share and $ 119.0 million , or $ 1.87 per diluted share for the years ended june 30 , 2017 and 2016 , respectively . growth in our interest earning assets , particularly the loan and lease portfolio , was the primary driver of the increase in our net income from fiscal 2016 to fiscal 2018 . net interest income increased $ 55.3 million for the year ended june 30 , 2018 compared to the year ended june 30 , 2017 . net interest income for the year ended june 30 , 2018 was $ 368.5 million compared to $ 313.2 million and $ 261.0 million for the years ended june 30 , 2017 and 2016 , respectively . the growth of net interest income from fiscal year 2016 through 2018 is primarily due to net loan and lease portfolio growth . provision for loan and lease losses for the year ended june 30 , 2018 was $ 25.8 million , compared to $ 11.1 million and $ 9.7 million for the years ended june 30 , 2017 and 2016 , respectively . the increase of $ 14.7 million for fiscal year 2018 is the result of an increase in refund advance loan fundings from $ 0.3 billion to $ 1.1 billion from 2017 to 2018 , respectively , combined with growth and changes in the loan and lease mix of the portfolio . the increase of $ 1.4 million for fiscal year 2017 is primarily the result of growth and changes in the loan and lease mix of the portfolio . non-interest income was $ 70.9 million compared to non-interest income of $ 68.1 million and $ 66.3 million for the fiscal years ended june 30 , 2018 , 2017 and 2016 . the increase from fiscal year 2017 to fiscal year 2018 was primarily the result of an increase of $ 5.7 million in banking and service fees due to increased fees from h & r block-branded products , an increase of $ 1.2 million in gain on sale-other primarily from increased sales of structured settlements , and a decrease of $ 1.1 million in unrealized loss on securities partially offset by a decrease in realized gain from sale of securities of $ 3.9 million , decreased levels of prepayment penalty fee income of $ 0.7 million , and a mortgage banking income decrease of $ 0.5 million . the increase from 2016 to 2017 was primarily due to increased banking and service fees due to increased fees from h & r block-branded products increased mortgage banking income , gain on sale of securities , partially offset by a decrease in gain on sale-other primarily from sales of structured settlements . non-interest expense for the fiscal year ended june 30 , 2018 was $ 173.9 million compared to $ 137.6 million and $ 112.8 million for the years ended june 30 , 2017 and 2016 , respectively . the increase was primarily due to an increase of $ 19.2 million in the bank 's staffing for lending , information technology infrastructure development , trustee and fiduciary services and regulatory compliance , an increase in advertising and promotions of $ 6.1 million , an increase in data processing and internet of $ 4.1 million , and an increase in other general and administrative costs of $ 3.4 million . our staffing rose to 801 full-time equivalents compared to 681 and 647 at june 30 , 2018 , 2017 and 2016 , respectively . total assets were $ 9,539.5 million at june 30 , 2018 compared to $ 8,501.7 million at june 30 , 2017 . assets grew $ 1,037.8 million or 12.2 % during the last fiscal year , primarily due to an increase in the origination of single family mortgage loans and c & i loans . these loans were funded primarily with growth in deposits . story_separator_special_tag during the 2017 tax season , the bank purchased the refund advance loans from a third-party bank at a discount and recorded the accretion of the loan discount as interest income , reported on the income statement under the interest and dividend income line item . during the 2018 tax season , the bank recorded the fees received from h & r block as interest income on loans , reported on the income statement under the interest and dividend income line item . in july 2018 , the bank has renewed its agreement with h & r block to be the exclusive provider of interest-free refund advance loans to customers during the 2019 tax season . the h & r block-branded financial services products introduce seasonality into the company 's quarterly reports on form 10-q in the unaudited condensed consolidated income statements through the banking and service fees category of non-interest 35 income and the other general and administrative category of non-interest expense , with the peak income and expense in these categories typically occurring during the company 's third fiscal quarter ended march 31. pacific western equipment finance asset acquisition on march 31 , 2016 , the bank entered into an asset purchase agreement with pacific western bank to acquire approximately $ 140 million of equipment leases from pacific western equipment finance and assumed certain insignificant operations and related liabilities . the purchase price and total consideration paid for the assets consisted of the fair market value of the assumed liabilities plus a lease purchase price premium of approximately 2.5 % . epiq acquisition on april 4 , 2018 , a subsidiary of the bank acquired the bankruptcy trustee and fiduciary services business of epiq systems , inc. the business provides specialized software and consulting services to bankruptcy and non-bankruptcy trustees and fiduciaries in all fifty states . this business is expected to generate fee income from bank partners and bankruptcy cases , as well as opportunities to source low cost deposits . no deposits were acquired as part of the transaction . the company recorded an unidentified intangible asset ( goodwill ) incident to the acquisition of $ 36.0 million and an intangible asset of $ 32.7 million . the existing business has $ 1 billion of chapter 7 and non-chapter 7 deposits currently held at seven bank partners which have contractual wind-down periods ranging from 9 to 24 months . we currently benefit from fees paid to us by partner banks and anticipate the $ 1 billion of deposits held at the seven bank partners to transfer to the bank potentially providing a lower cost of funds . critical accounting policies the following discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and the notes thereto , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements . on an ongoing basis , we evaluate our estimates and assumptions based upon historical experience and various factors and circumstances . we believe that our estimates and assumptions are reasonable under the circumstances . however , actual results may differ significantly from these estimates and assumptions that could have a material effect on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods . securities . we classify securities as either trading , available-for-sale or held-to-maturity . trading securities are those securities for which we have elected fair value accounting . trading securities are recorded at fair value with changes in fair value recorded in earnings each period . securities available-for-sale are reported at estimated fair value , with unrealized gains and losses , net of the related tax effects , excluded from operations and reported as a separate component of accumulated other comprehensive income or loss . the fair values of securities traded in active markets are obtained from market quotes . if quoted prices in active markets are not available , we determine the fair values by utilizing industry-standard tools to calculate the net present value of the expected cash flows available to the securities . for securities other than non-agency rmbs , we use observable market participant inputs and categorize these securities as level ii in determining fair value . for non-agency rmbs securities , we use a level iii fair value model approach . to determine the performance of the underlying mortgage loan pools , we consider where appropriate borrower prepayments , defaults , and loss severities based on a number of macroeconomic factors , including housing price changes , unemployment rates , interest rates and borrower attributes such as credit score and loan documentation at the time of origination . we input for each security our projections of monthly default rates , loss severity rates and voluntary prepayment rates for the underlying mortgages for the remaining life of the security to determine the expected cash flows . the projections of default rates are derived by the company from the historic default rate observed in the pool of loans collateralizing the security , increased by ( or decreased by ) the forecasted increase or decrease in the national unemployment rate as well as the forecasted increase or decrease in the national home price appreciation ( hpa ) index . the projections of loss severity rates are derived by the company from the historic loss severity rate observed in the pool of loans , increased by ( or decreased by ) the forecasted decrease or increase in the hpa index . to determine the discount rates used to compute the present value of the expected cash flows for these non-agency rmbs securities , we separate the securities by the borrower characteristics in the underlying pool . for example , non-agency rmbs “ prime ” securities generally have borrowers with higher fico scores and better documentation of income .
| results of operations our results of operations depend on our net interest income , which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities . our net interest income has increased as a result of the growth in our interest earning assets and is subject to competitive factors in the online banking market . our net interest income is reduced by our estimate of loss provisions for our loan and lease portfolio . we also earn non-interest income primarily from mortgage banking activities , banking products and service activity , prepaid card fee income , prepayment fee income from multifamily borrowers who repay their loans before maturity and from gains on sales of other loans and investment securities . losses on investment securities reduce non-interest income . the largest component of non-interest expense is salary and benefits , which is a function of the number of personnel , which increased from 681 full time employees at june 30 , 2017 to 801 full-time equivalent employees at june 30 , 2018 . we are subject to federal and state income taxes , and our effective tax rates were 36.42 % , 42.10 % and 41.78 % for the fiscal years ended june 30 , 2018 , 2017 , and 2016 , respectively . other factors that affect our results of operations include expenses relating to data processing , advertising , depreciation , occupancy , professional services , and other miscellaneous expenses . comparison of the fiscal year ended june 30 , 20 18 and june 30 , 2017 net interest income . net interest income totaled $ 368.5 million for the fiscal year ended june 30 , 2018 compared to $ 313.2 million for the fiscal year ended june 30 , 2017 . the following table sets forth the effects of changing rates and volumes on our net interest income .
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as required in the recognition and disclosure provisions of asc topic 715 , compensation - retirement benefits , the company recognizes the over-funded or under-funded status of defined benefit post-retirement plans in its balance sheet , measured as the difference between the fair value of plan assets and the benefit obligation ( the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for other post-retirement plans ) . the change in the funded status of the plan is recognized in the year in which the change occurs through other comprehensive story_separator_special_tag see item 1 , business , for additional detail on forward looking statements . company overview circor international , inc. designs , manufactures and markets valves and other highly engineered products and sub-systems used in the oil & gas , power generation , aerospace , defense and industrial markets . within our major product groups , we develop , manufacture , sell and service a portfolio of fluid-control products , sub-systems and technologies that enable us to fulfill our customers ' unique fluid-control application needs . see part 1 , item 1 , business , for additional information regarding the description of our business . as we look to 2015 , we are witnessing a correction in customer activity , especially in our upstream oil and gas markets , due to the current macro-economic uncertainty from the decline in oil prices , currency volatility , a weak european economy , and other geopolitical risks . we believe our north american short cycle business will be impacted in the short term due to the reduction of north american upstream activity and destocking of the channel . for our large engineered projects businesses , we are seeing project delays and capital expenditure reductions , which we expect to have an adverse impact on our large project revenue in the longer term . however , we expect to see modest growth in other markets we serve : the asian power generation markets , the global liquefied natural gas market , and certain mid and down-stream energy markets . we believe the aerospace & defense markets will experience modest growth based on increases in oem production rates and volume growth for specific defense related platforms . 15 we are implementing actions to mitigate the impact on our earnings and better align our businesses with potential lower demand . in addition we will continue to focus on both organic and acquisition growth opportunities and we are investing in products and technologies that help solve our customers ' most difficult problems . we expect to further simplify circor by standardizing technology , reducing facilities , and consolidating suppliers among other actions . finally , attracting and retaining talented personnel , including the development of our global sales , operations , and engineering organization , remains an important part of our strategy during 2015. operational excellence will be the foundation of our culture as we continue to transform circor into a world class company . we believe our cash flow from operations and financing capacity is adequate to support these activities . basis of presentation all significant intercompany balances and transactions have been eliminated in consolidation . certain prior period financial statement amounts have been reclassified to conform to currently reported presentations . we monitor our business in two segments : energy and aerospace & defense . we operate and report financial information using a 52-week fiscal year ending december 31. the data periods contained within our quarterly reports on form 10-q reflect the results of operations for the 13-week , 26-week and 39-week periods which generally end on the sunday nearest the calendar quarter-end date . critical accounting policies our critical accounting policies were selected because they are broadly applicable within our operating units . the expenses and accrued liabilities or allowances related to certain of these policies are initially based on our best estimates at the time of original entry in our accounting records . adjustments are recorded when our actual experience , or new information concerning our expected experience , differs from underlying initial estimates . these adjustments could be material if our actual or expected experience were to change significantly in a short period of time . we make frequent comparisons of actual experience and expected experience in order to mitigate the likelihood of material adjustments . there have been no significant changes from the methodology applied by management for critical accounting estimates previously disclosed in our annual report on form 10-k for the fiscal year ended december 31 , 2013 . for information regarding our critical accounting policies refer to note 2 to the consolidated financial statements included in this annual report , which disclosure is incorporated by reference herein . 16 story_separator_special_tag style= '' vertical-align : bottom ; background-color : # cceeff ; padding-left:2px ; padding-top:2px ; padding-bottom:2px ; padding-right:2px ; '' > year ended inventory restructuring ( 1 ) impairment charges ( 2 ) special ( recoveries ) charges , net ( 3 ) segment december 31 , 2013 ( in thousands ) energy $ 2,518 $ 296 $ — $ 2,222 aerospace & defense 12,459 351 6,872 5,236 corporate 1,144 — — 1,144 total $ 16,121 $ 647 $ 6,872 $ 8,602 ( 1 ) inventory restructuring charges are included in cost of revenues . see note 4 , special charges , for additional detail on inventory restructuring charges . ( 2 ) see note 7 , goodwill and other intangible assets , for additional detail on impairment charges . ( 3 ) see note 4 , special charges , net for additional detail on special ( recovery ) charges . see goodwill and other intangible assets in note 7 and special charges / recoveries in note 4 of the consolidated financial statements for more detail on these impairment charges , special charges and inventory restructuring actions for the twelve months ended december 31 , 2014 and december 31 , 2013 . story_separator_special_tag aerospace & defense segment revenues increased by $ 10.7 million ( 6 % ) for the year ended december 31 , 2013 compared to the same period in 2012 primarily as a result of organic increases of $ 10.1 million plus favorable foreign currency fluctuations of $ 0.6 million . the organic increases were primarily due to higher sales across most of our businesses as we began delivering products for our new programs . aerospace & defense orders remained consistent at $ 189.6 million for the twelve months ended december 31 , 2013 and the same period in 2012 . operating income ( loss ) the change in operating income ( loss ) for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 was as follows : replace_table_token_8_th 20 inventory restructuring , impairment , and special charges for the twelve months ended december 31 , 2013 and december 31 , 2012 were as follows : year ended inventory restructuring ( 1 ) impairment charges ( 2 ) special ( recoveries ) charges , net ( 3 ) segment december 31 , 2013 ( in thousands ) energy $ 2,518 $ 296 $ — $ 2,222 aerospace & defense 12,459 351 6,872 5,236 corporate 1,144 — — 1,144 total $ 16,121 $ 647 $ 6,872 $ 8,602 year ended inventory restructuring ( 1 ) impairment charges ( 2 ) special ( recoveries ) charges , net ( 3 ) segment december 31 , 2012 ( in thousands ) energy $ 5,131 $ 924 $ 2,156 $ 2,051 aerospace & defense 11,926 3,237 8,193 496 corporate 2,734 — — 2,734 total $ 19,791 $ 4,161 $ 10,349 $ 5,281 ( 1 ) inventory restructuring charges are included in cost of revenues . see note 4 , special charges , for additional detail on inventory restructuring charges . ( 2 ) see note 7 , goodwill and other intangible assets , for additional detail on impairment charges . ( 3 ) see note 4 , special charges , net for additional detail on special ( recovery ) charges . impairment charges during fourth quarter of 2013 , in connection with a change to our organizational structure to simplify the way the company is managed as well as other evolving business factors , we determined that certain aerospace & defense trade name intangible assets had no future usage and should be impaired . this resulted in an indefinite-lived intangible asset impairment charge during the year ended december 31 , 2013 of $ 6.9 million . during the year ended december 31 , 2012 we recorded intangible asset impairment charges of $ 2.2 million and $ 8.2 million for the energy and aerospace & defense segments , respectively . these impairment charges were primarily a result of restructuring activities at operations in brazil and california . special charges / ( recoveries ) during the twelve months ended december 31 , 2013 we incurred $ 8.6 million of special charges , net of recoveries . these charges of $ 5.4 million and $ 5.2 million for the energy and aerospace & defense segments , respectively , were associated with restructuring actions that were announced in both 2013 and 2012. in addition we incurred $ 1.1 million of corporate special compensation-related charges associated with the retirement of our former cfo . these special charges were offset by special recoveries associated with an arbitration recovery of $ 3.2 million in the energy segment . during the twelve months ended december 31 , 2012 we incurred $ 5.3 million in special charges ; $ 2.5 million associated with our 2012 announced restructuring and $ 2.7 million associated with the separation of our former ceo . operating income increased 49 % , or $ 22.6 million , to $ 69.2 million for the year ended december 31 , 2013 compared to $ 46.5 million for the same period in 2012. operating income for our energy segment increased $ 23.0 million , or 34 % , to $ 90.8 million for the year ended december 31 , 2013 compared to the same period in 2012. the increase in operating income was primarily driven by higher organic increases of $ 19.3 million , favorable foreign currency impacts of $ 1.1 million and lower inventory restructuring , impairment , and special charges of $ 2.6 million in 2013 compared to 2012. operating margins improved 340 basis points to 13.7 % on essentially flat revenue growth . organic operating margins increased 280 basis points primarily driven by higher shipments and favorable pricing within our large international project business ( approximately 290 basis points ) and power businesses ( approximately 21 90 basis points ) . these organic increases were partially offset by decreased revenue in the north american short cycle market ( approximately 100 basis points ) driven primarily by lower rig counts year over year . operating income for the aerospace & defense segment increased $ 1.4 million , or 29 % , to $ 6.2 million for the year ended december 31 , 2013 compared to the same period in 2012. operating income improved primarily due to $ 2.1 million of operational improvements offset by higher inventory restructuring , impairment , and special charges of $ 0.5 million in 2013 compared to 2012. organically operating income increased $ 1.0 million primarily due to increased shipments in our uk-based defense businesses , productivity from restructuring actions , partially offset by increased new program development and start- up costs and factory reorganization costs associated with landing gear production . corporate operating expenses increased $ 1.8 million , or 7 % , to $ 27.8 million , for the year ended december 31 , 2013 compared to the same period in 2012 , primarily due to higher incentive and share based compensation and professional fees partially offset by lower special charges .
| results of operations for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 the following tables set forth the results of operations , percentage of net revenue and the period-to-period percentage change in certain financial data for the years ended december 31 , 2014 and december 31 , 2013 : replace_table_token_3_th net revenues net revenues for the year ended december 31 , 2014 decreased by $ 16.4 million , or 2 % , to $ 841.4 million from $ 857.8 million for the year ended december 31 , 2013 . the change in net revenues for the year ended december 31 , 2014 was attributable to the following : replace_table_token_4_th our energy segment accounted for 78 % of net revenues for the year ended december 31 , 2014 compared to 77 % for the year ended december 31 , 2013 with the aerospace & defense segment accounting for the remainder . energy segment revenues decreased $ 7.7 million , or 1 % , for the year ended december 31 , 2014 compared to the same period in 2013 . the decrease was primarily driven by lower shipment volumes in large international projects ( 4 % ) and our control valves businesses ( 2 % ) and unfavorable foreign currency of $ 5.9 million ( 1 % ) , partially offset by higher shipment volumes in the upstream north american short-cycle ( 3 % ) and downstream instrumentation businesses ( 2 % ) .
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our fiscal year end is the saturday nearest to may 31 which was may 28 , 2011 ( 52 weeks ) , may 29 , 2010 ( 52 weeks ) , and may 30 , 2009 ( 52 weeks ) for the most recent three fiscal years . our operations are fully integrated . at our facilities we hatch chicks , grow and maintain flocks of pullets ( young female chickens , usually under 20 weeks of age ) , layers ( mature female chickens ) and breeders ( male or female birds used to produce fertile eggs to be hatched for egg production flocks ) , manufacture feed , and produce , process and distribute shell eggs and egg products . we are the largest producer and marketer of shell eggs in the united states . we market the majority of our shell eggs in 29 states , primarily in the southwestern , southeastern , mid-western , and mid-atlantic regions of the united states . we market our shell eggs through our extensive distribution network to a diverse group of customers , including national and regional grocery store chains , club stores , foodservice distributors , and egg product manufacturers . our operating results are directly tied to egg prices , which are highly volatile and subject to wide fluctuations , and are outside of our control . the shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss . in the past , during periods of high profitability , shell egg producers have tended to increase the number of layers in production with a resulting increase in the supply of shell eggs , which generally has caused a drop in shell egg prices until supply and demand return to balance . as a result , our financial results from year to year may vary significantly . shorter term , retail sales of shell eggs historically have been greatest during the fall and winter months and lowest during the summer months . our need for working capital generally is highest in the last and first fiscal quarters ending in may and august , respectively , when egg prices are normally at seasonal lows . prices for shell eggs fluctuate in response to seasonal factors and a natural increase in shell egg production during the spring and early summer . shell egg prices tend to increase with the start of the school year and are highest prior to holiday periods , particularly thanksgiving , christmas , and easter . consequently , we generally experience lower sales and net income in our first and fourth fiscal quarters ending in august and may , respectively . because of these seasonal and quarterly fluctuations , comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons . for fiscal 2011 , we used contract producers for approximately 8 % of our total egg production . contract producers operate under agreements with us for the use of their facilities in the production of shell eggs by layers owned by us . we own the shell eggs produced under these arrangements . for fiscal 2011 , approximately 23 % of the total number of shell eggs sold by us was purchased from outside producers for resale . our cost of production is materially affected by feed costs . for fiscal 2011 , feed costs averaged about 64 % of our total farm egg production cost . changes in market prices for corn and soybean meal , the primary ingredients of the feed we use , result in changes in our cost of goods sold . the cost of our feed ingredients , which are commodities , are subject to factors over which we have little or no control such as volatile price changes caused by weather , size of harvest , transportation and storage costs , demand and the agricultural and energy policies of the united states and foreign governments . the corn and soybean crops were large for the 2010 crop year ; however , national inventories of both commodities are expected to be at very low levels as the crop year comes to a close . feed ingredient prices have continued to increase sharply since july 2010. market prices for corn have risen , in part , due to increases in export demand and increases in demand from ethanol producers . market prices for soybean meal remain high because of competition for planted acres for other grain production . the prospective outlook is for feed costs to remain high and increasingly volatile in the year ahead . 19 the purchase of tampa farms , llc described in note 2 in the notes to the consolidated financial statements is referred to below as the “ acquisition. ” to increase comparability in the results of operations comparison between fiscal 2010 and fiscal 2009 , the exclusion of the acquisition refers to the exclusion of the fiscal 2010 first and second quarter results of operations for tampa farms , llc , because tampa farms , llc was not acquired until the third quarter of fiscal 2009. we also acquired zephyr egg , llc during the first quarter of fiscal 2009 , which is described in note 2 in the notes to the consolidated financial statements . however , since zephyr egg , llc 's results of operations are included in all four quarters of fiscal 2009 and fiscal 2010 , there was no adjustment necessary in the results of operations comparisons for these periods for that acquisition . story_separator_special_tag dollar sales , as compared to 77.1 % for the thirteen-week period ended may 29 , 2010. for the thirteen-week period ended may 28 , 2011 , non-specialty shell eggs accounted for approximately 83.5 % of the total shell egg dozen volume , as compared to 84.6 % for the thirteen-week period ended may 29 , 2010. we continue to increase our sales volume of specialty eggs , which include nutritionally enhanced , cage free and organic eggs . story_separator_special_tag 23 selling , general and administrative expenses . replace_table_token_7_th selling , general and administrative expenses include costs of marketing , distribution , accounting and corporate overhead . selling , general and administrative expense was $ 101.4 million in fiscal 2011 , an increase of $ 9.4 million or 10.2 % , as compared to $ 92.0 million for fiscal 2010. stock based compensation plan expense decreased $ 2.3 million for the current fiscal year . the calculation of stock based compensation plan expense is dependent on the closing stock price of the company 's common stock . from the fiscal year ended may 30 , 2009 to may 29 , 2010 , the common stock price increased from $ 24.37 at may 30 , 2009 to $ 32.37 at may 29 , 2010 , which is a 32.8 % increase . from the fiscal year ended may 29 , 2010 to may 28 , 2011 , the common stock price decreased from $ 32.37 at may 29 , 2010 to $ 28.93 at may 28 , 2011 , which is a 10.6 % decrease . specialty egg expenses represent advertising , commissions , royalties , and franchise fees as they are incurred with sales of our specialty eggs . the expense increase is attributable to the increase in the dozens of specialty eggs sold this year as compared to last fiscal year as well as increased promotional activities . payroll and overhead increased as compared to the same period the prior year due to higher performance based bonuses paid in the current year . other selling , general and administrative expenses decreased due to decreases in legal , audit , and general insurance expenses . delivery expense increased due to higher fuel costs and increased costs for the use of outside trucking . as a percent of net sales , selling , general and administrative expense increased from 10.1 % for fiscal 2010 to 10.8 % for fiscal 2011. replace_table_token_8_th selling , general and administrative expense was $ 27.7 million for the thirteen-week period ended may 28 , 2011 , an increase of $ 5.6 million or 25.1 % , as compared to $ 22.1 million for the thirteen-week period ending may 29 , 2010. operating income . as a result of the above , our operating income was $ 83.5 million for fiscal 2011 , as compared to operating income of $ 102.6 million for fiscal 2010. operating income as a percent of sales for fiscal 2011 was 8.8 % , as compared to operating income of 11.3 % for fiscal 2010. other income ( expense ) . other income or expense consists of income or costs not directly charged or related to operations such as equity in income of affiliates and interest expense . other income for fiscal 2011 was $ 8.2 million as compared to other income of $ 889,000 for fiscal 2010. net interest expense decreased by $ 706,000 as compared to last fiscal year . we recorded a loss of $ 2.6 million on the early extinguishment of debt with john hancock life insurance company in fiscal 2011. rates earned on invested cash balances were lower in the current year . in fiscal 2011 , we recorded patronage refunds and dividends from eggland 's best tm ( “ eb ” ) , a marketing cooperative , for $ 5.3 million , as compared to $ 3.3 million in fiscal 2010. in addition to the patronage refund and dividend , we recorded a gain of $ 4.8 million from the sale of non-voting stock in eb . we account for our investment in eb on the cost method . our equity in income of affiliates increased due to similar amounts being paid by eb to specialty eggs , llc , an affiliated entity which is also a franchisee and cooperative owner of eb . our ownership interest in specialty eggs , llc is 50 % . we account for our investment in specialty eggs , llc using the equity method . specialty eggs , llc received dividends and patronage refunds of $ 1.2 million , as compared to $ 769,000 in the prior year , and it also recognized a gain of $ 1.6 million from the sale of non-voting stock in eb . our one-half portion of the amounts received by specialty eggs , llc from eb is $ 1.4 million . in fiscal 2011 , we finalized our insurance claim on the farwell , texas fire and recorded a gain of $ 1.8 million on the fixed assets that were destroyed in this fire . as a percent of net sales , other income was 0.9 % for fiscal 2011 , as compared to other income of 0.1 % for fiscal 2010 . 24 income taxes . for the fiscal year ended may 28 , 2011 , our pre-tax income was $ 91.7 million , as compared to $ 103.5 million for fiscal 2010. income tax expense of $ 33.4 million was recorded for fiscal 2011 with an effective income tax rate of 36.4 % , as compared to $ 38.0 million for fiscal 2010 with an effective income tax rate of 36.7 % . our effective rate differs from the federal statutory income tax rate of 35 % due to state income taxes and certain items included in income or loss for financial reporting purposes that are not included in taxable income or loss for income tax purposes , including tax exempt interest income , the domestic manufacturers deduction , and net income or loss attributable to noncontrolling interest . net loss attributable to noncontrolling interest . net loss attributable to noncontrolling interest for fiscal 2011 was $ 2.6 million as compared to net loss attributable to noncontrolling interest of $ 2.3 million for fiscal 2010. net income .
| results of operations the following table sets forth , for the years indicated , certain items from our consolidated statements of income expressed as a percentage of net sales . replace_table_token_3_th executive overview of results – may 28 , 2011 , may 29 , 2010 , and may 30 , 2009 our operating results are significantly affected by wholesale shell egg market prices and feed costs , which can fluctuate widely and are outside of our control . primarily , our shell eggs are sold at prices related to the urner barry spot egg market quotations for the southeastern region of the country . the following table shows our net income ( loss ) , net average shell egg selling price , feed cost per dozen produced , and the average urner barry wholesale large shell egg prices in the southeast region , for each of our three most recent fiscal years . replace_table_token_4_th 1- average daily price for the large market ( i.e . generic shell egg ) in the southeastern region the shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss . the periods of high profitability reflect increased consumer demand relative to supply while the periods of significant loss reflect excess supply for the then prevailing consumer demand . historically , demand for shell eggs increases in line with overall population growth . as reflected above , our operating results correspond with changes in the spot egg market quote . the net average shell egg selling price is the blended price for all sizes and grades of shell eggs , including non-graded shell egg sales , breaking stock and undergrades . in fiscal 2003 and 2004 , shell egg demand increased at higher than normal trend rates due to the increased popularity of high protein diets . this demand imbalance caused shell egg prices to increase .
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” you should not place undue reliance on our forward-looking statements , which apply only as of the date of this annual report . except as may be required under federal law , we undertake no obligation to update publicly any forward-looking statements for any reason , even if new information becomes available or other events occur . you should read the following discussion and analysis in conjunction with our consolidated financial statements and related footnotes included in item 8 of this annual report . overview general rlj entertainment , inc. ( or rlje ) is a global entertainment company with a direct presence in north america , the united kingdom ( or u.k. ) and australia and strategic sublicense and distribution relationships covering europe , asia and latin america . rlje was incorporated in nevada in april 2012. on october 3 , 2012 , we completed the business combination of rlje , image entertainment , inc. ( or image ) and acorn media group , inc. ( or acorn media or acorn ) , which is referred to herein as the “ business combination. ” acorn media includes its subsidiaries rlje international ltd ( or rlje u.k. ) , rlj entertainment australia pty ltd. ( or rlje australia ) and rlj entertainment ltd ( or rlje ltd ) . in february 2012 , acorn media acquired a 64 % ownership of agatha christie limited ( or acl ) . references to image include its wholly-owned subsidiary image/madacy home entertainment , llc . “ we , ” “ our ” or “ us ” refers to rlje and its subsidiaries , unless otherwise noted . our principal executive offices are located in silver spring , maryland , with additional u.s. locations in woodland hills , california , and stillwater , minnesota , and international locations in london , england and sydney , australia . rlje is a global entertainment content distribution company for distinct , passionate audiences . we strive to be a preferred source and destination for entertainment for a variety of distinct audiences with particular and special programming interests . we acquire , develop and exploit television , film and other media content agnostically across all platforms of distribution . we actively manage all windows of exploitation to optimize the reach of our promotional efforts and maximize the value of our releases . we acquire content rights in various categories , with particular focus on british mysteries and dramas , urban programming and full-length independent motion pictures . we also develop , produce and own original programming through our wholly-owned subsidiary , rlje ltd , and our 64 % -owned subsidiary , acl . we control an extensive program library in genres such as british mysteries and dramas , urban/african-american , action/thriller and horror , fitness/lifestyle and long-form documentaries . our owned content includes 28 foyle 's war made-for-tv films , multiple instructional acacia titles , and through our 64 % ownership of acl , the vast majority of the works of agatha christie . we exploit our products through a multi-channel strategy encompassing ( 1 ) the licensing of original drama and mystery content managed and developed through our wholly-owned subsidiary , rlje ltd , and our 64 % -owned subsidiary , acl , ( ip licensing segment ) ; ( 2 ) wholesale exploitation through partners covering broadcast and cable , digital , online and retail outlets ( wholesale segment ) ; and ( 3 ) direct relations with consumers via proprietary svod channels , e-commerce websites and mail-order catalog ( direct-to-consumer segment ) . rlje ltd manages and develops our intellectual property rights on british drama and mysteries . our owned content includes 28 foyle 's war made-for-tv films ; multiple instructional acacia titles ; and through our 64 % ownership interest of acl , the agatha christie library . acl is home to some of the world 's greatest works of mystery fiction , including murder on the orient express and death on the nile and includes all development rights to iconic sleuths such as hercule poirot and miss marple . the agatha christie 26 library includes a variety of short story collections , more than 80 novels , 19 plays and a film library of over 100 made-for-television films . in the third quarter of 20 14 , acl published its first book , the monogram murders , since the death of agatha christie . our wholesale partners are broadcasters , digital outlets and major retailers in the u.s. , canada , united kingdom and australia , including , among others : amazon , barnes & noble , bet , costco , directv , hulu , itunes , netflix , pbs , showtime , target and walmart . we work closely with our wholesale partners to outline and implement release and promotional campaigns customized to the different audiences we serve and the program genres we exploit . we have a catalog of owned and long-term licensed content that is segmented into brands such as acorn ( british drama/mystery , including content produced by acl ) , rlje films ( independent feature films , action/thriller horror ) , urban movie channel ( or umc ) ( urban ) , acacia ( fitness ) , and athena ( documentaries ) . our direct-to-consumer segment includes our proprietary svod channels , such as acorn tv and umc , and the sale of video content and complementary merchandise directly to consumers through proprietary e-commerce websites and mail-order catalogs . as of december 31 , 2015 , acorn tv had over 195,000 paying subscribers . as of february 29 , 2016 , acorn tv had approximately 235,000 paying subscribers . umc , which launched in late-2014 , has been adding over 2,000 subscribers per month since december 2015 and has close to 10,000 subscribers as of february 29 , 2016. we expect the subscriber base to continue to grow in 2016 for all of our subscription-based digital channels as we add more exclusive content to the channels . story_separator_special_tag under a typical exclusive distribution agreement , we may pay upfront fees , which are expressed as advances against future net profits . once the advance is recouped , we pay the content supplier their share of net cash-profits , which is after our distribution fee , from the prior quarter 's exploitation . in addition to advances , upfront fees and production costs , the other significant expenditures we incur are : · dvd/blu-ray authoring and replication and digitalization of program masters ; · packaging ; 28 · advertising , promotion and marketing funds provided to wholesale partners ; · domestic shipping costs from self-distribution of exclusive content ; · personnel ; and · interest . we strive to achieve long-term , sustainable growth and profitability with a target return on investment ( roi ) of 20 % or more on new content acquisitions . this financial target is based on all up-front expenses associated with the acquisition and release of a title , including advances and development costs , and is calculated after allocating overhead costs . we also seek to maximize our operational cash flow and profitability by closely managing our marketing and discretionary expenses , and by actively negotiating and managing collection and payment terms . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > interest expense for the year ended december 31 , 2015 was $ 10.0 million compared to $ 9.6 million for the same period in 2014. interest expense increased $ 353,000 during the current year due to an increased average debt balance owed under our credit agreement in 2015 as compared to 2014 , and an increased interest rate payable ( currently libor plus 10.64 % ) when compared to the prior credit facility ( which was approximately libor plus 7.0 % ) . at the time the prior credit facility was refinanced in september 2014 , the balance due was $ 55.7 million . once refinanced , the balance due increased to $ 70.0 million . on april 15 , 2015 , we made an accelerated debt payment of $ 10.0 million . during 2015 , we also made quarterly principal payments on our credit agreement of $ 613,000 each . change in fair value of stock warrants and other derivatives the change in the fair value of our stock warrants and other derivative liabilities impacts the statement of operations . a decrease in the fair value of the liabilities results in the recognition of income , while an increase in the fair value of the liabilities results in the recognition of expense . changes in fair value are primarily driven by changes in our common stock price and its volatility . for the years ended december 31 , 2015 and 2014 , the fair value of our stock warrants and other derivative liabilities decreased by $ 1.4 million and $ 3.5 million , respectively . loss on extinguishment of debt when entering into the new credit agreement , we recognized a loss on extinguishment of debt of $ 1.5 million in the third quarter of 2014. the loss primarily represents the expensing of unamortized debt discounts and deferred financing costs associated with the prior credit facility . other expense other expense mostly consists of foreign currency gains and losses resulting primarily from advances and loans by our u.s. subsidiaries to our foreign subsidiaries that have not yet been repaid . our foreign currency gains and losses are primarily impacted by changes in the exchange rate of the british pound sterling ( or the pound ) relative to the u.s. dollar ( or the dollar ) . as the pound strengthens relative to the dollar , we recognized other income ; and as the pound weakens relative to the dollar , we recognize other expense . during 2015 and 2014 , the pound weakened relative to the dollar and we recognized foreign currency losses of $ 1.1 million each year . income taxes we have fully reserved our net u.s. deferred tax assets , and such tax assets may be available to reduce future income taxes payable should we have u.s. taxable income in the future . to the extent such deferred tax assets relate to net operating losses ( or nol ) carryforwards , the ability to use our nol carryforwards against future earnings will be subject to applicable carryforward periods and limitations subsequent to a change in ownership . as of december 31 , 2015 , we had nol carryforwards for federal and state income tax purposes of approximately $ 87.3 million and approximately $ 59.6 million , respectively . we recorded income tax expense of $ 165,000 and $ 399,000 for the years ended december 31 , 2015 and 2014 , respectively . our tax provision consists primarily of a deferred tax provision for certain deferred tax liabilities and a current tax provision for our u.k. operations . we are recording a deferred tax provision and liability for our equity earnings of affiliate ( acl ) . these earnings will be taxable in the u.k. , when and if we dispose of our investment . in 2015 , we also reversed a previously recognized deferred liability related to goodwill amortization that was being provided for tax purposes . because of the goodwill impairment recognized , the deferred liability was reversed and is no longer being recognized for financial statement purposes . this reversal resulted in us reducing our tax expense in 2015 by $ 411,000. we are providing current income tax expense on pre-tax income from our consolidated u.k. subsidiaries at an effective tax rate of approximately 20 % . we are not providing a current tax provision ( benefit ) on our u.s. operations , other than for certain state minimum taxes , which are immaterial .
| highlights highlights for the year ended december 31 , 2015 and other significant events are as follows : · grew subscriber base for acorn tv from 118,000 to 195,000 in 2015 , and 260,000 as of the end of march 2016 . · revenues are down while gross margin percentages have increased . the gross margin increased to 26.9 % for the year ended december 31 , 2015 compared to 26.3 % for the year ended december 31 , 2014 . · during december 2015 , all three of our proprietary svod channels were featured in amazon prime 's add-on streaming video service launch , which provides us with a significant increase in addressable audience and brand awareness . · in december 2015 , management approved and began implementing a plan to shut down unprofitable lines of business . this includes closing the acacia catalog that lost $ 4.0 million and $ 1.8 million during 2015 and 2014 , respectively , and transitioning the acorn catalog from a physical printed catalog that is mailed to an online catalog . · on may 20 , 2015 , we completed a $ 31.0 million capital restructuring by selling shares of preferred stock and warrants to acquire common stock . after fees and expenses incurred , this reduced our debt balances from $ 85.8 million to $ 67.3 million and provided working capital of $ 10.6 million . the highlights above and the discussion below are intended to identify some of our more significant results and transactions during 2015 and should be read in conjunction with our consolidated financial statements and related discussions within this annual report .
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when it is appropriate for the company to recognize the cost of a transaction during financial reporting periods prior to the measurement date , for purposes of recognition of costs during those periods , the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates ( see note 12 ) . basic and diluted loss per share basic loss per common share is computed based on the weighted average number of shares outstanding during the period . diluted loss per share is computed by dividing net loss by the weighted average shares outstanding assuming all dilutive potential common shares were issued . in addition , in computing the dilutive effect of convertible securities , the numerator is adjusted to add back the after-tax amount of interest , if any , recognized in the period with any convertible debt . for the years ended march 31 , 2013 and 2012 , the company was in a loss position and the basic and diluted loss per share are the same since the effect of stock options , warrants and convertible notes payable on loss per share was anti-dilutive and thus not included in the diluted loss per share calculation . the impact story_separator_special_tag this annual report on form 10-k contains forward-looking statements that have been made pursuant to the provisions of the private securities litigation reform act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements . discussions containing forward-looking statements may be found in the material set forth under “ business , ” “ management 's discussion and analysis of financial condition and results of operations ” and in other sections of this form 10-k. words such as “ may , ” “ will , ” “ should , ” “ could , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ potential , ” “ continue ” or similar words are intended to identify forward-looking statements , although not all forward-looking statements contain these words . although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this annual report on form 10-k , we can not guarantee future results , levels of activity , performance or achievements , and our actual results may differ substantially from the views and expectations set forth in this annual report on form 10-k. we expressly disclaim any intent or obligation to update any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations . readers are urged to carefully review and consider the various disclosures made by us , which attempt to advise interested parties of the risks , uncertainties , and other factors that affect our business , set forth in detail in item 1a of part i , under the heading “ risk factors. ” the following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes to those statements contained elsewhere in this annual report on form 10-k. general overview we provide leading edge frozen shipping logistics solutions to the biotechnology and life science industries . since 2008 , through the combination of purpose-built proprietary hardware and software technologies and logistics knowhow known as “ total turnkey management ” we have provided total logistics management to the biotechnology and life sciences industries . our solutions are disruptive to “ old technologies ” and provide reliable , economic alternatives to currently existing products and services utilized for frozen shipping in biotechnology and life sciences including stem cells , cell lines , vaccines , diagnostic materials , semen and embryos for in-vitro fertilization , cord blood , bio-pharmaceuticals , infectious substances and other items that require continuous exposure to frozen or cryogenic temperatures . in addition , our solutions can contribute to the reliability , efficiency , and effectiveness of clinical trials . cryoport express ® solutions include a cloud-based logistics management software branded as the cryoportal tm . the cryoportal supports the management of the entire shipment process through a single interface which includes initial order input , document preparation , customs clearance , courier management , shipment tracking , issue resolution , and delivery . cryoport 's total turnkey logistics solutions offer reliability , cost effectiveness , and convenience , while the use of recyclable and reusable components provides “ green ” , environmentally friendly solutions . the cryoportal provides an array of unique information dashboards and validation documentation for each and every shipment . integral to our logistics solutions are the cryoport liquid nitrogen dry vapor shippers ( cryoport express ® shippers ) which are cost-effective and reusable cryogenic transport containers ( patented vacuum flasks ) utilizing innovative liquid nitrogen ( ln2 ) “ dry vapor ” technology . cryoport express ® shippers are non-hazardous , iata ( international air transport association ) certified , and validated to maintain stable temperatures below minus 150° celsius for a 10-plus day dynamic shipment period . the company currently features two cryoport express ® shipper models , the standard dry shipper ( holding up to approximately 75-2.0 ml vials ) and the high volume dry shipper ( holding up to approximately 500-2.0 ml vials ) . cryoport express ® solutions include recording and retaining a fully documented “ chain-of-custody ” and , at the client 's option , “ chain-of-condition ” for every shipment , helping ensure that quality , safety , efficacy , and stability of shipped commodities are maintained . this recorded and archived information allows our customers to meet the exacting requirements necessary for scientific work and for regulatory purposes . story_separator_special_tag the decrease of net loss per share compared to the prior year is a result of the decrease in the net loss as described above and the increase in the weighted average common shares outstanding from 29.0 million to 37.8 million . this increase is primarily due to common stock issued in connection with the company 's private placements late in fiscal 2012. liquidity and capital resources as of march 31 , 2013 , the company had cash and cash equivalents of $ 563,104 and negative working capital of $ 1,539,103. as of march 31 , 2012 , the company had cash and cash equivalents of $ 4,617,535 and working capital of $ 4,024,120. historically , we have financed our operations primarily through sales of our debt and equity securities . from march 2005 through march 2013 , we have received net proceeds of approximately $ 34.1 million from sales of our common stock and the issuance of promissory notes , warrants and debt . 29 for the year ended march 31 , 2013 , we used $ 4,785,144 of cash for operations primarily as a result of the net loss of $ 6,382,433 including non-cash expenses of $ 693,180 for the fair value of stock options and warrants . net operating losses decreased as a result of a decrease in headcount . offsetting the cash impact of our net operating loss ( excluding non-cash items ) was an increase in accounts payable and accrued expenses of $ 443,562. net cash used in operating activities also was offset by $ 2,525 for other working capital uses . net cash used in investing activities totaled $ 178,682 during the year ended march 31 , 2013 , and was attributable to the purchase of property and equipment of $ 156,200 and the purchase of intangible assets of $ 22,482. net cash provided by financing activities totaled $ 909,395 during the year ended march 31 , 2013 , and resulted primarily from net proceeds received from issuance of convertible debt during the fourth quarter of fiscal 2013 in the amount of $ 1,294,500. this was partially offset by the payment of financing costs of $ 206,305 , repayment of related party notes of $ 96,000 and repayment of convertible debt of $ 82,800. as discussed in note 1 of the accompanying consolidated financial statements , there exists substantial doubt regarding the company 's ability to continue as a going concern . as discussed above , the company completed a private placement in march of 2012 and received proceeds from issuance of convertible debt as bridge financing in the fourth quarter of fiscal 2013. the funds raised are being used for working capital purposes and to continue our sales efforts to advance the company 's commercialization of the cryoport express ® solutions . as discussed in note 16 of the accompanying audited consolidated financial statements , the company issued additional unsecured convertible promissory notes in principal amount of $ 608,751 in the first quarter of fiscal 2014. however , the company 's management recognizes that the company will need to obtain additional capital to fund its operations and until sustained profitable operations are achieved . management is currently working on such funding alternatives in order to secure sufficient operating capital through the end of fiscal year 2014. in addition , management will continue to review its operations for further cost reductions to extend the time that the company can operate with its current cash on hand and additional bridge financing and to utilize third parties for services such as its international recycling and refurbishment centers to provide for greater flexibility in aligning operational expenses with the changes in sales volumes . additional funding plans may include obtaining additional capital through equity and or debt funding sources ; however , no assurance can be given that additional capital , if needed , will be available when required or upon terms acceptable to the company . contractual obligations the following table summarizes our contractual obligations as of march 31 , 2013 , and the effects such obligations are expected to have on liquidity and cash flow in future periods ( in thousands ) : replace_table_token_5_th impact of inflation . from time to time , cryoport experiences price increases from third party manufacturers and these increases can not always be passed on to cryoport 's customers . while these price increases have not had a material impact on cryoport 's historical operations or profitability in the past , they could affect revenues in the future . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations , as well as disclosures included elsewhere in this annual report , are based upon our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . our significant accounting policies are described in the notes to the audited consolidated financial statements contained elsewhere in this annual report . included within these policies are our “ critical accounting policies. ” critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management 's most subjective and complex judgment due to the need to make estimates about matters that are inherently uncertain . although we believe that our estimates and assumptions are reasonable , actual results may differ significantly from these estimates . changes in estimates and assumptions based upon actual results may have a material impact on our results of operations and or financial condition . 30 we believe that the critical accounting policies that most impact the consolidated financial statements are as described below . revenue recognition per use revenues we provide shipping containers to our customers and charge a fee in exchange for the use of the container . our arrangements are similar to the accounting standard for leases since we convey the right to use the containers over a period of time .
| results of operations the following table sets forth , for the periods indicated , certain information derived from our consolidated statements of operations . replace_table_token_4_th 28 2013 ( ‘ 000 ) 2012 ( ‘ 000 ) weighted average common shares outstanding : basic and diluted 37,761 28,975 years ended march 31 , 2013 and 2012 : revenues . revenues were $ 1,100,539 for the year ended march 31 , 2013 , as compared to $ 555,637 for the year ended march 31 , 2012. the $ 544,902 or 98.1 % increase is primarily driven by an increase in the number of customers utilizing our services as well as an increase in volume of certain customers compared to the prior year . we generated revenues from customers in all of our target life sciences markets , such as biotech and diagnostic companies , pharmaceutical companies , central laboratories , contract research organizations , the reproductive medicine market/in vitro fertilization market , and research institutions . five customers generated in excess of $ 50,000 in revenues during fiscal 2013 compared to only two customers in the prior year . the number of customers that shipped multiple times during the year more than doubled , compared the prior year . the increase in revenues is partially the result of positive responses to targeted telemarketing activities and email marketing campaigns to the in-vitro-fertilization/reproductive medicine market to broaden the awareness of our solution in this space . in addition , the increase in revenues was also due , in part , to the commencement of the implementation of our first customer integrated solution in february of 2013 , whereby we were engaged to manage shipments of a specific vaccine from the manufacturing site in the united states to both , domestic customers and international distribution centers . gross loss and cost of revenues .
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those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement , whether due to error or fraud . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . as part of our audits , we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the company 's internal story_separator_special_tag the following review of our results of operations and financial condition should be read in conjunction with “ item 1. business ” , “ item 1a . risk factors ” , “ item 2. properties ” , and “ item 8. financial statements and supplementary data , ” respectively , included in this annual report on form 10-k. cautionary statement for the purpose of safe harbor provisions of the private securities litigation reform act of 1995 this annual report on form 10-k contains certain “ forward-looking statements , ” as defined in the private securities litigation reform act of 1995 ( “ pslra ” ) , of expected future developments that involve risks and uncertainties . you can identify forward-looking statements because they contain words such as “ believes , ” “ expects , ” “ may , ” “ should , ” “ seeks , ” “ approximately , ” “ intends , ” “ plans , ” “ estimates , ” “ anticipates ” or similar expressions that relate to our strategy , plans or intentions . all statements we make relating to our estimated and projected earnings , margins , costs , expenditures , cash flows , growth rates and financial results or to our strategies , objectives , intentions , resources and expectations regarding future industry trends are forward-looking statements made under the safe harbor of the pslra except to the extent such statements relate to the operations of a partnership or limited liability company . in addition , we , through our senior management , from time to time make forward-looking public statements concerning our expected future operations and performance and other developments . these forward-looking statements are subject to risks and uncertainties that may change at any time , and , therefore , our actual results may differ materially from those that we expected . we derive many of our forward-looking statements from our operating budgets and forecasts , which are based upon many detailed assumptions . while we believe that our assumptions are reasonable , we caution that it is very difficult to predict the impact of known factors , and , of course , it is impossible for us to anticipate all factors that could affect our actual results . important factors that could cause actual results to differ materially from our expectations , which we refer to as “ cautionary statements , ” are disclosed under “ item 1a . risk factors , ” and “ item 7. management 's discussion and analysis of financial condition and results of operations ” and elsewhere in this annual report on form 10-k. all forward-looking information in this annual report on form 10-k and subsequent written and oral forward-looking statements attributable to us , or persons acting on our behalf , are expressly qualified in their entirety by the cautionary statements . some of the factors that we believe could affect our results include : the effect of the covid-19 pandemic and related governmental and consumer responses on our business , financial condition and results of operations ; our ability to target and execute expense reduction measures in 2021 and thereafter ; supply , demand , prices and other market conditions for our products , including volatility in commodity prices ; the effects of competition in our markets ; changes in currency exchange rates , interest rates and capital costs ; adverse developments in our relationship with both our key employees and unionized employees ; our ability to operate our businesses efficiently , manage capital expenditures and costs ( including general and administrative expenses ) and generate earnings and cash flow ; o ur substantial indebtedness , including the impact of the recent downgrades to our corporate credit rating , secured notes and unsecured notes ; our expectations with respect to our capital improvement and turnaround projects ; our supply and inventory intermediation arrangements expose us to counterparty credit and performance risk ; 66 termination of our inventory intermediation agreements with j. aron , which could have a material adverse effect on our liquidity , as we would be required to finance our crude oil , intermediate and refined products inventory covered by the agreements . additionally , we are obligated to repurchase from j. aron certain j. aron products located at our j. aron storage tanks upon termination of these agreements ; restrictive covenants in our indebtedness that may adversely affect our operational flexibility ; payments by pbf energy to the current and former holders of pbf llc series a units and pbf llc series b units under pbf energy 's tax receivable agreement for certain tax benefits we may claim ; our assumptions regarding payments arising under pbf energy 's tax receivable agreement and other arrangements relating to our organizational structure are subject to change due to various factors , including , among other factors , the timing of exchanges of pbf llc series a units for shares of pbf energy class a common stock as contemplated by the tax receivable agreement , the price of pbf energy class a common stock at the time of such exchanges , the extent to which such exchanges are taxable , and the amount and timing of our income ; our expectations and timing with respect to our acquisition activity and whether such acquisitions are accretive or dilutive to shareholders ; the impact of disruptions to crude or feedstock supply to any of our refineries , including disruptions due to problems at pbfx or with third-party logistics infrastructure or operations , including pipeline , marine story_separator_special_tag capital project abandonments in connection with our ongoing strategic initiative to address the covid-19 pandemic , including our east coast refining reconfiguration , we reassessed our refinery wide slate of capital projects that were either in process or not yet placed into service as of december 31 , 2020. based on this reassessment and our strategic plan to reduce capital expenditures , we decided to abandon various capital projects across the refining system , resulting in an impairment charge of approximately $ 79.9 million . severance costs following the onset of the covid-19 pandemic , we have implemented a number of cost reduction initiatives to strengthen our financial flexibility and rationalize overhead expenses , including reductions in our workforce . during the second quarter of 2020 , we reduced headcount across our refineries , which resulted in approximately $ 12.9 million of severance related costs . additionally , as a result of the east coast refining reconfiguration , we incurred charges in the fourth quarter of 2020 of approximately $ 11.8 million of severance related expenses . these severance costs are included in general and administrative expenses . tax receivable agreement in connection with pbf energy 's initial public offering , pbf energy entered into a tax receivable agreement pursuant to which pbf energy is required to pay the members of pbf llc , who exchange their units for pbf energy class a common stock or whose units pbf energy purchases , approximately 85 % of the cash savings in income taxes that pbf energy realizes as a result of the increase in the tax basis of its interest in pbf llc , including tax benefits attributable to payments made under the tax receivable agreement . there was no tax receivable agreement liability as of december 31 , 2020. pbf energy has recognized , as of december 31 , 2019 and 2018 , a liability for the tax receivable agreement of $ 373.5 million , reflecting the estimate of the undiscounted amounts that pbf energy expects to pay under the agreement , net of the impact of a deferred tax asset valuation allowance recognized in accordance with asc 740 , income taxes . as future taxable income is recognized , increases in our tax receivable agreement liability may be necessary in conjunction with the revaluation of deferred tax assets . refer to “ note 14 - commitments and contingencies ” and “ note 21 - income taxes ” of our notes to consolidated financial statements for more details . early return of railcars in the fourth quarter of 2020 we agreed to voluntarily return a portion of railcars under an operating lease in order to rationalize certain components of our railcar fleet . under the terms of the lease amendment , we agreed to pay amounts in lieu of satisfaction of return conditions ( the “ early termination penalty ” ) . as a result , we recognized an expense of $ 12.5 million within cost of sales , consisting of charges for the early termination penalty and charges related to the remaining lease payments associated with the railcars identified within the amended lease , all of which were idled and out of service as of december 31 , 2020 . 69 in the third quarter of 2018 we agreed to voluntarily return a portion of railcars under an operating lease in order to rationalize certain components of our railcar fleet . under the terms of the lease amendment , we agreed to pay the early termination penalty and a reduced rental fee over the remaining term of the lease . as a result , we recognized an expense of $ 52.3 million for the year ended december 31 , 2018 included within cost of sales consisting of ( i ) a $ 40.3 million charge for the early termination penalty and ( ii ) a $ 12.0 million charge related to the remaining lease payments associated with the railcars identified within the amended lease , all of which were idled and out of service as of december 31 , 2018. torrance land sales on december 30 , 2020 , august 1 , 2019 and august 7 , 2018 , we closed on third-party sales of parcels of real property acquired as part of the torrance refinery , but not part of the refinery itself . the sales resulted in gains of approximately $ 8.1 million , $ 33.1 million and $ 43.8 million in the fourth quarter of 2020 , third quarter of 2019 and third quarter of 2018 , respectively , included within gain on sale of assets in the consolidated statements of operations . sale of hydrogen plants on april 17 , 2020 , we closed on the sale of five hydrogen plants to air products and chemicals , inc. ( “ air products ” ) in a sale-leaseback transaction for gross cash proceeds of $ 530.0 million and recognized a gain of $ 471.1 million . in connection with the sale , we entered into a transition services agreement through which air products will exclusively supply hydrogen , steam , carbon dioxide and other products ( the “ products ” ) to the martinez , torrance and delaware city refineries for a specified period ( not expected to exceed 18 months ) . the transition services agreement also requires certain maintenance and operating activities to be provided by pbf holding , for which we will be reimbursed , during the term of the agreement . in august 2020 , the parties executed long-term supply agreements pursuant to which air products will supply the products for a term of fifteen years at these same refineries . debt and credit facilities credit ratings during the fourth quarter of 2020 , each of our credit rating agencies downgraded our corporate family rating as well as our unsecured and secured notes ratings , with all ratings on negative outlook as the refining sector continues to experience weak refining margins due to the covid-19 pandemic and related negative demand impact .
| operating highlights replace_table_token_10_th ( 1 ) see non-gaap financial measures . ( 2 ) we define heavy crude oil as crude oil with an api gravity of less than 24 degrees . we define medium crude oil as crude oil with an api gravity between 24 and 35 degrees . we define light crude oil as crude oil with an api gravity higher than 35 degrees . 83 the table below summarizes certain market indicators relating to our operating results as reported by platts . replace_table_token_11_th 2020 compared to 2019 overview— pbf energy net loss was $ ( 1,333.3 ) million for the year ended december 31 , 2020 compared to net income of $ 375.2 million for the year ended december 31 , 2019. pbf llc net loss was $ ( 1,720.3 ) million for the year ended december 31 , 2020 compared to net income of $ 480.0 million for the year ended december 31 , 2019. net loss attributable to pbf energy stockholders was $ ( 1,392.4 ) million , or $ ( 11.64 ) per diluted share , for the year ended december 31 , 2020 ( $ ( 11.64 ) per share on a fully-exchanged , fully-diluted basis based on adjusted fully-converted net loss , or $ ( 11.78 ) per share on a fully-exchanged , fully-diluted basis based on adjusted fully-converted net loss excluding special items , as described below in non-gaap financial measures ) compared to net income attributable to pbf energy stockholders of $ 319.4 million , or $ 2.64 per diluted share , for the year ended december 31 , 2019 ( $ 2.64 per share on a fully-exchanged , fully-diluted basis based on adjusted fully-converted net income , or $ 0.90 per share on a fully-exchanged , fully-diluted basis based on adjusted fully-converted net income excluding special items , as described below in non-gaap financial measures ) .
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the vast majority of our products utilize our proprietary closed-cell resin , called croslite tm , along with a range of other materials . the broad appeal of our footwear has allowed us to market our products through a wide range of distribution channels . we currently sell our products in more than 85 countries , through three distribution channels : wholesale , retail , and e-commerce . our wholesale channel includes domestic wholesalers as well as international wholesalers and distributors ; our retail channel includes company-operated stores ; and our e-commerce channel includes company-operated e-commerce sites and third-party-operated marketplace activity . known or anticipated trends based on our recent operating results and our assessment of the current operating environment , we anticipate certain trends to impact our future operating results : consumer spending preferences continue to shift toward e-commerce and away from brick and mortar stores . this has resulted in continued sales growth in our e-commerce channel , as well as on various e-tail sites operated by wholesalers , and contributed to declining foot traffic in our retail locations . a cautious retail environment may negatively affect customer purchasing trends . foreign exchange rate volatility will continue to impact our reported u.s. dollar results from our foreign operations . in 2017 we identified annual reductions in ‘ selling , general and administrative expenses ' ( “ sg & a ” ) in the amount of $ 75 to $ 85 million , which we projected would generate an annual $ 30 to $ 35 million improvement in earnings before interest and taxes in 2019 , compared to 2016 ( “ sg & a reduction plan ” ) . we have successfully completed our sg & a reduction plan , by eliminating approximately $ 75 million of annualized expenses that previously burdened our cost structure . we have elected to reinvest some of those savings in marketing and our e-commerce business , to further strengthen our brand and drive incremental sales growth . as a result of the repurchase and conversion of our series a convertible preferred stock on december 5 , 2018 , we will no longer be required to pay $ 12 million annually in preferred stock dividends . non-recurring charges relating to the company 's new distribution center are expected to reduce gross margin by approximately 100 basis points in 2019. use of non-gaap financial measures in addition to financial measures presented on the basis of accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) , we present certain information related to our current period results of operations through “ constant currency , ” which is a non-gaap financial measure and should be viewed as a supplement to our results of operations and presentation of reportable segments under u.s. gaap . constant currency represents current period results that have been retranslated using prior year average foreign exchange rates for the comparative period to enhance the visibility of the underlying business trends excluding the impact of foreign currency exchange rates on reported amounts . management uses constant currency to assist in comparing business trends from period to period on a consistent basis in communications with the board , stockholders , analysts , and investors concerning our financial performance . we believe constant currency is useful to investors and other users of our consolidated financial statements as an additional tool to evaluate operating performance and trends . investors should not consider constant currency in isolation from , or as a substitute for , financial information prepared in accordance with u.s. gaap . 25 2018 financial and operational highlights revenues were $ 1,088.2 million for the year ended december 31 , 2018 , a 6.3 % increase compared to the year ended december 31 , 2017 . the increase in 2018 revenues compared to 2017 revenues was due to the net effects of : ( i ) higher sales volumes , which increased revenues by $ 25.8 million , or 2.5 % ; ( ii ) higher average selling prices as our product and channel mix continued to change , which increased revenues by $ 27.7 million , or 2.7 % ; and ( iii ) favorable changes in exchange rates , which increased revenues by $ 11.2 million , or 1.1 % . the following were significant developments affecting our businesses and capital structure during the year ended december 31 , 2018 : in 2018 , the impact of operating with a net of 64 fewer company-operated stores and certain business model changes reduced our revenues by approximately $ 60 million . we sold 59.8 million pairs of shoes worldwide , an increase of 3.4 % from 57.9 million pairs in 2017 . gross margin improved 100 basis points compared to 2017 to 51.5 % for the year ended december 31 , 2018 . we drove this improvement by continuing to prioritize high-margin molded products , increasing prices on select products , and conducting fewer promotions in combination with better inventory management . sg & a was $ 495.0 million , an increase of $ 0.4 million , or 0.1 % , compared to 2017 . as a percent of revenues , sg & a improved 280 basis points to 45.5 % of revenues . this included $ 21.1 million of non-recurring charges associated with our previously announced sg & a reduction plan , the completion of the closure of all company-operated manufacturing and related distribution facilities , and some charges related to the relocation of our corporate headquarters , which is planned for early 2020. income from operations was $ 62.9 million for the year ended december 31 , 2018 compared to income from operations of $ 17.3 million for the year ended december 31 , 2017 . story_separator_special_tag we have elected to account for the impact of global intangible low tax income based on the period cost method . the reported amounts are the net gilti inclusions before applicable foreign tax credits . for 2018 , we recorded a $ 3.4 million tax expense , or 5.3 % unfavorable rate impact . ‘ non-deductible/non-taxable items ' resulted in a $ 3.6 million tax expense in 2018 , representing an unfavorable rate impact of 5.5 % , compared to a $ 6.0 million tax expense in 2017 , representing an unfavorable rate impact of 33.0 % . the expense recognized in 2018 primarily relates to non-deductible executive and foreign share-based compensation , which we anticipate will recur in the foreseeable future . we continue to evaluate the realizability of our deferred tax assets . the impact of ‘ changes in valuation allowance ' to the effective tax rate was a favorable $ 5.3 million , equating to an 8.1 % favorable rate impact . the specific circumstances regarding management 's assertion of the realizability of certain deferred tax assets is discussed as part of the disclosures in note 12 — income taxes . we maintain total valuation allowances of approximately $ 113.2 million as of december 31 , 2018 , which may be reduced in the future depending upon the achieved or sustained profitability of certain entities . 29 ' u.s . tax on foreign earnings ' includes the impact of the tax expense accrued on undistributed foreign earnings net of the related foreign tax credits . there is no income tax provision impact associated with this activity in 2018. during 2017 , the tax act significantly changed the u.s. taxation of foreign earnings . as a result , the impact of the transition tax as well as distributions , and reversal of the deferred tax liability associated with undistributed earnings and profits attributable to foreign subsidiaries , in 2017 the company recorded a $ 32.4 million tax benefit , which equated to a 178.4 % favorable impact on the rate reconciliation . during both 2018 and 2017 , we recorded tax expense for ‘ audits settlements ' during the year of $ 0.2 million and $ 0.4 million , respectively . the amount included in settlements during 2018 and 2017 is netted against total uncertain tax position releases during the same period relating to the same positions . furthermore , in note 12 — income taxes the ‘ uncertain tax benefits ' line item in 2018 includes net accruals related to current year positions recorded , and is consistent with amounts accrued during prior years . we have released a portion of historical uncertain tax benefits based on effective and actual settlements . there is not currently an expectation that uncertain tax positions will significantly impact our tax expense on an ongoing basis . during both 2018 and 2017 , we recorded state income tax expenses including the impact of certain minimal state income taxes . in 2017 , we began operating under a tax holiday in one of our foreign jurisdictions . this tax holiday is in effect through 2022 , and may be extended if certain additional requirements are met . the tax holiday is conditioned upon our meeting certain employment and investment thresholds . the impact of the tax holiday in 2018 decreased tax expense in that jurisdiction by approximately $ 0.1 million and had no impact to our reported earnings per diluted share . revenues by channel replace_table_token_5_th ( 1 ) reflects year over year change as if the current period results were in “ constant currency , ” which is a non-gaap financial measure . see “ use of non-gaap financial measures ” for more information . ( 2 ) in the third quarter of 2018 , certain revenues previously reported within the ‘ asia pacific ' segment were shifted to the ‘ europe , middle east , and africa ' ( “ emea ” ) segment . the previously reported amounts for wholesale and retail revenues in these regions for the years ended december 31 , 2017 and 2016 as well as e-commerce revenues for the year ended december 31 , 2016 have been revised to conform to the current year presentation . see ‘ impact on revenues of segment composition change ' table below for more information . 30 impact on revenues of segment composition change : replace_table_token_6_th wholesale channel revenues . during the year ended december 31 , 2018 , revenues from our wholesale channel increased $ 41.9 million , or 7.8 % , compared to the year ended december 31 , 2017 . an increase of $ 29.4 million , or 5.5 % , resulted from higher unit sales volume due to increased customer demand from distributors and from e-tail customers as consumers shift towards online purchasing . a $ 5.5 million , or 1.0 % , increase was due to higher asp . the effect of foreign currency translation was an increase of $ 7.0 million , or 1.3 % , to revenues . during the year ended december 31 , 2017 , revenues from our wholesale channel decreased $ 9.9 million , or 1.8 % , compared to the year ended december 31 , 2016. a $ 35.1 million , or 6.4 % , decrease was due to a lower asp as we shifted to higher margin , lower-priced molded product . higher unit sales volume increased revenues by approximately $ 21.9 million , or 4.0 % , despite the impact of strategic reductions in sales via discount channels in our emea operating segment as well as the decline in our wholesale business in japan while we strengthened our wholesale network . the effect of foreign currency translation was an increase of $ 3.3 million , or 0.6 % , to revenues retail channel revenues . during the year ended december 31 , 2018 , revenues from our retail channel decreased $ 10.8 million , or 3.2 % , compared to the year ended december 31 , 2017 .
| results of operations comparison of the years ended december 31 , 2018 , 2017 , and 2016 replace_table_token_4_th ( 1 ) changes for gross margin and operating margin are shown in basis points ( “ bp ” ) . revenues . revenues increase d $ 64.7 million , or 6.3 % , during the year ended december 31 , 2018 compared to the same period in 2017 . the increase in revenues was driven by 22.5 % growth in our e-commerce channel and 7.8 % growth in our wholesale 27 channel , which more than offset a reduction in our retail channel of 3.2 % . the decrease in retail revenues was driven by our targeted reduction in the number of company-operated retail stores , partially offset by same store sales growth in our remaining company-operated retail stores . higher unit sales volume , particularly in our clog and sandal silhouettes , increased revenues by $ 25.8 million , or 2.5 % , and an increase of $ 27.7 million , or 2.7 % , was attributable to higher average selling price ( “ asp ” ) as a result of changes in product mix , reduced promotional activities , and price increases . favorable exchange rate activity drove an increase of $ 11.2 million , or 1.1 % . revenues decreased $ 12.8 million , or 1.2 % , during the year ended december 31 , 2017 compared to the same period in 2016. the revenues decreased primarily due to the sale of our taiwan business in the fourth quarter of 2016 , the sale of our middle east business in the second quarter of 2017 , reductions in the number of company-operated retail stores , and additional actions taken to optimize our wholesale , retail , and e-commerce channels . the revenue decline associated with store closures and transfers was approximately $ 39.1 million .
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you should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “ selected financial data ” and our financial statements and related notes appearing elsewhere in this annual report on form 10-k. this discussion and analysis contains forward-looking statements based upon current expectations that involve risks and uncertainties . our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors , including those discussed in the section entitled “ risk factors ” and in other parts of this annual report on form 10-k. please also see the section entitled “ special note regarding forward-looking statements. ” overview we are a clinical-stage , cancer-selective gene therapy company focused on developing first-in-class , broadly-applicable product candidates designed to activate a patient 's immune system against their own cancer from within . our cancer-selective gene therapy platform is built on retroviral replicating vectors , or rrvs , which are designed to selectively deliver therapeutic genes into the dna of cancer cells . our gene therapy approach is designed to fight cancer through immunotherapeutic mechanisms of action without the autoimmune toxicities commonly experienced with other immunotherapies . we are developing our lead product candidate , toca 511 ( vocimagene amiretrorepvec ) & toca fc ( flucytosine ) , initially for the treatment of recurrent high grade glioma , or hgg , a brain cancer with limited treatment options , low survival rates and , therefore , a significant unmet medical need . we are conducting a randomized , controlled phase 3 clinical trial of toca 511 & toca fc in patients with recurrent hgg , which is designed to serve as a registrational trial . in february 2017 , the u.s. food and drug administration , or fda , granted toca 511 & toca fc breakthrough therapy designation for the treatment of patients with recurrent hgg and in june 2017 the european medicines agency , or ema , granted toca 511 priority medicines , or prime , designation for the treatment of patients with glioma . breakthrough therapy designation indicates that preliminary clinical evidence demonstrates the drug may have substantial improvement on one or more clinically significant endpoints over available therapy . prime designation indicates that there is a potential to benefit patients with unmet medical needs based on early clinical data . we also have fast track designation ( which may lead to expedited regulatory review of new products that treat serious diseases or conditions and demonstrate the potential to address an unmet medical need ) from the fda for toca 511 & toca fc for the treatment of recurrent hgg and orphan-drug designation ( a designation for a product that treats a rare disease or condition and which , if the product receives the first fda approval for that disease or condition , may result in a period of regulatory exclusivity , subject to some exceptions ) for the treatment of hgg . the committee for orphan medicinal products of the ema has designated both flucytosine and vocimagene amiretrorepvec as orphan medicinal products indicated for the treatment of glioma . the ema provides several benefits to drug developers for developing drugs for orphan diseases . we do not have any products approved for sale and have not generated any revenue from product sales . we have funded our operations primarily through the private placement of our convertible preferred stock , from which we received net proceeds of $ 131.4 million and our initial public offering in april 2017 , from which we received net proceeds of $ 86.9 million . we have also received $ 17.7 million in net proceeds from the issuance of our notes payable , $ 10.9 million from the issuance of our convertible promissory notes payable , $ 2.1 million from private and federal grants , and a $ 0.5 million up-front payment from our license and collaboration agreement with siemens healthcare diagnostics inc. , or siemens . since our inception in august 2007 , we have devoted substantially all of our efforts to developing our gene therapy platform and our lead product candidate , toca 511 & toca fc . we have never been profitable and have incurred significant operating losses in each year since our inception . we had an accumulated deficit of $ 166.9 million as of december 31 , 2017. substantially all of our net losses resulted from costs incurred in connection with our research , preclinical , clinical , product , regulatory and business development activities , as well as raising capital and building our infrastructure . we expect to continue to incur significant expenses and increasing net operating losses for at least the next several years . we expect our expenses will increase substantially in connection with our ongoing activities as we continue to develop and seek regulatory approval of our product candidates and operate as a public company . to fund further operations , we will need to raise additional capital . accordingly , we will seek to fund our operations through equity and or debt financings . we may also consider new collaborations or selectively partnering our technology or programs . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . in addition , subject to limited exceptions , our loan agreement ( as defined below ) also prohibits us from incurring indebtedness without the prior written consent of the lenders . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates . on april 19 , 2017 , we completed our initial public offering whereby we sold an aggregate of 9,775,000 shares of common stock , at $ 10.00 per share , resulting in net proceeds of $ 86.9 million after underwriting discounts , commissions and offering costs . story_separator_special_tag additionally , if we believe a regulatory approval of our lead product candidate appears likely , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations , especially as it relates to establishing a sales force and other expenses related to the sale and marketing of our product candidates . interest income interest income consists primarily of interest income earned on cash , cash equivalents and marketable securities . interest expense interest expense consists of stated interest and the amortization of related debt issuance costs incurred on the outstanding principal amount of our borrowings under our notes payable and convertible promissory notes payable . change in fair value of preferred stock warrants warrants for shares of preferred stock with conversion features are accounted for as liabilities in the accompanying balance sheets at their fair value on the date of issuance . the warrant liabilities are revalued at each balance sheet date until such instruments are exercised or expire , with changes in the fair value between reporting periods recorded as change in fair value of preferred stock warrants in the statement of operations . all preferred stock warrant liabilities were reclassified to equity in connection with our initial public offering . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . while our significant accounting policies are described in more detail in the note 2 to our financial statements appearing at the end of this annual report on form 10-k , we believe the following accounting policies to be most critical for fully understanding and evaluating our financial condition and results of operations . 71 accrued research and development expenses as part of the process of preparing our 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 cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . examples of estimated accrued research and development expenses include fees paid to : investigative sites and contract research organizations in connection with clinical trials ; service providers in connection with preclinical development activities ; and service providers related to product manufacturing . we base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to our contract arrangements . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our service providers will exceed the level of services provided and result in a prepayment of the clinical expense . payments under some of these contracts depend on factors such as the successful enrollment of patients , site initiation and the completion of clinical milestones . 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 balance accordingly . 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 , we may report amounts that are too high or too low in any particular period . to date , there have been no material differences from our estimates to the amount actually incurred . however , due to the nature of estimates , we can not assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities . stock-based compensation stock-based compensation expense represents the cost of the grant date fair value of stock awards , including stock options , and stock purchase rights granted to employees . for awards with time-based vesting provisions , we estimate the fair value of stock options on the date of grant using the black-scholes option pricing model and recognize the expense over the requisite service period of the awards which is generally the vesting period , on a straight-line basis . the black-scholes option pricing model requires the input of highly subjective assumptions , including the risk-free interest rate , the expected volatility , the expected term of the option , the expected dividend yield of our common stock and the estimated fair value of our common stock . for awards with performance-based vesting provisions , we estimate the fair value of stock option grants on the date of grant , or the date when all of the terms of the grant have been agreed to , if later , and recognize the expense based on the probability of the occurrence of the individual milestones at each reporting period .
| results of operations comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 ( in thousands ) : replace_table_token_10_th license revenue . license revenue was $ 41,000 for the year ended december 31 , 2017 as compared to $ 49,000 for the year ended december 31 , 2016 , a decrease of $ 8,000. research and development expenses . research and development expenses were $ 29.1 million for the year ended december 31 , 2017 , as compared to $ 27.2 million for the year ended december 31 , 2016. the increase of $ 1.9 million , or 7 % , was primarily due to increased personnel costs to support our ongoing phase 3 clinical trial . we anticipate our research and development expenses will increase in future years . general and administrative expenses . general and administrative expenses were $ 8.6 million for the year ended december 31 , 2017 , as compared to $ 4.5 million for the year ended december 31 , 2016. the increase of $ 4.0 million , or 89 % , was primarily due to higher costs to support increased operations activity as we conduct our phase 3 clinical trial and costs associated with being a public company . stock-based compensation expense , which represents 47 % of the increase , is due primarily to stock options granted to members of our board of directors , our chief executive officer and other employees . interest income . interest income was $ 0.6 million for the year ended december 31 , 2017 , as compared to $ 0.2 million for the year ended december 31 , 2016. the increase of $ 0.4 was primarily due to our higher average cash balances earning interest at higher rates during 2017 compared to 2016. interest expense .
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royalties are passive ( non-operating ) interests in mining projects that provide the right to revenue or production from the project after deducting specified costs , if any , and we use the term `` royalties '' in this quarterly report on form 10-q to refer to royalties , gold or silver stream interests , and other similar interests . we seek to acquire existing royalties or to finance projects that are in production or in development stage in exchange for royalties . we are engaged in a continual review of opportunities to acquire existing royalties , to create new royalties through the financing of mine development or exploration , or to acquire companies that hold royalties . we currently , and generally at any time , have acquisition opportunities in various stages of active review , including , for example , our engagement of consultants and advisors to analyze particular 37 opportunities , analysis of technical , financial and other confidential information , submission of indications of interest , participation in preliminary discussions and involvement as a bidder in competitive divestitures . as of june 30 , 2012 , the company owned royalties on 39 producing properties , 26 development stage properties and 128 exploration stage properties , of which the company considers 40 to be evaluation stage projects . the company uses `` evaluation stage '' to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves . we do not conduct mining operations nor are we required to contribute to capital costs , exploration costs , environmental costs or other mining , processing or other operating costs on the properties in which we hold royalty interests . during the fiscal year ended june 30 , 2012 , we focused on the management of our existing royalty interests and the acquisition of royalty interests . our financial results are primarily tied to the price of gold and , to a lesser extent , the price of silver , copper and nickel , together with the amounts of production from our producing stage royalty interests . the price of gold , silver , copper , nickel and other metals have fluctuated widely in recent years . the marketability and the price of metals are influenced by numerous factors beyond the control of the company and declines in the price of gold , silver , copper or nickel could have a material and adverse effect on the company 's results of operations and financial condition . for the fiscal years ended june 30 , 2012 , 2011 and 2010 , gold , silver , copper and nickel price averages and percentage of royalty revenues by metal were as follows : replace_table_token_16_th operators ' production estimates by royalty for calendar year 2012 we received annual production estimates from many of the operators of our producing mines during the first calendar quarter of 2012. the following table shows such production estimates for our principal producing properties for calendar 2012 as well as the actual production reported to us by the various operators through june 30 , 2012. the estimates and production reports are prepared by the operators of the mining properties . we do not participate in the preparation or calculation of the operators ' estimates or production reports and have not independently assessed or verified the accuracy of such information . please refer to part i , item 2 , properties , of this report for further discussion on any updates at our cornerstone and principal producing and development properties . 38 operators ' production estimate by royalty for calendar year 2012 and reported production principal producing properties for the period january 1 , 2012 through june 30 , 2012 replace_table_token_17_th ( 1 ) there can be no assurance that production estimates received from our operators will be achieved . please refer to our cautionary language regarding forward-looking statements following this md & a , as well as the risk factors identified in part i , item 1a , of this report for information regarding factors that could affect actual results . ( 2 ) reported production relates to the amount of metal sales , subject to our royalty interests , for the period january 1 , 2012 through june 30 , 2012 , as reported to us by the operators of the mines . ( 3 ) in march 2012 , pan american acquired minefinders . the production estimate shown was provided by minefinders . pan american announced production guidance of 49,000 to 53,000 ounces of gold and 2.75 to 3.0 million ounces of silver for the period april 1 through december 31 , 2012 . ( 4 ) the company did not receive calendar 2012 production guidance from the operator . 39 historical production the following table discloses historical production for the past three fiscal years for the principal producing properties that are subject to our royalty interests , as reported to us by the operators of the mines : historical production ( 1 ) by royalty principal producing properties for the fiscal years ended june 30 , 2012 , 2011 and 2010 replace_table_token_18_th ( 1 ) historical production relates to the amount of metal sales , subject to our royalty interests for each fiscal year presented , as reported to us by the operators of the mines . critical accounting policies listed below are the accounting policies that the company believes are critical to its financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset , liability , revenue or expense being reported . please refer to note 2 of the notes to consolidated financial statements for a discussion on recently adopted and issued accounting pronouncements . use of estimates the preparation of our financial statements , in conformity with accounting principles generally accepted in the united states of america , requires management to make estimates and assumptions . story_separator_special_tag royalty revenue royalty revenue is recognized pursuant to guidance in asc 605 and based upon amounts contractually due pursuant to the underlying royalty agreement . specifically , revenue is recognized in accordance with the terms of the underlying royalty agreements subject to ( i ) the pervasive evidence of the existence of the arrangements ; ( ii ) the risks and rewards having been transferred ; ( iii ) the royalty being fixed or determinable ; and ( iv ) the collectability of the royalty being reasonably assured . for royalty payments received in-kind , royalty revenue is recorded at the average spot price of gold for the period in which the royalty was earned . revenue recognized pursuant to the robinson royalty agreement is based upon 3.0 % of revenue received by the operator of the mine , kghm , for the sale of minerals from the robinson mine , reduced by certain costs incurred by kghm . kghm 's concentrate sales contracts with third-party smelters , in general , provide for an initial sales price payment based upon provisional assays and quoted metal prices at the date of shipment . final true-up sales price payments to kghm are subsequently based upon final assay and market metal prices on a specified future date , typically one to three months after the date the concentrate arrives at the third-party smelter ( which generally occurs four to five months after the shipment date from the robinson mine ) . we do not have all the key information regarding the terms of the operator 's smelter contracts , such as the terms of specific concentrate shipments to a smelter or quantities of metal or expected settlement arrangements at the time of an operator 's shipment of concentrate . each monthly payment from kghm is typically a combination of revenue received by kghm for provisional payments during the month and any upward or downward adjustments for final assays and commodity prices for earlier shipments . whether the payment to royal gold is based on kghm 's revenue in the form of provisional or final payments , royal gold records royalty revenue and the corresponding receivable based on the monthly amounts it receives from kghm , as determined pursuant to the royalty agreement . the royalty contract does not provide royal gold with rights or 42 obligations to settle any final assay and commodity price adjustments with kghm . therefore , once a given monthly payment is received by royal gold it is not subject to later adjustment based on adjustments for assays or commodity prices . under the royalty agreement , kghm may include such final adjustments as a component of future royalty payments . income taxes the company accounts for income taxes in accordance with the guidance of asc 740. the company 's deferred income taxes reflect the impact of temporary differences between the reported amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations . the deferred tax assets and liabilities represent the future tax return consequences of those differences , which will either be taxable or deductible when the assets and liabilities are recovered or settled . a valuation allowance is provided for deferred tax assets when management concludes it is more likely than not that some portion of the deferred tax assets will not be realized . the company 's operations may involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions . the final taxes paid are dependent upon many factors , including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal , state , and international tax audits . the company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the united states and other tax jurisdictions based on its estimate of whether , and the extent to which , additional taxes will be due . if the company 's estimate of tax liabilities proves to be less than the ultimate assessment , an additional charge to income tax expense would result . if the estimate of tax liabilities proves to be greater than the ultimate assessment , a tax benefit would result . the company recognizes interest and penalties , if any , related to unrecognized tax benefits in income tax expense . liquidity and capital resources overview at june 30 , 2012 , we had current assets of $ 445.2 million compared to current liabilities of $ 15.2 million for a current ratio of 29 to 1. this compares to current assets of $ 169.3 million and current liabilities of $ 28.9 million at june 30 , 2011 , resulting in a current ratio of approximately 6 to 1. the increase in our current ratio was primarily attributable to an increase in cash and equivalents due to proceeds received from our recent convertible debt offering and equity offering , both of which are discussed below . the increase is also attributable to a decrease in our current portion of debt due to the payoff and termination of our term loan , which is also discussed below . during the fiscal year ended june 30 , 2012 , liquidity needs were met from $ 263.1 million in royalty revenues , our available cash resources , including net proceeds of approximately $ 359.0 million from our recent convertible senior notes offering and proceeds of $ 268.4 million from our recent common stock offering , each of which are discussed below . approximately $ 110.6 million of the net proceeds from the convertible senior notes offering were used to repay the amounts outstanding under our term loan . the term loan has been terminated as of june 30 , 2012. also discussed below , in may 2012 , the company expanded , among other things , its revolving credit facility from $ 225 million to $ 350 million . as of june 30 , 2012 , the company had $ 350 million available and no amounts outstanding under its revolving credit facility .
| results of operations fiscal year ended june 30 , 2012 , compared with fiscal year ended june 30 , 2011 for the fiscal year ended june 30 , 2012 , we recorded net income available to royal gold common stockholders of $ 92.5 million , or $ 1.61 per basic share and diluted share , compared to net income available to royal gold common stockholders of $ 71.4 million , or $ 1.29 per basic and diluted share , for the fiscal year ended june 30 , 2011. the increase in our earnings per share was primarily attributable to an increase in royalty revenue , as discussed further below . this increase was partially offset by an increase in production taxes , depletion expense , income tax expense and the royalty restructuring charge during the period , each of which are discussed further below . for fiscal year ended june 30 , 2012 , we recognized total royalty revenue of $ 263.1 million , at an average gold price of $ 1,673 per ounce , an average silver price of $ 33.26 per ounce , an average nickel price of $ 8.77 per pound and an average copper price of $ 3.71 per pound , compared to total royalty revenue of $ 216.5 million , at an average gold price of $ 1,369 per ounce , an average silver price of $ 28.61 per ounce , an average nickel price of $ 10.86 per pound and an average copper price of $ 3.92 per pound , for fiscal year ended june 30 , 2011. royalty revenue and the corresponding production , 48 attributable to our royalty interests , for the fiscal year ended june 30 , 2012 compared to the fiscal year ended june 30 , 2011 is as follows : royalty revenue and production subject to our royalty interests fiscal years ended june 30 , 2012 and 2011 ( in thousands , except reported production in ozs . and lbs . )
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references in the following discussion to `` we '' , `` our '' , `` us '' , `` dps '' or `` the company '' refer to dr pepper snapple group , inc. and all entities included in our audited consolidated financial statements . the periods presented in this section are the years ended december 31 , 2017 , 2016 and 2015 , which we refer to as `` 2017 `` , `` 2016 `` and `` 2015 `` , respectively . the following discussion does not reflect the company 's expectations with respect to its business , operations and financial performance following the completion of the transaction . the transaction is expected to have a material effect on such business , operations and financial performance . accordingly , past performance may not be indicative of expected future results . overview we are a leading integrated brand owner , manufacturer and distributor of non-alcoholic beverages in the u.s. , canada and mexico with a diverse portfolio of flavored ( non-cola ) csds and ncbs , including ready-to-drink teas , juices , juice drinks , water and mixers . our brand portfolio includes popular csd brands such as dr pepper , canada dry , peñafiel , squirt , 7up , crush , a & w , sunkist soda and schweppes , and ncb brands such as snapple , hawaiian punch , mott 's , clamato , bai , mr & mrs t mixers and rose 's . our largest brand , dr pepper , is a leading flavored csd in the u.s. according to iri . we have some of the most recognized beverage brands in north america , with significant consumer awareness levels and long histories that evoke strong emotional connections with consumers . we operate as an integrated brand owner , manufacturer and distributor through our three segments . we believe our integrated business model strengthens our route-to-market and provides opportunities for net sales and profit growth through the alignment of the economic interests of our brand ownership and our manufacturing and distribution businesses through both our dsd system and our wd delivery system . our integrated business model enables us to be more flexible and responsive to the changing needs of our large retail customers and allows us to more fully leverage our scale and reduce costs by creating greater geographic manufacturing and distribution coverage . we operate primarily in the u.s. , mexico and canada and we also distribute our products in the caribbean . in 2017 , 90 % of our net sales were generated in the u.s. , 7 % in mexico and the caribbean and 3 % in canada . uncertainties and trends affecting our business we believe the north american lrb market is influenced by certain key trends and uncertainties . some of these items , such as increased health consciousness and changes in consumer preferences and economic factors , have created category headwinds for a number of our products during recent years . the key trends and uncertainties that could affect our business include : changes in consumer preferences . we are impacted by shifting consumer demographics and needs . we believe marketing and product innovations that target fast growing population segments , such as the hispanic community in the u.s. , could drive market growth . additionally , as more consumers are faced with a busy and on-the-go lifestyle , sales of single-serve beverages could increase , which typically have higher margins . allied brand relationships . allied brands could terminate their distribution agreements , primarily as a result of ownership changes of these brand companies . volatility in the costs of raw materials . the costs of a substantial portion of the raw materials used in the beverage industry are dependent on commodity prices for resin , aluminum , diesel fuel , corn , apple juice concentrate , sucrose , natural gas and other commodities . we are also dependent on commodity prices for apples related to our applesauce production . commodity price volatility has , from time to time , exerted pressure on industry margins and operating results . increased government regulation . government agencies , as a result of concerns about the public health consequences and health care costs associated with obesity , have been proposing and , in some cases , enacting new taxes or regulations on sugar-sweetened and diet beverages . any changes of regulations or imposed taxes could reduce demand and or cause us to raise our prices . 28 increased health consciousness . consumers are increasingly becoming more concerned about health and wellness , focusing on caloric intake and sugar content in both regular csds and juices , the use of artificial sweeteners in diet csds and the use of natural , organic or simple ingredients in lrb products . we believe the main beneficiaries of this trend include bottled waters , naturally sweetened , low calorie drinks , all natural and organic beverages and ready-to-drink teas . our completion of the bai brands merger on january 31 , 2017 will allow us to continue distribution and capture additional growth as a result of this key trend . increased competition in the lrb market . a number of our competitors are large corporations with significant financial resources . these competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products , reducing prices or increasing promotional activities , which could reduce the demand for our products . fluctuations in foreign exchange rates . we are exposed to foreign currency exchange rate variability in the expected future cash flows associated with certain third-party and intercompany transactions denominated in currencies other than our mexican and canadian entities ' functional currencies . we use derivative instruments such as foreign exchange forward contracts to mitigate a portion of our exposure in these expected future cash flows to changes in foreign exchange rates . significant changes in these exchange rates will impact our results of operations . product and packaging innovation . story_separator_special_tag as a result , we have recognized an income tax benefit of $ 297 million , primarily driven by the revaluation of our deferred tax liabilities , which increased diluted earnings per share by $ 1.62 for the year ended december 31 , 2017 . beginning in 2018 , we believe our effective tax rate will be approximately 26 % - 27 % . on january 31 , 2017 , we completed the bai brands merger . for the year ended december 31 , 2017 , the primary impacts of the bai brands merger decreased diluted earnings per share in total by $ 0.26 . the drivers of this change include : ◦ the interest expense associated with the financing to complete the bai brands merger , which decreased diluted earnings per share by $ 0.18 for the year ended december 31 , 2017 ; ◦ the operations of bai brands , which decreased diluted earnings per share by $ 0.17 for the year ended december 31 , 2017 ; ◦ the associated transaction and integration expenses , which decreased diluted earnings per share by $ 0.08 for the year ended december 31 , 2017 ; ◦ the gain on the step-acquisition of bai brands , which increased diluted earnings per share by $ 0.10 for the year ended december 31 , 2017 ; and 31 ◦ the $ 21 million benefit as a result of the renegotiation of a manufacturing contract acquired during the bai brands merger , which increased diluted earnings per share by $ 0.07 for the year ended december 31 , 2017 . the impact of the operations of bai brands includes : ◦ the incremental profit margin benefit we experienced in the year ended december 31 , 2017 as the brand owner for bai brands ; ◦ the acquired bai brands operations , which includes the shipments to third parties since the bai brands merger , partially offset by the $ 9 million initial profit in stock adjustment recorded during the first quarter of 2017 related to bai brands inventories ; and ◦ the associated purchase accounting adjustments ( refer to note 3 of the notes to our audited consolidated financial statements for further information ) . during the years ended december 31 , 2017 , 2016 , and 2015 , we repurchased 4.4 million , 5.7 million , and 6.5 million shares of our common stock , respectively , valued at approximately $ 399 million in 2017 , $ 519 million in 2016 , and $ 521 million in 2015 . on january 5 , 2018 , the company acquired a 5.4 % equity interest in core organics llc ( `` core '' ) for $ 18 million . on january 29 , 2018 , dps and keurig announced that the companies have entered into the merger agreement to create keurig dr pepper , a new beverage company of scale with a portfolio of iconic consumer brands and expanded distribution capability to reach virtually every point-of-sale in north america . under the terms of the merger agreement , which has been unanimously approved by our board , dps shareholders will receive $ 103.75 per share in a special cash dividend and retain their shares in dps . during the first quarter of 2018 , our board declared a dividend of $ 0.58 per share , which will be paid on april 12 , 2018 , to shareholders of record as of march 21 , 2018. references in the financial tables to percentage changes that are not meaningful are denoted by `` nm . '' year ended december 31 , 2017 compared to year ended december 31 , 2016 consolidated operations the following table sets forth our consolidated results of operations for the years ended december 31 , 2017 and 2016 : replace_table_token_4_th volume ( bcs ) . volume ( bcs ) increased 1 % for the year ended december 31 , 2017 compared with the year ended december 31 , 2016 . in the u.s. and canada , volume was 1 % higher , and in mexico and the caribbean , volume in creased 3 % compared with the prior year . branded csd volume was 1 % higher , while ncb volume increased 4 % over the prior year . 32 in branded csds , canada dry increased 5 % due to continued growth in the ginger ale category . peñafiel increased 5 % due to distribution gains , increased promotional activity and product innovation , partially offset by increased competition , in our latin america beverages segment , and squirt increased 3 % . schweppes also grew by 3 % due to continued growth in the ginger ale category . these increases were partially offset by a 2 % decline in 7up and a 2 % decrease in a & w . our other csd brands were also 2 % lower , led by rockstar as a result of the loss of distribution rights beginning in april 2017. dr pepper was flat compared to the year ago period as increases in our fountain business were fully offset by declines in ten and diet . in branded ncbs , bai increased 99 % driven by the acquired bai brands shipments to third parties since the bai brands merger and continued growth in our existing distribution as a result of distribution gains and product innovation . our growth allied brands gained 40 % due primarily to distribution gains for bodyarmor , core and fiji , and product innovation for bodyarmor . clamato increased 3 % compared with the year ago period . mott 's grew 1 % as growth in our sauce products were partially offset by declines in juice . these increases were partially offset by a 3 % decline in snapple due to competitive headwinds , the de-emphasis on our value products , and lower promotional activity , partially offset by the launch of our new pet packaging for our 16 oz . bottles and the takes 2 to mango flavor innovation .
| results of operations by segment the following tables set forth net sales and sop for our segments for the years ended december 31 , 2016 and 2015 , as well as the other amounts necessary to reconcile our total segment results to our consolidated results presented in accordance with u.s. gaap : replace_table_token_10_th beverage concentrates the following table details our beverage concentrates segment 's net sales and sop for the years ended december 31 , 2016 and 2015 : replace_table_token_11_th net sales . net sales increased $ 43 million for the year ended december 31 , 2016 , compared with the year ended december 31 , 2015. the increase was due to higher pricing , a 1 % increase in concentrate case sales , favorable product mix and lower discounts . these drivers were partially offset by $ 3 million of unfavorable foreign currency translation . the lower discounts were a result of a favorable comparison of the annual true-up of our estimated customer incentive liability partially offset by higher discounts driven by our fountain business . 40 sop . sop increased $ 27 million for the year ended december 31 , 2016 , compared with the year ended december 31 , 2015 , driven primarily by an increase in net sales partially offset by higher sg & a expenses . the increase in sg & a expenses was the result of a $ 6 million increase in planned marketing investments , higher people costs and increases in other operating costs . volume ( bcs ) . volume ( bcs ) increased 1 % for the year ended december 31 , 2016 , compared with the year ended december 31 , 2015. schweppes had gains of 8 % driven by distribution gains in our sparkling water and growth in the ginger ale category . dr pepper increased 1 % , driven primarily by our fountain business . regular dr pepper increased compared to the prior year , which was partially offset by declines in diet .
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we sometimes identify forward-looking statements with such words as may , expect , intend , anticipate , plan , believe , seek , estimate , 22 outlook , trends , future benefits , strategies , goals and similar words concerning future events . the forward-looking statements contained herein , include , without limitation , statements concerning future revenue sources and concentration , gross profit margins , selling and marketing expenses , research and development expenses , general and administrative expenses , capital resources , additional financings or borrowings and additional losses and are subject to risks and uncertainties including those discussed below and elsewhere in this annual report on form 10-k that could cause actual results to differ materially from the results contemplated by these forward-looking statements . we also urge you to carefully review the risk factors set forth in item 1a risk factors. overview we are a leading specialty retailer and direct marketer of vitamins , minerals , herbs , supplements , sports nutrition and other health and wellness products . we are second in overall sales among national vitamin , mineral and supplement specialty retailers , and offer the greatest variety of products with over 8,500 skus offered in our stores with an additional 11,500 skus available for our direct sales orders , versus 2,600 skus offered by our leading competitor . in addition , we operate the largest retail stores among the leading retailers in the vms industry , which average 3,600 square feet , and are at least double that of our two leading competitors . as of march 6 , 2009 , we operated 414 stores located in 37 states and the district of columbia and sell direct to consumers through our web sites , www.vitaminshoppe.com , and www.bodytech.com , and our nationally circulated catalog . we target the dedicated , well-informed vms consumer and differentiate ourselves by providing our customers with an extensive selection of high quality products sold at competitive prices and value-added customer service . within our selection of over 20,000 skus , we offer over 400 national brands , including our best value vitamin shoppe and bodytech proprietary brands . our broad product offering enables us to provide our customers with a selection of products that is not readily available at other specialty vms retailers , supermarkets , chain drug stores or mass merchants , which we believe drives customer traffic and creates a loyal customer base . our company began as a single store in new york , new york in 1977. our vitamin shoppe branded products were introduced in 1989. we were acquired in november 2002 by irving place capital partners ii , l.p. ( formerly bear stearns merchant banking partners ii , l.p. ) and its affiliated entities and other investors . trends and other factors affecting our business our performance is affected by trends that affect the vms industry , including demographic , health and lifestyle preferences . changes in these trends and other factors , which we may not foresee , may also impact our business . for example , our industry is subject to potential regulatory actions , such as the ban on ephedra by the food and drug administration , and other legal matters that affect the viability of a given product . volatile consumer trends , such as those described in the following paragraph , as well as the overall impact on consumer spending , can dramatically affect purchasing patterns . our business allows us to respond to changing industry trends by introducing new products and adjusting our product mix and sales incentives . we will continue to diversify our product lines to offer items less susceptible to the effects of economic conditions and not as readily substitutable , such as teas , lotions and spring water . sales of weight management products are generally more sensitive to consumer trends , resulting in higher volatility than our other products . our sales of weight management products have been significantly influenced by the rapid increase and subsequent decline of products such as products containing ephedra , low carb products and cortislim ® . as a result of the ban of products containing ephedra by the fda in april 2004 , we added new weight management products to our weight management category , such as low-carb products , ephedra substitute products , and cortislim ® , , to offset the loss of ephedra product sales . however , the demand for low carb products overall have been on a consistent decline since early fiscal 2006 , which we believe was due to a change in demand for low carb products and the wider availability of popular products in the marketplace , and as such we have shifted our focus more to weight management products . during this decline in demand for low carb products we have continued to launch new weight management products , which has led to an increase in sales in our weight management category . moreover , as the rate of obesity increases and as the general public becomes increasingly more health conscious , we expect the demand for weight management products , albeit volatile , to continue to be strong in the near term . accordingly , we will continue to offer the highest quality products available in this segment . in addition to the weight management product lines , we intend to continue our focus in meeting the demands of an increasingly aging population , the effects of increasing costs of traditional healthcare and a rapidly growing fitness conscious public . we believe that the aging of the u. s. population provides us with an area of opportunity . the u.s. census bureau reports that the number of individuals in the 65 and over age group is expected to double in the next 25 years . moreover , it is estimated that by 2030 the 65 or older group will comprise 20 % of the population . story_separator_special_tag we regularly review our inventory , including when a product is close to expiration and not expected to be sold , when a 24 product has reached its expiration date , or when a product is not expected to be saleable . in determining the reserves for these products we consider factors such as the amount of inventory on hand and its remaining shelf life , and current and expected market conditions , including management forecasts and levels of competition . we have evaluated the current level of inventory considering historical trends and other factors , and based on our evaluation , have recorded adjustments to reflect inventory at net realizable value . these adjustments are estimates , which could vary significantly from actual results if future economic conditions , customer demand or competition differ from expectations . these estimates require us to make assessments about the future demand for our products in order to categorize the status of such inventory items as slow moving , obsolete or in excess of need . these future estimates are subject to the ongoing accuracy of management 's forecasts of market conditions , industry trends and competition . we are also subject to volatile changes in specific product demand as a result of unfavorable publicity , government regulation and rapid changes in demand for new and improved products or services . at december 27 , 2008 and december 29 , 2007 , obsolescence reserves were $ 1.4 million and $ 1.3 million , respectively . long-lived assets . we evaluate long-lived assets , including fixed assets and intangible assets with finite useful lives , periodically for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable . if the sum of our estimated undiscounted future cash flows is less than the carrying value , we recognize an impairment loss , measured as the amount by which the carrying value exceeds the fair value of the asset . these estimates of cash flow require significant management judgment and certain assumptions about future volume , sales and expense growth rates , devaluation and inflation . as such , these estimates may differ from actual cash flows . for the periods presented we had no impairments of our long-lived assets . goodwill and other intangible assets . on an annual basis , or whenever impairment indicators exist , we perform a valuation of goodwill and indefinite lived intangible assets . in the absence of any impairment indicators , goodwill and other indefinite lived intangible assets , are tested in the fourth quarter of each fiscal year . with regards to goodwill , our tests are based on our two operating segments ( reporting units ) , and utilizes the discounted cash flow method , based on our current operating projections , in accordance with statement of financial accounting standards ( sfas ) no . 142 , goodwill and other intangible assets ( sfas 142 ) . for those intangible assets which have definite lives , we amortize their cost on a straight-line basis over their estimated useful lives which are various periods based on their contractual terms . judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business . future events could cause us to conclude that impairment indicators exist , and therefore that goodwill and other intangible assets are impaired . to the extent that the fair value associated with the goodwill and indefinite-lived intangible assets is less than the recorded value , we write down the value of the asset . the valuation of the goodwill and indefinite-lived intangible assets is affected by , among other things , our business plan for the future , and estimated results of future operations . changes in the business plan or operating results that are different than the estimates used to develop the valuation of the assets may result in an impact on their valuation . we have tested our goodwill and indefinite-lived intangibles for impairment in the fourth quarter of 2008 and concluded there was no impairment relative to such assets . similarly , there is no impairment expense recorded in any of the periods presented . deferred sales . our healthy awards program allows customers to earn points toward free merchandise based on the volume of purchases . points are earned each year under our healthy awards program and are redeemable within the first three months of the following year or they expire . we defer sales on transactions based on estimated redemptions , which are based on historical redemption data as well as marketing data within the current period , and record a liability for points being earned within the current period . net increases to deferred sales were $ 1.8 million , $ 0.3 million , and $ 0.4 million for the years ended december 27 , 2008 , december 29 , 2007 and december 30 , 2006 , respectively . the balance for the deferred sales liability was $ 13.0 million and $ 11.2 million at december 27 , 2008 , and december 29 , 2007 , respectively . stock-based compensation . we account for our stock-based compensation in accordance with sfas no . 123 ( r ) , share-based payment ( sfas no.123 ( r ) ) , an amendment of financial accounting standards board ( fasb ) statements no . 123 , which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and directors . under the fair value recognition provisions of sfas no . 123 ( r ) , stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period . determining the fair value of stock-based awards at the grant date requires considerable judgment , including estimating expected volatility , expected term and risk-free rate .
| results of operations the information presented below is for the fiscal years ended december 27 , 2008 , december 29 , 2007 , and december 30 , 2006 and was derived from our audited consolidated financial statements , which , in the opinion of management , includes all adjustments necessary for a fair presentation of our financial position and operating results for such periods and as of such dates . the following table summarizes our results of operations for the fiscal years ended december 27 , 2008 , december 29 , 2007 , and december 30 , 2006 as a percentage of net sales : replace_table_token_9_th the net sales results presented for the years ended december 27 , 2008 , december 29 , 2007 , and december 30 , 2006 , are each based on a 52-week period ( fiscal 2008 , fiscal 2007 , and fiscal 2006 ) . comparison of fiscal 2008 with fiscal 2007 net sales net sales increased $ 63.7 million , or 11.8 % , to $ 601.5 million for fiscal 2008 compared to $ 537.9 million for fiscal 2007. the increase was the result of an increase in our comparable store sales , as well as sales from our new non-comparable stores , and an increase in our direct sales . retail net sales from our retail stores increased $ 60.6 million , or 13.1 % , to $ 522.5 million for fiscal 2008 compared to $ 462.0 million for fiscal 2007. we operated 401 stores as of december 27 , 2008 compared to 341 stores as of december 29 , 2007. our overall store sales increased due to non-comparable store sales of $ 32.5 million , as well as an increase in comparable store sales growth of $ 28.1 million , or 6.2 % ( comparable store sales include only those stores open more than 410 days and align with fiscal 2007 ) .
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64 impairment of long-lived assets the company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset group may not be recoverable . an impairment story_separator_special_tag overview aci worldwide powers electronic payments and banking for nearly 1,650 financial institutions , retailers and processors around the world . through our integrated suite of software products and hosted services , we deliver a broad range of solutions for electronic payments , transaction banking , mobile , branch and voice banking ; fraud detection and trade finance . 27 in addition to our own products , we distribute , or act as a sales agent for , software developed by third parties . our products are sold and supported through distribution networks covering three geographic regions the americas , emea and asia/pacific . each distribution network has its own globally coordinated sales force and supplements its sales force with independent reseller and or distributor networks . our products and services are used principally by financial institutions , retailers and electronic payment processors , both in domestic and international markets . accordingly , our business and operating results are influenced by trends such as information technology spending levels , the growth rate of the electronic payments industry , mandated regulatory changes , and changes in the number and type of customers in the financial services industry . our products are marketed under the aci worldwide and aci payment systems brands . we derive a majority of our revenues from non-domestic operations and believe we have large opportunities for growth in international markets as well as continued expansion domestically in the united states . refining our global infrastructure is a critical component of driving our growth . we have launched a globalization strategy which includes elements intended to streamline our supply chain and maximize expertise in several geographic locations to support a growing international customer base and competitive needs . we utilize our irish subsidiaries to manage certain of our intellectual property rights and to oversee and manage certain international product development and commercialization efforts . we also continue to grow centers of expertise in timisoara , romania and pune and bangalore in india as well as key operational centers such as capetown , south africa and in multiple locations in the united states . key trends that currently impact our strategies and operations include : global financial markets uncertainty . the continuing uncertainty in the global financial markets has negatively impacted general business conditions . it is possible that a weakening economy could adversely affect our customers , their purchasing plans , or even their solvency , but we can not predict whether or to what extent this will occur . we have diversified counterparties and customers , but we continue to monitor our counterparty and customer risks closely . while the effects of the economic conditions in the future are not predictable , we believe our global presence , the breadth and diversity of our service offerings and our enhanced expense management capabilities position us well in a slower economic climate . market analysts , such as boston consulting group , indicate that banks now recognize the importance of payments to their business , so providing services for that aspect of the business is of less risk than for other aspects of their business . increasing electronic payment transaction volumes . electronic payment volumes continue to increase around the world , taking market share from traditional cash and check transactions . in february 2011 boston consulting group predicted that noncash payment transactions would grow in volume at an annual rate of 9 % from $ 309 billion in 2010 to $ 740 billion in 2020 , with varying growth rates based on the type of payment and part of the world . we leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems can not handle increased volume and through the licensing of capacity upgrades to existing customers . adoption of real-time delivery . customer expectations , from both consumers and corporate , are driving the payments world to more real-time delivery . in the uk , payments sent through the traditional ach multi day batch service can now be sent through the faster payments service giving almost immediate access to the funds and this is being considered in several countries including singapore and the us . corporate customers expect real-time information on the status of their payments instead of waiting for an end of day report . and regulators expect banks to be monitoring key measures like liquidity in real time . aci 's focus has always been on the real-time execution of transactions and delivery of information through real-time tools such as dashboards so our experience will be valuable in addressing this trend . increasing competition . the electronic payments market is highly competitive and subject to rapid change . our competition comes from in-house information technology departments , third-party electronic payment processors and third-party software companies located both within and outside of the united states . many of these companies are significantly larger than us and have significantly greater financial , technical and marketing resources . as electronic payment transaction volumes increase , third-party processors tend to provide competition to our solutions , particularly among customers that do not seek to differentiate their electronic payment offerings or are eliminating banks from the payments service reducing the need for our solutions . as consolidation in the financial services industry continues , we anticipate that competition for those customers will intensify . adoption of cloud technology . in an effort to leverage lower-cost computing technologies some financial institutions , retailers and electronic payment processors are seeking to transition their systems to make use of cloud technology . currently this is impacting areas such as customer relationship management systems rather than payment services . our investment in aci on demand provides us the grounding to deliver cloud capabilities in the future . 28 electronic payments fraud and compliance . story_separator_special_tag these disruptions are likely to have some impact on all institutions in the u.s. banking and financial industries , including our lenders and the lenders of our customers . the federal reserve bank has been providing vast amounts of liquidity into the banking system to compensate for weaknesses in short-term borrowing markets and other capital markets . a reduction in the federal reserve 's activities or capacity could reduce liquidity in the markets , thereby increasing funding costs or reducing the availability of funds to finance our existing operations as well as those of our customers . we are not currently dependent upon short-term funding , and the limited availability of credit in the market has not affected our revolving credit facility or our liquidity or materially impacted our funding costs . the banking , financial services and payments industries have come under increased scrutiny from federal , state and foreign lawmakers and regulators in response to the crises in the financial markets and the global recession . in particular , the dodd-frank wall street reform and consumer protection act ( the dodd-frank act ) , which was signed into law july 21 , 2010 , represents a comprehensive overhaul of the u.s. financial services industry and requires the implementation of many new regulations that will have a direct impact on our customers and potential customers . these regulatory changes may create both opportunities and challenges for us . the application of the new regulations on our customers could create an opportunity for us to market our product capabilities and the flexibility of our solutions to assist our customers in addressing these regulations . at the same time , these regulatory changes may have an adverse impact on our operations and our financial results as we adjust our activities in light of increased compliance costs and customer requirements . it is currently too difficult to predict the long term extent to which the dodd-frank act or the resulting regulations will impact our business and the businesses of our current and potential customers . several other factors related to our business may have a significant impact on our operating results from year to year . for example , the accounting rules governing the timing of revenue recognition in the software industry are complex and it can be difficult to estimate when we will recognize revenue generated by a given transaction . factors such as maturity of the software product licensed , payment terms , creditworthiness of the customer , and timing of delivery or acceptance of our products often cause revenues related to sales generated in one period to be deferred and recognized in later periods . for arrangements in which services revenue is deferred , related direct and incremental costs may also be deferred . additionally , while the majority of our contracts are denominated in the united states dollar , a substantial portion of our sales are made , and some of our expenses are incurred , in the local currency of countries other than the united states . fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period . we continue to seek ways to grow through organic sources , partnerships , alliances , and acquisitions . we continually look for potential acquisitions designed to improve our solutions ' breadth or provide access to new markets . as part of our acquisition strategy , we seek acquisition candidates that are strategic , capable of being integrated into our operating environment , and financially accretive to our financial performance . acquisitions fiscal 2013 acquisitions online resources corporation on january 30 , 2013 , the company and online resources corporation ( orcc ) entered into a transaction agreement ( the transaction agreement ) providing for the acquisition of orcc by the company . the boards of directors of both orcc and the company have approved the transaction agreement . pursuant to the terms of the transaction agreement , we have commenced a tender offer ( the offer ) for all of orcc 's outstanding shares of common stock at a purchase price of $ 3.85 per orcc share in cash for approximately $ 127 million . the offer is subject to the conditions that there be validly tendered and not withdrawn prior to the expiration date of the offer , a majority of all of the orcc shares outstanding and entitled to vote . the company and special value opportunities fund , llc ( svof ) entered into a shareholder agreement for the company to acquire the series a-1 convertible preferred stock of orcc ( preferred stock ) held by svof . purchase price for the preferred stock is expected to be approximately $ 130.5 million the offer is also subject to the satisfaction of other customary conditions , in accordance with the terms of the transaction agreement and the absence of a material adverse effect . the offer is not subject to any financing condition . 30 profesionales en transacciones electronicas s.a during the first quarter of 2013 , we acquired 100 % of profesionales en transacciones electronicas s.a. venezuela ( ptesa-v ) , 100 % of profesionales en transacciones electronicas s.a. ecuador ( ptesa-e ) , and the aci related assets of profesionales en transacciones electronicas s.a. colombia ( ptesa-c ) , collectively ptesa . ptesa hasa been a long-term partner of the company , serving customers in south america in sales , service and support functions . the addition of the ptesa team to the company reinforces its commitment to serve the latin american market . ptesa-e and ptesa-v were acquired for $ 2.8 million . the assets of ptesa-c were acquired for $ 11.4 million . the acquisition will be accounted for using the acquisition method of accounting with the company identified as the acquirer .
| results of operations the following table presents the consolidated statements of income as well as the percentage relationship to total revenues of items included in our consolidated statements of income ( amounts in thousands ) : replace_table_token_8_th year ended december 31 , 2012 compared to year ended december 31 , 2011 revenues total revenues for the year ended december 31 , 2012 increased $ 201.5 million , or 43.3 % , as compared to the same period in 2011. the increase is the result of a $ 32.0 million , or 16.9 % , increase in software license fee revenue , a $ 51.5 million , or 34.7 % , increase in maintenance fee revenue , a $ 51.8 million , or 64.9 % , increase in services revenue and a $ 66.2 million , or 140.4 % , increase in software hosting fee revenues . the increase in total revenues for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 was due to a $ 106.5 million , or 43.1 % , increase in the americas reportable segment , a $ 53.1 million , or 32.2 % , increase in the emea reportable segment and a $ 41.8 million , or 76.8 % , increase in the asia/pacific reportable segment . the addition of s1 contributed $ 161.9 million , or 34.8 % , of the increase in total revenues for the year ended december 31 , 2012. excluding the impact of the addition of s1 , total revenues for the year ended december 31 , 2012 increased $ 39.6 million , or 8.5 % .
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during 2017 , we granted 74,997 stock options to officers and an employee of the company . the options were granted with an exercise price of the fair market on the date of grant , ten year life and vesting over three years from the date of grant . during 2016 we granted 8,750 stock options to an officer of the company . the options were granted with an exercise price of the fair market on the date of grant , seven year life and vesting over four years from the date of grant . replace_table_token_16_th 37 the fair value of each option award is estimated on the date of grant using the black-scholes pricing model and expensed over the vesting period . expected volatility is based on historical annualized volatility of our stock . the expected term of options granted represents the period of time that options granted are expected to be outstanding . the risk-free rate is based upon the u.s. treasury yield curve in effect at the time of grant . currently we do not foresee the payment of dividends in the near term . the assumptions used to calculate the fair value are as follows : replace_table_token_17_th share-based compensation expense relating to the issuance of stock options and stock grants totaled approximately $ 157,000 and $ 147,000 during the fiscal years ended december 29 , 2017 and december 30 , 2016 , respectively . the following table reflects a summary of our non-vested stock options outstanding at december 25 , 2015 and changes during the fiscal years ended december 29 , 2017 and december 30 , 2016 : replace_table_token_18_th as of december 29 , 2017 , there was unrecognized share-based compensation expense totaling approximately $ 142,000 relating to non-vested options that will be recognized over the next 2.75 years . the following summarizes information about the stock options outstanding at december 29 , 2017 : replace_table_token_19_th replace_table_token_20_th employee stock issuance : during 2014 we granted 65,416 shares of restricted common stock to employees . these shares vested one year from the date of grant if the grantee was still employed by us . of these shares , a total of 47,208 vested and were issued to employees and the remaining 18,208 shares were forfeited . 38 employee stock purchase plan : we approved an employee stock purchase plan in 2008 permitting the grant of 83,333 shares of common stock to employees . no shares have been issued pursuant to this plan . note 9 – income tax on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) . the tax act makes broad and complex changes to the u.s. tax code that will affect our fiscal year ended december 29 , 2017 , including , but not limited to , ( 1 ) reducing the u.s. federal corporate tax rate to 21 % ; ( 2 ) eliminating the corporate alternative minimum tax ( amt ) and changing how existing amt credits can be realized ; ( 3 ) creating the base erosion anti-abuse tax ( beat ) , a new minimum tax ; ( 4 ) creating a new limitation on deductible interest expense ; ( 5 ) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after december 31 , 2017 ; ( 6 ) bonus depreciation that will allow for full expensing of qualified property ; and ( 7 ) imposing limitations on the deductibility of certain executive compensation . in connection with our initial analysis of the impact of the tax act , we recorded an additional tax expense of approximately $ 349,000 in the fourth quarter of 2017. this expense is primarily due to remeasurement of our net deferred tax assets at the enacted rate of 21 % compared to the previous rate of 34 % . the provision for deferred income taxes is comprised of the following : replace_table_token_21_th deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . significant components of our deferred taxes are as follows : replace_table_token_22_th our charitable contribution carryover will expire in the years 2017 through 2018 . 39 management estimates that our combined federal and state tax rates was approximately 25.4 % for 2017 , net of federal benefit on state income taxes . the items accounting for the difference between income taxes computed at the statutory federal income tax rate and the income taxes reported on the statements of income are as follows : replace_table_token_23_th we have analyzed our filing positions in all jurisdictions where we are required to file income tax returns and found no positions that would require a liability for unrecognized income tax benefits to be recognized . we include interest and penalties as interest expense on the consolidated financial statements . note 10 – commitments and contingencies freestone insurance company liquidation : from april 2012 , through march 2014 , our workers ' compensation insurance coverage was provided by dallas national insurance , who changed its corporate name to freestone insurance company . under the terms of the policies we were required to provide cash collateral of $ 900,000 per year , for a total of $ 1.8 million , as a non-depleting fund to secure our payment up to the deductible amount . story_separator_special_tag investing activities : net cash used in investing activities totaled approximately $ 104,000 in 2017 compared to approximately $ 2.1 million in 2016. investing activity in 2017 related to the purchase of equipment , while in 2016 it related primarily to the acquisition of hancock . financing activities : net cash provided by financing activities totaled approximately $ 90,000 in 2017 compared to net cash used by financing activities of approximately $ 2.0 million in 2016. financing activity in 2017 included net cash provided by our account purchase facility of approximately $ 465,000 and $ 375,000 used to purchase treasury stock . financing activity in 2016 included $ 417,000 used to repay debt related to the hancock acquisition , a net decrease in our account purchase facility of approximately $ 91,000 , and approximately $ 1.5 million used to purchase treasury stock . critical accounting policies management 's discussion and analysis of financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent assets and liabilities . 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 value 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 management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our 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 . for additional information related to our critical accounting policies see note 1 – summary of significant accounting policies in our notes to the consolidated financial statements . workers ' compensation reserves : in accordance with the terms of our workers ' compensation liability insurance policy , we maintain reserves for workers ' compensation claims to cover our cost of all claims . we use third party actuarial estimates of the future costs of the claims and related expenses discounted by a 5 % present value interest rate to determine the amount of our reserves . the discount rate was increased to 5 % from 3 % in prior years to more accurately reflect our risk tolerance and the active management of workers ' compensation claims . we evaluate the reserves quarterly and make adjustments as needed . if the actual cost of the claims incurred and related expenses exceed the amounts estimated , additional reserves may be required . accounts receivable and allowance for doubtful accounts : accounts receivable are carried at their estimated recoverable amount , net of allowances . the allowance for doubtful accounts is determined based on historical write-off experience , age of receivable , other qualitative factors and extenuating circumstances , and current economic data and represents our best estimate of the amount of probable losses on our accounts receivable . the allowance for doubtful accounts is reviewed monthly and past due balances are written-off when it is probable that the receivable will not be collected . at december 29 , 2017 and december 30 , 2016 , our allowance for doubtful accounts was approximately $ 282,000 and $ 899,000 , respectively . goodwill and other intangible assets : goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to business acquisitions and combinations . goodwill and other intangible assets are measured for impairment at least annually and whenever events and circumstances arise that indicate impairment may exist , such as a significant adverse change in the business climate . in assessing the value of goodwill , assets and liabilities are assigned to the reporting units and the appropriate valuation methodologies are used to determine fair value at the reporting unit level . identified intangible assets are amortized using the straight-line method over their estimated useful lives which are estimated to be between two and seven years . income taxes : we account for income taxes under the liability method , whereby deferred income tax liabilities or assets at the end of each period are determined using the enacted tax rate expected to be in effect when the taxes are actually paid or recovered . a valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized . our policy is to prescribe a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return . we have analyzed our filing positions in all jurisdictions where we are required to file returns and found no positions that would require a liability for unrecognized income tax positions to be recognized . in the event that we are assessed penalties and or interest , penalties will be charged to other financing expense and interest will be charged to interest expense . share-based compensation : periodically , we issue common shares or options to purchase our common shares to our officers , directors , employees , or other parties . compensation expense for these equity awards are recognized over the vesting period , based on the fair value on the grant date . we recognize compensation expense for only the portion of options that are expected to vest , rather than record forfeitures when they occur . if the actual number of forfeitures differs from those estimated by management , additional adjustments to compensation expense may be required in the future periods . we
| summary of operations : revenue increased approximately $ 4.8 million , or 5.2 % , to $ 98.1 million in 2017 from $ 93.3 million in 2016. our fiscal year ended december 30 , 2016 had 53 weeks and benefited from the inclusion of an additional week when compared to 2017 , with average weekly revenue in 2016 being approximately $ 1.8 million . in june 2016 , we acquired substantially all of the assets of hancock . in 2017 , revenue from the two hancock branches totaled approximately $ 7.6 million , an increase of approximately $ 3.1 million over 2016. revenue from our other branches ( excluding hancock ) in 2017 increased approximately $ 1.7 million , and when taking into consideration the additional week in 2016 , 2017 increased approximately $ 3.5 million . our branches serve a wide variety of customers and industries across 23 states . our individual branch revenue can fluctuate significantly on both a quarter-over-quarter and year-over-year basis depending on the local economic conditions and need for temporary labor services in the local economy . one of our goals is to increase the diversity of customers and industries we service at both the branch and the company level . we believe this will reduce the potential negative impact of an economic downturn in any one industry or region . cost of staffing services : cost of staffing services decreased 0.5 % to 74.1 % of revenue in 2017 from 74.6 % in 2016. this decrease was primarily due to a 0.7 % relative decrease in our state unemployment insurance costs in 2017 , as we have placed an increased emphasis on managing this portion of our business in the last two years . state unemployment tax rates fluctuate annually based on our actual experience in each state related to claims filed by former employees .
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in determining inventory cost , the company uses the first-in , first-out method and states inventory at the lower of cost or net realizable value . virtually , all of the company 's inventory is customer specific ; as a result , if a customer 's order is cancelled , it is unlikely that cps would be able to sell that inventory to another customer . likewise , if the company chooses to manufacture product in advance of anticipated purchase orders and those orders did not materialize , it is unlikely that it would be able to sell that inventory to another customer . the value of cps 's work in process and finished goods is based on the assumption that specific customers will take delivery of specific items of inventory . the company has not experienced losses to date as a result of customer cancellations and has not established a reserve for such cancellations . the company typically buys ‘ lots ' of components for its hermetic packaging products . often all the components in a lot are not necessary to complete the order . annually the company reviews this unused material and establishes an obsolescence reserve for the amount it does not expect to use over the next three years . income taxes deferred tax assets and liabilities are based on the net tax effects of tax credits , operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the company considers many factors in assessing whether or not a valuation allowance for its deferred tax asset is warranted . on the positive side , the company considered such factors as its : history of taxable earnings ( three of the last four years had operating profits ) , global customer base consisting of large companies with significant resources , current products and their expected life , technological advantages , potential for price increases , trend of improved manufacturing efficiencies and the magnitude of the deferred tax asset compared with the company 's expectation of future earnings over the remaining life of the asset . on the negative side , the company considered such factors as : the global economic environment , the company 's ability to absorb a period of operating losses and negative cash flow and the potential for the technological breakthroughs and substitution of the company 's products by lower cost solutions . at december 30 , 2017 the company 's deferred tax asset and other temporary differences will require taxable income of approximately $ 11 million and reversals of existing temporary differences to fully utilize , assuming an effective corporate tax rate of 21 % based on the recently enacted tax cuts and jobs act . the company has concluded that it is more likely than not that its deferred tax asset will be fully realized . current projections of future taxable income , including the reversal of temporary differences , reflect the company 's belief that it has attractive growth opportunities and a favorable cost structure . these projections support the conclusion that the company will generate taxable income sufficient to utilize the losses before they expire . the company 's policy is to recognize interest and penalties related to income tax matters in income tax expense . as of december 30 , 2017 and december 31 , 2016 , the company had no accruals for interest or penalties related to income tax matters . the company did not have any uncertain tax positions at december 30 , 2017 or december 31 , 2016 which required accrual or disclosure . income tax effects related to share-based compensation that are in excess , or less than , grant-date fair value , less any proceeds received on exercise of stock prices , are recognized . story_separator_special_tag line-height : 115 % '' > liabilities to tangible net worth maximum of 0.5x 0.2x minimum cash balance minimum of $ 1,300 $ 1,340 borrowings under the line of credit * maximum of $ 1,500 none * $ 1,500 could have been borrowed at year end 2017 in february 2018 , the company signed a lease for the norton facilities through february 2021. the leased facilities comprise approximately 38 thousand square feet . the lease is a triple net lease wherein the company is responsible for payment of all real estate taxes , operating costs and utilities . the company also has an option to buy the property and a first right of refusal during the term of the lease . annual rental payments are $ 152 thousand . in february 2011 , the company entered into a lease for an additional 13.8 thousand square feet in attleboro , ma . the lease terms have been for one year and have been renewed annually . the current lease expires in february 2019 and the company believes that this can be extended on similar terms for a year or more . annual rental payments are $ 83 thousand . management believes that cash flows from operations , existing cash balances and a bank credit line will be sufficient to fund our cash requirements for the foreseeable future . however , there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned operational goals are not met such that we will be able to meet our obligations as they become due . as of december 30 , 2017 the company had $ 86 thousand of construction in progress and no outstanding commitments to purchase production equipment . the company intends to finance production equipment in construction in progress and outstanding commitments under the lease agreement with existing cash balances and funds generated by operations . off-balance sheet arrangements we have no off-balance sheet arrangements . recent accounting pronouncements a summary of recent accounting standards is included in note 2 to the financial story_separator_special_tag in determining inventory cost , the company uses the first-in , first-out method and states inventory at the lower of cost or net realizable value . virtually , all of the company 's inventory is customer specific ; as a result , if a customer 's order is cancelled , it is unlikely that cps would be able to sell that inventory to another customer . likewise , if the company chooses to manufacture product in advance of anticipated purchase orders and those orders did not materialize , it is unlikely that it would be able to sell that inventory to another customer . the value of cps 's work in process and finished goods is based on the assumption that specific customers will take delivery of specific items of inventory . the company has not experienced losses to date as a result of customer cancellations and has not established a reserve for such cancellations . the company typically buys ‘ lots ' of components for its hermetic packaging products . often all the components in a lot are not necessary to complete the order . annually the company reviews this unused material and establishes an obsolescence reserve for the amount it does not expect to use over the next three years . income taxes deferred tax assets and liabilities are based on the net tax effects of tax credits , operating loss carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . the company considers many factors in assessing whether or not a valuation allowance for its deferred tax asset is warranted . on the positive side , the company considered such factors as its : history of taxable earnings ( three of the last four years had operating profits ) , global customer base consisting of large companies with significant resources , current products and their expected life , technological advantages , potential for price increases , trend of improved manufacturing efficiencies and the magnitude of the deferred tax asset compared with the company 's expectation of future earnings over the remaining life of the asset . on the negative side , the company considered such factors as : the global economic environment , the company 's ability to absorb a period of operating losses and negative cash flow and the potential for the technological breakthroughs and substitution of the company 's products by lower cost solutions . at december 30 , 2017 the company 's deferred tax asset and other temporary differences will require taxable income of approximately $ 11 million and reversals of existing temporary differences to fully utilize , assuming an effective corporate tax rate of 21 % based on the recently enacted tax cuts and jobs act . the company has concluded that it is more likely than not that its deferred tax asset will be fully realized . current projections of future taxable income , including the reversal of temporary differences , reflect the company 's belief that it has attractive growth opportunities and a favorable cost structure . these projections support the conclusion that the company will generate taxable income sufficient to utilize the losses before they expire . the company 's policy is to recognize interest and penalties related to income tax matters in income tax expense . as of december 30 , 2017 and december 31 , 2016 , the company had no accruals for interest or penalties related to income tax matters . the company did not have any uncertain tax positions at december 30 , 2017 or december 31 , 2016 which required accrual or disclosure . income tax effects related to share-based compensation that are in excess , or less than , grant-date fair value , less any proceeds received on exercise of stock prices , are recognized . story_separator_special_tag line-height : 115 % '' > liabilities to tangible net worth maximum of 0.5x 0.2x minimum cash balance minimum of $ 1,300 $ 1,340 borrowings under the line of credit * maximum of $ 1,500 none * $ 1,500 could have been borrowed at year end 2017 in february 2018 , the company signed a lease for the norton facilities through february 2021. the leased facilities comprise approximately 38 thousand square feet . the lease is a triple net lease wherein the company is responsible for payment of all real estate taxes , operating costs and utilities . the company also has an option to buy the property and a first right of refusal during the term of the lease . annual rental payments are $ 152 thousand . in february 2011 , the company entered into a lease for an additional 13.8 thousand square feet in attleboro , ma . the lease terms have been for one year and have been renewed annually . the current lease expires in february 2019 and the company believes that this can be extended on similar terms for a year or more . annual rental payments are $ 83 thousand . management believes that cash flows from operations , existing cash balances and a bank credit line will be sufficient to fund our cash requirements for the foreseeable future . however , there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned operational goals are not met such that we will be able to meet our obligations as they become due . as of december 30 , 2017 the company had $ 86 thousand of construction in progress and no outstanding commitments to purchase production equipment . the company intends to finance production equipment in construction in progress and outstanding commitments under the lease agreement with existing cash balances and funds generated by operations . off-balance sheet arrangements we have no off-balance sheet arrangements . recent accounting pronouncements a summary of recent accounting standards is included in note 2 to the financial
| results of operations results of operations for the year 2017 ( “ 2017 ” ) compared with the year 2016 ( “ 2016 ” ) : total revenue was $ 14.6 million in 2017 , a 5 % decrease compared with total revenue of $ 15.4 million in 2016. this decrease was due primarily to a reduction in the sales of armor products . there were no significant price changes during 2017 compared with 2016. gross margin in 2017 totaled $ 1.7 million or 11 % of sales . this compares with $ 2.2 million , or 14 % of sales , generated during 2016. this decline in margin was due primarily to lower revenues . selling , general and administrative ( sg & a ) expenses were $ 3.6 million during 2017 , an increase of 8 % compared with sg & a expenses of $ 3.3 million incurred during 2016. during 2017 the company incurred approximately $ 0.2 million in one-time legal and other costs associated with the annual proxy process and $ 0.2 million associated with the separation of an executive officer , offset by other cost reductions . the company generated interest of $ 11 thousand in 2017. this compares with interest and other income in 2016 of $ 51 thousand , $ 40 thousand of which was due to the sale of used equipment in excess of book value . primarily as a result of lower volume and higher sg & a spending , as cited above , the company incurred an operating loss of $ 2.0 million in 2017 , compared with an operating loss of $ 1.2 million last year . in 2017 the effective tax rate was 11 % and as a result the operating loss of $ 2.0 million led to a net loss of $ 1.7 million .
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replace_table_token_33_th 72 as of december 31 , 2015 and 2014 , loans 30 days or more past due represented 0.66 % and 0.73 % of our total loan story_separator_special_tag the following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements . we encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report . overview our business model continues to be client-focused , utilizing relationship teams to provide our clients with a specific banker contact and support team responsible for all of their banking needs . the purpose of this structure is to provide a consistent and superior level of professional service , and we believe it provides us with a distinct competitive advantage . we consider exceptional client service to be a critical part of our culture , which we refer to as `` clientfirst . '' at december 31 , 2015 , we had total assets of $ 1.2 billion , an 18.2 % increase from total assets of $ 1.0 billion at december 31 , 2014. the largest components of our total assets are loans and securities which were $ 1.0 billion and $ 95.5 million , respectively , at december 31 , 2015. comparatively , our loans and securities totaled $ 871.4 million and $ 61.5 million , respectively , at december 31 , 2014. our liabilities and shareholders ' equity at december 31 , 2015 totaled $ 1.1 billion and $ 94.2 million , respectively , compared to liabilities of $ 946.9 million and shareholders ' equity of $ 83.0 million at december 31 , 2014. the principal component of our liabilities is deposits which were $ 985.7 million and $ 788.9 million at december 31 , 2015 and 2014 , respectively . like most community banks , we derive the majority of our income from interest received on our loans and investments . our primary source of funds for making these loans and investments is our deposits , on which we pay interest . consequently , one of the key measures of our success is our amount of net interest income , or the difference between the income on our interest-earning assets , such as loans and investments , and the expense on our interest-bearing liabilities , such as deposits and borrowings . another key measure is the difference between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities , which is called our net interest spread . in addition to earning interest on our loans and investments , we earn income through fees and other charges to our clients . our net income for the year ended december 31 , 2015 was $ 10.2 million , a 53.5 % increase from $ 6.6 million for the year ended december 31 , 2014. net income to common shareholders was $ 10.2 million , or diluted earnings per share ( eps ) of $ 1.55 , for the year ended december 31 , 2015 as compared to a net income to common shareholders of $ 5.7 million , or diluted eps of $ 1.10 for the year ended december 31 , 2014. the increase in net income resulted primarily from increases in net interest income and noninterest income , partially offset by increases in noninterest expense and income tax expense . net income for the year ended december 31 , 2013 was $ 5.1 million , while net income to common shareholders was $ 4.4 million , or diluted eps of $ 0.98. economic conditions , competition , and the monetary and fiscal policies of the federal government significantly affect most financial institutions , including the bank . lending and deposit activities and fee income generation are influenced by levels of business spending and investment , consumer income , consumer spending and savings , capital market activities , and competition among financial institutions , as well as client preferences , interest rate conditions and prevailing market rates on competing products in our market areas . critical accounting policies we have adopted various accounting policies that govern the application of accounting principles generally accepted in the u.s. and with general practices within the banking industry in the preparation of our financial statements . our significant accounting policies are described in note 1 to our consolidated financial statements as of december 31 , 2015. certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities . we consider these accounting policies to be critical accounting policies . the judgment and assumptions we use are based on historical experience and other factors , which we believe to be reasonable under the circumstances . because of the nature of the judgment and assumptions we make , actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations . management has reviewed and approved these critical accounting policies and has discussed these policies with the company 's audit committee . 35 table of contents allowance for loan losses the allowance for loan loss is management 's estimate of credit losses inherent in the loan portfolio . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . story_separator_special_tag instruments we classify as level 1 are instruments that have been priced directly from dealer trading desks and represent actual prices at which such securities have traded within active markets . ● level 2 valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques , such as matrix pricing , for which all significant assumptions are observable in the market . instruments we classify as level 2 include securities that are valued based on pricing models that use relevant observable information generated by transactions that have occurred in the market place that involve similar securities . ● level 3 valuation is generated from model-based techniques that use significant assumptions not observable in the market . these unobservable assumptions reflect the company 's estimates of assumptions market participants would use in pricing the asset or liability . valuation techniques include use of option pricing models , discounted cash flow models , and similar techniques . we attempt to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements . when available , we use quoted market prices to measure fair value . specifically , we use independent pricing services to obtain fair values based on quoted prices . quoted prices are subject to our internal price verification procedures . if market prices are not available , fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters . most of our financial instruments use either of the foregoing methodologies , collectively level 1 and level 2 measurements , to determine fair value adjustments recorded to our financial statements . however , in certain cases , when market observable inputs for model-based valuation techniques may not be readily available , we are required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument . the degree of management judgment involved in determining the fair value of an instrument is dependent upon the availability of quoted market prices or observable market parameters . for instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . when observable market prices and parameters are not fully available , management 's judgment is necessary to estimate fair value . in addition , changes in market conditions may reduce the availability of quoted prices or observable data . for example , reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable . when significant adjustments are required to available observable inputs , it may be appropriate to utilize an estimate based primarily on unobservable inputs . when an active market for a security does not exist , the use of management estimates that incorporate current market participant expectations of future cash flows , and include appropriate risk premiums , is acceptable . significant judgment may be required to determine whether certain assets measured at fair value are included in level 2 or level 3. if fair value measurement is based upon recent observable market activity of such assets or comparable assets ( other than forced or distressed transactions ) that occur in sufficient volume and do not require significant adjustment using unobservable inputs , those assets are classified as level 2. if not , they are classified as level 3. making this assessment requires significant judgment . other-than-temporary impairment analysis our debt securities are classified as securities available for sale and reported at fair value . unrealized gains and losses , after applicable taxes , are reported in shareholders ' equity . we conduct other-than-temporary impairment ( otti ) analysis on a quarterly basis or more often if a potential loss-triggering event occurs . the initial indicator of otti for debt securities is a decline in market value below the amount recorded for an investment and the severity and duration of the decline . for a debt security for which there has been a decline in the fair value below amortized cost basis , we recognize otti if we ( 1 ) have the intent to sell the security , ( 2 ) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis , or ( 3 ) we do not expect to recover the entire amortized cost basis of the security . 37 table of contents other real estate owned real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value . subsequent to the date of acquisition , it is carried at the lower of cost or fair value , adjusted for net selling costs . fair values of real estate owned are reviewed regularly and write-downs are recorded when it is determined that the carrying value of real estate exceeds the fair value less estimated costs to sell . costs relating to the development and improvement of such property are capitalized , whereas those costs relating to holding the property are expensed . income taxes the financial statements have been prepared on the accrual basis . when income and expenses are recognized in different periods for financial reporting purposes versus for the purposes of computing income taxes currently payable , deferred taxes are provided on such temporary differences . deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the consolidated financial statements or tax returns . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled .
| results of operations net interest income and margin our level of net interest income is determined by the level of earning assets and the management of our net interest margin . for the years ended december 31 , 2015 , 2014 , and 2013 , our net interest income was $ 38.5 million , $ 33.0 million , and $ 29.0 million , respectively . the $ 5.5 million , or 16.6 % , increase in net interest income during 2015 was driven by a $ 161.3 million increase in average earning assets , partially offset by a $ 108.6 million increase in our average interest-bearing liabilities . the increase in average earning assets is primarily related to an increase in average loans , while the increase in average interest-bearing liabilities is driven by an increase in interest-bearing deposits . during 2014 , our net interest income increased $ 4.0 million , or 13.8 % , while average interest-earning assets increased $ 114.4 million and average interest-bearing liabilities increased by $ 76.7 million . interest income for the years ended december 31 , 2015 , 2014 , and 2013 was $ 46.0 million , $ 39.9 million , and $ 36.1 million , respectively . a significant portion of our interest income relates to our strategy to maintain a significant portion of our assets in higher earning loans compared to lower yielding investments and federal funds sold . as such , 96.3 % of our interest income related to interest on loans during 2015 , 95.4 % during 2014 and 94.8 % during 2013. also , included in interest income on loans was $ 1.1 million , $ 894,000 and $ 692,000 , for the years ended december 31 , 2015 , 2014 and 2013 , respectively , related to the net amortization of loan fees and capitalized loan origination costs . interest expense was $ 7.5 million , $ 6.9 million , and $ 7.1 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively .
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definition and limitations of internal control over financial reporting a company 's internal control over financial reporting is story_separator_special_tag this section of this annual report on form 10-k generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this form 10-k can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of the company 's annual report on form 10-k for the fiscal year ended december 31 , 2018. overview we are a delaware corporation , originally incorporated in 1956 , that , following our reit conversion in 2012 , began operating as a self-advised and self-administered reit for federal income tax purposes on january 1 , 2013 , specializing in group-oriented , destination hotel assets in urban and resort markets . our owned assets include a network of four upscale , meetings-focused resorts totaling 8,114 rooms that are managed by marriott international , inc. ( “ marriott ” ) 38 under the gaylord hotels brand . these four resorts , which we refer to as our gaylord hotels properties , consist of the gaylord opryland resort & convention center in nashville , tennessee ( “ gaylord opryland ” ) , the gaylord palms resort & convention center near orlando , florida ( “ gaylord palms ” ) , the gaylord texan resort & convention center near dallas , texas ( “ gaylord texan ” ) and the gaylord national resort & convention center near washington d.c. ( “ gaylord national ” ) . our other owned hotel assets managed by marriott include the inn at opryland , an overflow hotel adjacent to gaylord opryland , and the ac hotel at national harbor , washington d.c. ( “ ac hotel ” ) , an overflow hotel adjacent to gaylord national that opened in april 2015. we also own a 62.1 % interest in a joint venture ( the “ gaylord rockies joint venture ” ) that owns gaylord rockies resort & convention center near denver , colorado ( “ gaylord rockies ” ) , which opened in december 2018 and is managed by marriott . we also own and operate media and entertainment assets including the grand ole opry , the legendary weekly showcase of country music 's finest performers for over 90 years ; the ryman auditorium , the storied live music venue and former home of the grand ole opry located in downtown nashville ; wsm-am , the opry 's radio home ; ole red , a brand of blake shelton-themed bar , music venue and event spaces ; and three nashville-based assets managed by marriott – gaylord springs golf links ( “ gaylord springs ” ) , the wildhorse saloon , and the general jackson showboat ( “ general jackson ” ) . we also own a 50 % interest in a joint venture intended to create and distribute a linear multicast and over-the-top channel dedicated to the country music lifestyle ( “ circle ” ) . each of our award-winning gaylord hotels properties incorporates not only high quality lodging , but also at least 400,000 square feet of meeting , convention and exhibition space , superb food and beverage options and retail and spa facilities within a single self-contained property . as a result , our gaylord hotels properties provide a convenient and entertaining environment for convention guests . our gaylord hotels properties focus on the large group meetings market in the united states . our goal is to be the nation 's premier hospitality reit for group-oriented , destination hotel assets in urban and resort markets . see “ forward-looking statements ” and “ risk factors ” under part i of this annual report for important information regarding forward-looking statements made in this report and risks and uncertainties we face . gaylord rockies joint venture as more fully discussed in note 4 , “ investment in gaylord rockies joint venture , ” to the consolidated financial statements included herein , on december 31 , 2018 , we completed our purchase of additional interests in the gaylord rockies joint venture , increasing our ownership to 61.2 % . in addition , on july 31 , 2019 , we increased our ownership in the gaylord rockies joint venture to 62.1 % . our management has concluded that the company is the primary beneficiary of this variable interest entity ( “ vie ” ) and the financial position and results of operations of the vie have been consolidated in the accompanying consolidated financial statements included herein , beginning on december 31 , 2018 with respect to the balance sheet and january 1 , 2019 with respect to statements of operations and comprehensive income and statements of cash flows . gaylord rockies opened on a limited basis in december 2018 and on a fully operational basis in first quarter 2019 and is managed by marriott . gaylord palms expansion in 2018 , we began construction of a $ 158 million expansion of gaylord palms , which will include an additional 303 guest rooms and 90,000 square feet of meeting space , an expanded resort pool and events lawn , and a new multi-level parking structure . the expansion is expected to be completed in summer 2021. gaylord rockies expansion in february 2020 , we and our joint venture partner in the gaylord rockies joint venture announced an $ 80 million expansion of gaylord rockies , which will include an additional 317 guest rooms . the expansion is expected to begin in the second quarter of 2020 and to be completed in early 2022 . 39 soundwaves at gaylord opryland in december 2018 , we opened the indoor portion of a $ 90 million investment to create a luxury indoor/outdoor waterpark adjacent to gaylord opryland , soundwaves . the project includes approximately 111,000 square feet of indoor water attractions and activities over three levels and approximately 106,000 square feet of outdoor water amenities . story_separator_special_tag the net proceeds of the increase in the term loan a , after deducting initial transaction expenses payable at closing , were approximately $ 94 million and , along with cash on hand , were used to repay $ 100 million of the outstanding indebtedness under our $ 500 million term loan b. for further discussion of the agreements governing each of these debt instruments , see the “ principal debt agreements ” section of “ liquidity and capital resources ” below . dividend policy pursuant to our current dividend policy , we plan to continue to pay a quarterly cash dividend to stockholders in an amount equal to an annualized payment of at least 50 % of adjusted funds from operations ( as defined by us ) less maintenance capital expenditures , or 100 % of reit taxable income , whichever is greater . during 2019 , the company 's board of directors declared quarterly dividends totaling $ 3.60 per share of common stock , or an aggregate of $ 188.3 million in cash . during 2018 , the company 's board of directors declared quarterly dividends totaling $ 3.40 per share of common stock , or an aggregate of $ 174.5 million in cash . during 2017 , the company 's board of directors declared quarterly dividends totaling $ 3.20 per share of common stock , or an aggregate of $ 163.7 million in cash . the declaration , timing and amount of dividends will be determined by future action of our board of directors . our dividend policy may be altered at any time by our board of directors . our current operations our ongoing operations are organized into three principal business segments : ● hospitality , consisting of our gaylord hotels properties , the inn at opryland , the ac hotel , and our investment in the gaylord rockies joint venture , each of which is managed by marriott . ● entertainment , consisting of the grand ole opry , the ryman auditorium , wsm-am , ole red , and our other nashville-based attractions , as well as our investment in the circle joint venture . we own our entertainment businesses in trss , and marriott manages the general jackson , wildhorse saloon and gaylord springs . ● corporate and other , consisting of our corporate expenses . 41 for the years ended december 31 , 2019 , 2018 and 2017 , our total revenues were divided among these business segments as follows : replace_table_token_4_th key performance indicators the operating results of our hospitality segment are highly dependent on the volume of customers at our hotels and the quality of the customer mix at our hotels , which are managed by marriott . these factors impact the price that marriott can charge for our hotel rooms and other amenities , such as food and beverage and meeting space . the following key performance indicators are commonly used in the hospitality industry and are used by management to evaluate hotel performance and potentially allocate capital expenditures : ● hotel occupancy ( a volume indicator ) ; ● average daily rate ( “ adr ” ) – a price indicator calculated by dividing rooms revenue by the number of rooms sold ; ● revenue per available room ( “ revpar ” ) – a summary measure of hotel results calculated by dividing rooms revenue by room nights available to guests for the period ; ● total revenue per available room ( “ total revpar ” ) – a summary measure of hotel results calculated by dividing the sum of room , food and beverage and other ancillary service revenue by room nights available to guests for the period ; and ● net definite room nights booked – a volume indicator which represents the total number of definite bookings for future room nights at our hotels confirmed during the applicable period , net of cancellations . hospitality segment revenue from our occupied hotel rooms is recognized over time as the daily hotel stay is provided to hotel groups and guests . revenues from concessions , food and beverage sales , and group meeting services are recognized over the period or at the point in time those goods or services are delivered to the group or hotel guest . revenues from ancillary services at our hotels , such as spa , parking , and transportation services , are generally recognized at the time the goods or services are provided . cancellation fees , as well as attrition fees that are charged to groups when they do not fulfill the minimum number of room nights or minimum food and beverage spending requirements originally contracted for , are generally recognized as revenue in the period we determine it is probable that a significant reversal in the amount of revenue recognized will not occur , which is typically the period these fees are collected . almost all of our hospitality segment revenues are either cash-based or , for meeting and convention groups that meet our credit criteria , billed and collected on a short-term receivables basis . the hospitality industry is capital intensive , and we rely on the ability of our hotels to generate operating cash flow to repay debt financing and fund maintenance capital expenditures . the results of operations of our hospitality segment are affected by the number and type of group meetings and conventions scheduled to attend our hotels in a given period . a variety of factors can affect the results of any interim period , including the nature and quality of the group meetings and conventions attending our hotels during such period , which meetings and conventions have often been contracted for several years in advance , the level of attrition our hotels experience , and the level of transient business at our hotels during such period . we rely on marriott , as the manager of our hotels , to manage these factors and to offset any identified shortfalls in occupancy .
| total segment results . the following presents the financial results of our hospitality segment for the years ended december 31 , 2019 , 2018 and 2017 ( in thousands , except percentages and performance metrics ) : replace_table_token_6_th ( 1 ) hospitality segment operating income does not include preopening costs of $ 1.3 million , $ 2.9 million and $ 0.3 million in 2019 , 2018 and 2017 , respectively . hospitality segment operating income also does not include impairment charges of $ 35.4 million during 2017 or income ( loss ) from unconsolidated joint ventures of $ 124.4 million and $ ( 1.9 ) million in 2018 and 2017 , respectively . see the discussion of these items set forth below . ( 2 ) hospitality segment occupancy percentage was impacted in 2019 and 2018 due to the addition of 303 rooms associated with the 2018 texan expansion and the related additional rooms available . hospitality segment occupancy percentage was also impacted in 2019 due to the addition of gaylord rockies . actual occupied rooms increased 19.9 % on a consolidated basis and 3.6 % on a same-store basis , which excludes gaylord rockies , for 2019 , as compared to 2018 . ( 3 ) we calculate hospitality segment revpar by dividing rooms revenue by room nights available to guests for the period . hospitality segment revpar is not comparable to similarly titled measures such as revenues . ( 4 ) we calculate hospitality segment total revpar by dividing the sum of room , food and beverage , and other ancillary services revenue ( which equals hospitality segment revenue ) by room nights available to guests for the period . hospitality segment total revpar is not comparable to similarly titled measures such as revenues . ( 5 ) same-store hospitality segment performance metrics do not include gaylord rockies , which opened in december 2018 .
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debt issuance costs related to the revolving credit facility are recorded in prepaid expenses and other current assets and in other long-term assets in the consolidated balance sheets in accordance with the authoritative guidance for imputation of interest ( asc 835-30 ) story_separator_special_tag company overview we are an innovator in communications technologies and services , focused on making connectivity accessible , available and secure for all . our end-to-end platform of high-capacity ka-band satellites , ground infrastructure and user terminals enables us to provide cost-effective , high-speed , high-quality broadband solutions to enterprises , consumers and government users around the globe , whether on the ground , in the air or at sea . in addition , our government business includes a market-leading portfolio of military tactical data link systems , satellite communication products and services and cybersecurity and information assurance products and services . our product , system and service offerings are often linked through common underlying technologies , customer applications and market relationships . we believe that our portfolio of products and services , combined with our vertical integration strategy and ability to effectively cross-deploy technologies between government and commercial segments and across different geographic markets , provides us with a strong foundation to sustain and enhance our leadership in advanced communications and networking technologies . we conduct our business through three segments : satellite services , commercial networks and government systems . covid-19 in march 2020 , the global outbreak of covid-19 was declared a pandemic by the world health organization and a national emergency by the u.s. government . the covid-19 pandemic and attempts to contain it , such as mandatory closures , “ shelter-in-place ” orders and travel restrictions , have caused significant disruptions and adverse effects on u.s. and global economies , including impacts to supply chains , customer demand and financial markets . we have taken measures to protect the health and safety of our employees and to work with our customers , employees , suppliers , subcontractors , distributors , resellers and communities to address the disruptions from the pandemic . at the end of the fourth quarter of fiscal year 2020 , we began to see the impacts of the evolving covid-19 pandemic . however , financial impacts related to covid-19 , including our actions and costs in response to the pandemic , were not material to our financial position , results of operations or cash flows in the fourth quarter of fiscal year 2020. we expect our diversified businesses to provide resiliency as we enter fiscal year 2021. our government systems segment , which represented 49 % of our total revenues during fiscal year 2020 , continued to perform in line with our expectations , with the u.s. government identifying the defense industrial base as a critical infrastructure sector . demand for products and services in our government systems segment remained strong despite the evolving covid-19 pandemic , although our government business has experienced some administrative delays on certain contractual vehicles as government customers adjust to the challenges inherent in the remote work environment resulting from the covid-19 pandemic . since mid-march 2020 , we have experienced an uptick in demand for our fixed broadband services as a result of the covid-19 pandemic , and we are currently participating in certain federal and state programs to ensure our residential and small business customers in the united states have access to connectivity during the pandemic . however , our in-flight services and mobile broadband satellite communications system businesses began to be negatively impacted by the covid-19 pandemic in the fourth quarter of fiscal year 2020 and we expect this negative impact to continue in fiscal year 2021 and potentially beyond due to the severe decline in global air traffic and resulting downturn in the commercial aviation market . in fiscal year 2020 , less than 10 % of our total revenues were generated by services and products provided to commercial airlines reported in our satellite services and commercial networks segments . the extent of the impact of the covid-19 pandemic on our business in fiscal year 2021 and beyond will depend on many factors , including the duration and scope of the public health emergency , the extent , duration and effectiveness of containment actions taken , the extent of its disruption to important global , regional and local supply chains and economic markets and the impact of the pandemic on overall supply and demand , consumer confidence , discretionary spending levels and levels of economic activity . satellite services our satellite services segment uses our proprietary technology platform to provide satellite-based high-speed broadband services around the globe for use in commercial applications . our proprietary ka-band satellites are at the core of our technology platform . the primary services offered by our satellite services segment are comprised of : fixed broadband services , which provide consumers and businesses with high-speed , high-quality broadband internet access and voip services . as of march 31 , 2020 , we provided fixed broadband services to approximately 590,000 u.s. subscribers ( excluding subscribers whose service would have ordinarily been terminated in the absence of the federal fcc pledge and similar state programs we are currently participating 46 in to ensur e our customers have access to connectivity during the covid-19 pandemic ) . for the three months ended march 31 , 2020 , arpu was $ 9 3 . 0 6 . in-flight services , which provide industry-leading ifc , w-ife and aviation software services . as of march 31 , 2020 , we provided ifc services to 1,390 commercial aircraft in service , with ifc services anticipated to be activated on approximately 750 additional commercial aircraft under our existing customer agreements with commercial airlines . the number of commercial aircraft in service may be negatively impacted in future quarters due to the grounding of installed aircraft as a result of the impact of the covid-19 pandemic on global air traffic and the airline industry . story_separator_special_tag ir & d expenses were approximately 6 % , 6 % and 11 % of total revenues in fiscal years 2020 , 2019 and 2018 , respectively . as a government contractor , we are able to recover a portion of our ir & d expenses pursuant to our government contracts . approximately 11 % , 11 % and 12 % of our total revenues in fiscal years 2020 , 2019 and 2018 , respectively , were derived from international sales . doing business internationally creates additional risks related to global political and economic conditions and other factors identified under the heading “ risk factors ” in part i , item 1a and elsewhere in this report . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( gaap ) . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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 . we consider the policies discussed below to be critical to an understanding of our financial statements because their application places the most significant demands on management 's judgment , with financial reporting results relying on estimation about the effect of matters that are inherently uncertain . we describe the specific risks for these critical accounting policies in the following paragraphs . for all of these policies , we caution that future events rarely develop exactly as forecast , and even the best estimates routinely require adjustment . revenue recognition we apply the five-step revenue recognition model under accounting standards update ( asu ) 2014-09 , revenue from contracts with customers ( commonly referred to as accounting standards codification ( asc ) 606 ) to our contracts with our customers . under this model , we ( 1 ) identify the contract with the customer , ( 2 ) identify our performance obligations in the contract , ( 3 ) determine the transaction price for the contract , ( 4 ) allocate the transaction price to our performance obligations and ( 5 ) recognize revenue when or as we satisfy our performance obligations . these performance obligations generally include the purchase of services ( including broadband capacity and the leasing of broadband equipment ) , the purchase of products , and the development and delivery of complex equipment built to customer specifications under long-term contracts . 48 the timing of satisfaction of performance obligations may require judgment . we derive a substantial portion of our revenues from contracts with customers for services , primarily consisting of connectivity services . these contracts typically require advance or recurring monthly payments by the customer . our obligation to provide connectivity services is satisfied over time as the customer simultaneously receives and consumes the benefits provided . the measure of progress over time is based upon either a period of time ( e.g. , over the estimated contractual term ) or usage ( e.g. , bandwidth used/bytes of data processed ) . we evaluate whether broadband equipment provided to our customer as part of the delivery of connectivity services represents a lease in accordance with asc 842. as discussed in note 1 – the company and a summary of its significant accounting policies – leases to our consolidated financial statements , for broadband equipment leased to fixed broadband customers in conjunction with the delivery of connectivity services , we account for the lease and non-lease components of connectivity services arrangement as a single performance obligation as the connectivity services represent the predominant component . we also derive a portion of our revenues from contracts with customers to provide products . performance obligations to provide products are satisfied at the point in time when control is transferred to the customer . these contracts typically require payment by the customer upon passage of control and determining the point at which control is transferred may require judgment . to identify the point at which control is transferred to the customer , we consider indicators that include , but are not limited to , whether ( 1 ) we have the present right to payment for the asset , ( 2 ) the customer has legal title to the asset , ( 3 ) physical possession of the asset has been transferred to the customer , ( 4 ) the customer has the significant risks and rewards of ownership of the asset , and ( 5 ) the customer has accepted the asset . for product revenues , control generally passes to the customer upon delivery of goods to the customer . the vast majority of our revenues from long-term contracts to develop and deliver complex equipment built to customer specifications are derived from contracts with the u.s. government ( including foreign military sales contracted through the u.s. government ) . our contracts with the u.s. government typically are subject to the federal acquisition regulation ( far ) and are priced based on estimated or actual costs of producing goods or providing services . the far provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under u.s. government contracts . the pricing for non-u.s. government contracts is based on the specific negotiations with each customer . under the typical payment terms of our u.s. government fixed-price contracts , the customer pays us either performance-based payments ( pbps ) or progress payments . pbps are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones . progress payments are interim payments based on a percentage of the costs incurred as the work progresses .
| results of operations the following table presents , as a percentage of total revenues , income statement data for the periods indicated : replace_table_token_2_th fiscal year 2020 compared to fiscal year 2019 revenues replace_table_token_3_th our total revenues grew by $ 241.0 million as a result of a $ 161.1 million increase in service revenues and a $ 79.9 million increase in product revenues . the service revenue increase was due to an increase of $ 142.4 million in our satellite services segment , $ 9.7 million in our commercial networks segment and $ 9.0 million in our government systems segment . the product revenue increase was driven primarily by an increase of $ 173.4 million in our government systems segment , partially offset by a decrease in product revenues of $ 93.6 million in our commercial networks segment . 53 cost of revenues replace_table_token_4_th cost of revenues increased by $ 72.0 million due to increases of $ 60.7 million in cost of service revenues and $ 11.3 million in cost of product revenues . the cost of service revenue increase was primarily due to increased revenues , mainly from our satellite services segment , causing a $ 116.2 million increase in cost of service revenues on a constant margin basis . the increase in cost of service revenues was partially offset by improved margins , primarily driven by our fixed broadband services and ifc services in our satellite services segment .
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in some cases , you can identify these “ forward-looking statements ” by the specific words , including but not limited to “ may , ” “ should , ” “ expects , ” “ plans , ” “ anticipates , ” “ believes , ” “ estimates , ” “ predicts , ” “ potential ” or “ continue ” or the negative of those words and other comparable words . these forward-looking statements involve risks and uncertainties . the following discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto included elsewhere in this document . in the following discussion and analysis , the term net income refers to net income attributable to ncm , inc. overview ncm llc operates the largest digital in-theatre video advertising network in north america , through which it distributes national and local advertising that the company has sold on theatre screens and video screens in theatre lobbies . ncm llc also sells theatre lobby promotions and online and mobile advertising that are displayed on its and other publisher websites and mobile sites and apps . our revenue is principally derived from advertising distributed to ncm llc 's founding member theatres in accordance with long-term esas ( over 21 years remaining as of december 31 , 2015 ) and to network affiliates in accordance with multi-year agreements , which expire at various dates through july 22 , 2031. the weighted average remaining term ( based on attendance ) of the esas and the network affiliate agreements is 19.0 years as of december 31 , 2015. the esas with the founding members and network affiliate agreements grant ncm llc exclusive rights in their theatres to sell advertising , subject to limited exceptions . our advertising firstlook pre-show and len programming are distributed predominantly via satellite through our proprietary dcn . approximately 98 % of the aggregate founding member and network affiliate theatre attendance is generated by theatres connected to our dcn ( the remaining 601 screens receive advertisements on usb drives ) and 100 % of the firstlook pre-show is projected on digital projectors ( 90 % digital cinema projectors and 10 % lcd projectors ) . management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business , determine how we are performing versus our internal goals and targets , and against the performance of our competitors and other benchmarks in the marketplace in which we operate . senior executives hold meetings twice per quarter with officers , managers and staff to discuss and analyze operating results and address significant variances to budget and prior year in an effort to identify trends and changes in our business . we focus on many operating metrics including changes in revenue , oibda , adjusted oibda and adjusted oibda margin , as defined and discussed in “ notes to the selected historical financial and operating data ” above , as some of our primary measurement metrics . in addition , we monitor our monthly advertising performance measurements , including advertising inventory utilization , national and local advertising pricing ( cpm ) , local/regional advertising rate per screen per week , local/regional and total advertising revenue per attendee , as well as , our free cash flow , dividend coverage ratio , financial leverage ( net debt divided by adjusted oibda ) and cash balances and revolving credit facility availability to ensure debt covenant compliance and that there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our board of directors . recent transactions on december 26 , 2013 , ncm llc sold its fathom events business to a newly formed limited liability company ( ac jv , llc ) owned 32 % by each of the founding members and 4 % by ncm llc . the fathom events business focused on the marketing and distribution of live and pre-recorded entertainment programming to theatre operators to provide additional programs to augment their feature film schedule . in consideration for the sale , ncm llc received a total of $ 25.0 million in promissory notes from its founding members ( one-third from each founding member ) . refer to note 2 to the audited consolidated financial statements included elsewhere in this document . on may 5 , 2014 , ncm , inc. entered into an agreement and plan of merger ( the “ merger agreement ” ) to merge with screenvision . on november 3 , 2014 , the department of justice filed a lawsuit seeking to enjoin the merger . on march 16 , 2015 , the company announced the termination of the merger agreement and the lawsuit was dismissed . after the merger agreement was terminated , ncm llc reimbursed ncm , inc. for certain expenses pursuant to an indemnification agreement 37 among ncm llc , ncm , inc. and the founding memb ers . on march 17 , 2015 , ncm llc paid screenvision an approximate $ 26.8 million termination payment on behalf of ncm , inc. this payment was $ 2 million lower than the reverse termination fee contemplated by the merger agreement . during the year ended decem ber 31 , 2015 , ncm llc also either paid directly or reimbursed ncm , inc. for the legal and other merger-related costs of approximately $ 15.0 million ( $ 7.5 million incurred by ncm , inc. during the year ended january 1 , 2015 and approximately $ 7.5 million inc urred by ncm llc during the year ended december 31 , 2015 ) . the company and the founding members each bore a pro rata portion of the termination fee and the related merger expenses based on their aggregate ownership percentages in ncm llc when the expenses were incurred . story_separator_special_tag national advertising revenue also decreased due to a decline in revenue by our content partners and scatter spending by our previous cell phone psa client , which decreased $ 5.1 million and $ 12.6 million , respectively , compared to 2013. the decline in national advertising revenue ( excluding beverage revenue ) was partially offset by an increase in utilized impressions of 4.0 % in 2014 compared to 2013. our national inventory utilization rose from 109.3 % for the year ended december 26 , 2013 to 115.7 % for the year ended january 1 , 2015 , primarily due to an overall expansion of our client base and the success of the october 1 , 2014 through december 31 , 2015 upfront selling campaign that positively impacted the fourth quarter of 2014. the number of advertising impressions decreased due to a 1.6 % year-over-year decrease in theatre attendance , resulting from a weaker film release schedule compared to 2013 , partially offset by an additional week in our 53-week 42 year , compared to a 52-week year in 2013. inventory utilization is calculated based on eleven 30-second salable national advertising units in our pre-show , which can be expanded , should market demand dictate . local and regional advertising revenue . the $ 6.9 million , or 7.7 % , increase in local and regional advertising revenue was driven by an increase in local advertising contract volume of 7.9 % , partially offset by a slight decrease in the average contract value of 0.3 % for the year ended january 1 , 2015 , compared to the year ended december 26 , 2013. the increase in contract volume was driven primarily by the higher number of larger regional contracts ( greater than $ 250,000 ) , which grew 64 % due to the improving economy that benefited smaller businesses that make smaller advertising commitments and the continued expansion of the number of theatres in our network . while the number of our largest contracts grew ( those over $ 250,000 ) , the number of contracts between $ 50,000 and $ 250,000 declined 6.8 % . founding member beverage revenue . the $ 3.0 million , or 7.2 % , decrease in national advertising revenue from ncm llc 's founding members ' beverage concessionaire agreements was due to a 5.8 % decrease in beverage revenue cpms and a 1.6 % decrease in founding member attendance for the year ended january 1 , 2015 , compared to the year ended december 26 , 2013. the 2014 beverage revenue cpm is based on the change in cpm of segment one of the firstlook pre-show from 2012 to 2013 , which decreased 5.8 % . fathom events revenue . fathom events revenue was zero for the year ended january 1 , 2015 from $ 36.5 million for the year ended december 26 , 2013 due to the sale of this portion of our business on december 26 , 2013. operating expenses . total operating expenses decreased $ 18.5 million , or 7.1 % , from $ 260.8 million for the year ended december 26 , 2013 to $ 242.3 million for the year ended january 1 , 2015. the following table shows the changes in operating expense for the year ended january 1 , 2015 and december 26 , 2013 ( in millions ) : replace_table_token_16_th advertising operating costs . advertising operating costs decreased $ 2.6 million , or 9.0 % , from $ 29.0 million for the year ended december 26 , 2013 to $ 26.4 million for the year ended january 1 , 2015. this decrease was primarily the result of a $ 1.0 million decrease in affiliate advertising payments , a $ 0.8 million decrease in on-screen production costs and a $ 0.5 million decrease in lobby production supplies , partially offset by the impact of an additional week in 2014. the decrease in affiliate advertising payments was driven by lower total advertising revenue and a 0.5 % decrease in the number of average affiliate screens for the year ended january 1 , 2015 , compared to the year ended december 26 , 2013 due primarily to acquisitions by ncm llc 's founding members of network affiliates in 2013. lobby production supplies and on-screen production costs decreased due to lower revenue during the period . fathom events operating costs . fathom events operating costs were zero for the year ended january 1 , 2015 from $ 25.5 million for the year ended december 26 , 2013 due to the sale of this portion of our business on december 26 , 2013. network costs . network costs decreased $ 1.1 million , or 5.7 % , from $ 19.4 million for the year ended december 26 , 2013 to $ 18.3 million for the year ended january 1 , 2015. the decrease was primarily due to a decrease in personnel expense of $ 0.3 million due primarily to lower bonus expense and related taxes ( related to lower performance against internal targets ) and lower benefit costs due to lower insurance claims under our self-insured plan , as well as , a 43 decrease of $ 0.2 million for reimbursement of ac jv , llc transition costs and a decrease of $ 0.3 million in equipment rental and network maintenance costs , partially offset by the impact of an additional week in 2014. theatre access fees—founding members .
| results of operations years ended december 31 , 2015 and january 1 , 2015 revenue . total revenue increased $ 52.5 million , or 13.3 % , from $ 394.0 million for the year ended january 1 , 2015 to $ 446.5 million for the year ended december 31 , 2015. the following is a summary of revenue by category ( in millions ) : replace_table_token_10_th the following table shows data on revenue per attendee for the years ended december 31 , 2015 and january 1 , 2015 : replace_table_token_11_th ( 1 ) represents the total attendance within ncm llc 's advertising network . ( 2 ) excludes screens and attendance associated with certain amc rave and cinemark rave theatres for all periods presented . refer to note 5 to the audited consolidated financial statements included elsewhere in this document . national advertising revenue . the $ 50.7 million , or 19.6 % , increase in national advertising revenue ( excluding beverage revenue from ncm llc 's founding members ) was due primarily to a 14.2 % increase in impressions sold 39 during the year ended december 31 , 2015 , compared to the year ended january 1 , 2015 and a 6.7 % increase in national advertising cpm s ( excluding beverage ) during the year ended december 31 , 2015 , compared to the year ended january 1 , 2015. th e increase in impressions sold was driven by an increase in national inventory utilization from 115.7 % for the year ended january 1 , 2015 to 128 . 3 % for the year ended december 31 , 2015 , due to an expansion of our client base and increased spending by certain existing clients , related in part to the success of our strategy to compete in the national television upfront marketplace .
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the original amount of the amortizing term loan was $ 100 million , and it is being repaid in quarterly installments that began on march 31 , 2012 , increase annually , and conclude with a final payment due november 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 “ general , ” and part i , item 1a , “ risk factors. ” overview we are the leading global leaf tobacco supplier . we derive most of our revenues from sales of processed tobacco to manufacturers of tobacco products throughout the world and from fees and commissions for specific services . we hold a strategic position in the world leaf markets where we work closely with both our customers and farmers to ensure that we deliver a compliant product that meets our customers ' needs while promoting a strong supplier base . we adapt to meet changes in customer requirements as well as broader changes in the leaf markets while continuing to provide the stability of supply and high level of service that distinguishes us in the marketplace . we believe that we have successfully met the needs of both our customers and suppliers while adapting to changes in leaf markets . consequently , we have delivered strong results to our shareholders . over the last three fiscal years , we have strengthened our balance sheet by repaying $ 128 million in debt , generated over $ 430 million in net cash flow from operations , and returned almost $ 209 million to our shareholders through a combination of dividends and share repurchases . in fiscal year 2012 , we had a slow start to the tobacco buying season , which is typical in a cycle of oversupply as both customers and farmers delayed action to evaluate market development . however , selling activity increased after prices declined at both the farm and the supplier and dealer levels . we experienced lower margins as a result of the oversupplied market conditions . in brazil , we also saw the effect in our first quarter of reduced sales of leaf due to the assignment of some of our farmer contracts to a subsidiary of philip morris international during fiscal year 2011. processing volumes in north america decreased due to processing contracts that expired in 2011. we continued to make progress on our restructuring programs in several regions , to further reduce operating cost structures where necessary . earnings were negatively impacted by a charge related to the rejection of our european commission fine appeal . despite smaller crops , rising leaf production costs , and margin pressures in most regions , we delivered better performance in fiscal year 2013 than we had anticipated at the beginning of the fiscal year . some of this success was attributable to the sale of previously uncommitted inventories and carryover shipments of the prior year 's large african and south american crops . in addition , we benefited from lower selling , general , and administrative costs . certain of these costs reductions were unpredictable - such as currency remeasurement and exchange gains - and may not be recurring , while others were a result of our targeted cost reduction and efficiency improvement efforts . we performed well in the face of a challenging environment in fiscal year 2014 , and our underlying business and customer relationships remain strong . given the larger crops this year , shipping volumes in the second half of fiscal year 2014 exceeded those in the comparable period last year . these increased volumes partially offset lower levels of carryover volumes in the first half of the year , weaker margins in brazil , and negative foreign currency remeasurement and exchange loss comparisons this year . our higher working capital cash requirements this year were a sharp contrast to the returns of working capital seen in fiscal year 2013 , when we had the advantage of sales of uncommitted inventory and large carryover crops that bolstered cash flows . in fiscal year 2014 , purchases of larger crops , tighter margins in brazil from higher green leaf costs , and investments in production growth in africa utilized much of the substantial levels of cash flow from the previous fiscal year . despite these requirements , we maintained our strong financial position this year reducing debt by $ 80 million , and we continued to reward our shareholders with more than $ 75 million in dividends and share repurchases . margins in fiscal year 2014 were affected by volatile brazilian leaf markets , but this has not been a factor in the current crop season . moving into fiscal year 2015 , the brazilian season has begun slowly , with delayed sales and purchases as farmers and customers monitor market developments . production volumes there are similar to last year 's crop , and the flue-cured crop quality is lower than average . our uncommitted inventories were higher at march 31 , 2014 , due in part to the slow start to the selling season in brazil . in africa , the markets have opened at a normal pace , and there are production volume increases in certain origins . at the same time , due to declines in the u.s. and western european retail cigarette sales , we may see some reductions in purchases of certain styles of tobacco , as customers adjust their inventory durations . given the increased production and potential customer inventory adjustments , we expect an oversupply of tobacco in fiscal year 2015 , which may lead to lower leaf prices that typify such cycles . story_separator_special_tag other items cost of goods sold of $ 2.0 billion was up about 1 % for the year ended march 31 , 2013 , compared with fiscal year 2012. the change reflected higher green leaf costs and was consistent with comparable changes in sales revenues for the relevant period . selling , general , and administrative costs declined by $ 16.3 million compared to fiscal year 2012. the decline was driven mainly by benefits from currency remeasurement and exchange gains in our other regions segment , a reduction in provisions for farmer bad debts , and lower customer claims . interest expense was down $ 0.8 million to $ 22.0 million compared with fiscal year 2012 , primarily due to lower average borrowing levels as a result of reduced working capital requirements in fiscal year 2013. the consolidated effective income tax rate on pretax earnings was approximately 32 % and 38 % for the fiscal years ended march 31 , 2013 and 2012 , respectively . fiscal year 2012 's rate was higher because we did not record an income tax benefit on the non-deductible fine portion of the charge for the european commission fine and interest in italy . without that item , the effective income tax rate would have been approximately 29 % . the rates in both years , excluding adjustments , were lower than the 35 % federal statutory rate because of the effect of changes in exchange rates on deferred income tax assets and liabilities , as well as lower effective rates on income from certain foreign subsidiaries . accounting pronouncements we adopted financial accounting standards board accounting standards update 2013-02 , “ comprehensive income ( topic 220 ) : reporting of amounts reclassified out of accumulated other comprehensive income , ” effective at the beginning of the fiscal year . the new guidance requires companies to report the effect of significant reclassifications out of accumulated other comprehensive income ( loss ) on the respective line items in net income unless the amounts are not reclassified in their entirety to net income . for amounts that are not reclassified in their entirety to net income in the same reporting period , companies are required to cross-reference other disclosures that provide additional detail about those amounts . since the new guidance requires additional disclosures only , it did not have any impact on our results of operations , cash flows , or financial position . the required disclosures are provided in note 16 to the consolidated financial statements in item 8 . 20 liquidity and capital resources overview during the fiscal year ended march 31 , 2014 , our seasonal working capital requirements were significantly higher due to larger crops and higher green prices for tobacco in many origins . we also experienced challenging market conditions , particularly in brazil , which pressured margins and reduced cash flow from operations . we used $ 3.5 million in net cash flows to fund our operating activities during the fiscal year . we also entered fiscal year 2014 with substantial cash balances and used this cash to both fund operations and to pay down approximately $ 36 million of our long-term debt , ending the year with cash balances of $ 163.5 million , a decrease of $ 204.3 million from the prior year levels . our liquidity was sufficient to meet our needs . we also continued our conservative financial policies , maintained our discipline on using our free cash flow , and reduced our debt levels while returning funds to shareholders . our liquidity and capital resource requirements are predominately short-term in nature and primarily relate to working capital required for tobacco crop purchases . working capital needs are seasonal within each geographic region . the geographic dispersion and the timing of working capital needs permit us to predict our general level of cash requirements , although crop sizes , prices paid to farmers , shipment and delivery timing , and currency fluctuations affect requirements each year . peak working capital requirements are generally reached during the first and second fiscal quarters . each geographic area follows a cycle of buying , processing , and shipping tobacco , and in many regions we also provide agricultural materials to farmers during the growing season . the timing of the elements of each cycle is influenced by such factors as local weather conditions and individual customer shipping requirements , which may change the level or the duration of crop financing . despite a predominance of short-term needs , we maintain a portion of our total debt as long-term to reduce liquidity risk . we also periodically have large cash balances that we utilize to meet our working capital requirements . we believe that our financial resources are adequate to support our capital needs for at least the next twelve months . our seasonal borrowing requirements primarily relate to purchasing crops in south america and africa and can increase from march to september by more than $ 300 million . the funding required can vary significantly depending upon such factors as crop sizes , the price of leaf , the relative strength of the u.s. dollar , and the timing of shipments and customer payments . we deal with this uncertainty by maintaining substantial credit lines and cash balances . in addition to our operating requirements for working capital , we have $ 116.3 million of long-term debt maturing in fiscal year 2015 , and we expect to provide around $ 65 million for capital expenditures , primarily in africa , $ 15 million related to the start-up of our food ingredient business , and $ 7 million in funding to our pension plans . while available capital resources from our cash balances , a committed revolving credit facility , and uncommitted credit lines exceed these anticipated needs , we may explore refinancing long-term debt in order to better manage long-term liquidity risk .
| results of operations amounts described as net income and earnings per diluted share in the following discussion are attributable to universal corporation and exclude earnings related to non-controlling interests in subsidiaries . the total for segment operating income referred to in the discussion below is a non-gaap financial measure . this measure is not a financial measure calculated in accordance with gaap and should not be considered as a substitute for net income , operating income , cash from operating activities or any other operating performance measure calculated in accordance with gaap , and it may not be comparable to similarly titled measures reported by other companies . we have provided a reconciliation of the total for segment operating income to consolidated operating income in note 15 . `` operating segments '' to the consolidated financial statements in item 8. we evaluate our segment performance excluding certain significant charges or credits . we believe this measure , which excludes these items that we believe are not indicative of our core operating results , provides investors with important information that is useful in understanding our business results and trends . fiscal year ended march 31 , 2014 , compared to the fiscal year ended march 31 , 2013 net income for the fiscal year ended march 31 , 2014 , was $ 149.0 million , or $ 5.25 per diluted share , compared with last year 's net income of $ 132.8 million , or $ 4.66 per diluted share . the current year 's results included a gain in the first fiscal quarter of $ 81.6 million before tax ( $ 53.1 million after tax , or $ 1.87 per diluted share ) , from the favorable outcome of litigation in brazil related to previous years ' excise tax credits .
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our business is to purchase and service retail automobile contracts originated primarily by franchised automobile dealers and , to a lesser extent , by select independent dealers in the united states in the sale of new and used automobiles , light trucks and passenger vans . through our automobile contract purchases , we provide indirect financing to the customers of dealers who have limited credit histories , low incomes or past credit problems , who we refer to as sub-prime customers . we serve as an alternative source of financing for dealers , facilitating sales to customers who otherwise might not be able to obtain financing from traditional sources , such as commercial banks , credit unions and the captive finance companies affiliated with major automobile manufacturers . in addition to purchasing installment purchase contracts directly from dealers , we have also ( i ) acquired installment purchase contracts in four merger and acquisition transactions , ( ii ) purchased immaterial amounts of vehicle purchase money loans from non-affiliated lenders , and ( iii ) directly originated an immaterial amount of vehicle purchase money loans by lending money directly to consumers . in this report , we refer to all of such contracts and loans as `` automobile contracts . '' we were incorporated and began our operations in march 1991. from inception through december 31 , 2011 , we have purchased a total of approximately $ 9.1 billion of automobile contracts from dealers . in addition , we obtained a total of approximately $ 842.0 million of automobile contracts in mergers and acquisitions in 2002 , 2003 , 2004 and 2011. in 2004 and 2009 , we were appointed as a third-party servicer for certain portfolios of automobile receivables originated and owned by entities not affiliated with us . beginning in 2008 , our managed portfolio has decreased each year due to our strategy of limiting contract purchases to conserve our liquidity in response to adverse economic conditions , as discussed further below . however , since october 2009 , we have gradually increased contract purchases resulting in aggregate purchases of $ 284.2 million in 2011 , compared to $ 113.0 million in 2010 and $ 8.6 million in 2009. our total managed portfolio was $ 794.6 million at december 31 , 2011 , compared to $ 756.2 million at december 31 , 2010 , $ 1,194.7 million at december 31 , 2009 , $ 1,664.1 million at december 31 , 2008 and $ 2,162.2 million at december 31 , 2007. the increase between december 31 , 2010 and 2011 reflects both our daily purchases of automobile contracts from dealers and our purchase in september 2011 of a portfolio of $ 217.8 million of automobile contracts from a non-affiliate , fireside bank . we are headquartered in irvine , california , where most operational and administrative functions are centralized . all credit and underwriting functions are performed in our california headquarters , and we service our automobile contracts from our california headquarters and from three servicing branches in virginia , florida and illinois . we purchase contracts in our own name ( “ cps ” ) and , until july 2008 , also in the name of our wholly-owned subsidiary , tfc . programs marketed under the cps name are intended to serve a wide range of sub-prime customers , primarily through franchised new car dealers . our tfc program served vehicle purchasers enlisted in the u.s. armed forces , primarily through independent used car dealers . in july 2008 , we ended our tfc program . we purchase automobile contracts with the intention of financing them on a long-term basis through securitizations . securitizations are transactions in which we sell a specified pool of contracts to a special purpose entity of ours , which in turn issues asset-backed securities to fund the purchase of the pool of contracts from us . depending on the structure of the securitization , the transaction may be treated , for financial accounting purposes , as a sale of the contracts or as a secured financing . securitization and warehouse credit facilities throughout the periods for which information is presented in this report , we have purchased automobile contracts with the intention of financing them on a long-term basis through securitizations , and on an interim basis through warehouse credit facilities . all such financings have involved identification of specific automobile contracts , sale of those automobile contracts ( and associated rights ) to one of our special-purpose subsidiaries , and issuance of asset-backed securities to fund the transactions . depending on the structure , these transactions may be accounted for under generally accepted accounting principles as sales of the automobile contracts or as secured financings . when structured to be treated as a secured financing for accounting purposes , the subsidiary is consolidated with us . accordingly , the sold automobile contracts and the related debt appear as assets and liabilities , respectively , on our consolidated balance sheet . we then periodically : ( i ) recognize interest and fee income on the contracts , ( ii ) recognize interest expense on the securities issued in the transaction , and ( iii ) record as expense a provision for credit losses on the contracts . from july 2003 through april 2008 , all of our securitizations were structured in this manner . in september 2008 , we securitized automobile contracts in a transaction that was in substance a sale , that was treated as a sale for accounting purposes , and in which we retained a residual interest in the automobile contracts . the remaining receivables from that september 2008 securitization were re-securitized in september 2010 in a structure that maintained sale treatment for accounting purposes . during 2011 , we completed three securitizations of approximately $ 335.6 million in newly originated contracts . these securitizations were were all structured as secured financings and represented our first securitizations of new contracts since 2008 . story_separator_special_tag the trust issues interest-bearing asset-backed securities , in a principal amount equal to or less than the aggregate principal balance of the automobile contracts . we typically sell these automobile contracts to the trust at face value and without recourse , except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust . one or more investors purchase the asset-backed securities issued by the trust ; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us . we may retain or sell subordinated asset-backed securities issued by the trust or by a related entity . historically we have purchased external credit enhancement for most of our term securitizations in the form of a financial guaranty insurance policy , guaranteeing timely payment of interest and ultimate payment of principal on the senior asset-backed securities , from an insurance company . in addition , we structure our securitizations to include internal credit enhancement for the benefit of the insurance company and the investors ( i ) in the form of an initial cash deposit to an account ( `` spread account `` ) held by the trust , ( ii ) in the form of overcollateralization of the senior asset-backed securities , where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts , ( iii ) in the form of subordinated asset-backed securities , or ( iv ) some combination of such internal credit enhancements . the agreements governing the securitization transactions require that the initial level of internal credit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified levels , which are then maintained . the specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related automobile contracts . the specified levels at which the internal credit enhancement is to be maintained will vary depending on the performance of the portfolios of automobile contracts held by the trusts and on other conditions , and may also be varied by agreement among us , our special purpose subsidiary , the insurance company and the trustee . such levels have increased and decreased from time to time based on performance of the various portfolios , and have also varied from one transaction to another . the agreements governing the securitizations generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding balance of the automobile contracts has amortized to a specified percentage of the initial aggregate balance . our september 2008 securitization and the subsequent re-securitization of the remaining receivables from such transaction in september 2010 were each in substance sales of the underlying receivables , and have been treated as sales for financial accounting purposes . they differ from those treated as secured financings in that the trust to which our special-purpose subsidiaries sold the automobile contracts met the definition of a `` qualified special-purpose entity '' under statement of financial accounting standards no . 140 ( asc 860 10 65-2 ) as a result , assets and liabilities of those trusts are not consolidated into our consolidated balance sheet . historically , our warehouse credit facility structures were similar to the above , except that ( i ) our special-purpose subsidiaries that purchased the automobile contracts pledged the automobile contracts to secure promissory notes that they issued , ( ii ) no increase in the required amount of internal credit enhancement was contemplated , and ( iii ) we did not purchase financial guaranty insurance . through november 2008 , we depended substantially on two warehouse credit facilities : ( i ) a $ 200 million warehouse credit facility , which we established in november 2005 and expired by its terms in november 2008 ; and ( ii ) a $ 200 million warehouse credit facility , which we established in june 2004 and which was amended in december 2008 to eliminate future advances and to provide for repayment of the related notes from the cash collections on the underlying pledged contracts , and certain other principal reductions until it was fully repaid in september 2009. since october 2009 , we have gradually increased our contract purchases by utilizing a $ 50 million revolving credit facility we established in september 2009 and $ 50 million term funding facility that we established in march 2010. more recently , we increased our short-term contract financing resources by $ 200 million by entering into agreements for a $ 100 million credit facility in december 2010 and for another $ 100 million credit facility in february 2011. the september 2009 revolving facility terminated in september 2011 , and the march 2010 term facility was fully utilized by december 2010. in february 2012 , we amended the february 2011 facility to extend the revolving period from february 2012 to may 2012 and reduced the maximum advance from $ 100 million to $ 35 million . our current maximum revolving warehouse financing capacity is $ 135 million . 33 upon each transfer of automobile contracts in a transaction structured as a secured financing for financial accounting purposes , whether a term securitization or a warehouse financing , we retain on our consolidated balance sheet the related automobile contracts as assets and record the asset-backed notes issued in the transaction as indebtedness . under the september 2008 and september 2010 securitizations , and other term securitizations completed prior to july 2003 that were structured as sales for financial accounting purposes , we removed from our consolidated balance sheet the automobile contracts sold and added to our consolidated balance sheet ( i ) the cash received , if any , and ( ii ) the estimated fair value of the ownership interest that we retained in the automobile contracts sold in the transaction .
| results of operations comparison of operating results for the year ended december 31 , 2011 with the year ended december 31 , 2010 revenues . during the year ended december 31 , 2011 , revenues were $ 143.1 million , a decrease of $ 12.1 million , or 7.8 % , from the prior year revenue of $ 155.2 million . the primary reason for the decrease in revenues is a decrease in interest income . interest income for the year ended december 31 , 2011 decreased $ 9.2 million , or 6.7 % , to $ 127.9 million from $ 137.1 million in the prior year . the primary reason for the decrease in interest income is the decrease in interest income on finance receivables held by consolidated subsidiaries of $ 8.9 million . at december 31 , 2011 the aggregate outstanding balance of finance receivables held by consolidated subsidiaries was $ 718.2 million compared to $ 597.1 million at december 31 , 2010. however , the fireside portfolio represents $ 172.1 million of the december 31 , 2011 balance of finance receivables held by consolidated subsidiaries . the fireside portfolio was acquired on september 15 , 2011 and did not contribute to interest income until after that time . we also experienced a decrease in interest income on our residual interest in securitizations of $ 249,000 , and a decrease in interest earned on cash deposits ( including restricted cash deposits ) of $ 90,000 . 37 servicing fees totaling $ 4.3 million in the year ended december 31 , 2011 decreased $ 3.3 million , or 43.2 % , from $ 7.7 million in the prior year . the decrease in servicing fees is the result of the continuing amortization of our third-party servicing portfolio of sub-prime automobile receivables owned by a subsidiary of compucredit corporation .
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significant increases ( decreases ) to the projected aum of the european listed etps or operating results of the european business in isolation would have resulted in a higher ( lower ) fair value measurement . significant increases ( decreases ) to the discount rate in isolation would have resulted in a lower ( higher ) fair value measurement . in may 2016 , the company story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this report . in addition to historical consolidated financial information , 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 . for a more complete description of the risks noted above and other risks that could cause our actual results to materially differ from our current expectations , please see item 1a . risk factors of this report . we assume no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise , unless required by law . introduction we were the tenth largest etp sponsor in the world ( based on aum ) , with aum of $ 41.3 billion globally as of december 31 , 2016. an etp is a pooled investment vehicle that holds a basket of financial instruments , securities or other assets and generally seeks to track ( index-based ) or outperform ( actively managed ) the performance of a broad or specific equity , fixed income or alternatives market segment , commodity or currency ( or an inverse or multiple thereof ) . etps are listed on an exchange with their shares traded in the secondary market at market prices , generally at approximately the same price as the net asset value of their underlying components . etp is an umbrella term that includes etfs , exchange-traded notes and exchange-traded commodities . through our operating subsidiaries , we provide investment advisory and other management services to the wisdomtree etfs and boost etps collectively offering etps covering equity , fixed income , currency , alternatives and commodity asset classes . in exchange for providing these services , we receive advisory fee revenues based on a percentage of the etps ' average daily aum . our expenses are predominantly related to selling , operating and marketing our etps . we have contracted with third parties to provide certain operational services for the etps . we distribute our etps through all major channels within the asset management industry , including brokerage firms , registered investment advisers , institutional investors , private wealth managers and discount brokers primarily through our sales force . our sales efforts are not directed towards the retail segment but rather are directed towards financial or investment advisers that act as intermediaries between the end-client and us . executive summary our u.s. listed aum , which makes up the vast majority of our global aum , has fluctuated over the last three fiscal years , from $ 39.3 billion at the end of 2014 , to $ 51.6 billion at the end of 2015 and $ 40.2 billion at the end of 2016. we tend to experience particularly strong inflows when our products align with market sentiment . for example , in 2015 , our currency hedged european equity etf ( hedj ) comprised the vast majority of our net inflows and offset the outflows we experienced in emerging markets as the aggressive monetary policy of the european central bank weakened the euro , stimulating the local equity markets . similarly , we experienced strong inflows into our currency hedged japanese equity etf ( dxj ) in 2013 as a result of a weakening yen due to political and economic policy changes in japan . in 2016 , we experienced significant outflows in these two products as those markets fell out of favor with investors . our financial results have fluctuated along with the changes in our aum . revenues were $ 183.8 million , $ 298.9 million and $ 219.4 million in 2014 , 2015 and 2016 , respectively . our short term strategic focus remains diversifying and stabilizing our asset base by offering innovative products , expanding our distribution capabilities , investing in technologies to offer differentiated services and expanding our global footprint . 38 other business highlights for 2016 include the following : we continued to invest in strategic growth initiatives in 2016 to better position us for longer term success . we launched 12 u.s. listed etfs capitalizing on macro-investment themes and diversifying our product offerings . these launches included dynamic currency hedged etfs , such as the dynamic currency hedged international equity etf ( ddwm ) , which was the most successful etf launched in the u.s. in 2016 based on total aum , the industry 's first smart beta corporate bond suite and a collateralized put write strategy etf on the s & p 500 index . we also invested in marketing and sales related initiatives to support our existing etfs as well as new etf launches . headcount increased by 32 globally , predominantly in sales and functions supporting sales , including research and marketing . we executed on our global growth plans by establishing an office in toronto and distributing a select range of locally listed etfs in canada . during 2016 , we launched six new canadian etfs , four new boost etps and 4 new wisdomtree ucits etfs . we also entered into a global product partnership with icbc credit suisse asset management ( international ) company limited to launch , market and distribute etfs that track the s & p china 500 index . a luxembourg ucits etf listed in europe marked the first product in this collaboration . in november 2016 , we made a $ 20.0 story_separator_special_tag we determine the appropriate advisory fee to charge for our etfs based on the cost of operating each particular etf taking into account the types of securities the etfs will hold , fees third party service providers will charge us for operating the etfs and our competitors ' fees for similar etfs . generally , our actively managed etfs , along with our emerging markets etfs , are priced higher than our other index based etfs . each of our etfs has a fixed advisory fee . in order to increase the advisory fee , we would need to obtain approval from a majority of the etf shareholders , which may be difficult or not possible to achieve . there also may be a significant cost in obtaining such etf shareholder approval . we do not need etf shareholder approval to lower our advisory fee . from time to time , we implement voluntary waivers of a portion of our advisory fee . these waivers may expire without shareholder approval needing to be obtained . in addition , we earn a fee based on daily aggregate aum of our etfs in exchange for bearing certain fund expenses . 42 our etf advisory fee revenues may fluctuate based on general stock market trends , which include market value appreciation or depreciation , currency fluctuations against the u.s. dollar and level of inflows or outflows from our etfs . in addition , these revenues may fluctuate due to increased competition or a determination by the independent trustees of the wisdomtree etfs to terminate or significantly alter the funds ' investment management agreements with us . other income other income includes interest income from investing our corporate cash and fees from licensing our indexes to third parties . these revenues are immaterial to our financial results and we do not expect them to be material in the near term . components of expenses our operating expenses consist primarily of costs related to selling , operating and marketing our etfs as well as the infrastructure needed to run our business . compensation and benefits employee compensation and benefits expenses are expensed when incurred and include salaries , incentive compensation , and related benefit costs . virtually all our employees receive incentive compensation that is based on our operating results as well as their individual performance . therefore , a portion of this expense will fluctuate with our business results . in order to attract and retain qualified personnel , we must maintain competitive employee compensation and benefit plans . we would expect changes in employee compensation and benefits expense to be correlated with changes in our revenues and net inflows . also included in compensation and benefits are costs related to equity awards granted to our employees . our executive management and board of directors strongly believe that equity awards are an important part of our employees ' overall compensation package and that incentivizing our employees with equity in the company aligns the interest of our employees with that of our stockholders . we use the fair value method in recording compensation expense for equity based awards . under the fair value method , compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the vesting period . we expect our compensation and benefits expense for our u.s. business segment will be between 28 % to 31 % of u.s. business segment revenues in 2017. fund management and administration fund management and administration expenses are expensed when incurred and are comprised of the following costs we pay third party service providers to operate our etfs : portfolio management of our etfs ( sub-advisory ) ; fund accounting and administration ; custodial services ; transfer agency ; accounting and tax services ; printing and mailing of stockholder materials ; index calculation ; 43 indicative values ; distribution fees ; legal and compliance services ; exchange listing fees ; trustee fees and expenses ; preparation of regulatory reports and filings ; insurance ; certain local income taxes ; and other administrative services . we are not responsible for extraordinary expenses , taxes and certain other expenses . bny mellon acts as sub-adviser for the majority of our etfs and , prior to april 2014 , also provided fund administration , custody and accounting related services for all the wisdomtree etfs . in april 2014 , we transferred our fund administration , custody and accounting related services to state street . the fees we pay bny mellon and our other sub-advisers generally have minimums per fund which range from $ 25,000 to $ 80,000 per year with additional fees ranging between 0.015 % and 0.20 % of average daily aum at various breakpoint levels depending on the nature of the etf . in addition , we pay certain costs based on transactions in our etfs or based on inflow levels . the fees we pay for accounting , tax , transfer agency , index calculation , indicative values and exchange listing are based on the number of etfs we have . the remaining fees are based on a combination of both aum and number of funds , or as incurred . marketing and advertising marketing and advertising expenses are recorded when incurred and include the following : advertising and product promotion campaigns that are initiated to promote our existing and new etfs as well as brand awareness ; development and maintenance of our website ; and creation and preparation of marketing materials . our discretionary advertising comprises the largest portion of this expense and we generally expect these costs to increase as we continue to execute our growth strategy and compete against other etf sponsors . in addition , we may incur expenditures in certain periods to attract inflows , the benefit of which may or may not be recognized from increases to our aum in future periods .
| segment results we operate as an etp sponsor and asset manager providing investment advisory services in the u.s. , europe , canada and japan . these activities are reported in our u.s. business and international business reportable segments . the u.s. business segment includes the results of our u.s. operations and japan sales office . the results of our european and canadian operations are reported as the international business segment . revenues are primarily derived in the u.s. and the vast majority of our aum is currently located in the u.s. 59 the table below presents the net revenues , operating expenses and income before taxes of these segments . replace_table_token_19_th year ended december 31 , 2016 compared to year ended december 31 , 2015 u.s. business segment revenues of the u.s. business segment decreased 27.9 % from $ 294.7 million in 2015 to $ 212.5 million in 2016. the decrease was attributable to lower average aum which decreased 26.7 % , primarily resulting from net outflows from our two largest u.s. listed etfs our currency hedged european and japan equity etfs ( hedj and dxj , respectively ) . our average u.s. advisory fee decreased to 0.51 % from 0.53 % during the year due to changes in product mix . operating expenses of the u.s. business segment decreased 7.2 % from $ 148.4 million in 2015 to $ 137.8 million in 2016. the decrease was primarily due to significantly lower accrued incentive compensation as a result of net outflows we experienced partly offset by higher headcount related expenses and higher stock-based compensation due to equity awards granted to our employees as part of 2015 compensation . operating expenses also decreased as a result of lower fund management and administration expenses primarily due to lower average u.s. listed aum . these decreases were partly offset by higher sales and business development and marketing expenses .
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prior to the transaction ; · each of messrs. schwab , elliott , gindin and leckerman will have the opportunity to earn an annual bonus equal to 75 percent , 75 percent , 75 percent and 100 percent , respectively , of his base salary ( such percentage of base salary is referred to as such executive 's target bonus ) , based upon the achievement by us of our annual operating plan as presented to the board by our chief executive officer and approved by the board ; · upon story_separator_special_tag overview we are a holding company and conduct substantially all of our business operations through our subsidiaries . we are an international provider of business process outsourcing services , referred to as bpo , primarily focused on accounts receivable management , referred to as arm , and customer relationship management , referred to as crm , serving a wide range of clients in north america and abroad through our global network of over 100 offices . historically , our portfolio management business participated in the purchased accounts receivable business on an opportunistic basis . beginning in 2009 , we significantly reduced our purchases of accounts receivable . this decision resulted from declines in liquidation rates , competition for purchased accounts receivable and the continued uncertainty of collectibility . we operate our business in three segments : arm , crm and portfolio management . during 2010 , we generated approximately 60 percent of our arm revenue from the recovery of delinquent accounts receivable on a contingency fee basis . our arm contingency fees range from approximately five percent for the management of accounts placed early in the accounts receivable cycle to approximately 50 percent for accounts that have been serviced extensively by the client or by third-party providers . our average fee for arm contingency-based revenue across all industries was approximately 10 percent during 2010 , 18 percent during 2009 and 17 percent during 2008. in addition , we generate revenue from certain contractual arm services . generally , revenue is earned and recognized upon collection of accounts receivable for contingency fee services and as work is performed for contractual services . we enter into contracts with most of our clients that define , among other things , fee arrangements , scope of services , and termination provisions . clients typically have the right to terminate their contracts on 30 or 60 days ' notice . approximately 40 percent of our arm revenue is generated from contractual collection services , where fees are based on a monthly rate or a per service charge , and other arm services . during 2010 , approximately 95 percent of our crm revenue was generated from inbound services , which consist primarily of customer service and technical support programs , and to a lesser extent acquisition and retention services . inbound services involve the processing of incoming calls , often placed by our clients ' customers using toll-free numbers , to a customer service representative for service , order fulfillment or information . during 2010 , outbound services , which consist of customer acquisition and customer retention services , represented approximately five percent of our crm revenue . our operating costs consist principally of payroll and related costs ; selling , general and administrative costs ; and depreciation and amortization . payroll and related expenses consist of wages and salaries , commissions , bonuses , and benefits for all of our employees , including management and administrative personnel . selling , general and administrative expenses include telephone , postage and mailing costs , outside collection attorneys and other third-party collection services providers , and other collection costs , as well as expenses that directly support operations , including facility costs , equipment maintenance , sales and marketing , data processing , professional fees , and other management costs . our payroll and related expenses may increase or decrease due to changes in the value of the u.s. dollar against the canadian dollar and the philippine peso . due to the expected prolonged impact of the economic environment on the company 's clients ' business in 2011 and beyond , in the fourth quarter of 2010 we reduced our budgeted volumes from certain of our clients in the crm reporting unit . as a result , our 2010 annual impairment test for goodwill indicated that the carrying value of the crm reporting unit exceeded its fair value and we recorded goodwill impairment charges of $ 57.0 million in the crm segment in 2010. we recorded goodwill impairment charges of $ 24.7 million in the crm segment in 2009 , and in 2008 we recorded goodwill impairment charges of $ 275.5 million and trade name impairment charges of $ 14.0 million across all segments . additionally , revenue for 2010 , 2009 and 2008 was reduced by impairment charges of $ 14.3 million , $ 21.5 million and $ 98.9 million , respectively , recorded to increase the valuation allowance against the carrying value of the portfolios of purchased accounts receivable . during the fourth quarter of 2010 , we identified $ 15.4 million of reimbursable costs and fees received from clients associated with certain contractual arrangements acquired in connection with the acquisition of tsys total debt management that were incorrectly recorded on a net basis , as an offset to selling , general and administrative expenses in the statement of operations for the year ended december 31 , 2009. revenue for the year ended december 30 31 , 2009 should have included these reimbursable costs and fees , with an equal and offsetting amount charged to operating expenses , due to the fact that we acted as principal and assumed overall risk in the transactions under these contractual arrangements . story_separator_special_tag for 2010 , 2009 and 2008 , the fair value calculations assumed long-term growth rates of 3 percent , 3 percent and 4 percent , respectively , and weighted average cost of capital ranging from approximately 14 percent to 18 percent , 13 percent to 14 percent , and 13 percent to 14 percent , respectively . due to the expected impact of the economic environment on our clients ' business in 2011 and beyond , in the fourth quarter of 2010 we reduced the budgeted volumes from certain of our clients in the crm reporting unit . as a result , our 2010 annual impairment test for goodwill indicated that the carrying value of our crm reporting unit exceeded its fair value . due to similar circumstances , our 2009 annual impairment test for goodwill indicated that the carrying value of our crm reporting unit exceeded its fair value . late in 2008 , our arm and portfolio management reporting units experienced a significant reduction in the collectability of both customer-placed and purchased accounts receivable resulting from deteriorating economic conditions . due to the expected impact of the economic environment , we reduced our 2009 budgeted expectations for each of our reporting units . as a result , our 2008 annual impairment test for goodwill and trade name indicated that the carrying values of all of our reporting units exceeded their fair values . as a result of the annual impairment testing , we recorded goodwill impairment charges of $ 57.0 million and $ 24.7 million in the crm reporting unit in 2010 and 2009 , respectively . we were not required to record any trade name impairment charges in 2010 or 2009. we recorded total goodwill impairment charges of $ 275.5 million and total trade name impairment charges of $ 14.0 million across all reporting units in 2008. we make significant assumptions to estimate the future revenue and cash flows used to determine the fair value of our reporting units . these assumptions include future growth rates , profitability , discount factors , market comparables , future tax rates , and other factors . variations in any of these assumptions could result in materially different calculations of impairment amounts . if the expected revenue and cash flows are not realized , additional impairment losses may be recorded in the future . we periodically evaluate the net realizable value of identifiable definite-lived intangible assets for impairment , based on the estimated undiscounted future cash flows , whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . during 2009 , we began to reduce our purchases of portfolios of accounts receivable and made a decision to minimize further investments in purchased accounts receivable in the future . this decision resulted primarily from the continuation of the difficult collection environment , the competitive market for portfolio investments , as well as 32 potential regulatory changes affecting the purchased accounts receivable business . as a result of this decision , in 2009 we recorded an impairment charge of $ 5.3 million for the portfolio management reporting unit 's customer relationship intangible assets . revenue recognition for purchased accounts receivable in the ordinary course of accounting for purchased accounts receivable , estimates have been made by management as to the amount of future cash flows expected from each portfolio . we have historical collection records for all of our purchased accounts receivable which provide us a reasonable basis for our judgment that it is probable that we will ultimately collect the recorded amount of our purchased accounts receivable plus a premium or yield . the historical collection amounts also provide a reasonable basis for determining the timing of the collections . we use all available information to forecast the cash flows of our purchased accounts receivable including , but not limited to , historical collections , payment patterns on similar purchases , credit scores of the underlying debtors , seller 's credit policies , and location of the debtor . the estimated future cash flow of each portfolio is used to compute the internal rate of return , referred to as the irr , for each portfolio . the irr is used to allocate collections between revenue and amortization of the carrying values of the purchased accounts receivable . if the original collection estimates are lowered , an allowance is established in the amount required to maintain the original irr . if collection estimates are raised , increases are first used to recover any previously recorded allowances and then recognized prospectively through an increase in the irr over a portfolio 's remaining life . any increase in the irr must be used for subsequent revenue recognition and allowance testing . if management came to a different conclusion as to the future estimated collections , it could have had a significant impact on the amount of revenue that was recorded from the purchased accounts receivable . a five percent increase in the amount of future expected collections would have resulted in additional net income of $ 1.7 million for the year ended december 31 , 2010 , largely as a result of lower allowances since increases in future expected collections are recognized to the extent sufficient to recover any allowances or to increase the expected irr . a five percent decrease in the amount of future expected collections would have resulted in additional net loss of $ 1.7 million for the year ended december 31 , 2010 , largely as a result of higher allowances . income taxes deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities . deferred tax assets are reduced by a valuation allowance , if it is more likely than not that some portion or all of the deferred tax asset will not be realized . deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries because such amounts are expected to be reinvested indefinitely .
| results of operations the following table sets forth selected historical statement of operations data ( amounts in thousands ) : replace_table_token_5_th year ended december 31 , 2010 compared to year ended december 31 , 2009 revenue . revenue increased $ 22.8 million , or 1.4 percent , to $ 1,602.2 million for 2010 , from $ 1,579.4 million in 2009. revenue for the year ended december 31 , 2010 was reduced by a $ 14.3 million impairment charge recorded to increase the valuation allowance against the carrying value of the portfolios of purchased accounts receivable , compared to an impairment charge of $ 21.5 million in 2009 . 34 revenue by segment ( amounts in thousands ) : replace_table_token_6_th arm 's revenue for 2010 and 2009 included $ 42.1 million and $ 60.5 million , respectively , of intercompany revenue earned on services performed for portfolio management and crm 's revenue for 2009 included $ 5.1 million of intercompany revenue earned on services performed for arm , which was eliminated upon consolidation . crm did not perform services for arm in 2010. arm 's revenue for 2010 and 2009 included $ 344.5 million and $ 130.2 million of reimbursable costs and fees ( discussed in more detail below ) , which resulted in a $ 214.3 million increase in arm 's revenue in 2010. this increase was partially offset by decreases primarily attributable to lower volumes and the weaker third-party collection environment during 2010 , a $ 43.9 million decrease resulting from the sale of our print and mail business in october 2009 , and an $ 18.4 million decrease in fees from collection services performed for portfolio management .
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overview hallmark is an insurance holding company which , through its subsidiaries , engages in the sale of property/casualty insurance products to businesses and individuals . our business involves marketing , distributing , underwriting and servicing our insurance products , as well as providing other insurance related services . we pursue our business activities primarily through subsidiaries whose operations are organized into business units and are supported by our insurance carrier subsidiaries . our insurance activities are organized by business units into the following reportable segments : ● specialty commercial segment . our specialty commercial segment includes our commercial auto business unit which offers primary and excess commercial vehicle insurance products and services ; our e & s casualty business unit which offers primary and excess liability , excess public entity liability , e & s package and garage liability insurance products and services ; our e & s property business unit which offers primary and excess commercial property insurance for both catastrophe and non-catastrophe exposures ; our professional liability business unit which offers healthcare and financial lines professional liability insurance products and services primarily for businesses , medical professionals , medical facilities and senior care facilities ; and our aerospace & programs business unit which offers general aviation and satellite launch property/casualty insurance products and services , as well as certain specialty programs . effective january 1 , 2021 , our professional liability business unit discontinued the program to offer medical professional liability to senior care facilities . during 2020 , our aerospace & programs business unit discontinued the programs to offer satellite launch insurance products . ● standard commercial segment . our standard commercial segment includes the package and monoline property/casualty and occupational accident insurance products and services handled by our commercial accounts business unit and the runoff of workers compensation insurance products handled by our former workers compensation operating unit . effective june 1 , 2016 , we ceased marketing new or renewal occupational accident policies . effective july 1 , 2015 , the former workers compensation operating unit ceased retaining any risk on new or renewal policies . ● personal segment . our personal segment includes the non-standard personal automobile and renters insurance products and services handled by our specialty personal lines business unit . the retained premium produced by these reportable segments is supported by our american hallmark insurance company of texas , hallmark specialty insurance company , hallmark insurance company , hallmark national insurance company and texas builders insurance company insurance subsidiaries . in addition , control and management of hallmark county mutual ( “ hcm ” ) is maintained through our wholly owned subsidiary , cyr insurance management company ( “ cyr ” ) . cyr has as its primary asset a management agreement with hcm which provides for cyr to have management and control of hcm . hcm is used to front certain lines of business in our specialty commercial and personal segments in texas . hcm does not retain any business . ahic , hic , hsic and hnic have entered into a pooling arrangement pursuant to which ahic retains 32 % of the net premiums written by any of them , hic retains 32 % of the net premiums written by any of them , hsic retains 26 % of the net premiums written by any of them and hnic retains 10 % of the net premiums written by any of them . neither hcm nor tbic is a party to the intercompany pooling arrangement . 36 critical accounting estimates and judgments certain significant accounting policies requiring our estimates and judgments are discussed below . such estimates and judgments are based on historical experience , changes in laws and regulations , observation of industry trends and information received from third parties . while the estimates and judgments associated with the application of these accounting policies may be affected by different assumptions or conditions , we believe the estimates and judgments associated with the reported consolidated financial statement amounts are appropriate in the circumstances . for additional discussion of our accounting policies , see note 1 to the audited consolidated financial statements included in this report . impairment of investments . we complete a detailed analysis each quarter to assess whether any decline in the fair value of any debt investment below cost is deemed other-than-temporary . all debt securities with an unrealized loss are reviewed . we recognize an impairment loss when a debt investment 's value declines below cost , adjusted for accretion , amortization and previous other-than-temporary impairments , and it is determined that the decline is other-than-temporary . debt investments : we assess whether we intend to sell , or it is more likely than not that we will be required to sell , a fixed maturity investment before recovery of its amortized cost basis less any current period credit losses . for fixed maturity investments that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell , we separate the amount of the impairment into the amount that is credit related ( credit loss component ) and the amount due to all other factors . the credit loss component is recognized in earnings and is the difference between the investment 's amortized cost basis and the present value of its expected future cash flows . the remaining difference between the investment 's fair value and the present value of future expected cash flows is recognized in other comprehensive income . the fair value at the time of impairment is the new cost basis for the impaired security . equity investments : asu 2016-01 , “ recognition and measurement of financial assets and financial liabilities ” requires equity investments that are not consolidated or accounted for under the equity method of accounting to be measured at fair value with changes in fair value recognized in net income each reporting period . as a result of this standard , equity securities with readily determinable fair values are not required to be evaluated for other-than-temporary-impairment . story_separator_special_tag our consolidated balance sheet as of december 31 , 2019 included goodwill of acquired businesses of $ 44.7 million that was assigned to our business units as follows : commercial accounts business unit - $ 2.1 million ; commercial auto business units - $ 21.3 million ; e & s casualty business unit - $ 6.3 million ( comprised of $ 2.6 million for the primary/excess liability and public entity component and $ 3.7 million for the e & s package component ) ; aerospace & programs business unit- $ 9.7 million ( comprised entirely of the general aviation component ) ; and specialty personal lines business unit - $ 5.3 million . this amount had been recorded as a result of prior business acquisitions accounted for under the acquisition method of accounting . in connection with our normal process for evaluating impairment triggering events , during the first quarter of 2020 we determined that a significant decline in our market capitalization below our stockholders ' equity indicated the impairment of the goodwill and iindefinite-lived intangible assets included in our balance sheet . as a result , we took a $ 44.7 million charge to goodwill and a $ 1.3 million charge to indefinite-lived intangible assets during the first quarter of 2020. consequently , as of december 31 , 2020 , there was no goodwill reported on our consolidated balance sheet . deferred income tax assets and liabilities . we file a consolidated federal income tax return . deferred federal income taxes reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end . deferred taxes are recognized using the liability method , whereby tax rates are applied to cumulative temporary differences based on when and how they are expected to affect the tax return . deferred tax assets and liabilities are adjusted for tax rate changes . a valuation allowance is provided against our deferred tax assets to the 38 extent that we do not believe it is more likely than not that future taxable income will be adequate to realize these future tax benefits . reserves for unpaid losses and lae . reserves for unpaid losses and lae are established for claims that have already been incurred by the policyholder but which we have not yet paid . unpaid losses and lae represent the estimated ultimate net cost of all reported and unreported losses incurred through each balance sheet date . the reserves for unpaid losses and lae are estimated using individual case-basis valuations and statistical analyses . these reserves are revised periodically and are subject to the effects of trends in loss severity and frequency . ( see “ item 1. business – analysis of losses and lae ” and note 6 to the audited consolidated financial statements included in this report . ) although considerable variability is inherent in such estimates , we believe that our reserves for unpaid losses and lae are adequate . due to the inherent uncertainty in estimating unpaid losses and lae , the actual ultimate amounts may differ from the recorded amounts . a small percentage change could result in a material effect on reported earnings . for example , a 1 % change in december 31 , 2020 reserves for unpaid losses and lae would have produced a $ 7.9 million change to pretax earnings . the estimates are continually reviewed and adjusted as experience develops or new information becomes known . such adjustments are included in current operations . our actuaries estimate claim liabilities by considering a variety of reserving methods , each of which reflects a level of uncertainty . the estimated range derived from the various methods is used to assess the reasonableness of management 's estimates . there is no exclusive method for determining this range , and judgment enters into the process . the primary actuarial technique utilized is a loss development analysis in which ultimate losses are projected based upon historical development patterns . the primary assumption underlying this loss development analysis is that the historical development patterns will be a reasonable predictor of the future development of losses for accident years which are less mature . an alternate actuarial technique , known as the bornhuetter-ferguson method , combines an analysis of loss development patterns with an initial estimate of expected losses or loss ratios . this approach is most useful for recent accident years . in addition to assuming the stability of loss development patterns , this technique is heavily dependent on the accuracy of the initial estimate of expected losses or loss ratios . consequently , the bornhuetter-ferguson method is primarily used to confirm the results derived from the loss development analysis . the range of unpaid losses and lae estimated by our actuary as of december 31 , 2020 was $ 720.1 million to $ 917.9 million . our best estimate of unpaid losses and lae as of december 31 , 2020 is $ 789.8 million . our carried reserve for unpaid losses and lae as of december 31 , 2020 is comprised of $ 387.6 million in case reserves and $ 402.2 million in incurred but not reported reserves . in setting this estimate of unpaid losses and lae , we have assumed , among other things , that current trends in loss frequency and severity will continue and that the actuarial analysis was empirically valid . we have established a best estimate of unpaid losses and lae which is $ 29.2 million below the midpoint , or 86.0 % of the high end , of the actuarial range at december 31 , 2020 as compared to $ 32.7 million below the midpoint , or 80.9 % of the high end , of the actuarial range at december 31 , 2019. we expect our best estimate to move within the actuarial range from year to year due to changes in our operations and changes within the marketplace .
| results of operations comparison of years ended december 31 , 2020 and december 31 , 2019 management overview . during fiscal 2020 , our total revenues were $ 478.7 million , which was $ 7.7 million less than the $ 486.4 million in total revenues for fiscal 2019. during the year ended december 31 , 2020 , we reported net loss before tax of $ 114.2 million as compared to a net loss before tax of $ 1.0 million during the same period of 2019 . 39 the decrease in revenue for the year ended december 31 , 2020 was primarily due to net investment losses of $ 22.9 million as compared to net investment gains of $ 20.6 million during the same period of 2019 , as well as a $ 7.7 million decrease in net investment income for the year ended december 31 , 2020 as compared to the same period of the prior year . this decrease in revenue was partially offset by increased net premiums earned of $ 44.9 million for the year ended december 31 , 2020 compared to the same period of the prior year . further contributing to the increase in the pre-tax loss for the year ended december 31 , 2020 were increased losses and lae of $ 50.7 million , due primarily to a $ 21.7 million charge for a loss portfolio transfer reinsurance contract , increased net premiums earned as compared to the same period in 2019 and increased net catastrophe losses . loss and lae for the year ended december 31 , 2020 was impacted by a $ 17.7 million increase in catastrophe losses as compared to the same period of the prior year , of which $ 5.0 million was attributable to reserves for covid-19 claims .
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( 3 ) this column shows the full grant date fair value , under fas 123r , of restricted shares granted to each named executive officer on march 31 , 2008 , except that , in accordance with rules of the sec , any estimate for forfeitures story_separator_special_tag overview on november 15 , 2006 , nco group , inc. was acquired by and became a wholly owned subsidiary of collect holdings inc. , an entity controlled by one equity partners and its affiliates , with participation by michael j. barrist , chairman , president and chief executive officer of nco group , inc. , certain other members of executive management and other co-investors , referred to as the transaction . under the terms of the merger agreement , nco group , inc. shareholders received $ 27.50 in cash , without interest , for each share of nco group , inc. common stock that they held . on february 27 , 2007 , nco group , inc. was merged with and into collect holdings , inc. and the surviving corporation was renamed nco group , inc. the accompanying consolidated financial statements are presented for two periods , predecessor and successor which relate to the period of operations preceding the transaction and the period of operations succeeding the transaction , respectively . collect holdings was formed on july 13 , 2006 ( there were no operations from the date of inception until the transaction on november 15 , 2006 ) . we have prepared our discussion of the 2006 results of operations by comparing the mathematical combination , without making any pro forma adjustments , of the successor and predecessor periods in the year ended december 31 , 2006. this unaudited presentation does not comply with generally accepted accounting principles ( gaap ) ; however , we believe it provides the most meaningful comparison of our results . the combined operating results have not been prepared as pro forma results under applicable regulations and may not reflect the actual results we would have achieved if the transaction did not occur and may not be predictive of future results of operations . we are a holding company and conduct substantially all of our business operations through our subsidiaries . we are an international provider of business process outsourcing services , referred to as bpo , primarily focused on accounts receivable management , referred to as arm , and customer relationship management , referred to as crm , serving a wide range of clients in north america and abroad through our global network of over 100 offices . we also purchase and collect past due accounts receivable from consumer creditors such as banks , finance companies , retail merchants , utilities , healthcare companies , and other consumer-oriented companies . we operate our business in three segments : arm , crm and portfolio management . during 2008 , we generated approximately 60 percent of our arm revenue from the recovery of delinquent accounts receivable on a contingency fee basis . our arm contingency fees range from six percent for the management of accounts placed early in the accounts receivable cycle to 49 percent for accounts that have been serviced extensively by the client or by third-party providers . our average fee for arm contingency-based revenue across all industries was approximately 17 percent during 2008 , 2007 , and 2006. in addition , we generate revenue from certain contractual arm services . generally , revenue is earned and recognized upon collection of accounts receivable for contingency fee services and as work is performed for contractual services . we enter into contracts with most of our clients that define , among other things , fee arrangements , scope of services , and termination provisions . clients typically have the right to terminate their contracts on 30 or 60 days ' notice . approximately 40 percent of our arm revenue is generated from contractual collection services , where fees are based on a monthly rate or a per service charge , and other arm services . during 2008 , approximately 88 percent of our crm revenue was generated from inbound services , which consist primarily of customer service and technical support programs , and to a 41 table of contents lesser extent acquisition and retention services . inbound services involve the processing of incoming calls , often placed by our clients ' customers using toll-free numbers , to a customer service representative for service , order fulfillment or information . during 2008 , outbound services , which consist of customer acquisition and customer retention services , represented approximately 12 percent of our crm revenue . our operating costs consist principally of payroll and related costs ; selling , general and administrative costs ; and depreciation and amortization . payroll and related expenses consist of wages and salaries , commissions , bonuses , and benefits for all of our employees , including management and administrative personnel . selling , general and administrative expenses include telephone , postage and mailing costs , outside collection attorneys and other third-party collection services providers , and other collection costs , as well as expenses that directly support operations , including facility costs , equipment maintenance , sales and marketing , data processing , professional fees , and other management costs . as a result of the annual impairment testing completed during the fourth quarter of 2008 , we recorded goodwill and trade name impairment charges of $ 289.5 million . additionally , revenue for 2008 was reduced by a $ 98.9 million impairment charge recorded to increase the valuation allowance against the carrying value of the portfolios of purchased accounts receivable . during the second half of 2007 and during 2008 , our payroll and related expenses were negatively impacted by the decline in the u.s. dollar against the canadian dollar . story_separator_special_tag our balance sheet includes amounts designated as goodwill , 43 table of contents trade name and customer relationships and other intangible assets. goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses . trade name represents the fair value of the nco name . other intangible assets consist primarily of customer relationships , which represent the information and regular contact we have with our clients , and non-compete agreements . as of december 31 , 2008 , our balance sheet included goodwill , trade name and other intangibles that represented 33.2 percent , 5.0 percent and 19.6 percent of total assets , respectively , and 216.3 percent , 32.7 percent and 128.0 percent of stockholders ' equity , respectively . goodwill and trade name are tested for impairment at least annually and as triggering events occur . the test for impairment is performed at the reporting unit level and involves a two-step approach , the first step identifies any potential impairment and the second step measures the amount of the impairment , if applicable . the first test for potential impairment uses a fair value based approach , whereby the fair value of a reporting unit 's goodwill is compared to its carrying amount . if the fair value is less than the carrying amount , the reporting unit 's goodwill would be considered impaired and we could be required to take a charge to earnings , which could be material . late in 2008 , our arm and portfolio management reporting units experienced a significant reduction in the collectability of both customer-placed and purchased accounts receivable resulting from deteriorating economic conditions . due to the expected impact of the economic environment , we reduced our 2009 budgeted expectations for each of our reporting units . as a result , our 2008 annual impairment test for goodwill and trade name indicated that the carrying values of all of our reporting units exceeded their fair values . fair values were determined by using a combination of the market approach and income approach . our fair value calculations were based on projected financial results that were prepared in connection with our annual budget and forecasting process that included the expected impact of the current economic environment . the fair value calculations were also based on other assumptions including long-term growth rates of 4 percent and weighted average cost of capital ranging from 13 percent to 14 percent . as a result of the annual impairment testing , we recorded goodwill impairment charges of $ 275.5 million and trade name impairment charges of $ 14.0 million . the company was not required to record any impairment charges based upon the annual impairment tests in 2007. we make significant assumptions to estimate the future revenue and cash flows used to determine the fair value of our reporting units . these assumptions include future growth rates , profitability , discount factors , market comparables , future tax rates , and other factors . variations in any of these assumptions could result in materially different calculations of impairment amounts . if the expected revenue and cash flows are not realized , additional impairment losses may be recorded in the future . we periodically evaluate the net realizable value of identifiable definite-lived intangible assets for impairment , based on the estimated undiscounted future cash flows , whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . revenue recognition for purchased accounts receivable in the ordinary course of accounting for purchased accounts receivable , estimates have been made by management as to the amount of future cash flows expected from each portfolio . we have historical collection records for all of our purchased accounts receivable , as well as debtor records since our entrance into this business and for acquired businesses since 1986 , which provides us a reasonable basis for our judgment that it is probable that we will ultimately collect the recorded amount of our purchased accounts receivable plus a premium or yield . the historical collection amounts also provide a reasonable basis for determining the timing of the collections . we use all available information to forecast the cash flows of our purchased accounts receivable including , 44 table of contents but not limited to , historical collections , payment patterns on similar purchases , credit scores of the underlying debtors , seller 's credit policies , and location of the debtor . the estimated future cash flow of each portfolio is used to compute the internal rate of return , referred to as the irr , for each portfolio . the irr is used to allocate collections between revenue and amortization of the carrying values of the purchased accounts receivable . we apply the american institute of certified public accountants statement of position 03-3 accounting for certain loans or debt securities acquired in a transfer , referred to as sop 03-3. sop 03-3 addresses accounting for differences between contractual versus expected cash flows over an investor 's initial investment in certain loans when such differences are attributable , at least in part , to credit quality . sop 03-3 does not allow the original estimate of the effective interest , or the irr , to be lowered for revenue recognition or for subsequent testing for provision for impairments . if the original collection estimates are lowered , an allowance is established in the amount required to maintain the original irr . if collection estimates are raised , increases are first used to recover any previously recorded allowances and then recognized prospectively through an increase in the irr , which are realized over a portfolio 's remaining life . any increase in the irr must be used for subsequent revenue recognition and allowance testing . if management came to a different conclusion as to the future estimated collections , it could have had a significant impact on the amount of revenue that was recorded from the purchased accounts receivable .
| results of operations the following table sets forth selected historical statement of operations data ( amounts in thousands ) : replace_table_token_5_th year ended december 31 , 2008 compared to year ended december 31 , 2007 revenue . revenue increased $ 227.7 million , or 17.7 percent , to $ 1,513.1 million for 2008 , from $ 1,285.4 million in 2007. revenue for the year ended december 31 , 2008 was reduced by a $ 98.9 million impairment charge recorded to increase the valuation allowance against the carrying value of the portfolios of purchased accounts receivable , including $ 726,000 in arm for international portfolios . arm , crm and portfolio management accounted for $ 1,219.3 million , $ 361.1 million and $ 18.4 million , respectively , of the 2008 revenue . arm 's revenue included $ 82.8 million of intercompany revenue earned on services performed for portfolio management and crm 's revenue included $ 2.9 million of intercompany revenue earned on services performed for arm , which were eliminated upon consolidation . for 2007 , arm , crm and portfolio management accounted for $ 915.6 million , $ 328.6 million and $ 150.9 million , respectively . arm 's revenue included $ 109.1 million of intercompany revenue earned on services performed for portfolio management and crm 's revenue included $ 532,000 of intercompany revenue earned on services performed for arm , which were eliminated upon consolidation . arm 's revenue increased $ 303.7 million , or 33.2 percent , to $ 1,219.3 million in 2008 , from $ 915.6 million in 2007. the increase in arm 's revenue was primarily attributable to the acquisition of osi on february 29 , 2008 , which added $ 337.3 million of revenue . this increase was offset in part by the weaker collection environment during 2008 and a $ 26.3 million decrease in fees from collection services performed for portfolio management .
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under these arrangements , non-royalty revenue is recognized over the lesser of ( 1 ) the estimated period that the company has historically enhanced and developed refinements to the specific technology , typically one to three years ( the `` upgrade period `` ) , and ( 2 ) the remaining portion of the upgrade period after the date of delivery of all specified technology and documentation , provided that the fee is fixed or determinable and collection of the fee is reasonably assured . royalties received during the upgrade period were recognized as revenue based on an amortization calculation of the elapsed portion of the upgrade period compared to the entire estimated upgrade period . royalties received after the upgrade period has elapsed were recognized when reported to the company , which generally coincided with the receipt of payment . product warranty the company typically warrants its products against defects in materials and workmanship and non-conformance to specifications for story_separator_special_tag note regarding forward-looking statements this report , including `` item 1 – business , '' `` item 1a – risk factors , '' and `` item 7 – management 's discussion and analysis of financial condition and results of operations , '' contains certain forward-looking statements that involve risks and uncertainties , including statements regarding our strategy , financial performance and revenue sources . we use words such as `` anticipate , '' `` believe , '' `` plan , '' `` expect , '' `` future , '' `` continue , '' `` intend '' and similar expressions to identify forward-looking statements . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under `` risk factors , '' beginning at page 12 and elsewhere in this form 10-k . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update information contained in any forward-looking statement . these forward-looking statements include , without limitation , statements regarding the following : the impact of disruptions to our manufacturing and the distribution of our products , including disruptions due to the covid-19 virus and related government responses ; that we have seen increased impacts since then which we expect to adversely impact our business in the fiscal quarter ended june 30 , 2020 ; that local governments could require us to temporarily reduce production further or cease operations at any of our facilities and we could experience constraints in fulfilling customer orders ; our belief that our actions to combat the spread of the covid-19 virus will help preserve the health of our team members , customers , suppliers , visitors to our facilities , people with whom we conduct business and our communities , and allow us to safely continue operations ; our inability to predict how the covid-19 virus outbreak , and actions taken by others in response to it , will affect our business ; the effects that uncertain global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations ; the effects and amount of competitive pricing pressure on our product lines and modest pricing declines in certain of our more mature proprietary product lines ; our ability to moderate future average selling price declines ; the effect of product mix , capacity utilization , yields , fixed cost absorption , competition and economic conditions on gross margin ; the amount of , and changes in , demand for our products and those of our customers ; the impact of trade restrictions and changes in tariffs , including those impacting china ; our expectation that in the future we will acquire additional businesses that we believe will complement our existing businesses ; our expectation that in the future we will enter into joint development agreements or other business or strategic relationships with other companies ; the level of orders that will be received and shipped within a quarter , including the impact of our product lead times ; our expectation that our june 2020 days of inventory levels will be down 6 days to up 8 days compared to the march 2020 levels . our belief that our existing level of inventory will allow us to maintain competitive lead times and provide strong delivery performance to our customers ; the effect that distributor and customer inventory holding patterns will have on us ; our belief that customers recognize our products and brand name and use distributors as an effective supply channel ; anticipating increased customer requirements to meet voluntary criteria related to the reduction or elimination of substances in our products ; our belief that our direct sales personnel combined with our distributors provide an effective means of reaching our customer base ; the accuracy of our estimates of the useful life and values of our property , assets and other liabilities ; our ability to increase the proprietary portion of our analog , interface , mixed signal and timing product lines and the effect of such an increase ; our belief that our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs ; the impact of any supply disruption we may experience ; our ability to effectively utilize our facilities at appropriate capacity levels and anticipated costs ; 35 that we adjust capacity utilization to respond to actual and anticipated business and industry-related conditions ; that manufacturing costs will be reduced by transition to advanced process technologies ; our ability to maintain manufacturing yields ; continuing our investments in new and enhanced products ; the cost effectiveness of using our own assembly and test operations ; our plans for operation of our fabrication facilities , including our plan to close our facility in santa clara , california ; the cost savings from re-purposing fab 5 for the manufacture of story_separator_special_tag the severity and duration of the economic impact is currently unknown and will depend on many factors , such as the effectiveness of containment efforts . we regularly monitor new information regarding the severity of the covid-19 virus and the ability to contain , treat , or prevent it . demand for our products has increased in the areas of our business that support the stay-at-home economy , such as products used in medical devices , datacenter , communications infrastructure , computers , printers , monitors and contact free consumer and industrial products . however , demand has decreased in other areas such as automotive , broad based industrial , consumer and home appliances , and aerospace . we have seen a greater number of order cancellations and requests to reschedule deliveries to future dates . some customers are requesting order cancellation within our firm order window and are claiming applicability of force majeure clauses . while we have a diverse customer base operating in diverse industries , the extent of the impact of the covid-19 virus on demand for our products depends on unpredictable future developments . at this time , our global manufacturing sites are operational , though certain of them are operating at reduced utilization levels . this may be due to local restrictions related to the covid-19 virus , such as our philippine manufacturing sites , or a decrease in demand for products manufactured at a particular site . additionally , travel restrictions have impacted our subcontractors ' manufacturing operations in malaysia and china , and similar challenges have arisen for our logistics service providers , which has impacted their ability to ship product to our customers . the impact to our lead times and ability to fulfill orders was minimal in the fiscal quarter ended march 31 , 2020 but we have seen increased impacts since then which we expect to adversely impact our business in the fiscal quarter ended june 30 , 2020 and which could continue to adversely impact our business in future periods . in the future , local governments could require us to temporarily reduce production further or cease operations at any of our facilities and we could experience constraints in fulfilling customer orders . in response to the early indications of the covid-19 pandemic , we took proactive measures to safeguard the health of our employees , contractors , customers , suppliers , visitors to our facilities , other business partners , and our communities . we strategically implemented plans intended to ensure business continuity in the event severe outbreaks or government requirements were to impact our operations . we are committed to the health and safety of our employees , contractors , customers , suppliers , visitors to our facilities , other business partners , and communities . we are following governmental policies and cdc recommendations designed to slow the spread of the covid-19 virus . our efforts to combat the covid-19 virus include the following : we require social distancing , and have established distancing protocols at our facilities . we currently prohibit visitors , have suspended business travel , have suspended attendance at conferences and other gatherings , and require team members to work from home to the extent possible . where work from home is not possible , all on-site team members are requested to take their temperatures before arriving to work , stay home if they do not feel 37 well , stay home if they have been exposed to someone with the covid-19 virus or its symptoms , maintain a safe distance from others , wash their hands frequently , and wear a mask if they choose . we clean high touch surfaces daily . in partnership with our suppliers , we have evaluated our supply chain to identify gaps or weak points . in order to ensure continuity , in some cases , we have qualified alternative suppliers and increased our inventory of raw materials . we have added assembly and test capacity to provide redundant manufacturing capability through our network of subcontractors . we have implemented measures to help prepare for an economic downturn , such as implementing employee salary cuts , limiting hiring , reducing business travel costs , reducing discretionary spending , and limiting capital expenditures . we are working with government authorities in the areas where we have a significant footprint . we continue to update ourselves on government requirements , relevant regulations , industry standards , and best practices to help safeguard our team members across the globe . we believe these actions are important and will help preserve the health of our team members , customers , suppliers , visitors to our facilities , people with whom we conduct business and our communities , and allow us to safely continue operations . however , we can not predict how these actions , or the actions taken by government entities , suppliers , or customers in response to the covid-19 virus outbreak will impact our business , revenues , or results of operations . acquisition of microsemi on may 29 , 2018 , we completed our acquisition of microsemi corporation , a publicly traded company headquartered in aliso viejo , california . we paid an aggregate of approximately $ 8.19 billion in cash to the stockholders of microsemi . the total consideration transferred in the acquisition , including approximately $ 53.9 million of non-cash consideration for the exchange of certain share-based payment awards of microsemi for stock awards of microchip , was approximately $ 8.24 billion . in addition to the consideration transferred , we recognized in our consolidated financial statements $ 3.23 billion in liabilities of microsemi consisting of debt , taxes payable and deferred , pension obligations , restructuring , and contingent and other liabilities of which $ 2.06 billion of existing debt was paid off .
| results of operations the following table sets forth certain operational data as a percentage of net sales for fiscal 2020 and fiscal 2019 : 42 replace_table_token_4_th net sales we operate in two industry segments and engage primarily in the design , development , manufacture and sale of semiconductor products as well as the licensing of our superflash and other technologies . we sell our products to distributors and original equipment manufacturers , referred to as oems , in a broad range of markets , perform ongoing credit evaluations of our customers and generally require no collateral . in certain circumstances , a customer 's financial condition may require collateral , and , in such cases , the collateral would be typically provided by letters of credit . the following table summarizes our net sales for fiscal 2020 and fiscal 2019 ( dollars in millions ) : replace_table_token_5_th the decrease in net sales in fiscal 2020 compared to fiscal 2019 was primarily due to adverse demand fluctuations in the markets we serve , which were negatively impacted by general economic conditions , trade restrictions , adverse changes in tariffs , and the impact of the covid-19 virus . these adverse conditions did not affect each of the markets we serve equally . for instance , in fiscal 2020 compared to fiscal 2019 , we experienced relatively weaker demand for our products that are used in the consumer , automotive , and industrial markets , and relatively stronger demand for our products that are used in the computing , communication , and aerospace and defense markets . these adverse conditions negatively affected consolidated net sales by approximately 5 % in fiscal 2020 compared to the same period in fiscal 2019 and such impact was partially offset by the timing of our acquisition of microsemi as fiscal 2020 included twelve months of microsemi net sales compared to ten months of microsemi net sales in fiscal 2019 .
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our customers include trucking fleets and their drivers , independent truck drivers , highway and local motorists and casual diners . we also collect rents , story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and related notes included in item 15 of this annual report . amounts are in thousands of dollars or gallons unless indicated otherwise . executive summary our revenues and income are subject to material changes as a result of market prices and the availability of diesel fuel and gasoline . these factors are subject to the worldwide petroleum products supply chain , which historically has experienced price and supply volatility as a result of , among other things , severe weather , terrorism , political crises , military actions and variations in demand that are often the result of changes in the macroeconomic environment . also , concerted efforts by major oil producing countries and cartels to limit oil supply can impact prices . over the past few years there have been significant changes in the cost of fuel . fuel prices generally trended upward for the year , ending at a higher price than at the start of the year . during the year ended december 31 , 2016 , the average fuel price was 15.9 % below the average fuel price during the year ended december 31 , 2015 . some current economic forecasts reflect continued low prices for fuel ; although other economic forecasts indicate an expectation of economic growth and inflation in the u.s. and elsewhere , which may impact demand for fuel and fuel prices . as noted above , various factors and events can cause fuel prices to change , sometimes suddenly and sharply . due to the volatility of our fuel costs and our pricing to fuel customers , we believe that fuel revenue is not a reliable metric for analyzing our results of operations from period to period . as a result solely of changes in fuel prices , our fuel revenue may materially increase or decrease , in both absolute amounts and on a percentage basis , without a comparable change in fuel sales volumes or in fuel gross margin . we therefore consider fuel sales volume and fuel gross margin to be better measures of our performance . we generally are able to pass changes in our cost for fuel products to customers , but typically with a delay , such that during periods of rising fuel commodity prices fuel gross margins per gallon tend to be lower than they otherwise may have been and during periods of falling fuel commodity prices fuel gross margins per gallon tend to be higher than they otherwise may have been . increases and volatility in the prices we pay for fuel can have negative effects on our sales and profitability and increase our working capital requirements . for more information about fuel market risks that may affect us and our actions to mitigate those risks , see item 7a , `` quantitative and qualitative disclosures about market risk '' elsewhere in this annual report . we believe that demand for diesel fuel by trucking companies for any given level of trucking activity will be reduced over time by technological innovations that permit , and regulations that encourage or require , improved fuel efficiency of motor vehicle engines and other fuel conservation practices . we believe these factors combined with adjusting our fuel sales pricing to manage fuel sales volume and profitability and lower levels of freight activity , were contributors to decreases in the level of fuel sales volumes we realized on a same site basis for 2016 , as compared to 2015 , despite generally improving economic conditions during 2016 . although fuel sales volume declined on a same site basis , it increased on a total basis due to the number of new locations we added to our business during 2015 and 2016. despite higher fuel sales volume in 2016 compared to 2015 , our fuel gross margin and fuel gross margin per gallon were lower in 2016 than in 2015 , primarily due to an inordinately favorable purchasing environment in the first four months of 2015 that did not recur in 2016 . the net loss attributable to common shareholders we experienced for 2016 , as compared to the income we achieved during 2015 , was primarily due to increases in depreciation and amortization expenses , and expenses related to financing and managing our newly acquired and developed locations ( including real estate rent , interest and selling , general and administrative expenses ) , a decrease in fuel gross margin , and increased competition . these decreases were partially offset by an increase in nonfuel gross margin in excess of site level operating expenses generated by our locations . as described under the heading `` other disputes '' in note 13 to the notes to consolidated financial statements included in item 15 of this annual report , comdata has purported to terminate its merchant agreement with us and , beginning february 1 , 2017 , unilaterally increased the fees it withholds from the transaction settlement payments due to us . we believe that comdata has wrongfully terminated our agreement and raised the fees we pay comdata , and we are pursuing litigation against comdata . however , if we do not prevail in our pending litigation against comdata , we may not be able to recover the increased fees comdata charges us through higher prices to customers , and our operating expenses may increase . 38 factors affecting comparability transaction agreement with hpt on june 1 , 2015 , we entered a transaction agreement with hpt , which we and hpt amended on june 22 , 2016. we refer to this amended transaction agreement as the transaction agreement . story_separator_special_tag we expect to complete the remaining acquisitions in the first half of 2017 , but these purchases are subject to conditions that may not occur , may be delayed or the terms may change . we currently intend to continue to selectively acquire additional locations and to otherwise expand our business . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2014 , primarily as a result of locations acquired in 2014 and 2015. fuel gross margin . fuel gross margin for 2015 decrease d by $ 14,006 , or 3.3 % , as compared to 2014 . the decrease in fuel gross margin was primarily due to an inordinately favorable purchasing environment in the 2014 fourth quarter that did not recur in 2015 , partially offset by an increase of $ 4,999 in 2015 compared to 2014 related to amounts owed to us in connection with certain biodiesel purchases we made during 2015 as a result of the reinstatement during the fourth quarter of 2015 of biodiesel and renewable energy fuel tax credits . the legislation authorizing these tax credits was passed and the credits were retroactively applied in december of each of 2015 and 2014. nonfuel gross margin . nonfuel gross margin for 2015 increase d by $ 84,835 , or 9.7 % , as compared to 2014 , due to locations acquired in 2014 and 2015 and our pricing and marketing initiatives . nonfuel gross margin as a percentage of nonfuel revenues was 54.0 % and 54.3 % for 2015 and 2014 , respectively . the nonfuel gross margin percentage decrease d primarily due to the inclusion of additional convenience stores , as a result of acquisitions since the beginning of 2015 . nonfuel gross margin percentage in our convenience store operations is typically lower than the nonfuel gross margin percentage for our travel center operations . site level operating expenses . site level operating expenses for 2015 increase d by $ 70,035 , or 8.6 % , as compared to 2014 primarily due to locations acquired in 2014 and 2015. site level operating expenses as a percentage of nonfuel revenues were 49.7 % and 50.4 % for 2015 and 2014 , respectively . the improved expense ratio reflects both a larger portion of our operations conducted at convenience stores and the continued stabilization of our locations acquired in 2014 and 2015. selling , general and administrative expenses . selling , general and administrative expenses for 2015 increase d by $ 14,944 , or 14.0 % , as compared to 2014 . the increase was primarily attributable to increased personnel to support the growth of our business , especially the significant growth in our convenience store segment . these increases were partially offset by lower audit and consultant fees . real estate rent expense . real estate rent expense for 2015 increase d by $ 14,436 , or 6.6 % , as compared to 2014 . the increase in real estate rent expense was primarily a result of the sale to , and lease back from , hpt in june 2015 and september 2015 of 14 owned travel centers and certain assets we owned at 11 properties leased from hpt , as well as improvements at leased sites we sold to hpt during 2015 and 2014. depreciation and amortization expense . depreciation and amortization expense for 2015 increase d by $ 6,799 , or 10.4 % , as compared to 2014 . the increase in depreciation and amortization expense primarily resulted from the acquisitions and other capital investments we completed during 2014 and 2015 . the increase was partially offset by the reduction in our depreciable assets as a result of the sale to , and lease back from , hpt in june 2015 and september 2015 of 14 owned travel centers and certain assets we owned at 11 properties leased from hpt . interest expense , net . interest expense , net for 2015 increase d by $ 5,833 , or 34.9 % , as compared to 2014 , primarily as a result of our issuances of $ 100,000 of our 2030 senior notes in october 2015 and $ 120,000 of our 2029 senior notes in december 2014 . 42 provision for income taxes . the income tax provisions for 2015 and 2014 were $ 16,539 and $ 38,023 , respectively . the decrease in the income tax provision for 2015 was primarily due to an increase in the utilization of various tax credits and incentives . see note 9 to the notes to consolidated financial statements included in item 15 of this annual report for more information about our income taxes . segment results of operations the following is a discussion of fuel and nonfuel revenues and site level gross margin in excess of site level operating expenses by reportable segment . as part of this discussion and analysis of our reportable segment operating results we refer to increases and decreases in results on a same site basis . we include a location in the same site comparisons only if we continuously operated it for the entire period since the beginning of the earliest comparative period presented . locations we operate that are owned by an unconsolidated joint venture are not included in our same site comparisons . same site data also excludes revenues and expenses that were not generated at locations we operate , such as rent and royalties from franchisees , revenues from a dealer operated convenience store and corporate selling , general and administrative expenses . we do not exclude locations from the same site comparisons as a result of capital improvements to the site or changes in the services offered . travel centers the following table presents changes in the operating results of our travel center segment for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 , and for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 .
| results of operations consolidated financial results the following table presents changes in our operating results for the year ended december 31 , 2016 , as compared to the year ended december 31 , 2015 and for the year ended december 31 , 2015 , as compared to the year ended december 31 , 2014 . replace_table_token_7_th 40 year ended december 31 , 2016 , as compared to december 31 , 2015 revenues . fuel revenues for 2016 decrease d by $ 525,299 , or 13.0 % , as compared to 2015 . the table below shows the change in sales volumes and fuel revenues by segment . corporate and other fuel gallons and fuel revenues represent wholesale sales to the joint venture we operate and to other retailers . replace_table_token_8_th the decrease in fuel revenue for 2016 as compared to 2015 was due to significant decreases in market prices for fuel and lower fuel sales volume in our travel center segment as a result of fuel conservation methods adopted by our customers and due to increased competition , partially offset by increases in sales volume in our convenience store segment as a result of acquired locations . nonfuel revenues for 2016 increase d by $ 181,143 , or 10.2 % , as compared to 2015 , primarily as a result of acquired locations . fuel gross margin . fuel gross margin for 2016 decrease d by $ 9,717 , or 2.3 % , as compared to 2015 . this decrease in fuel gross margin was primarily due to an unusually favorable purchasing environment in the first four months of 2015 that did not recur in 2016 . nonfuel gross margin . nonfuel gross margin for 2016 increase d by $ 90,311 , or 9.4 % , as compared to 2015 due primarily to acquired locations and our pricing and marketing initiatives .
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3. business combination blue tomato on july 4 , 2012 , we acquired 100 % of the outstanding stock of blue tomato for cash consideration of 59.5 million euros ( $ 74.8 million , using the exchange rate as of july 4 , 2012 ) . blue tomato is one of the leading european specialty retailers of apparel , footwear , accessories and hardgoods and the acquisition allowed us to enter into the european marketplace . in addition , there was the possibility of future incentive payments to the sellers and certain employees of blue tomato in an aggregate amount of up to 22.1 million euros ( $ 24.1 million , using the exchange rate on the date of payment ) to the extent that certain financial metrics were met related to ( i ) the obtainment of certain ebitda performance of blue tomato for the twelve months ended april 30 , 2015 and ( ii ) the opening and performance of certain defined incremental stores in the european market by april 30 , 2015. we determined that blue tomato achieved the metrics related to the opening and performance of certain defined incremental stores by april 30 , 2015 and we paid 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 included elsewhere in this document . this discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those discussed in item 1a risk factors. see the cautionary note regarding forward-looking statements set forth at the beginning of part i of the annual report on form 10-k. fiscal 2015a review of this past year in fiscal 2015 teen retail in general faced a challenging sales environment with many mall based teen retailers experiencing declining sales . following a 2014 annual comparable sales increase of 4.6 % and a fourth 26 quarter 2014 comparable sales increase of 8.3 % , zumiez sales remained positive in the first quarter of 2015 at 3 % . by the second quarter of 2015 , sales had begun to slow and remained soft through the remainder of the year with the absence of a strong fashion trend or key item to drive traffic resulting in a negative 5.3 % comparable sales decrease for the year . operating margins and earnings declined from the prior year due primarily to deleveraging of fixed costs on negative comparable sales results and to a lesser extent a decline in product margins as a result of efforts to keep inventory healthy . throughout the year , we continued to make investments in our north america store footprint focused on expanding in the united states and canada by adding 51 new stores during fiscal 2015. we also added 6 new stores to our blue tomato operations in europe which showed strong sales growth in 2015. as a leading lifestyle retailer we continue to differentiate ourselves through our distinctive brand offering and diverse product selection , as well as the unique customer experience our sales associates provide . we also believe that investments made in our omni-channel platform focused on creating a seamless shopping experience for our customer between the physical and digital channels is critical for our long-term financial performance . at the end of fiscal 2015 we took another major step toward creating a seamless shopping experience by closing our kansas fulfillment operations and transitioning to a fully localize fulfillment model with stores shipping all but a small fraction of on-line orders . in store fulfillment is a key part of our omni-channel strategy that we believe will drive long term market share by leveraging the strengths of our store sales team , providing better and faster service to customers , improving product margins , and providing additional selling opportunities . the following table shows net sales , operating profit , operating margin , and diluted earnings per share for fiscal 2015 compared to fiscal 2014. the fiscal 2015 results include $ 1.5 million of charges associated with the acquisition of blue tomato made up of $ 0.6 million for incentive payments related to the transaction and $ 0.9 million for the amortization of intangible assets and $ 1.2 million associated with exit charges related to our kansas fulfillment center . the fiscal 2014 results include $ 8.7 million of charges associated with the acquisition of blue tomato made up of $ 6.4 million for incentive payments related to the transaction and $ 2.3 million for the amortization of intangible assets . replace_table_token_8_th the decrease in net sales was primarily driven by a 5.3 % comparable sales decrease partially offset by the net addition of 55 stores ( 57 new stores offset by 2 store closures ) . the decrease in comparable sales was driven by a decrease in transactions partially offset by an increase in dollars per transaction . dollars per transaction increased primarily due to an increase in average unit retail , and to a lesser extent an increase in units per transaction . operating margin was down in fiscal 2015 compared to fiscal 2014 primarily as a result of deleveraging operating costs partially offset by a decline in unique charges as discussed above . fiscal 2016a look at the upcoming year entering 2016 we remain cautious with our expectations . our focus will be on continued execution of our core strategies as well as strategic investments centered on long-term quality growth . these investments will be largely focused on continued store growth , both domestically and international , the roll-out of our new customer engagement suite and continued investments in our people through acquisition , retention , and statutory wage increases around the country . story_separator_special_tag comparable sales also have a direct impact on our total net sales , operating profit , cash and working capital . gross profit . gross profit measures whether we are optimizing the price and inventory levels of our merchandise . gross profit is the difference between net sales and cost of goods sold . any inability to obtain acceptable levels of initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations . operating profit . we view operating profit as a key indicator of our success . operating profit is the difference between gross profit and selling , general and administrative expenses . the key drivers of operating profit are comparable sales , gross profit , our ability to control selling , general and administrative expenses and our level of capital expenditures affecting depreciation expense . story_separator_special_tag valuation allowance related to net operating losses and other deferred tax assets of foreign subsidiaries in fiscal 2013. seasonality and quarterly results as is the case with many retailers of apparel and related merchandise , our business is subject to seasonal influences . as a result , we have historically experienced , and expect to continue to experience , seasonal and quarterly fluctuations in our net sales and operating results . our net sales and operating results are typically lower in the first and second quarters of our fiscal year , while the back-to-school and winter holiday periods in our third and fourth fiscal quarters historically have accounted for the largest percentage of our annual net sales . quarterly results of operations may also fluctuate significantly as a result of a variety of factors , including the timing of store openings and the relative proportion of our new stores to mature stores , fashion trends and changes in consumer preferences , calendar shifts of holiday or seasonal periods , changes in merchandise mix , timing of promotional events , general economic conditions , competition and weather conditions . 31 the following table sets forth selected unaudited quarterly consolidated statements of income data . the unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial statements included elsewhere herein and includes all adjustments that we consider necessary for a fair presentation of the information shown . this information should be read in conjunction with our audited consolidated financial statements and the notes thereto . the operating results for any fiscal quarter are not indicative of the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future . replace_table_token_10_th liquidity and capital resources our primary uses of cash are for operational expenditures , inventory purchases and capital investments , including new stores , store remodels , store relocations , store fixtures and ongoing infrastructure improvements . additionally , we may use cash for the repurchase of our common stock . refer to note 12 , stockholders ' equity of the notes to consolidated financial statements for further discussion of the repurchase plan . historically , our main source of liquidity has been cash flows from operations . the significant components of our working capital are inventories and liquid assets such as cash , cash equivalents , current marketable securities and receivables , reduced by accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale , while we typically have longer payment terms with our vendors . at january 30 , 2016 and january 31 , 2015 , cash , cash equivalents and current marketable securities were $ 75.6 million and $ 154.6 million . working capital , the excess of current assets over current liabilities , was $ 129.8 million at the end of fiscal 2015 , a decrease of 32.2 % from $ 191.4 million at the end of fiscal 2014. the decrease in cash , cash equivalents and current marketable securities in fiscal 2015 were due primarily to the 32 $ 92.2 million repurchase of common stock and $ 34.8 million of capital expenditures primarily related to the opening of 57 new stores in fiscal 2015 and 19 remodels and relocations , partially offset by cash provided by operating activities of $ 48.6 million . the following table summarizes our cash flows from operating , investing and financing activities ( in thousands ) : replace_table_token_11_th operating activities net cash provided by operating activities decreased by $ 41.3 million in fiscal 2015 to $ 48.6 million from $ 89.9 million in fiscal 2014. net cash provided by operating activities increased by $ 23.0 million in fiscal 2014 to $ 89.9 million from $ 66.9 million in fiscal 2013. our operating cash flows result primarily from cash received from our customers , offset by cash payments we make for inventory , employee compensation , store occupancy expenses and other operational expenditures . cash received from our customers generally corresponds to our net sales . because our customers primarily use credit cards or cash to buy from us , our receivables from customers settle quickly . changes to our operating cash flows have historically been driven primarily by changes in operating income , which is impacted by changes to non-cash items such as depreciation , amortization and accretion , deferred taxes and excess tax benefit from stock-based compensation , and changes to the components of working capital . investing activities net cash provided by investing activities was $ 64.7 million in fiscal 2015 related to $ 99.6 million in net sales of marketable securities partially offset by $ 34.8 million of capital expenditures primarily for new store openings and existing store remodels or relocations .
| results of operations the following table presents selected items on the consolidated statements of income as a percent of net sales : replace_table_token_9_th fiscal 2015 results compared with fiscal 2014 net sales net sales were $ 804.2 million for fiscal 2015 compared to $ 811.6 million for fiscal 2014 , a decrease of $ 7.4 million or 0.9 % . the decrease reflected a $ 42.1 million decrease due to comparable sales for fiscal 2015 and a decrease of $ 19.6 million due to the impact of changes in foreign exchange rates , partially offset by the net addition of 55 stores ( made up of 51 new stores in north america and 6 new stores in europe offset by 2 store closures in north america ) . by region , north america sales decreased $ 19.0 million or 2.5 % and european sales increased $ 11.6 million or 18.0 % during fiscal 2015 compared to fiscal 2014 . 29 the 5.3 % decrease in comparable sales was primarily driven by a decrease in comparable transactions partially offset by an increase in dollars per transaction . dollars per transaction increased due to an increase in average unit retail and to a lesser extent an increase in units per transaction . comparable sales decreases in accessories , men 's apparel , footwear , and junior 's apparel were partially offset by a comparable sales increase in hardgoods . for information as to how we define comparable sales , see general above . gross profit gross profit was $ 268.6 million for fiscal 2015 compared to $ 287.1 million for fiscal 2014 , a decrease of $ 18.5 million , or 6.4 % . as a percentage of net sales , gross profit decreased 200 basis points in fiscal 2015 to 33.4 % .
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inventories inventories primarily are composed of raw materials and finished goods and are stated at the lower of cost or market , using the first-in , first-out method . we maintain a reserve for slow moving and obsolete inventory to reduce the carrying value of our inventories to reflect the diminution of value resulting from product obsolescence , damage or other issues affecting marketability by an amount equal to the difference between the cost of the inventory and its estimated market value . the adequacy of this reserve is reviewed each reporting period and adjusted as necessary . we regularly compare inventory quantities on hand against historical usage or forecasts related to specific items in order to evaluate obsolescence and excessive quantities . in assessing historical usage , we also qualitatively assess business trends to evaluate the reasonableness of using historical information as an estimate of future usage . a complete physical count of the inventory is conducted annually . our slow moving and obsolete inventory reserve was $ 302,296 and $ 271,994 at december 31 , 2013 and december 31 , 2012 , respectively . income taxes income taxes are accounted for under the asset and liability method . under this method , deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled . the temporary differences are attributable to differing methods of financial statement and income tax depreciation and reserves for trade accounts receivable and inventories . the likelihood of a material change in the company 's expected realization of deferred tax assets is dependent on , among other factors , future taxable income and settlements with tax authorities . while management believes that its judgments and interpretations regarding income taxes are appropriate , significant differences in actual experience may require future adjustments to our tax assets and liabilities , which could be material . we are also required to assess the realizability of our deferred tax assets . we evaluate positive and negative evidence and use judgments regarding past and future events , including operating results and available tax planning strategies that could be implemented to realize the deferred tax assets . based on this assessment , we determine when it is more likely than not that all or some portion of our deferred tax assets may not be realized , in which case we would be required to apply a valuation allowance to offset our deferred tax assets in an amount equal to future tax benefits that may not be realized . we currently do not apply a valuation allowance to our deferred tax assets . however , if facts and circumstances change in the future , a valuation allowance may be required . significant judgment is required in determining income tax provisions and in evaluating tax positions . we establish additional provisions for income taxes when , despite the belief that tax positions are fully supportable , there remain certain positions that do not meet the minimum probability threshold , which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority . in the normal course of business , we and our subsidiaries are examined by various federal and state tax authorities . we regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes . we adjust the income tax provision , the current tax liability and deferred taxes in any period in which facts that give rise to an adjustment become known . the ultimate outcomes of the examinations of our income tax returns could result in increases or decreases to our recorded tax liabilities , which could affect our financial results . 7 trademarks , trade names , royalty rights , and patents - we acquired the rights to the star brite ® trademark and related products for the united states and canada in conjunction with our initial public offering during march 1981 for $ 880,000. through december 31 , 2001 , the cost of these intangible assets was amortized on a straight-line basis over an estimated useful life of 40 years . effective january 1 , 2002 and pursuant to statement of financial accounting standards no . 142 , `` goodwill and other intangible assets '' ( now codified in financial accounting standards board accounting standards codification topic 350 , `` intangibles - goodwill and other '' ) , we determined that these intangible assets have indefinite lives and therefore , we no longer recognize amortization expense . in addition , our 50 % owned joint venture , odorstar technology , llc , owns patents we use in our business . the company amortizes these patents over their remaining life on a straight line basis . on august 6 , 2013 , the company purchased for $ 160,000 royalty rights ( previously owned by an unaffiliated company that owned the patents ultimately acquired by odorstar ) relating to sales of products encompassing odorstar 's patented technology . the company is amortizing the royalty rights over their remaining life on a straight line basis . we review the carrying values of the trademarks and patents periodically for possible impairment . our impairment review is based on a discounted cash flow approach that requires significant judgment with respect to unit volume , revenue and expense growth rates , and the selection of an appropriate discount rate . management uses estimates based on expected trends in making these assumptions . all impairment charges would be recorded for the difference between the carrying value and the net present value of estimated future cash story_separator_special_tag inventories inventories primarily are composed of raw materials and finished goods and are stated at the lower of cost or market , using the first-in , first-out method . we maintain a reserve for slow moving and obsolete inventory to reduce the carrying value of our inventories to reflect the diminution of value resulting from product obsolescence , damage or other issues affecting marketability by an amount equal to the difference between the cost of the inventory and its estimated market value . the adequacy of this reserve is reviewed each reporting period and adjusted as necessary . we regularly compare inventory quantities on hand against historical usage or forecasts related to specific items in order to evaluate obsolescence and excessive quantities . in assessing historical usage , we also qualitatively assess business trends to evaluate the reasonableness of using historical information as an estimate of future usage . a complete physical count of the inventory is conducted annually . our slow moving and obsolete inventory reserve was $ 302,296 and $ 271,994 at december 31 , 2013 and december 31 , 2012 , respectively . income taxes income taxes are accounted for under the asset and liability method . under this method , deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled . the temporary differences are attributable to differing methods of financial statement and income tax depreciation and reserves for trade accounts receivable and inventories . the likelihood of a material change in the company 's expected realization of deferred tax assets is dependent on , among other factors , future taxable income and settlements with tax authorities . while management believes that its judgments and interpretations regarding income taxes are appropriate , significant differences in actual experience may require future adjustments to our tax assets and liabilities , which could be material . we are also required to assess the realizability of our deferred tax assets . we evaluate positive and negative evidence and use judgments regarding past and future events , including operating results and available tax planning strategies that could be implemented to realize the deferred tax assets . based on this assessment , we determine when it is more likely than not that all or some portion of our deferred tax assets may not be realized , in which case we would be required to apply a valuation allowance to offset our deferred tax assets in an amount equal to future tax benefits that may not be realized . we currently do not apply a valuation allowance to our deferred tax assets . however , if facts and circumstances change in the future , a valuation allowance may be required . significant judgment is required in determining income tax provisions and in evaluating tax positions . we establish additional provisions for income taxes when , despite the belief that tax positions are fully supportable , there remain certain positions that do not meet the minimum probability threshold , which is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority . in the normal course of business , we and our subsidiaries are examined by various federal and state tax authorities . we regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes . we adjust the income tax provision , the current tax liability and deferred taxes in any period in which facts that give rise to an adjustment become known . the ultimate outcomes of the examinations of our income tax returns could result in increases or decreases to our recorded tax liabilities , which could affect our financial results . 7 trademarks , trade names , royalty rights , and patents - we acquired the rights to the star brite ® trademark and related products for the united states and canada in conjunction with our initial public offering during march 1981 for $ 880,000. through december 31 , 2001 , the cost of these intangible assets was amortized on a straight-line basis over an estimated useful life of 40 years . effective january 1 , 2002 and pursuant to statement of financial accounting standards no . 142 , `` goodwill and other intangible assets '' ( now codified in financial accounting standards board accounting standards codification topic 350 , `` intangibles - goodwill and other '' ) , we determined that these intangible assets have indefinite lives and therefore , we no longer recognize amortization expense . in addition , our 50 % owned joint venture , odorstar technology , llc , owns patents we use in our business . the company amortizes these patents over their remaining life on a straight line basis . on august 6 , 2013 , the company purchased for $ 160,000 royalty rights ( previously owned by an unaffiliated company that owned the patents ultimately acquired by odorstar ) relating to sales of products encompassing odorstar 's patented technology . the company is amortizing the royalty rights over their remaining life on a straight line basis . we review the carrying values of the trademarks and patents periodically for possible impairment . our impairment review is based on a discounted cash flow approach that requires significant judgment with respect to unit volume , revenue and expense growth rates , and the selection of an appropriate discount rate . management uses estimates based on expected trends in making these assumptions . all impairment charges would be recorded for the difference between the carrying value and the net present value of estimated future cash
| results of operations : net sales were approximately $ 32,703,000 in 2013 compared to $ 31,039,000 in 2012 , an increase of $ 1,664,000 or 5.4 % . the increase in sales principally results from the resumption by our largest customer of normal buying practices following completion of its inventory reduction program related to products in our sector , which was in effect during 2012 , and increased sales to affiliated companies ( see note 9 to the consolidated financial statements included in this report ) , in addition to increased sales of marine products including star tron ® , private label products , and winterizing products . cost of goods sold and gross profit – cost of goods sold during 2013 increased approximately $ 1,403,000 or 6.9 % , to approximately $ 21,815,000 from approximately $ 20,412,000 in 2012. the increase in cost of goods sold reflects the increase in net sales and an increase in raw material costs and manufacturing overhead expenses . gross profit increased by approximately $ 262,000 or 2.5 % to approximately $ 10,889,000 in 2013 , from approximately $ 10,627,000 during 2012 , as the result of the factors described above . our gross profit percentage ( gross profit as a percentage of net sales ) decreased approximately 0.9 % , from 34.2 % in 2012 to 33.3 % in 2013. this decrease is the result of higher raw material costs , and increased manufacturing overhead expenses . advertising and promotion expense was approximately $ 2,648,000 in 2013 , an increase of approximately $ 230,000 or 9.5 % from approximately $ 2,418,000 in 2012. as a percentage of net sales , advertising and promotion expense increased from 7.8 % in 2012 to 8.1 % in 2013. the increase is primarily a result of increased promotional and marketing expenses , including our increased presence at industry trade shows . the company anticipates in 2014 that advertising and promotion expense will approximate the 2013 amount .
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fair value of certain of the company 's financial instruments including cash , accounts receivable , account payable , accrued expenses , notes payables , and other accrued liabilities approximate cost because of their short maturities . the company measures and reports fair value in accordance with asc 820 , “ fair value measurements and disclosure ” defines fair value , establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments . fair value , as defined in asc 820 , is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the fair value of an asset should reflect its highest and best use by market participants , principal ( or most advantageous ) markets , and an in-use or an in-exchange valuation premise . the fair value of a liability should reflect the risk of nonperformance , which includes , among other things , the company 's credit risk . valuation techniques are generally classified into three categories : the market approach ; the income approach ; and the cost approach . the selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability , and the quality and availability of inputs . valuation techniques used to measure fair value under asc 820 must maximize the use of observable inputs and minimize the use of unobservable inputs . asc 820 also provides fair value hierarchy for inputs and resulting measurement as follows : level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for identical assets or liabilities . level 2 : quoted prices for similar assets or liabilities in active markets ; quoted prices for identical or similar assets or liabilities in markets that are not active ; inputs other than quoted prices that are observable for the asset or liability ; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities ; and level 3 : unobservable inputs for the asset or liability that are supported by little or no market activity , and that are significant to the fair values . fair value measurements are required to be disclosed by the level within the fair value hierarchy in which the fair value measurements in their entirety fall . fair value measurements using significant unobservable inputs ( in level 3 measurements ) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances , separately presenting changes during the period attributable to the following : ( i ) total gains or losses for the period ( realized and unrealized ) , segregating those gains or losses included in earnings , and a description of where those gains or losses included in earning are reported in the statement of income . 14 the company records a debt discount related to the issuance of convertible debts that have conversion features at adjustable rates . the debt discount for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the fair value of the conversion features . the debt discount will be accreted by recording additional non-cash gains and losses related to the change in fair values of derivative liabilities over the life of the convertible notes . revenue recognition the company follows paragraph 605-10-s99 of the fasb accounting standards codification for revenue recognition . the company will recognize revenue when it is realized or realizable and earned . the company considers revenue realized or realizable and earned when all the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) the product has been shipped or the services have been rendered to the customer , ( iii ) the sales price is fixed or determinable , and ( iv ) collectability is reasonably assured . the company primarily generates revenues through the brokering of sales of minutes from one telecommunications carrier to another through limecom and to a lesser extent the sales of prepaid calling minutes to consumers through its tel3 division . while the company collects payment for such minutes in advance , revenue is recognized upon delivery to and consumption of minutes by the consumer . minutes are forfeited buy the consumer after 12 consecutive months of non-use at which point the company recognizes revenue from the forfeiture of prepaid minutes . next cala generated revenues from commissions earned from incomm , a leading financial services provider , and nxtgn generated revenues from the sale of voice over ip platform software during the years ended december 31 , 2018 and 2017. stock-based compensation the company applies asc 718-10 , “ share-based payment , ” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors ( including employee stock options under the company 's stock plans ) based on estimated fair values . asc 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant . the value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the company 's statement of operations . the company recognizes compensation expenses for the value of non-employee awards based on the straight-line method over the requisite service period of each award , net of estimated forfeitures . story_separator_special_tag the company estimates the fair value of stock options granted as equity awards using a black-scholes options pricing model . the option-pricing model requires a number of assumptions , of which the most significant are share price , expected volatility and the expected option term ( the time from the grant date until the options are exercised or expire ) . expected volatility is estimated based on volatility of similar companies in the technology sector . the company has historically not paid dividends and has no foreseeable plans to issue dividends . the risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term . the expected option term is calculated for options granted to employees and directors using the “ simplified ” method . grants to non-employees are based on the contractual term . changes in the determination of each of the inputs can affect the fair value of the options granted and the results of operations of the company . 15 recently issued accounting standards on february 14 , 2018 , the fasb issued asu 2018-02 , income statement—reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income . the amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the tax cuts and jobs act of 2017. the amendments in this update affect any entity that is required to apply the provisions of topic 220 , income statement—reporting comprehensive income , and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by gaap . the amendments in this update are effective for all organizations for fiscal years beginning after december 15 , 2018 , and interim periods within those fiscal years . early adoption is permitted . organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period ( or periods ) in which the effect of the change in the u.s. federal corporate income tax rate in the tax cuts and jobs act is recognized . on march 9 , 2018 the fasb issued asu 2018-04 , investments—debt securities ( topic 320 ) and regulated operations ( topic 980 ) : amendments to sec paragraphs pursuant to sec staff accounting bulletin no . 117 and sec release no . 33-9273 ( sec update ) . the amendments in this update supersedes various sec paragraphs and adds an sec paragraph pursuant to the issuance of staff accounting bulletin no . 117. this amendment is effective upon issuance . on march 14 , 2018 the fasb issued income taxes ( topic 740 ) : amendments to sec paragraphs pursuant to sec staff accounting bulletin no . 118. this amendment is effective upon issuance . in june 2018 , the fasb issued compensation—stock compensation ( topic 718 ) : improvements to nonemployee share-based payment accounting . the amendments in this update expand the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees . the amendments in this update are effective for public business entities for fiscal years beginning after december 15 , 2018 , including interim periods within that fiscal year . early adoption is permitted , but no earlier than an entity 's adoption date of topic 606. in july 2018 , the fasb issued asu 2018-11 , leases ( topic 842 ) : targeted improvements . the amendments in this update related to separating components of a contract affect the amendments in update 2016-02 , which are not yet effective but can be early adopted . for entities that have not adopted topic 842 before the issuance of this update , the effective date and transition requirements for the amendments in this update related to separating components of a contract are the same as the effective date and transition requirements in update 2016-02. for entities that have adopted topic 842 before the issuance of this update , the transition and effective date of the amendments related to separating components of a contract in this update are as follows : 1. the practical expedient may be elected either in the first reporting period following the issuance of this update or at the original effective date of topic 842 for that entity . 2. the practical expedient may be applied either retrospectively or prospectively . all entities , including early adopters , that elect the practical expedient related to separating components of a contract in this update must apply the expedient , by class of underlying asset , to all existing lease transactions that qualify for the expedient at the date elected . 16 in august 2018 , the fasb issued asu 2018-13 , fair value measurement ( topic 820 ) —disclosure framework—changes to the disclosure requirements for fair value measurement . the amendments in this update improve the effectiveness of fair value measurement disclosures and modify the disclosure requirements on fair value measurements in topic 820 , fair value measurement , based on the concepts in fasb concepts statement , conceptual framework for financial reporting—chapter 8 : notes to financial statements , including the consideration of costs and benefits . the amendments in this asu are effective for all entities for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2019. the amendments on changes in unrealized gains and losses , the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements , and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption . all other amendments should be applied retrospectively to all periods presented upon their effective date . early adoption is permitted . in august 2018 , the fasb issued asu 2018-15 , intangibles—goodwill and other—internal-use software
| results of operations revenue the company generates revenues through the sale and distribution of prepaid telecom minutes and other related telecom services . replace_table_token_3_th revenues during the year ended december 31 , 2018 totaled $ 74,650,000 compared to $ 53,793,000 for the year ended december 31 , 2017. the increase in the total revenue is mainly due to the acquisition of limecom which was consolidated for the full twelve months ended december 31 , 2018 and was consolidated only in the fourth quarter of 2017. the company no longer owns limecom as of january 2019. costs of revenue costs of revenue consists of the purchase of wholesale minutes for resale and related telecom platform costs . cost of revenues during the year ended december 31 , 2018 totaled $ 74,177,000 compared to $ 51,399,000 for the year ended december 31 , 2017. the increase in cost of revenues is mainly due to the acquisition of limecom which was consolidated for the full twelve months ended december 31 , 2018 and was consolidated only in the fourth quarter of 2017. the company no longer owns limecom as of january 2019 . 10 operating expenses operating expenses totaled $ 5,686,000 during the year ended december 31 , 2018 compared to $ 3,956,000 during the year ended december 31 , 2017 representing a net increase of $ 1,730,000. the increase in the operating expenses is mainly due to the loss on disposal and impairment of limecom 's good will and intangible assets in the amount of $ 1,917,000 which was recorded as a result of the recession of the limecom acquisition by the company . the loss was recorded in accordance with asc topic 360 ; $ 1,334,000 of the total impairment charge related to goodwill and the remaining $ 583,000 related to intangible assets .
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the total estimated fair value of stock options that vested during the years ended may 31 , 2014 , may 25 , 2013 and may 26 , 2012 was $ 5.5 million , $ 5.8 million and $ 6.5 million , respectively . valuation and expense information for stock based compensation story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes . this discussion and analysis contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including , but not limited to , those discussed in part i item 1a . risk factors. and elsewhere in this annual report on form 10-k. overview rgp is a multinational consulting firm that provides consulting and business initiative support services to its global client base in the areas of accounting ; finance ; corporate governance , risk and compliance management ; corporate advisory , strategic communications and restructuring ; information management ; human capital ; supply chain management ; healthcare solutions ; and legal and regulatory services . we assist our clients with projects requiring specialized expertise in : finance and accounting services including process transformation and improvement ; financial reporting and analysis ; technical and operational accounting ; merger and acquisition due diligence ; audit response ; implementation of new accounting standards such as the new revenue recognition pronouncement ; and remediation support ; information management services including strategy development ; program and project management ; business and technology integration ; data strategy , including data security and privacy ; and business performance management ; corporate advisory , strategic communications and restructuring services ; corporate governance , risk and compliance management services including contract and regulatory compliance efforts under , for example , the dodd-frank wall street reform and consumer protection act and the sarbanes oxley act of 2002 ( sarbanes ) ; enterprise risk management ; internal controls management ; and operation and it audits ; supply chain management services including supply chain strategy development ; procurement and supplier management ; logistics and materials management ; supply chain planning and forecasting ; and conflict minerals and unique device identification compliance ; human capital services including change management ; organization development and effectiveness ; and optimization of human resources technology and operations ; and legal and regulatory services with projects , secondments or tactical needs including commercial transactions ; compliance initiatives ; law department operations and business strategy ; and litigation support . we were founded in june 1996 by a team at deloitte , led by our executive chairman , donald b. murray , who was then a senior partner with deloitte . our founders created resources connection to capitalize on the increasing demand for high quality outsourced professional services . we operated as a part of deloitte from our inception in june 1996 until april 1999. in april 1999 , we completed a management-led buyout in partnership with several investors . in december 2000 , we completed our initial public offering of common stock and began trading on the nasdaq stock market . we currently trade on the nasdaq global select market . in january 2005 , we announced the change of our operating entity name to resources global professionals to better reflect the company 's multinational capabilities and during fiscal 2013 , we redesigned our logo and adopted the acronym rgp for branding and marketing purposes . we operated solely in the united states until fiscal year 2000 , when we opened our first three international offices and began to expand geographically to meet the demand for project consulting services across the world . as of may 31 , 2014 , we served clients from offices in 19 countries , including 23 international offices and 45 offices in the united states . we expect to continue opportunistic domestic and multinational expansion while also investing in complementary professional services lines that we believe will augment our service offerings . we primarily charge our clients on an hourly basis for the professional services of our consultants . we recognize revenue once services have been rendered and invoice the majority of our clients in the united states on a weekly basis . some of our clients served by our international offices are billed on a monthly basis . our clients are contractually obligated to pay us for all hours billed . to a much lesser extent , we also earn revenue if a client hires one of our consultants . this type of contractually non-refundable revenue is recognized at the time our client completes the hiring process and represented 0.5 % of our revenue for each of the years ended may 31 , 2014 , may 25 , 2013 and may 26 , 2012. we periodically review our outstanding accounts receivable balance and determine an estimate of the amount of those receivables we believe may prove uncollectible . our provision for bad debts , if any , is included in our selling , general and administrative expenses . 30 the costs to pay our professional consultants and all related benefit and incentive costs , including provisions for paid time off and other employee benefits , are included in direct cost of services . we pay most of our consultants on an hourly basis for all hours worked on client engagements and , therefore , direct cost of services tends to vary directly with the volume of revenue we earn . we expense the benefits we pay to our consultants as they are earned . these benefits include paid time off and holidays ; a discretionary bonus plan ; subsidized group health , dental and life insurance programs ; a matching 401 ( k ) retirement plan ; the ability to participate in the company 's employee stock purchase plan ( espp ) ; and professional development and career training . story_separator_special_tag while such losses have historically been within our expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that we have in the past . a significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and additional allowances may be required . these additional allowances could materially affect the company 's future financial results . income taxes in order to prepare our consolidated financial statements , we are required to make estimates of income taxes , if applicable , in each jurisdiction in which we operate . the process incorporates an assessment of any current tax exposure together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheets . the recovery of deferred tax assets from future taxable income must be assessed and , to the extent recovery is not likely , we will establish a valuation allowance . an increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect the company 's future financial result . if the ultimate tax liability differs from the amount of tax expense we have reflected in the consolidated statements of operations , an adjustment of tax expense may need to be recorded and this adjustment may materially affect the company 's future financial results and financial condition . revenue recognition we primarily charge our clients on an hourly basis for the professional services of our consultants . we recognize revenue once services have been rendered and invoice the majority of our clients in the united states on a weekly basis . some of our clients served by our international offices are billed on a monthly basis . our clients are contractually obligated to pay us for all hours billed . to a much lesser extent , we also earn revenue if a client hires one of our consultants . this type of contractually non-refundable revenue is recognized at the time our client completes the hiring process . stock-based compensation under our 2004 performance incentive plan , officers , employees , and outside directors have received or may receive grants of restricted stock , stock units , options to purchase common stock or other stock or stock-based awards . under our espp , eligible officers and employees may purchase our common stock in accordance with the terms of the plan . the company estimates a value for employee stock options on the date of grant using an option-pricing model . we have elected to use the black-scholes option-pricing model which takes into account assumptions regarding a number of highly complex and subjective variables . these variables include the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors . additional variables to be considered are the expected term , expected dividends and the risk-free interest rate over the expected term of our employee stock options . in addition , because stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest , it is reduced for estimated forfeitures . forfeitures must be estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . forfeitures are estimated based on historical experience . if facts and circumstances change and we employ different assumptions in future periods , the compensation expense recorded may differ materially from the amount recorded in the current period . the company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock . the risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options . the impact of expected dividends ( $ 0.07 per share during fiscal 2014 ) is also incorporated in determining the estimated value per share of employee stock option grants . such dividends are subject to quarterly board of director approval . the company 's expected life of stock option grants is 5.3 years for non-officers and 7.5 years for officers . the company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock . the company reviews the underlying assumptions related to stock-based compensation at least annually . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . 32 results of operations the following tables set forth , for the periods indicated , our consolidated statements of operations data . these historical results are not necessarily indicative of future results . replace_table_token_7_th our operating results for the periods indicated are expressed as a percentage of revenue below . replace_table_token_8_th 33 we also assess the results of our operations using ebitda , adjusted ebitda and adjusted ebitda margin . adjusted ebitda is ebitda plus stock-based compensation expense and contingent consideration adjustments , if any . adjusted ebitda margin is calculated by dividing adjusted ebitda by revenue . these measures assist management in assessing our core operating performance . the following table presents ebitda , adjusted ebitda and adjusted ebitda margin results for the periods indicated and includes a reconciliation of such measures to net income , the most directly comparable gaap financial measure : replace_table_token_9_th the financial measures and key performance indicators we use to assess our financial and operating performance above are not defined by , or calculated in accordance with , gaap .
| quarterly results the following table sets forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the two-year period ended may 31 , 2014. in the opinion of management , this data has been prepared on a basis substantially consistent with our audited consolidated financial statements appearing elsewhere in this document , and includes all adjustments , consisting of normal recurring adjustments , necessary for a fair presentation of the data . the quarterly data should be read together with our consolidated financial statements and related notes appearing elsewhere in this document . the operating results are not necessarily indicative of the results to be expected in any future period . replace_table_token_12_th ( 1 ) the quarter ended may 31 , 2014 consists of fourteen weeks . all other quarters presented consist of thirteen weeks . ( 2 ) net income per common share calculations for each of the quarters were based upon the weighted average number of shares outstanding for each period , and the sum of the quarters may not necessarily be equal to the full year net income per common share amount . our quarterly results have fluctuated in the past and we believe they will continue to do so in the future . certain factors that could affect our quarterly operating results are described in part i item 1a . risk factors. due to these and other factors , we believe that quarter-to-quarter comparisons of our results of operations are not meaningful indicators of future performance . 40 liquidity and capital resources our primary source of liquidity is cash provided by our operations and , historically , to a lesser extent , stock option exercises .
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the following discussion should be read in conjunction with the “ selected financial data ” and our consolidated financial statements and the notes thereto , all included elsewhere in this annual report on form 10-k. the forward-looking statements in this section and other parts of this report involve risks and uncertainties including statements regarding our plans , objectives , goals , strategies , and financial performance . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under the caption “ forward-looking statements ” and those set forth in item 1a . overview business overview presently , lancaster colony corporation is a manufacturer and marketer of specialty food products for the retail and foodservice markets . we also manufactured and marketed candles for the food , drug and mass markets until that business was sold on january 30 , 2014. while much less significant , we also previously sold candles , glassware and various other products to customers in certain commercial markets . these commercial product lines were sold in may 2013. the financial results of these operations , previously included in our glassware and candles segment , are reported as discontinued operations for all periods presented herein . our operations are organized into one reportable segment : “ specialty foods. ” the sales of this segment are predominately domestic . we view our specialty foods segment as having the potential to achieve future growth in sales and profitability due to attributes such as : leading retail market positions in several branded products with a high-quality perception ; a broad customer base in both retail and foodservice accounts ; well-regarded culinary expertise among foodservice accounts ; recognized leadership in foodservice product development ; experience in integrating complementary business acquisitions ; and historically strong cash flow generation that supports growth opportunities . within the specialty foods segment , our goal is to grow both retail and foodservice sales over time by : leveraging the strength of our retail brands to increase current product sales ; introducing new products and expanding into new channels ; growing our foodservice sales through the strength of our reputation in product development and quality ; and pursuing acquisitions that meet our strategic criteria . in retail markets , our specialty foods segment utilizes numerous branded products to support growth and maintain market competitiveness . we place great emphasis on our product innovation and development efforts so as to enhance growth by providing distinctive new products meeting the evolving needs and preferences of consumers . our foodservice sales primarily consist of products sold to restaurant chains , either directly or through distributors . over the long-term , we have experienced broad-based growth in our foodservice sales , as we build on our strong reputation for product development and quality . we expect that part of our future growth in the specialty foods segment will result from acquisitions . we continue to review potential acquisitions that we believe will provide good complements to our existing product lines , enhance our gross margins or offer good expansion opportunities in a manner that fits our overall goals . as has occasionally been required to support future growth opportunities , we have historically made substantial capital investments to support our existing food operations . for example , in 2013 we expanded our crouton manufacturing capacity to provide capacity for potential future sales growth as well as improve operating efficiencies . we are currently in the midst of a significant processing capacity expansion at our horse cave , kentucky dressing facility to help meet demand for our dressing products . based on our current plans and expectations , we believe our total capital expenditures for 2015 could total approximately $ 20 million . we anticipate we will be able to fund all of our capital needs in 2015 with cash generated from operations . 15 summary of 2014 results consolidated net sales reached approximately $ 1,041 million during 2014 , increasing by approximately 3 % as compared to prior-year net sales of $ 1,014 million , driven by growth in both retail and foodservice markets . gross margin increased 2 % to approximately $ 248.6 million from the prior-year comparable total of $ 244.7 million . the benefits of the higher sales volumes and lower material costs were somewhat offset by increased trade promotion and lower foodservice pricing . net income , which reflected an after-tax loss on the sale of our candle manufacturing and marketing operations of $ 29.1 million , totaled approximately $ 75.0 million in 2014 , or $ 2.74 per diluted share , compared to net income of $ 109.2 million , or $ 3.99 per diluted share , in 2013 . net income in 2012 totaled approximately $ 95.8 million , or $ 3.51 per diluted share . looking forward for 2015 , we anticipate volume-driven growth from both retail and foodservice sales channels . we will also continue to review acquisition opportunities within the specialty foods segment that are consistent with our growth strategy and represent good value or otherwise provide significant strategic benefits . however , continued unsettled economic conditions affecting consumer and retailer buying patterns and market acceptance of our new product lines are among the many influences that may impact our ability to improve sales and operating margins in the coming year . based on current market conditions , we foresee modestly favorable material cost comparisons for the first half of 2015 . however , as witnessed in 2014 , the lower trends in material costs will be offset , in part , by some lower pricing in our foodservice business . future changes in the climate , economy and regulatory environment could influence these costs . to help offset or stabilize material costs , we have historically pursued various pricing actions and operational strategies that we believe will aid our future results . we continue to limit some of our exposure to volatile swings in food commodity costs through a structured purchasing program for certain key materials . story_separator_special_tag cash provided by operating activities was also impacted by the relative changes in working capital , particularly accounts receivable and accrued liabilities and the change in net income . the 2013 increase in cash provided by operating activities from the 2012 level primarily resulted from higher net income . cash provided by investing activities totaled approximately $ 8.5 million in 2014 . cash used in investing activities totaled approximately $ 22.4 million in 2013 and $ 16.6 million in 2012 . the 2014 increase in cash provided by investing activities is due to the proceeds from the sale of our candle manufacturing and marketing operations , as well as a decrease in capital expenditures . the 2013 increase in cash used in investing activities from the 2012 level reflected higher capital expenditures in 2013 , including expenditures for expanded crouton manufacturing capacity . capital expenditures totaled approximately $ 16.0 million in 2014 , compared to $ 24.1 million in 2013 and $ 16.3 million in 2012 . based on our current plans and expectations , we believe that our total capital expenditures for 2015 could total approximately $ 20 million . financing activities used net cash totaling approximately $ 49.4 million , $ 177.6 million and $ 46.5 million in 2014 , 2013 and 2012 , respectively . the significant increase in 2013 was primarily due to the $ 5.00 per share special dividend that was paid in december 2012. the dividend payout rate for 2014 was $ 1.72 per share as compared to $ 1.52 per share , excluding the special dividend , during 2013 and $ 1.41 per share in 2012 . this past fiscal year marked the 51 st consecutive year in which our dividend rate was increased . cash utilized for share repurchases totaled approximately $ 3.1 million , $ 0.6 million and $ 8.3 million in 2014 , 2013 and 2012 , respectively . our board of directors approved a share repurchase authorization of 2,000,000 shares in november 2010. approximately 1,426,000 shares from this authorization remained authorized for future purchase at june 30 , 2014 . the future levels of share repurchases and declared dividends are subject to the periodic review of our board of directors and are generally determined after an assessment is made of various factors , such as anticipated earnings levels , cash flow requirements and general business conditions . our ongoing business activities continue to be subject to compliance with various laws , rules and regulations as may be issued and enforced by various federal , state and local agencies . with respect to environmental matters , costs are incurred pertaining to regulatory compliance and , upon occasion , remediation . such costs have not been , and are not anticipated to become , material . 19 we are contingently liable with respect to lawsuits , taxes and various other matters that routinely arise in the normal course of business . we do not have any related party transactions that materially affect our results of operations , cash flow or financial condition . off-balance sheet arrangements , contractual obligations and commitments we do not have off-balance sheet arrangements , financings , or other relationships with unconsolidated entities or other persons , also known as “ variable interest entities , ” that have or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity or capital expenditures . we have various contractual obligations that are appropriately recorded as liabilities in our consolidated financial statements . certain other items , such as purchase obligations , are not recognized as liabilities in our consolidated financial statements . examples of items not recognized as liabilities in our consolidated financial statements are commitments to purchase raw materials or inventory that has not yet been received as of june 30 , 2014 and future minimum lease payments for the use of property and equipment under operating lease agreements . the following table summarizes our contractual obligations as of june 30 , 2014 ( dollars in thousands ) : replace_table_token_8_th ( 1 ) operating leases are primarily entered into for warehouse and office facilities and certain equipment . see note 11 to the consolidated financial statements for further information . ( 2 ) purchase obligations represent purchase orders and longer-term purchase arrangements related to the procurement of raw materials , supplies , services , and property , plant and equipment . ( 3 ) this amount does not include approximately $ 21.0 million of other noncurrent liabilities recorded on the balance sheet , which consist of the underfunded pension liability , other post employment benefit obligations , tax liabilities , noncurrent workers compensation obligations , deferred compensation and interest on deferred compensation . these items are excluded , as it is not certain when these liabilities will become due . see notes 6 , 8 , 9 and 10 to the consolidated financial statements for further information . impact of inflation in recent years , we have been exposed to significant fluctuations in certain manufacturing input costs , including materials such as food commodities . in 2014 and 2013 , these fluctuations were not as significant , but in 2012 , we experienced comparatively higher costs for a wide variety of raw materials ( especially for soybean oil and flour ) . entering 2015 , under current market conditions , we foresee modestly favorable material cost comparisons . we also attempt to minimize the exposure to increased costs through our ongoing efforts to achieve greater manufacturing and distribution efficiencies through the improvement of work processes and strategic investments in plant equipment . critical accounting policies and estimates this md & a discusses our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles .
| review of consolidated operations net sales and gross margin replace_table_token_4_th 2014 to 2013 consolidated net sales for the year ended june 30 , 2014 increased by approximately 3 % to a new record of approximately $ 1,041 million from the prior-year record total of $ 1,014 million . in general , the overall increase was driven by higher sales volumes for both retail and foodservice . for our sales to the retail channel , which increased approximately 2 % , growth was achieved among several non-frozen product lines , including salad dressings and croutons . sales of products for national account customers drove most of the increase of approximately 3 % in foodservice sales , although this was offset in part by lower pricing to these customers . as measured by pounds shipped , total volume for the segment is estimated to have improved by approximately 4 % . in 2014 , deflationary trends affected net sales to the foodservice channel due to lower commodity costs . lower foodservice pricing represented less than 1 % of net sales in 2014 . similarly , the impact of pricing was slight on retail sales , although trade promotional intensity increased , in part to support a greater investment in new product introductions . as a percentage of net sales , sales of retail products declined slightly to approximately 51 % from 52 % in 2013 . 16 our gross margin as a percentage of net sales was approximately 23.9 % in 2014 compared with 24.1 % in 2013 . the 2014 gross margin percentage reflected the improved sales volumes and favorable ingredient costs ( especially for soybean oil , sweeteners and eggs ) , but these benefits were offset by increased trade promotion costs , which included increased costs related to new product introductions , and lower pricing in the foodservice channel , as well as increased distribution costs and plant inefficiencies .
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investments in affiliates investments in affiliates in which we do not have a controlling direct or indirect voting interest , but can exercise significant influence story_separator_special_tag the following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included in this form 10-k. executive summary 2014 accomplishments completed largest acquisition to date with the first closing of the green courte acquisition representing 31 mh communities . completed acquisitions of six rv communities for an aggregate purchase price of approximately $ 137.4 million . closed on the disposition of 10 mh communities and recognized a gain on disposition of assets , net of approximately $ 17.7 million . increased our same site occupancy to 93.2 % in 2014 from 91.5 % in 2013. closed two underwritten registered public offerings totaling 11.7 million shares of common stock with net proceeds of approximately $ 562.9 million after deducting offering related expenses . increased our annual distribution rate to $ 2.60 per share in 2014 , an increase of $ 0.08 compared to $ 2.52 per share in 2013. property operations : occupancy in our properties as well as our ability to increase rental rates directly affects revenues . our revenue streams are predominantly derived from customers renting our sites on a long-term basis . our same site properties continue to achieve revenue and occupancy increases which drive continued net operating income ( “ noi ” ) growth . home sales are at their historical high , and we expect to continue to increase the number of homes sold in our portfolio . replace_table_token_12_th ( 1 ) occupancy % includes mh and annual rv sites , and exclude transient rv sites , which are included in total developed sites . ( 2 ) occupancy % excludes recently completed but vacant expansion sites . ( 3 ) refer to item 7 , supplemental measures , for information regarding the presentation of the noi financial measure and funds from operations excluding certain items financial measure . 37 sun communities , inc. acquisition and disposition activity : during the past three years , we have completed acquisitions of 68 properties with over 26,000 sites located in high growth areas and retirement and vacation destinations such as florida , california and eastern coastal areas such as old orchard beach , maine ; cape may , new jersey ; chesapeake bay , virginia and cape cod , massachusetts . during 2014 , we completed eight acquisitions consisting of six rv communities and 33 mh communities : replace_table_token_13_th during 2014 , we announced our acquisition of the green courte properties for a purchase price of $ 1.3 billion , which is our largest acquisition to date . the green courte portfolio includes 59 mh communities comprised of over 19,000 sites . this acquisition provides us with a portfolio of large , well-located high-quality communities with attractive amenities and potential for occupancy and rent growth . it increases our overall geographic diversification and size of our age-restricted portfolio with additional exposure to the sought after florida and arizona markets . approximately , 56 % of the communities are located in florida and 73 % are considered age-restricted , adding significant growth to our existing highly-stable age-restricted portfolio . the acquisition was completed in two phases . we acquired 33 properties , which we will operate as 31 communities , on november 26 , 2014 , and the remaining 26 properties on january 6 , 2015. we continue to experience an active pipeline of acquisition opportunities and will seek to enhance the growth of the company through continued selective acquisitions . in december 2014 , we announced that we entered into an agreement to purchase six mh communities which is expected to close during the second quarter of 2015 , comprised of approximately 3,150 sites located in the orlando , florida area and with expansion potential of approximately 380 sites . the transaction is subject to the company 's satisfaction with its due diligence investigation and customary closing conditions , including consent of the existing lenders . we continually review the properties in our portfolio to ensure that they fit our business objectives . during 2014 , we sold 10 mh properties , and redeployed capital to properties in markets we believe have greater long-term potential . a gain of $ 17.7 million is recorded in `` gain on disposition of properties , net '' in our consolidated statements of operations . development activity : we have been focused on development and expansion opportunities adjacent to our existing communities , and we have developed nearly 1,400 sites over the past three years . we expanded 374 sites at three properties in 2014 . the total cost to construct the sites was approximately $ 11.0 million . we continue to expand our properties utilizing our inventory of owned and entitled land ( approximately 7,000 developed sites ) and expect to construct over 800 additional sites in 2015 . 38 sun communities , inc. capital activity : we closed two underwritten registered public offerings during 2014 totaling 11.7 million shares of common stock with net proceeds of approximately $ 562.9 million after deducting offering related expenses . proceeds from these capital raises help us to maintain our targeted leverage levels while continuing to expand our portfolio . markets the following table identifies the company 's largest markets by number of sites : replace_table_token_14_th a large geographic concentration of our properties continues to be in michigan , florida and texas . occupancy at our michigan communities has grown from 85 % in 2012 to 93 % in 2014 , occupancy at our texas communities has grown from 94 % in 2012 to 97 % in 2014 , while occupancy at our florida communities has remained consistent at 99 % . story_separator_special_tag 45 sun communities , inc. other income statement items the following table summarizes other income and expenses for the years ended december 31 , 2014 and 2013 ( amounts in thousands ) : replace_table_token_22_th ancillary revenues , net increased $ 4.1 million primarily related to increased vacation rental income of $ 3.2 million and increased merchandise income . the increased merchandise income was primarily a result of our acquisition of six rv communities during 2014 and a full year of activity for the 14 rv communities acquired in 2013. interest income increased $ 1.4 million primarily due to an increase in interest income from collateralized receivables of $ 1.2 million . real property general and administrative expenses increased $ 5.8 million primarily due to increased salaries , wages and bonus expense of $ 2.3 million as a result of our acquisitions and increased headcount year over year , increased deferred compensation of $ 1.7 million due to awards of restricted stock to our executives and key employees , increased legal expense of $ 0.7 million and increased other expenses of $ 1.2 million primarily related to increased consulting fees , director fees , corporate office rent and software support and maintenance fees . transaction costs increased primarily due to due diligence and other transaction costs related to the green courte acquisition ( see note 2 ) . depreciation and amortization expenses increased as a result of additional depreciation and amortization of $ 16.2 million primarily related to our newly acquired properties ( see note 2 to our financial statements ) , $ 5.7 million related to depreciation on investment property for use in our rental program , $ 2.3 million related to depreciation on investment property for our vacation rental property , and $ 1.7 million related to the amortization of in place leases and promotions , partially offset by $ 2.6 million related to the write off of the remaining net book value for assets replaced during the year . asset impairment charge of $ 0.8 million is a result of an impairment loss recorded on a long-lived asset for our mh and rv community in la feria , texas during 2014. we did not recognize any impairment losses in 2013. gain on disposition of properties , net of $ 17.7 million is a result of the sale of 10 mh properties during the year ended december 31 , 2014 ( see note 2 ) . we did not dispose of any properties in 2013. gain on settlement of $ 4.5 million is the result of a settlement reached with the selling entities of 10 rv communities that we acquired in february 2013. the settlement was related to various warranties , representations and indemnities included in the agreements under which we acquired the rv communities , including a covenant made by the sellers related to the 2012 revenue of the acquired properties . no such gain was recorded in 2013 . 46 sun communities , inc. distributions from affiliate decreased $ 1.1 million . we suspended equity accounting in 2010 on our affiliate , origen , as our investment balance is zero . the income recorded in 2014 is distribution income . the amount of the distribution is determined by origen on a quarterly basis . see note 7 to our financial statements . 47 sun communities , inc. comparison of the years ended december 31 , 2013 and 2012 real property operations – total portfolio the following tables reflect certain financial and other information for our total portfolio for the year ended december 31 , 2013 and 2012 : replace_table_token_23_th replace_table_token_24_th ( 1 ) occupied sites and occupancy % include mh and annual rv sites and excludes transient rv sites . ( 2 ) occupied sites include 2,480 sites acquired in 2013 and 4,989 sites acquired during 2012 . ( 3 ) weighted average rent pertains to annual rv sites and excludes transient rv sites . the 21.1 % growth in noi was primarily due to $ 25.9 million from newly acquired properties and $ 9.6 million from same site properties as detailed below . 48 sun communities , inc. real property operations – same site the same site information in this comparison of the years ended december 31 , 2013 and 2012 includes all properties acquired on or prior to december 31 , 2011 and which were owned and operated by the company during the years ended december 31 , 2013 and 2012 . replace_table_token_25_th replace_table_token_26_th ( 1 ) occupied sites and occupancy % include mh and annual rv sites , and excludes transient rv sites . ( 2 ) occupancy % excludes recently completed but vacant expansion sites . ( 3 ) weighted average rent pertains to annual rv sites and excludes transient rv sites . the 5.9 % growth in noi is primarily due to increased revenues of $ 11.8 million partially offset by a $ 2.2 million increase in expenses . income from real property revenue consists of mh and rv site rent , and miscellaneous other property revenues . the 5.1 % growth in income from real property was due to a combination of factors . revenue from our mh and rv portfolio increased $ 10.7 million due to weighted average rental rate increases of 3.1 % and due to the increased number of occupied home sites . this growth in revenue was partially offset by rent concessions offered to new residents and current residents converting from home renters to home owners . additionally , other revenues increased $ 1.1 million primarily due to increases in late fees and insufficient fund charges , cable television royalties , property tax revenues and utility income . property operating expenses increased approximately $ 2.2 million , or 3.2 % , compared to 2012. of that increase , payroll and benefits increased by $ 0.8 million primarily as a result of increased health insurance , workers compensation costs and salary increases .
| results of operations we report operating results under two segments : real property operations and home sales and rentals . the real property operations segment owns , operates , and develops mh communities and rv communities throughout the united states and is in the business of acquiring , operating , and expanding mh and rv communities . the home sales and rentals segment offers manufactured home sales and leasing services to tenants and prospective tenants of our communities . we evaluate segment operating performance based on noi and gross profit . comparison of the years ended december 31 , 2014 and 2013 real property operations – total portfolio the following tables reflect certain financial and other information for our total portfolio for the years ended december 31 , 2014 and 2013 : replace_table_token_16_th replace_table_token_17_th ( 1 ) occupied sites and occupancy % include mh and annual rv sites , and exclude transient rv sites , which are included in total developed sites . ( 2 ) occupied sites include 9,779 sites acquired during 2014 and 2,480 sites acquired in 2013 . ( 3 ) weighted average rent pertains to annual rv sites and excludes transient rv sites . the 14.4 % growth in real property noi consists of $ 14.5 million from newly acquired properties and $ 14.8 million from our same site properties as detailed below . 42 sun communities , inc. real property operations – same site a key management tool used when evaluating performance and growth of our properties is a comparison of `` same site '' communities . same site communities consist of properties owned and operated throughout 2014 and 2013. the same site data may change from time-to-time depending on acquisitions , dispositions , management discretion , significant transactions , or unique situations .
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nonwoven filtration media , industrial thermal insulating solutions , and thermal and acoustical barriers for filtration/separation and heat abatement and sound dampening applications . lydall principally conducts its business through three reportable segments : performance materials , technical nonwovens , and thermal acoustical solutions , with sales globally . the performance materials segment includes filtration media solutions primarily for air , fluid power , life science and industrial applications ( “ filtration ” ) , and sealing and gasket solutions , thermal insulation , energy storage , and other engineered products ( “ sealing and advanced solutions ” ) . on august 31 , 2018 , the company acquired an engineered sealing materials business operating under interface performance materials ( `` interface '' ) , based in lancaster , pennsylvania for $ 268.4 million , net of cash acquired of $ 5.2 million , subject to a post-closing purchase price adjustment in the second quarter of 2019 which reduced the purchase price to $ 267.0 million . a globally-recognized leader in the delivery of engineered sealing solutions , the interface operations manufacture wet-laid gasket and specialty materials primarily serving oem and tier i manufacturers in the agriculture , construction , earthmoving , industrial , and automotive segments . the acquired business has been included in the company 's performance materials operating segment since the date of acquisition . the technical nonwovens segment primarily produces needle punch nonwoven solutions for a multitude of industries and applications . products are manufactured and sold globally under the leading brands of lydall industrial filtration , southern felt , gutsche , and texel . industrial filtration products include nonwoven rolled-good felt media and filter bags used primarily in industrial air and liquid filtration applications . nonwoven filter media is an effective solution to satisfy increasing emission control regulations in a wide range of industries , including power , cement , steel , asphalt , incineration , mining , food , and pharmaceutical . advanced materials products include nonwoven rolled-good media used in commercial applications and predominantly serves the geosynthetics , automotive , industrial , medical , and safety apparel markets . automotive media is provided to tier i/ii suppliers as well as the company 's thermal acoustical solutions segment . effective january 1 , 2018 , the company 's former thermal/acoustical metals and thermal/acoustical fibers operating segments were combined into a single operating segment named thermal acoustical solutions . the thermal acoustical solutions segment offers a full range of innovative engineered products tailored for the transportation and industrial sectors to thermally shield sensitive components from high heat , improve exhaust gas treatment and lower harmful emissions as well as assist in the reduction of noise , vibration and harshness ( nvh ) . within the transportation sector , lydall 's products are found in the interior ( dash insulators , cabin flooring ) , underbody ( wheel well , aerodynamic belly pan , fuel tank , exhaust , tunnel , spare tire ) and under hood ( engine compartment , outer dash , powertrain , catalytic converter , turbo charger , manifolds ) of cars , trucks , suvs , heavy duty trucks and recreational vehicles . financial highlights below are financial highlights comparing lydall 's 2019 results to its 2018 story_separator_special_tag ceo transition expenses of $ 2.3 million and increased severance costs of $ 1.7 million , including $ 1.0 million related to the reduction-in-force severance that occurred in the fourth quarter of 2019. impairment of goodwill and other long-lived assets replace_table_token_9_th during the fourth quarter of 2019 the company recorded a goodwill impairment charge of $ 63.0 million in the performance materials segment . lower than expected 2019 financial results from slowed demand in the sealing products ' markets , combined with revised future financial projections , resulted in a reduction in the long-term forecasts of sales and cash generation as compared to prior projections for the performance materials reporting unit . as a result , the carrying value of the performance materials reporting unit exceeded its fair value by $ 63.0 million , resulting in the impairment charge . during the fourth quarter of 2019 , as a result of negative cash flows in 2019 and an expected reduction in demand from certain customers further impacting net sales and cash flows in 2020 , the company tested for impairment a discrete long-lived asset group ( primarily consisting of machinery and equipment and patents ) in the performance materials segment with a carrying value of approximately $ 3.0 million . the impairment test concluded that the asset group was not recoverable , and the company then determined that fair value of the asset group exceeded its carrying value and recorded a long-lived asset impairment charge of $ 1.2 million . employee benefit plans settlement expenses replace_table_token_10_th in the second quarter of 2019 , the company settled the pension obligation of the u.s. lydall pension plan ( `` pension settlement '' ) through lump sum distributions to participants or by irrevocably transferring pension liabilities to two insurance companies through the purchase of group annuity contracts . the settlement , funded with pension plan assets , resulted in a non-cash settlement expense of $ 25.7 million in 2019 related to the recognition of accumulated deferred actuarial losses . this expense was partially offset by a gain recognized from the withdrawal from a multi-employer pension plan in the fourth quarter of 2019. interest expense replace_table_token_11_th the increase in interest expense for 2019 compared to 2018 was due to greater average outstanding borrowings as a result of the interface acquisition on august 31 , 2018 and increased interest rates . story_separator_special_tag million less sales of automotive rolled-good material for use in the thermal acoustical solutions segment manufacturing process . these decreases were partially offset by increased demand and pricing in north america in 2019 compared to 2018. the technical nonwovens segment reported operating income of $ 22.9 million , or 9.0 % of net sales , in 2019 compared to $ 21.3 million , or 7.7 % of net sales , in 2018. the increase in operating income of $ 1.6 million and operating margin of 130 basis points was attributable to improved gross margin of 90 basis points and a reduction in selling , product development and administrative expenses of $ 3.3 million , or 30 basis points as a percentage of net sales . gross margin was favorably impacted by reduced restructuring costs of $ 1.3 million , or 50 basis points . additionally , increased customer pricing , partially offset by higher aramid raw material costs , and favorable absorption of fixed costs related to cost savings from segment restructuring activities led to improved gross margin in 2019 compared to 2018. the decrease in selling , product development and administrative expenses was primarily related to decreased salaries and benefits of $ 1.5 million , reduced amortization of intangibles expense of $ 0.5 million , lower restructuring expenses of $ 0.3 million coupled with cost savings related to segment restructuring activities that concluded in the fourth quarter of 2019. thermal acoustical solutions segment segment net sales decreased $ 3.9 million , or 1.1 % , in 2019 compared to 2018. the decrease was related to the negative impact of foreign currency translation of $ 6.4 million , or 1.7 % , on total segment net sales , coupled with decreased tooling sales of $ 2.2 million , or 6.0 % , or when excluding foreign currency translation , $ 1.3 million , due to the timing of new platform launches in north america and europe . parts net sales decreased $ 1.6 million , or 0.5 % , or when excluding foreign currency translation , increased $ 3.9 million , or 1.2 % , primarily due to improved demand in europe and asia . additionally , parts sales in north america were negatively impacted by approximately $ 4.2 million due to the gm strike in 2019. the thermal acoustical solutions segment reported operating income of $ 23.6 million , or 6.5 % of net sales , in 2019 , compared to operating income of $ 38.1 million , or 10.4 % of net sales , in 2018. the decrease in operating income of $ 14.5 million and operating margin of 390 basis points was primarily due to lower gross margin of 380 basis points . overhead costs increased by approximately 190 basis points , primarily due to increased outsourcing and expedited freight expenses caused by equipment and other inefficiencies in europe and north america to meet customer delivery requirements . additionally , labor costs increased by approximately 140 basis points , primarily related to increased headcount and temporary labor , particularly in north america and europe to meet customer demand . finally , gross margin was further reduced by unfavorable pricing of approximately 60 basis points . selling , product development and administrative expenses increased $ 0.2 million as was essentially flat compared to 2018 as a percentage of net sales . corporate office expenses the increase in corporate office expenses of $ 2.1 million in 2019 compared to 2018 was primarily due to ceo transition expenses of $ 2.3 million , increased stock based compensation expenses of $ 0.9 million , higher consulting and other professional fees of $ 0.8 million and increased board of director 's fees of $ 0.5 million . these increases were partially offset by lower strategic initiatives costs of $ 2.2 million . 25 liquidity and capital resources replace_table_token_16_th the company assesses its liquidity in terms of its ability to generate cash to fund operating , investing and financing activities . the principal source of liquidity is operating cash flows . in addition to operating cash flows , other significant factors that affect the overall management of liquidity include capital expenditures , investments in businesses , strategic transactions , income tax payments , debt service payments , outcomes of contingencies , foreign currency exchange rates and employee benefit plan funding . the company manages worldwide cash requirements by considering available funds among domestic and foreign subsidiaries.the company expects to finance its 2020 operating cash and capital spending requirements from existing cash balances , cash provided by operating activities and through borrowings under the amended credit agreement , as needed . at december 31 , 2019 , the company held $ 51.3 million in cash and cash equivalents , including $ 15.6 million in the u.s. with the remaining held by foreign subsidiaries . operating cash flows net cash provided by operating activities in 2019 was $ 86.9 million compared with $ 44.7 million in 2018. in 2019 , net loss and non-cash adjustments were $ 54.6 million compared to net income and non-cash adjustments of $ 72.9 million in 2018. since december 31 , 2018 , net operating assets and liabilities decreased by $ 32.3 million , compared to 2018 when net operating assets and liabilities increased $ 28.2 million from december 31 , 2017. the decrease of $ 32.3 million since december 31 , 2018 was primarily due to a reduction of $ 37.5 million in accounts receivable principally due to lower net sales in the fourth quarter of 2019 compared to the fourth quarter of 2018 , as well as the company selling approximately $ 15.0 million in trade accounts receivable balances to a banking institution that would have normally been collected in the first quarter of 2020. investing cash flows in 2019 , net cash used for investing activities was $ 32.4 million compared to $ 301.0 million in 2018. in 2019 and 2018 , net cash used for investing activities consisted of capital expenditures of $ 35.9 million and $ 31.3 million , respectively .
| results : consolidated net sales were $ 837.4 million in 2019 , compared to $ 785.9 million in 2018 , an increase of $ 51.5 million , or 6.6 % , with the increase primarily attributable to a full year of interface , which was acquired on august 31 , 2018 , being included in the company 's results . the change in consolidated net sales is summarized in the following table : 18 replace_table_token_3_th gross margin decreased to 18.1 % in 2019 compared to 19.4 % in 2018 , primarily driven by the thermal acoustical solutions segment , and to a lesser extent the technical nonwovens segment . the thermal acoustical solutions segment negatively impacted consolidated gross margin by approximately 220 basis points due to higher manufacturing and logistics costs to meet customer demand , combined with unfavorable pricing and product mix . the technical nonwovens segment reported improved segment gross margin primarily driven by lower segment restructuring expenses and cost savings associated with those restructuring activities , but negatively impacted consolidated gross margin by approximately 60 basis points due to consolidated segment mix . while the performance materials segment reported lower gross margin , the segment favorably impacted consolidated gross margin by approximately 150 basis points from improved segment mix , driven by higher margin sealing and advanced solutions products sales , primarily from the acquired interface business since august 31 , 2018. operating loss was $ ( 38.8 ) million in 2019 , compared to operating income of $ 49.2 million . the operating loss was driven by fourth quarter 2019 goodwill and other long-lived asset impairment charges in the performance materials segment of $ 64.2 million and incremental 2019 intangible assets amortization of $ 12.2 million in the performance materials segment , combined with incremental manufacturing and logistics costs in the thermal acoustical solutions segment .
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we are not required to obtain such an opinion in any other context . in addition , our sponsor or any of its affiliates ( including m. klein and company ) may make additional investments in the company in connection with the initial business combination , although our sponsor and its affiliates have no obligation or current intention to do so . if our sponsor or any of its affiliates elects to make additional investments , such proposed investments could influence our sponsor 's motivation to complete an initial business combination . in the event that we submit our initial business combination to our public stockholders for a vote , our initial stockholders , officers and directors have agreed to vote any founder shares and any public shares held by them in favor of our initial business combination , and our officers and directors have also agreed to vote public shares purchased by them ( if any ) during or after the ipo in favor of our initial business combination . limitation on liability and indemnification of officers and directors our amended and restated certificate of incorporation provides that our officers and directors will be indemnified by us to the fullest extent authorized by delaware law , as it now exists or may in the future be amended . in addition , our amended and restated certificate of incorporation provides that our directors will not be personally liable for monetary damages to us or stockholders for breaches of their fiduciary duty as directors , except to the extent such exemption from liability or limitation thereof is not permitted by the dgcl . we entered into agreements with our officers and directors to provide contractual indemnification in addition to the indemnification provided for in our amended and restated certificate of incorporation . our bylaws also permit us to maintain insurance on behalf of any officer , director or employee for any liability arising out of his or her actions , regardless of whether delaware law would permit such indemnification . we obtained a policy of directors ' and officers ' liability insurance that insures our officers and directors against the cost of defense , settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors . these provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty . these provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers , even though such an action , if successful , might otherwise benefit us and our stockholders . furthermore , a stockholder 's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions . 54 we believe that these provisions , the insurance and the indemnity agreements are necessary to attract and retain talented and experienced officers and directors . in connection with the ipo , we have undertaken that insofar as indemnification for liabilities arising under the securities act may be permitted to directors , officers or persons controlling us pursuant to the foregoing provisions , we have been informed that in the opinion of the sec such indemnification is against public policy as expressed in the securities act and is therefore unenforceable . item 11. executive compensation . none of our executive officers or directors have received any cash compensation for services rendered to us . we pay monthly recurring expenses of $ 20,000 to an affiliate of our sponsor for office space , administrative and support services . upon completion of the initial business combination or our liquidation , the company will cease paying these monthly fees . accordingly , in the event the consummation of the initial business combination takes the maximum 27 months , an affiliate of the sponsor will be paid a total of $ 540,000 ( $ 20,000 per month ) for office space , administrative and support services and will be entitled to be reimbursed for any out-of-pocket expenses . our sponsor , executive officers , directors , or any of their respective affiliates , are reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations . our audit committee will review on a quarterly basis all payments that were made to our sponsor , executive officers , directors and our or their affiliates . after the completion of our business combination , directors or members of our management team who remain with us may be paid consulting , management or other fees from the combined company . all of these fees will be fully disclosed to stockholders , to the extent then known , in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed business combination . we may not take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination , although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain with us after the initial business combination . the existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management 's motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with anypotential business combination . story_separator_special_tag immediately following the effective time , the company will redeem all of the shares of class c common stock issued to the holders of skillsoft class a shares for an aggregate redemption price of ( i ) $ 505,000,000 in cash and ( ii ) indebtedness under the existing second out credit agreement ( as defined in the skillsoft merger agreement ) , as amended by the existing second out credit agreement amendment ( as defined in the skillsoft merger agreement ) , in the aggregate principal amount equal to the sum of $ 20,000,000 to be issued by the surviving corporation ( as defined in the skillsoft merger agreement ) or one of its subsidiaries , in each case , pro rata among the holders of churchill class c common stock issued in connection with the skillsoft merger . 39 the consummation of the proposed skillsoft transactions is subject to the receipt of the requisite approval of ( i ) the stockholders of churchill ( the “ churchill stockholder approval ” ) and ( ii ) the shareholders of skillsoft ( the “ skillsoft shareholder approval ” ) and the fulfillment of certain other conditions . in october 2020 , the company was advanced $ 2,000,000 for expenses incurred with with skillsoft merger . if the planned business combination is not completed , the company would be required to refund any unused amount . for the year ended december 31 , 2020 the company had utilized the advance in connection with the skillsoft merger . as of the date of these financial statements , the advance is no longer refundable . on january 22 , 2021 , we entered into an amendment ( the “ merger agreement amendment ” ) , to which amends and restates in its entirety the definition of “ applicable majority ” in the skillsoft merger agreement . the definition of “ applicable majority ” is used in the skillsoft merger agreement . global knowledge merger agreement concurrently with its entry into the skillsoft merger agreement , churchill also entered into an agreement and plan of merger ( the “ global knowledge merger agreement ” ) by and among churchill , magnet merger sub , inc. , a delaware corporation and wholly-owned subsidiary of churchill ( “ merger sub ” ) , and albert de holdings inc. , a delaware corporation owned by investment funds affiliated with rhône capital l.l.c . pursuant to the global knowledge merger agreement , merger sub will merge with and into global knowledge , with global knowledge surviving the transaction as a wholly-owned subsidiary of churchill ( the “ global knowledge merger ” ) . at the effective time ( the “ global knowledge effective time ” ) of the global knowledge merger , as consideration for the global knowledge merger , 100 % of the issued and outstanding equity interests of global knowledge will be converted , in the aggregate , into the right to receive warrants , each of which shall entitle the holders thereof to purchase one share of class a churchill common stock at an exercise price of $ 11.50 per share . the aggregate number of warrants to be received by the equity holders of global knowledge as consideration in the global knowledge merger will be 5,000,000. the warrants to be issued to the equity holders of global knowledge will be non-redeemable and otherwise substantially similar to the private placement warrants issued to the churchill sponsor in connection with churchill 's initial public offering . the consummation of the proposed global knowledge merger ( the “ global knowledge closing ” ) is subject to the consummation of the skillsoft merger , among other conditions contained in the global knowledge merger agreement . restructuring support agreement on october 12 , 2020 , global knowledge entered into a restructuring support agreement ( the “ global knowledge rsa ” ) with ( i ) 100 % of its lenders under that certain amended and restated first lien credit and guaranty agreement , dated as of january 30 , 2015 , as amended from time to time , by and among , inter alios , gk holdings , as borrower , the guarantors from time to time party thereto , the lenders from time to time party thereto and credit suisse , acting in its capacity as administrative agent and collateral agent ( the “ first lien credit agreement , ” and the lenders thereto , the “ first lien lenders ” ) ; and ( ii ) 100 % of its lenders under that certain amended and restated second lien credit and guaranty agreement , dated as of january 30 , 2015 , as amended from time to time , by and among , inter alios , gk holdings , as borrower , the guarantors from time to time party thereto , the lenders from time to time party thereto and wilmington trust , acting in its capacity as administrative agent and collateral agent ( the “ second lien credit agreement , ” and there lenders thereto , the “ second lien lenders , ” together with the first lien lenders , the “ secured lenders ” ) . the global knowledge rsa contemplates an out-of-court restructuring ( the “ restructuring ” ) that provides meaningful recoveries , funded by churchill , to all secured lenders . churchill is a third-party beneficiary of the global knowledge rsa with respect to enforcement of certain specific provisions and its explicit rights under the global knowledge rsa and not a direct party .
| results of operations we have neither engaged in any operations nor generated any revenues to date . our only activities through december 31 , 2020 were organizational activities , those necessary to prepare for the initial public offering , identifying a target for our business combination , and activities in connection with the proposed acquisition of skillsoft . we do not expect to generate any operating revenues until after the completion of our business combination . we generate non-operating income in the form of interest income on marketable securities held in the trust account . we incur expenses as a result of being a public company ( for legal , financial reporting , accounting and auditing compliance ) , as well as for due diligence expenses . for the year ended december 31 , 2020 , we had net income of $ 1,124,364 , which consists of reimbursement of transaction expenses of $ 2,000,000 , interest income on marketable securities held in the trust account of $ 2,516,752 and an unrealized gain on marketable securities held in our trust account of $ 1,276 offset by operating costs of $ 2,906,903 , and a provision for income taxes of $ 486,761. for the period from april 11 , 2019 ( inception ) through december 31 , 2019 , we had net income of $ 4,693,042 , which consists of interest income on marketable securities held in the trust account of $ 6,639,430 and an unrealized gain on marketable securities held in our trust account of $ 45,988 , offset by formation and operating costs of $ 744,859 , and a provision for income taxes of $ 1,247,517. liquidity and capital resources on july 1 , 2019 , we consummated the initial public offering of 69,000,000 units at a price of $ 10.00 per unit , which includes the full exercise by the underwriters of the over-allotment option , at $ 10.00 per unit , generating gross proceeds of $ 690,000,000. simultaneously
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since our inception in october 2008 , we have developed a large and growing number of borrowers in wujiang city . as of december 31 , 2013 , we have built a $ 90.2 million portfolio of direct loans to 217 borrowers and a total of $ 59.7 million in loan guarantees for 77 borrowers . we were established under the 2008 guidance on the small loan company pilot of the china banking regulatory commission and the people 's bank of china ( “ pboc ” ) ( no.23 ) ( “ circular no . 23 ” ) to extend short term loans and loan guarantees to smes , a class of borrowers that we believe have been underserved in the chinese lending market . the loans that we provide bridge the gap between chinese-state run banks that have not traditionally served the capital needs of smes and high interest rate “ underground ” lenders , and our loans provide capital at more favorable terms and sustainable interest rates . on september 5 , 2013 , our wholly owned subsidiary , ccc international investment holding ltd. ( “ ccc hk ” ) , established pride financial leasing ( suzhou ) co. ltd. ( “ pfl ” ) in jiangsu province , china . pfl is expected to offer financial leasing of machinery and equipment , transportation vehicles , and medical devices to municipal government agencies , hospitals and smes in jiangsu province and beyond . during the year ended december 31 , 2013 , pfl did not have any operations except for initial organizational activities . on february 19 , 2014 , wfoe entered into certain contractual arrangements with mr. huichun qin and pride information technology co. ltd. ( “ pride information ” ) , a domestic entity established on february 19 , 2014 and 100 % owned by mr. qin . pursuant to these contractual arrangements , wfoe will have the power , rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of pride information , including absolute control rights and the rights to the assets , property and revenue of pride information and as a result , approximately 100 % of the net income of pride information will be paid as a service fee to wfoe . pride information will be operating an online portal ( www . pridelendingclub.com ) to match prospective borrowers with lenders . as of the date of this annual report , pride information is in the beginning stage of testing the online portal and preparing for the launch of the portal and has not generated any revenue yet . key factors affecting our results of operation our business and operating results are affected by china 's overall economic growth and market interest rate . unfavorable changes could affect the demand for the services that we provide and could materially and adversely affect our results of operations . our results of operations are also affected by the regulations and industry policies related to the microcredit industry in the prc . due to changes in the applicable microcredit lending regulations in jiangsu province , starting august 2012 we elected to charge no more than three times the pboc benchmark rate . prior to august 2012 , we were allowed to charge up to four times the pboc benchmark rate . the decrease in the pboc benchmark rate and the new restriction on the allowable points above pboc benchmark rate have slowed our growth in net interest income . our results of operations are also affected by the provision for loan losses which is a noncash item and represents an assessment of the risk of future loan losses . increases in the allowance for loan losses are achieved through provision for loan losses that are charged against net interest income . although we have generally benefited from china 's economic growth and the policies to encourage lending to farmers and smes , we are also affected by the complexity , uncertainties and changes in the prc regulations governing the micro lending industry . due to prc legal restrictions on foreign equity ownership of and investment in the micro lending sector in china , we rely on contractual arrangements with wujiang luxiang , and its shareholders to conduct most of our current business in china . 45 story_separator_special_tag font-size : 10pt '' > a decrease of income before tax of $ 934,193 or 9 % , from $ 10,019,435 for year ended december 31 , 2012 to $ 9,085,242 for the year ended december 31 , 2013. this resulted in a decrease of income tax expense of $ 84,056 . 2 ) a change in prc tax policy . prior to 2012 , the company was entitled to a preferential income tax rate of 12.5 % . in april 2012 , the company received a notice from the local tax authority that the company 's lending business was qualified for a preferential tax rate of 12.5 % , while the taxable income arising from its guarantee business was subject to a standard tax rate of 25 % . the local tax authority required the company to apply the new tax policy retroactively to 2011. hence , the company evaluated the impact of the changed policy on the income tax provision on the issued financial statements of 2011 , and determined that income tax for 2011 was understated by approximately $ 225,445. this amount was recorded in the financial statements for the year ended december 31 , 2012 , as the amount was minimal compared to the company 's net income in 2011 . 48 loan portfolio quality one of our key objectives is to maintain a high level of loan portfolio quality . when a borrower fails to make a scheduled payment , we attempt to cure the deficiency by personally contacting the borrower . initial contacts typically are made seven days after the date the payment is due , and warning letters are sent by our legal counsel approximately 90 days after the default . story_separator_special_tag the sale of additional equity securities , including convertible debt securities , would dilute our current shareholders . the incurrence of debt could result in operating and financial covenants that would restrict our operations and our ability to pay dividends to our shareholders . if we are unable to obtain additional equity or debt financing as required , our business , operations and prospects may be adversely affected . in march 2014 , approximately $ 5.6 million of the net proceeds raised in the initial public offering ( “ ipo ” ) have been contributed to the registered capital of wujiang luxiang . statement of cash flows cash was $ 9,405,865 and $ 1,588,061 as of december 31 , 2013 and 2012 , respectively . the following table sets forth a summary of our cash flows for the year ended december 31 , 2013 and 2012 , respectively : replace_table_token_7_th net cash provided by operating activities during the year ended december 31 , 2013 , we had positive cash flow from operating activities of $ 6,605,544 , a decrease of $ 1,690,394 from the year ended december 31 , 2012 , during which we had cash flow from operating activities of $ 8,295,938. the net income for the year ended december 31 , 2013 decreased by $ 607,499 as compared to the year ended december 31 , 2012. the decrease in net cash provided by operating activities was the result of several factors , including : · an increase in cash flow due to an increase of non-cash items which was primarily due to the increase in the provision for loan losses of $ 399,034 . · a decrease in cash flow due to over provision for financial guarantee increased by $ 302,325 . · a decrease in cash flow due to the increase in changes in net tax receivable by $ 1,414,349. the change in net tax receivable as of december 31 , 2013 was $ 830,477 as compared to the change in net tax receivable as of december 31 , 2012 of $ 583,872. the company was required to prepay enterprise income taxes at a rate of 25 % on a quarterly basis when the applicable tax rate was 12.5 % for the loan business and 25 % for the guarantee business , respectively . within five months after fiscal year end , the company and the tax authority resolved the difference between the taxes paid and taxes due . 51 net cash used in investing activities net cash used in investing activities for the year ended december 31 , 2013 was $ 1,691,001 , as compared to net cash used in investing activities of $ 6,492,402 for the year ended december 31 , 2012. the cash used in investing activities for the year ended december 31 , 2013 was mainly used for granting new loans and for making deposits in the banks for the guarantee service . net cash provided by/ ( used in ) financing activities net cash provided by financing activities for the year ended december 31 , 2013 totaled $ 2,810,819 , as compared to net cash used in financing activities of $ 3,738,785 for the year ended december 31 , 2012. the cash provided by financing activities for the year ended december 31 , 2013 was mainly attributable to net proceeds of $ 7,623,139 from our initial public offering , net proceeds of $ 55,404 from the issuance of preferred stock , proceeds from additional bank borrowings of $ 16,307,898 , netting off against repayment of bank borrowings of $ 21,175,622. contractual obligations as of december 31 , 2013 , the annual amounts of future minimum payments under certain of our contractual obligations were : replace_table_token_8_th ( 1 ) the bank loans bear an average annual interest rate of 6 % . ( 2 ) our new lease for our office in wujiang commenced on october 1 , 2013 and will expire on september 30 , 2018. the company has the right to extend the lease before its expiration with a one-month 's prior written notice . off-balance sheet arrangements we enter into financial guarantee contracts with bank lenders pursuant to which we provide guarantees on behalf of borrowers to help them obtain loans from banks . the aggregate contract amounts reflect the extent of involvement the company has in the guarantee business and also represents the company 's maximum exposure to credit loss . the company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its borrowers . financial instruments representing credit risk are as follows : december 31 , 2013 december 31 , 2012 guarantee $ 59,692,091 $ 86,360,524 52 critical accounting policies we prepare our financial statements in conformity with accounting principles generally accepted in the united states ( “ u.s . gaap ” ) , which requires us to make judgments , estimates and assumptions that affect our reported amount of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements , and reported amounts of revenue and expenses during the reporting periods . we continually evaluate these estimates and assumptions based on the most recently available information , our own historical experience and various other assumptions that we believe to be reasonable under the circumstances . since the use of estimates is an integral component of the financial reporting process , actual results could differ from our expectations as a result of changes in our estimates . an accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made and if different accounting estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur , could materially impact the condensed financial statements . we believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates .
| results of operations year ended december 31 , 2013 as compared to the year ended december 31 , 2012 china commercial credit , inc consolidated statements of income and comprehensive income replace_table_token_4_th 46 the company 's net income for the year ended december 31 , 2013 was $ 7,704,970 , representing a decrease of $ 607,499 or 7 % , from $ 8,312,469 for the year ended december 31 , 2012. the decrease in net income for the year ended december 31 , 2013 was the net effect of the changes in the following components : · an increase in net interest income of $ 310,428 ; · an increase in the provision for loan losses of $ 399,034 ; · an increase in net commission and fees on guarantee services of $ 42,957 ; · an increase in total non-interest expense of $ 733,448 ; and · an decrease in enterprise income tax of $ 326,694 the following paragraphs discuss changes in the components of net income in greater details during the year ended december 31 , 2013 , as compared to the year ended december 31 , 2012. net interest income net interest income is equal to interest income we generated less interest expenses we incurred .
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for each loan type , all of these credit rating categories are broken out with adjusted loss ratios . the loan balance is then multiplied by the adjusted loss ratio to produce the required allowance . the allowances are totaled and added to any specific allocations on impaired loans to arrive at the total allowance for credit losses for the corporation . management tracks and assigns a historical loss story_separator_special_tag the following discussion and analysis represents management 's view of the financial condition and results of operations of the corporation . this discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this annual report . the financial condition and results of operations presented are not indicative of future performance . strategic overview enb financial corp and its wholly owned subsidiary , ephrata national bank , are committed to remaining an independent community bank serving the greater communities surrounding lancaster county , pennsylvania . the corporation 's roots date back to the april 11 , 1881 charter granted to ephrata national bank by the office of the comptroller of the currency . the bank 's growth has been entirely organic over 139 years of existence . the board and management are committed to the principals and values that have served the company well over its long history . in order to remain an independent bank of undisputed integrity , the board and management 's desire is to produce strong financial results that will ensure trust from the bank 's depositors and favorable returns to the shareholders over the long term . every three years management and the board evaluate and revise the strategic plan to ensure the continuing success of the corporation into the future . this endeavor is designed to continually sharpen the products and services the bank provides in a manner that best serves the customer and attains the financial performance that shareholders expect . in the most recent strategic plan that covers the years 2019 to 2021 , the board and management laid out a five-point plan laying a foundation for success during the next three years and beyond . succession planning and managing leadership changes were a key element of this strategic plan . the board and management also set into place bold goals to further strengthen the corporation 's financial performance ratios so the corporation is in a position to outperform the local peer group . the most visible of those targets is to meet and exceed a return on assets of 1.00 % and to maintain a return on stockholder 's equity of over 10.0 % , with a target range of 10.5 % to 11.0 % . management also desired to reduce the efficiency ratio under 70 % for 2020. management views return on assets as the best overall indicator of a financial institution 's performance . management and the board believe that achieving a higher return on assets will directly correlate to improved earnings per share and dividends per share , and higher book value of common stock , which in the end will produce higher returns to the shareholder . story_separator_special_tag corporation 's operations are best explained by addressing in further detail the five major sections of the income statement , which are as follows : · net interest income · provision for loan losses · other income · operating expenses · income taxes the following discussion analyzes each of these five components . net interest income net interest income ( nii ) represents the largest portion of the corporation 's operating income . in 2020 , nii generated 71.3 % of the corporation 's gross revenue stream , compared to 76.4 % in 2019 , and 75.0 % in 2018. since nii comprises a significant portion of the operating income , the direction and rate of increase or decrease will often indicate the overall performance of the corporation . the following table shows a summary analysis of nii on a fully taxable equivalent ( fte ) basis . for analytical purposes and throughout this discussion , yields , rates , and measurements such as nii , net interest spread , and net yield on interest earning assets , are presented on an fte basis . this differs from the nii reflected on the corporation 's consolidated statements of income , where the nii is simply the interest earned on loans and securities less the interest paid on deposits and borrowings . by calculating the nii on an fte basis , the added benefit of having tax-free loans and securities is factored in to more accurately represent what the corporation earns through the nii . the fte adjustment shows the benefit these tax free loans and securities bring in a dollar amount because the corporation does not pay tax on the income they generate . as a result , the fte nii shown in both tables below will exceed the nii reported on the consolidated statements of income . the amount of fte adjustment totaled $ 814,000 for 2020 , $ 749,000 for 2019 , and $ 880,000 for 2018. net interest income ( dollars in thousands ) replace_table_token_7_th nii is the difference between interest income earned on assets and interest expense incurred on liabilities . accordingly , two factors affect nii : · the rates charged on interest earning assets and paid on interest bearing liabilities 35 enb financial corp management 's discussion and analysis · the average balance of interest earning assets and interest bearing liabilities the federal funds rate , the prime rate , the shape of the u.s. treasury curve , and other wholesale funding curves , all affect nii . the federal reserve controls the federal funds rate , which is one of a number of tools available to the federal reserve to conduct monetary policy . the federal funds rate , and guidance on when the rate might be changed , is often the focal point of discussion regarding the direction of interest rates . story_separator_special_tag the corporation 's costs on borrowings included $ 306,000 of prepayment penalties recorded on fhlb long-term advances paid off early during 2020. management expects the cost of funds will decline slightly and then stabilize throughout 2021 as deposits reprice to lower rates but this decline should level out as continued savings become more difficult to achieve . core deposit interest rates were reduced nine times throughout 2020 and time deposit rates have also decreased resulting in maturing time deposits repricing at lower levels or moving into core deposit products . management does not anticipate significant deposit rate movements in 2021 as deposits are now priced at very low rates . typically , financial institutions will make small systematic moves on core interest bearing accounts while making larger rate movements in the pricing of new or reissued time deposits . borrowing costs , and the wholesale borrowing curves that they are based on , generally follow the direction and slope of the u.s. treasury curve . however , these curves can be quicker to rise and slower to fall as the providers of these funds seek to protect themselves from rate movements . the corporation prepaid a number of fhlb advances in 2020 accelerating the interest expense , but achieving savings in future time periods . the following table provides an analysis of year-to-year changes in net interest income by distinguishing what changes were a result of average balance increases or decreases and what changes were a result of interest rate increases or decreases . rate/volume analysis of changes in net interest income ( taxable equivalent basis , dollars in thousands ) replace_table_token_8_th in 2020 , the corporation 's nii on an fte basis increased by $ 1,695,000 , a 4.5 % increase over 2019. total interest income increased $ 422,000 , or 1.0 % , while interest expense decreased $ 1,273,000 , or 24.9 % , from 2019 to 2020 . 37 enb financial corp management 's discussion and analysis the fte interest income from the securities portfolio decreased by $ 569,000 , or 7.0 % , while loan interest income increased $ 1,319,000 , or 3.9 % . during 2020 , additional loan volume added $ 3,929,000 to net interest income , and lower yields primarily due to the prime rate decreases in the first quarter of 2020 , caused a $ 2,610,000 decrease , resulting in a net increase of $ 1,319,000. higher balances in the securities portfolio caused an increase of $ 1,101,000 in net interest income , while lower yields on securities caused a $ 1,670,000 decrease , resulting in a net decrease of $ 569,000. the average balance of interest bearing liabilities increased by 6.7 % during 2020 , driven by the growth in deposit balances . deposit rates decreased significantly throughout 2020 more than offsetting the slightly higher interest expense caused by much higher balances of deposits . lower interest rates contributed to $ 1,449,000 of interest expense reduction while higher balances only caused $ 36,000 of increased expense , resulting in a total decline in interest expense of $ 1,413,000. out of all the corporation 's deposit types , interest-bearing demand deposits reprice the most rapidly , as these rates can be adjusted lower after a federal reserve rate decrease . demand deposit interest expense decreased a total of $ 1,161,000 in 2020 , with $ 1,298,000 due to lower rates , offsetting the higher balances that caused an increase of $ 137,000. interest expense on savings deposits and time deposit balances decreased to a lesser degree . higher balances in savings accounts caused an increase of $ 17,000 , while lower rates caused a decrease of $ 60,000 , resulting in the net decrease in interest expense of $ 43,000 on savings deposits . time deposit balances declined throughout 2020 , resulting in lower interest expense of $ 118,000 , while lower rates caused a decline of $ 91,000 , resulting in a net decrease of $ 209,000. the average balance of total borrowings decreased by $ 6.6 million , or 8.7 % , from december 31 , 2019 , to december 31 , 2020. the decrease in total borrowings decreased interest expense by $ 137,000. the corporation paid off fhlb long-term advances during 2020 , which resulted in accelerated interest expense causing a $ 277,000 increase in interest expense associated with higher rates . the aggregate of these amounts was an increase in interest expense of $ 140,000 related to total borrowings . the following table shows a more detailed analysis of net interest income on an fte basis shown with all the major elements of the corporation 's balance sheet , which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities . additionally , the analysis provides the net interest spread and the net yield on interest earning assets . the net interest spread is the difference between the yield on interest earning assets and the interest rate paid on interest bearing liabilities . the net interest spread has the deficiency of not giving credit for the non-interest bearing funds and capital used to fund a portion of the total interest earning assets . for this reason , management emphasizes the net yield on interest earning assets , also referred to as the net interest margin ( nim ) . the nim is calculated by dividing net interest income on an fte basis into total average interest earning assets . the nim is generally the benchmark used by analysts to measure how efficiently a bank generates nii . 38 enb financial corp management 's discussion and analysis comparative average balance sheets and net interest income ( taxable equivalent basis , dollars in thousands ) replace_table_token_9_th ( a ) includes balances of non-accrual loans and the recognition of any related interest income .
| results of operations overview the year of 2020 was impacted by a number of unprecedented items caused by the onset of the covid-19 pandemic . the spread of covid-19 quickly became global and impacted the global economy . this impact was felt rather quickly due to china 's large role in the world economy , second in gdp , but first in terms of supply chain impact for basic goods . the immediate impact and forward risk posed by the pandemic caused the federal reserve to take the unusual step of reducing the federal funds rate by 50 basis points to 1.25 % on march 3 , 2020 , at a special fed meeting ahead of the regularly scheduled march 18 , 2020 meeting . on march 11 , 2020 , the world health organization ( who ) recognized covid-19 as a pandemic . the quick further expansion of the pandemic then caused the federal reserve to take an unprecedented step of a second special meeting on sunday afternoon of march 15 , 2020 , to further reduce the federal funds rate 100 basis points to 0.25 % . this move took the federal funds rate to the same historic low of 0.25 % that occurred due to the financial crisis of 2008. on march 15 , 2020 , the fed also reduced the discount window rate by 150 basis points , which took this rate down to 0.25 % . this move importantly gave all banks easy access to very low cost funds . on march 16 , 2020 , the fed also announced action to inject more liquidity into the financial system by purchasing up to $ 500 billion of u.s. treasuries and $ 200 billion of mortgage-backed securities . all major stock exchanges experienced dramatic sell-offs . the dow , which had peaked at 29,568 in february , closed on friday , march 20 , 2020 at 19,174 , down 10,394 points , or 35 % .
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through our comprehensive suite of solutions , we deliver real-time , immediate payments capabilities , and enable a complete omni-channel payments experience . our products are sold and supported through distribution networks covering three geographic regions the americas , emea , and asia/pacific . each distribution network has its own globally coordinated sales force and supplements its sales force with independent reseller and or distributor networks . our products and solutions are used globally by banks , financial intermediaries , merchants and corporates , such as third-party electronic payment processors , payment associations , switch interchanges and a wide range of transaction-generating endpoints , including atms , merchant point-of-sale ( pos ) terminals , bank branches , mobile phones , tablets , corporations , and internet commerce sites . accordingly , our business and operating results are influenced by trends such as information technology spending levels , the growth rate of electronic payments , mandated regulatory changes , and changes in the number and type of customers in the financial services industry . our products are marketed under the aci worldwide , aci universal payment , and aci up brands . we derive a majority of our revenues from domestic operations and believe we have large opportunities for growth in international markets as well as continued expansion domestically in the united states . refining our global infrastructure is a critical component of driving our growth . we have launched a globalization strategy which includes elements intended to streamline our supply chain and maximize expertise in several geographic locations to support a growing international customer base and competitive needs . we utilize our irish subsidiaries to manage certain of our intellectual property rights and to oversee and manage certain international product development and commercialization efforts . we increased our saas and paas capabilities with a data center in ireland allowing our saas and paas solutions to be more-broadly offered in the european market . we also continue to grow centers of expertise in timisoara , romania and pune and bangalore in india , as well as key operational centers such as cape town , south africa and in multiple locations in the united states . 33 key trends that currently impact our strategies and operations include : increasing electronic payment transaction volumes . electronic payment volumes continue to increase around the world , taking market share from traditional cash and check transactions . in their world payments report , capgemini predicts that non-cash transaction volumes will grow in volume at an annual rate of 12.7 % , from 482.5 billion in 2016 to 876.4 in 2021 , with varying growth rates based on the type of payment and part of the world . we leverage the growth in transaction volumes through the licensing of new systems to customers whose older systems can not handle increased volume and through the sale of capacity upgrades to existing customers . adoption of real-time payments . customer expectations , from both consumers and corporate , are driving the payments world to more real-time delivery . in the u.k. , payments sent through the traditional ach multi-day batch service can now be sent through the faster payments service giving almost immediate access to the funds , and this is being considered and implemented in several countries including australia and the united states . in the u.s. market , national automated clearinghouse association ( nacha ) implemented phase 2 of same day ach in september 2017. corporate customers expect real-time information on the status of their payments instead of waiting for an end of-day report . regulators expect banks to be monitoring key measures like liquidity in real time . aci 's focus has always been on the real-time execution of transactions and delivery of information through real-time tools , such as dashboards , so our experience will be valuable in addressing this trend . increasing competition . the electronic payments market is highly competitive and subject to rapid change . our competition comes from in-house information technology departments , third-party electronic payment processors , and third-party software companies located both within and outside of the united states . many of these companies are significantly larger than us and have significantly greater financial , technical , and marketing resources . as electronic payment transaction volumes increase , third-party processors tend to provide competition to our solutions , particularly among customers that do not seek to differentiate their electronic payment offerings or are eliminating banks from the payments service , reducing the need for our solutions . as consolidation in the financial services industry continues , we anticipate that competition for those customers will intensify . adoption of cloud technology . to leverage lower-cost computing technologies , some banks , financial intermediaries , merchants and corporates are seeking to transition their systems to make use of cloud technology . our investments provide us the grounding to deliver cloud capabilities in the future . market sizing data from ovum indicates that spend on saas and paas payment systems is growing faster than spend on installed applications . electronic payments fraud and compliance . as electronic payment transaction volumes increase , organized criminal organizations continue to find ways to commit a growing volume of fraudulent transactions using a wide range of techniques . banks , financial intermediaries , merchants and corporates continue to seek ways to leverage new technologies to identify and prevent fraudulent transactions and other attacks such as denial of service attacks . due to concerns with international terrorism and money laundering , banks and financial intermediaries in particular are being faced with increasing scrutiny and regulatory pressures . we continue to see opportunity to offer our fraud detection solutions to help customers manage the growing levels of electronic payments fraud and compliance activity . adoption of smartcard technology . in many markets , card issuers are being required to issue new cards with embedded chip technology , with the liability shift having gone into effect in 2015 in the united states . story_separator_special_tag several other factors related to our business may have a significant impact on our operating results from year to year . for example , the accounting rules governing the timing of revenue recognition are complex and it can be difficult to estimate when we will recognize revenue generated by a given transaction . factors such as creditworthiness of the customer and timing of transfer of control or acceptance of our products may cause revenues related to sales generated in one period to be deferred and recognized in later periods . for arrangements in which services revenue is deferred , related direct and incremental costs may also be deferred . additionally , while the majority of our contracts are denominated in the u.s. dollar , a substantial portion of our sales are made , and some of our expenses are incurred , in the local currency of countries other than the united states . fluctuations in currency exchange rates in a given period may result in the recognition of gains or losses for that period . we continue to seek ways to grow through organic sources , partnerships , alliances , and acquisitions . we continually look for potential acquisitions designed to improve our solutions ' breadth or provide access to new markets . as part of our acquisition strategy , we seek acquisition candidates that are strategic , capable of being integrated into our operating environment , and accretive to our financial performance . divestiture community financial services on march 3 , 2016 , we completed the sale of our cfs related assets and liabilities to fiserv for $ 200.0 million . the sale of cfs , which was not strategic to our long-term strategy , was part of the company 's ongoing efforts to expand as a provider of software products and saas-based and paas-based solutions facilitating real-time electronic and ecommerce payments for large banks , financial intermediaries , merchants and corporates worldwide . the sale included employee agreements and customer contracts as well as technology assets and intellectual property . for the year ended december 31 , 2016 , we recognized a net after-tax gain of $ 93.4 million on sale of assets to fiserv . backlog backlog is comprised of : committed backlog , which includes ( 1 ) contracted revenue that will be recognized in future periods ( contracted but not recognized ) from software license fees , maintenance fees , services fees , and saas and paas fees specified in executed contracts ( including estimates of variable consideration if required under asc 606 ) and included in the transaction price for those contracts , which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods and ( 2 ) estimated future revenues from software license fees , maintenance fees , services fees , and saas and paas fees specified in executed contracts . renewal backlog , which includes estimated future revenues from assumed contract renewals to the extent we believe recognition of the related revenue will occur within the corresponding backlog period . 36 the adoption of asc 606 resulted in the following key changes to backlog : the introduction of a u.s. gaap requirement to measure and disclose revenue allocated to remaining performance obligations . a shift in license revenue from committed backlog to renewal backlog due to the acceleration of license revenue recognition and a corresponding change in the renewal assumptions used to estimate renewal backlog . an adjustment to the amount of license revenue included in renewal backlog due to the introduction of the significant financing component concept . we have historically included assumed renewals in backlog estimates based upon automatic renewal provisions in the executed contract and our historic experience with customer renewal rates . our 60-month backlog estimates are derived using the following key assumptions : license arrangements are assumed to renew at the end of their committed term or under the renewal option stated in the contract at a rate consistent with historical experience . if the license arrangement includes extended payment terms , the renewal estimate is adjusted for the effects of a significant financing component . maintenance fees are assumed to exist for the duration of the license term for those contracts in which the committed maintenance term is less than the committed license term . saas and paas arrangements are assumed to renew at the end of their committed term at a rate consistent with our historical experiences . foreign currency exchange rates are assumed to remain constant over the 60-month backlog period for those contracts stated in currencies other than the u.s. dollar . our pricing policies and practices are assumed to remain constant over the 60-month backlog period . in computing our 60-month backlog estimate , the following items are specifically not taken into account : anticipated increases in transaction , account , or processing volumes by our customers . optional annual uplifts or inflationary increases in recurring fees . services engagements , other than saas and paas arrangements , are not assumed to renew over the 60-month backlog period . the potential impact of consolidation activity within our markets and or customers . we review our customer renewal experience on an annual basis . the impact of this review and subsequent update may result in a revision to the renewal assumptions used in computing the 60-month backlog estimates . in the event a significant revision to renewal assumptions is determined to be necessary , prior periods will be adjusted for comparability purposes . 37 the following table sets forth our 60-month backlog estimate , by reportable segment , as of december 31 , 2018 ; september 30 , 2018 ; june 30 , 2018 ; march 31 , 2018 ; and december 31 , 2017 ( in millions ) . dollar amounts reflect foreign currency exchange rates as of each period end . we included our 60-month backlog estimate without the application of asc 606. this is a non-gaap financial measure that is being presented to provide comparability across accounting periods .
| results of operations the following tables present the consolidated statements of operations as well as the percentage relationship to total revenues of items included in our consolidated statements of operations ( in thousands ) : year ended december 31 , 2018 , compared to year ended december 31 , 2017 replace_table_token_3_th revenues total revenue for the year ended december 31 , 2018 , decreased $ 14.4 million , or 1 % , as compared to the same period in 2017. the application of asc 606 resulted in a $ 2.5 million decrease in total revenue for the year ended december 31 , 2018. total revenue was $ 3.7 million higher for the year ended december 31 , 2018 , compared to the same period in 2017 , due to the impact of foreign currencies strengthening against the u.s. dollar . excluding the impact of applying asc 606 and foreign currency , total revenue for the year ended december 31 , 2018 , decreased $ 15.6 million , or 2 % , compared to the same period in 2017 , primarily as the result of a decrease in license , maintenance and services revenue , partially offset by an increase in saas and paas revenue . software as a service ( saas ) and platform as a service ( paas ) revenue the company 's saas arrangements allow customers to use certain software solutions ( without taking possession of the software ) in a single-tenant cloud environment on a subscription basis . the company 's paas arrangements 39 allow customers to use certain software solutions ( without taking possession of the software ) in a multi-tenant cloud environment on a subscription or consumption basis . included in saas and paas revenue are fees paid by our customers for use of our biller solutions .
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there was no effect on our consolidated balance sheet as of december 31 , 2016 or 2015. in january 2016 , the fasb issued accounting standards update 2016-01 , “ recognition and measurement of financial assets and financial liabilities . ” the amendments require equity investments ( except those accounted for under the equity method of accounting or those that result in consolidation of the investee ) to be measured at fair value with changes in fair value recognized in net income , and separate presentation of financial assets and financial liabilities by measurement category and form of financial asset . additionally , the amendments eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value of financial instruments . the amendments are effective for fiscal years , and interim periods within those fiscal years , beginning after december 15 , 2017. other than an amendment relating to presenting in comprehensive income the portion of the total change in the fair value of a liability resulting from a change in instrument-specific credit risk ( if the entity has elected to measure the liability at fair value ) , early adoption is not permitted . the company does not anticipate the amendment will have any impact on our financial statements . in february 2016 , the fasb issued asu no . 2016-02 , leases story_separator_special_tag the statements contained in this report with respect to our financial condition , results of operations and business that are not historical facts are forward-looking statements . forward-looking statements can be identified by the use of forward-looking terminology , such as `` anticipate '' , `` believe '' , `` expect '' , `` plan '' , `` intend '' , `` seek '' , `` estimate '' , `` project '' , `` could '' , `` may '' or the negative thereof or other variations thereon , or by discussions of strategy that involve risks and uncertainties . management wishes to caution the readers of the forward-looking statements that any such statements that are contained in this report reflect our current beliefs with respect to future events and involve known and unknown risks , uncertainties and other factors , including , but not limited to , economic , competitive , regulatory , technological , key employees , and general business factors affecting our operations , markets , growth , services , products , licenses and other factors , some of which are described in this report including in “ risk factors ” in item 1a and some of which are discussed in our other filings with the securities and exchange commission . these forward-looking statements are only estimates or predictions . no assurances can be given regarding the achievement of future results , as actual results may differ materially as a result of risks facing our company , and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events . these risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue . all written and oral forward looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements . given these uncertainties , we caution investors not to unduly rely on our forward-looking statements . we do not undertake any obligation to review or confirm analysts ' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events , except as required by applicable law or regulation . business overview & recent developments in november 2014 , we received a good manufacturing practices ( “ gmp ” ) certificate issued by the china food and drug administration ( “ cfda ” ) for dried powder and liquid injectable product lines produced at our new manufacturing facility , and since then we have restarted production of products with those formulations after a suspension of production from year end 2013 due to our inability to meet a gmp upgrade deadline . gmp compliance timing issues also caused us to miss certain drug bids ( generally with terms of around two years ) in several chinese provinces prior to november 2014. these missed bids negatively impacted our previously-established market share in those provinces , and reduced our overall sales in 2015 and 2016. nevertheless , we continue to concentrate on enhancing the fundamentals of our business . in january and december 2015 , we completed upgrades to our manufacturing facilities and received new gmp certificates for our tablet and capsule product lines and for the cephalosporin product lines at our old factories . upgrades to our oral solution product lines were completed ahead of the deadline , which has positioned us to better meet market demand . 51 in order to comply with requests from the central committee of the communist party of china and state council to use the strictest standards to monitor and regulate food and drug production and to further rectify and standardize drug distribution , cfda issued the “ notice of rectification against illegal operations regarding drug logistics & distribution ” on may 3 , 2016. because it had become the top priority for pharmaceutical distributors , including our distributors , to comply with this government policy , our distributors ' time and efforts were focused on passing cfda inspection , which delayed their ordinary promotion efforts and purchase and distribution activities , which further negatively impacted the sales performance of our company during the second and third quarters of 2016. increasing our sales remains our top priority . through the continued implementation of sales promotion , the company realized sales increases in the fourth quarter of 2016 compared to the previous quarter . story_separator_special_tag as a generic drug company we are presented with a huge domestic market , and through further upgrades , especially in compliance with consistency evaluations , we could meet european and american production standards , enabling us to engage overseas markets through product exports . in august 2015 , the state council promulgated the “ opinions on therefore and examination of the approval system for the reform of drugs and medical devices ” , which opened the prelude to the reform of the drug examination and approval system in china , the reform of the drug registration system , consistency evaluations of generic drugs , and enhanced drug listing licensing systems , among other reforms . the cfda has also subsequently introduced a number of specific measures and technical details related to various areas of the above-mentioned reforms . these policies may change the existing competitive landscape , development methods , and operating patterns and rules of the pharmaceutical industry and may have a significant impact on the strategic choices and future development models of chinese pharmaceutical companies . in addition , the office of the state council issued the `` pilot plan for marketing authorization holders `` on may 24 , 2016 , allowing eligible drug research and development institutions and scientific researchers to become marketing authorization holders ( “ mah ” ) by obtaining drug marketing authorization and drug approval numbers from the state council . this policy uses a management model of separating drug marketing authorization and drug production licenses , thereby allowing a mah to produce pharmaceuticals itself or to consign production to other pharmaceutical manufacturers . this policy not only transitions our production practices to meet european and united states standards by separating drug approval and production qualifications , and therefore changing the existing model of bundling drug approval numbers to pharmaceutical manufacturers in china , but also serves as a supplement to the ongoing consistency evaluations policy . given that a certain failure rate must be demonstrated by mah applicants for in their consistency evaluations , an applicant that passes the evaluations could consign production to an applicant who failed in order to optimize capacity , save on fixed costs , and reduce capital expenditures . in general , demand for pharmaceutical products is still experiencing steady growth in china . the ongoing generic drug consistency evaluations and reform of china 's drug production registration and review policies will have major effects on the future development of our industry and may change its business patterns . we will continue to actively adapt to state policy guidance and further evaluate market conditions for our current existing products , pipeline products , and competition in the market in order to optimize our development strategy . results of operations for the fiscal year ended december 31 , 2016 revenue revenue decreased by 23.5 % to $ 15.6 million for the year ended december 31 , 2016 , as compared to $ 20.4 million for the year ended december 31 , 2015. this decrease was primarily due to the focus of our distributor customers with the cfda rectification of pharmaceutical distributors as discussed above in the second and third quarters of 2016 , despite our efforts to promote sales in an attempt to regain market share during 2016. set forth below are our revenues by product category in millions ( usd ) for the years ended december 31 , 2016 and 2015 : replace_table_token_4_th the most significant revenue decrease in terms of dollar amount was in our “ anti-viral/infection & respiratory ” product category , which generated $ 10.3 million in sales revenue in 2016 compared to $ 13.5 million a year ago , a decrease of $ 3.2 million . this decrease was mainly due to the sales decrease of our cefaclor dispersible tablets in this category , which was a result of cfda rectification of pharmaceutical distributors as discussed above in middle 2016 , as well as market fluctuation . sales in the “ cns cerebral & cardio vascular ” category decreased by $ 0.4 million to $ 2.7 million in 2016 compared to $ 3.1 million in 2015 , which decrease was mainly due to a drop in sales of ozagrel , primarily the result volatility in market demand . our “ digestive diseases ” category generated $ 0.8 million of sales in both 2016 and 2015. our “ other ” product category sales decreased by $ 1.2 million to $ 1.8 million in 2016 from $ 3.0 million in 2015 , mainly due to the decrease in sales of vitamin b6 , caused by market volatility . replace_table_token_5_th for the year ended december 31 , 2016 , revenue breakdown by product category remained close to that of the prior year . sales of the “ anti-viral/infection & respiratory ” products category represented 65 % and 66 % of total sales in the year ended on december 31 , 2016 and 2015 , respectively . the “ cns cerebral & cardio vascular ” category represented 18 % of total revenue in 2016 , compared to15 % in 2015. the “ digestive diseases ” category represented 5 % of total revenue in 2016 compared to 4 % in 2015. the “ other ” category represented 12 % and 15 % of revenues in 2016 and 2015 , respectively . 54 cost of revenue for the year ended december 31 , 2016 , our cost of revenue was $ 12.4 million , or 79 % of total revenue , which represented a decrease of $ 3.4 million from $ 15.8 million , or 78 % of total revenue , in 2015. inventory obsolescence in some cases , we have decreased our sales estimates between the time when raw materials were purchased and the time when the sales are made for certain of our products . we have also reassessed the market value of certain of our raw materials . as a result , we have determined that certain inventory has become slow moving or obsolete .
| general and administrative expenses our general and administrative expenses for the year ended december 31 , 2016 were $ 2.3 million , which represented an increase of $ 0.4 million compared to $ 1.9 million in 2015. general and administrative expenses accounted for 14.6 % and 9.3 % of our total revenues in 2016 and 2015 , respectively . research and development expenses our research and development expenses for the year ended december 31 , 2016 were $ 0.4 million , compared to $ 1.0 million in 2015. research and development expenses accounted for 2.4 % and 4.7 % of our total revenues in 2016 and 2015 , respectively . the consistency evaluations discussed under the “ business overview & recent developments ” section here of is expected to have a significant impact on all generic products not only in our pipeline , but also throughout the existing chinese market . because of the continuous introduction of detailed implementation rules under this policy , our pipeline did not have any further development in 2016. but , we are still actively adapting to this policy , and have filed reagent references with the cfda for several key products in 2016. bad debt expenses our bad debt expenses for the year ended december 31 , 2016 was $ 1.1 million , which represented a decrease of $ 4.9 million compared to $ 6.0 million in 2015. during 2015 , we also recognized bad debt expenses of $ 4.1 million related to advances made to suppliers based on our evaluations of the realization likelihood of payments .
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future minimum rental payments required , excluding maintenance and other miscellaneous charges , under those operating leases are as follows ( in thousands ) : replace_table_token_35_th 67 knoll , inc. notes to the consolidated financial statements ( continued ) december 31 , 2012 16. pension and other postretirement benefits the company has two domestic defined benefit pension plans and two plans providing for other postretirement benefits , including medical and life insurance coverage . one of the pension plans and one of the other postretirement benefits plans cover eligible u.s. nonunion employees while the other pension plan and other postretirement benefits plan cover eligible u.s. union employees . the company uses a december 31 measurement date for both of these plans . both the pension plans and the other postretirement benefit plans were modified during the year ended december 31 , 2011. participants who had 70 or greater points ( age plus completed years story_separator_special_tag management 's discussion and analysis of financial condition and results of operations provides an account of our financial performance and financial condition that should be read in conjunction with the accompanying audited consolidated financial statements . forward-looking statements this annual report on form 10-k contains forward-looking statements , principally in the sections entitled `` business , '' `` risk factors , '' `` management 's discussion and analysis of financial condition and results of operations , '' and `` quantitative and qualitative disclosures about market risk . '' statements and financial discussion and analysis contained in this form 10-k that are not historical facts are forward-looking statements . these statements discuss goals , intentions and expectations as to future trends , plans , events , results of operations or financial condition , or state other information relating to us , based on our current beliefs as well as assumptions made by us and information currently available to us . forward-looking statements generally will be accompanied by words such as `` anticipate , '' `` believe , '' `` could , '' `` estimate , '' `` expect , '' `` forecast , '' `` intend , '' `` may , '' `` possible , '' `` potential , '' `` predict , '' `` project , '' or other similar words , phrases or expressions . this includes , without limitation , our statements and expectations regarding any current or future recovery in our industry and publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals .. although we believe these forward-looking statements are reasonable , they are based upon a number of assumptions concerning future conditions , any or all of which may ultimately prove to be inaccurate . important factors that could cause actual results to differ materially from the forward-looking statements include , without limitation : the risks described in item 1a and in item 7a of this annual report on form 10-k ; changes in the financial stability of our clients or the overall economic environment , resulting in decreased corporate spending and service sector employment ; changes in relationships with clients ; the mix of products sold and of clients purchasing our products ; the success of new technology initiatives ; changes in business strategies and decisions ; competition from our competitors ; our ability to recruit and retain an experienced management team ; changes in raw material prices and availability ; restrictions on government spending resulting in fewer sales to the u.s. government , one of our largest customers ; our debt restrictions on spending ; our ability to protect our patents , copyrights and trademarks ; our reliance on furniture dealers to produce sales ; lawsuits arising from patents , copyrights and trademark infringements ; violations of environment laws and regulations ; potential labor disruptions ; adequacy of our insurance policies ; the availability of future capital and the cost of borrowing ; the overall strength and stability of our dealers , suppliers , and customers ; access to necessary capital ; the success of our design and implementation of a new enterprise resource planning system ; and currency rate fluctuations . the factors identified above are believed to be important factors ( but not necessarily all of the important factors ) that could cause actual results to differ materially from those expressed in any forward-looking statement . unpredictable or unknown factors could also have material adverse effects on us . all forward-looking statements included in this form 10-k are expressly qualified in their entirety by the foregoing cautionary statements . except as required under the federal securities laws and the rules and regulations of the sec , we undertake no obligation to update , amend , or clarify forward-looking statements , whether as a result of new information , future events , or otherwise . overview we design , manufacture , market and sell furnishings and accessories , textiles , fine leathers , and felt , for the workplace and home . our commitment to innovation and modern design has yielded a comprehensive portfolio of products and a brand recognized for high quality and a sophisticated image . our products are targeted at the middle to upper end of the market and are sold primarily in north 29 america and europe through a direct sales force and a broad network of independent dealers and retailers . we operate under a management philosophy that incorporates a collaborative culture , client-driven processes and a lean , agile operating structure . our employees are performance-driven and motivated by a variable incentive compensation system and broad-based equity ownership in the company . we believe the strength of our brand and our products , combined with this operating philosophy , leads to superior financial performance for our stakeholders . story_separator_special_tag european sales declined 9.5 % in 2012 when compared to 2011. studio segment sales in 2012 were negatively impacted by $ 4.0 million due to changes in foreign exchange rates associated with the euro and the british pound compared to 2011. operating profit for the studio segment was $ 21.8 million , a decrease of $ 1.2 million , or 5.2 % , when compared with 2011. as a percentage of net sales , the studio segment operating profit was 14.8 % for the year ended december 31 , 2012 and 15.1 % for the year ended december 31 , 2011. net sales for the coverings segment in 2012 were $ 106.6 million , an increase of $ 1.2 million , or 1.1 % , when compared with 2011. the modest increase in sales in the coverings segment can be mainly attributed to increased sales as a result of the acquisition of filzfelt . the increase in the covering segment sales in 2012 was offset by a negative impact of $ 0.4 million due to changes in foreign 33 exchange rates compared to 2011. operating profit for the coverings segment was $ 17.5 million , a decrease of $ 5.2 million , or 22.9 % , when compared to 2011. as a percentage of net sales , the coverings segment operating profit was 16.4 % for the year ended december 31 , 2012 and 21.5 % for the year ended december 31 , 2011. increased spending associated with growth initiatives in the coverings segment , together with a one-time charge for inventory costs that were not being properly transferred to cost of goods sold due to a computer programming change , drove this decrease in year-over-year operating profit margin . years ended december 31 , 2010 and 2011 replace_table_token_12_th ( 1 ) results do not add due to rounding sales sales for 2011 were $ 922.2 million , an increase of $ 112.7 million , or 13.9 % , from sales of $ 809.5 million for 2010. the industry as a whole saw sales increase 13 % in 2011 , as reported by bifma , and our growth was consistent with the industry . our systems product category experienced the largest increase for the year , up 24.6 % when compared with 2010. in 2011 , systems continued to represent the largest percentage of our overall sales . geographically , our european sales lagged the growth in north america as a result of the declining economic conditions in europe . sales to governmental entities and agencies continued to represent a large portion of our overall sales however , these sales , declined on a year-over-year basis during the fourth quarter of 2011. this decline was a significant factor in our lower sales for the fourth quarter 2011. approximately 21.0 % of our 2011 sales were to federal , state and local governmental entities and related agencies . gross profit and operating profit gross profit for 2011 was $ 294.4 million , an increase of $ 30.1 million , or 11.4 % , from gross profit of $ 264.3 million for 2010. operating profit for 2011 was $ 97.1 million , an increase of $ 32.4 million , or 50.1 % , from operating profit of $ 64.7 million for 2010. included in operating profit for 2011 was a $ 5.4 million curtailment benefit primarily related to the modification of our postretirement medical benefits . as a percentage of sales , gross profit decreased from 32.7 % for 2010 to 31.9 % for 2011. the largest contributors to this decline were materials and transportation inflation . the strengthening of the canadian dollar during 2011 also negatively affected our gross margin . operating profit as a percentage 34 of sales increased from 8.0 % in 2010 to 10.5 % in 2011. operating profit for 2011 included restructuring charges of $ 0.7 million compared to $ 7.6 million in 2010. selling , general , and administrative expenses for 2011 were $ 202.1 million , or 21.9 % of sales , compared to $ 192.5 million , or 23.8 % of sales , for 2010. the increase in operating expenses during 2011 was in large part due to increased commissions and incentive compensation based upon the higher sales volumes as well as $ 1.7 million of expenses related to technology infrastructure upgrades . during 2011 , we incurred restructuring charges of approximately $ 0.8 million . these charges included $ 0.2 million of employee termination costs and $ 0.6 million of costs associated with facility realignment . these charges were offset by a $ 0.1 million adjustment to a previous accrual . during 2010 , we incurred restructuring charges of approximately $ 7.6 million . these charges included $ 3.7 million of employee termination costs , $ 3.0 million of costs associated with the write-off of fixed assets that we determined had no future benefit , and $ 0.9 million of costs related to facility realignment . interest expense interest expense for 2011 was $ 9.8 million , a decrease of $ 7.6 million from interest expense of $ 17.4 million for 2010. the decrease in interest expense for the periods noted above is mainly due to our lower outstanding debt and the expiration of our remaining two interest rate swap agreements on june 9 , 2011. see note 12 of the consolidated financial statements included in this annual report on form 10-k for further information regarding the interest rate swaps . the annualized weighted average interest rate for 2011 was 3.6 % . the annualized weighted average interest rate for the same period of 2010 was 5.8 % . other ( income ) expense , net other income for 2011 was $ 1.5 million which included $ 2.7 million of foreign exchange gains , partially offset by $ 1.6 million of expense related to a negative judicial ruling , and $ 0.4 million of miscellaneous income .
| results of operations years ended december 31 , 2011 and 2012 replace_table_token_10_th ( 1 ) results do not add due to rounding sales sales for 2012 were $ 887.5 million , a decrease of $ 34.7 million , or 3.8 % , from sales of $ 922.2 million for 2011. in 2012 , systems continued to represent the largest percentage of our overall sales . geographically , our european sales declined 9.9 % compared to north america which declined 3.2 % . the decline in european sales was driven primarily by the overall poor economic conditions in europe . from a product perspective , we experienced our largest percentage sales decline in seating 31 during 2012. we believe these sales declines were driven primarily by a reduction in government spending and reduced purchases by financial services clients in 2012. despite the reduced seating sales , our generation family of products grew in 2012 and continued to gain market share . during the first three quarters of 2012 , sales declined on a year-over-year basis . during the fourth quarter of 2012 , we experienced a 12.0 % growth in our sales year-over-year as we shipped several large projects . during the fourth quarter of 2012 , sales increased in all three of our business segments . sales to governmental entities and agencies continued to represent a large portion of our overall sales in 2012. however , these sales declined on a year-over-year basis during 2012. this decline was a significant factor in our overall lower sales for 2012. approximately 16.2 % of our 2012 sales were to federal , state and local governmental entities and related agencies as compared to 19.5 % in 2011. gross profit and operating profit gross profit for 2012 and 2011 was $ 294.4 million .
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the drug product revenue represents variable consideration and is estimated based on the quantity of product shipped , actual listed price for roxadustat issued by the japanese ministry of health , labour and welfare and possible future changes to the listed price , adjusted for the timing of and estimated bulk product strength mix intended to be manufactured by astellas , estimated cost to convert the api to bulk drug product tablets , and estimated yield from the manufacture of bulk product tablets , among others . under the europe agreement with astellas , astellas has an option to purchase roxadustat bulk drug product in support of commercial supplies . the drug product revenue amount represents variable consideration and was estimated based on the quantity of product shipped and an estimated price . the estimated price is based on the contractual transfer price percentage applied on the estimated weighted average net 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 related notes and other financial information included in item 8 of this annual report on form 10-k. 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 , international operations and product candidates , includes forward-looking statements that involve risks and uncertainties . you should review the “ risk factors ” section of this annual report for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . business overview we are headquartered in san francisco , california , with subsidiary offices in beijing and shanghai , people 's republic of china ( “ china ” ) . we are a leading biopharmaceutical company developing and commercializing a pipeline of first-in-class therapeutics . we apply our pioneering expertise in hypoxia-inducible factor ( “ hif ” ) biology , 2-oxoglutarate enzymology , connective tissue growth factor ( “ ctgf ” ) biology , and clinical development to advance innovative medicines for the treatment of anemia , fibrotic disease , and cancer . roxadustat , our most advanced product , is an oral small molecule inhibitor of hif prolyl hydroxylase ( together with hif , “ hif-ph ” ) activity that has received marketing authorization in china ( tradename : 爱瑞卓 ® ) for the treatment of anemia caused by chronic kidney disease ( “ ckd ” ) in dialysis and non-dialysis patients . evrenzo® ( roxadustat ) is also approved in japan and chile for the treatment of anemia associated with ckd in dialysis and non-dialysis patients . our new drug application ( “ nda ” ) filing in the united states ( “ u.s. ” ) for roxadustat for the treatment of anemia in dialysis and non-dialysis ckd patients was submitted for review in december 2019 to the u.s. food and drug administration ( “ fda ” ) and in december 2020 , the fda extended the review period of the nda by three months for fibrogen to submit additional analyses of existing roxadustat clinical data , and set a new prescription drug user fee act ( “ pdufa ” ) goal date of march 20 , 2021. on march 1 , 2021 , the fda informed us that the cardiovascular and renal drugs advisory committee will hold an advisory committee meeting to review the nda for roxadustat . the date of the advisory committee meeting has not been set . as a result of this communication , we will not receive an approval decision by the pdufa goal date . in europe , the marketing authorization application ( “ maa ” ) filing for roxadustat for the treatment of anemia in dialysis and non-dialysis ckd patients was accepted for regulatory review by the european medicines agency ( “ ema ” ) in may 2020 and astellas pharma inc. ( “ astellas ” ) expects an approval decision mid-2021 . roxadustat is in phase 3 clinical development in the u.s. and europe and in phase 2/3 development in china for anemia associated with myelodysplastic syndromes . roxadustat is in phase 2 clinical development for chemotherapy-induced anemia . pamrevlumab , an anti-ctgf human monoclonal antibody , is in phase 3 clinical development for the treatment of idiopathic pulmonary fibrosis ( “ ipf ” ) , pancreatic cancer and duchenne muscular dystrophy . impact of covid-19 on march 11 , 2020 , covid-19 , a disease caused by a novel strain of the coronavirus , was characterized as a pandemic by the world health organization . the rapid spread has resulted in authorities implementing numerous measures to contain the virus , such as travel restrictions , social distancing requirements , quarantines , shelter-in-place orders or voluntarily adopted practices , and business shutdowns . 90 we have taken measures to minimize the health risks of covid-19 to our staff , patients , healthcare providers and their communities , as their safety and well-being are our top priority . in the u.s. , our employees are working remotely when possible , while in china they have returned to work in our offices , manufacturing plants , and are performing medical affairs out in the field . while we have seen some impacts from covid-19 , such as slower enrollment in our clinical trials , particularly our phase 3 ipf program , we do not know if , or to what extent , these effects will continue in the future , as the impact of the covid-19 pandemic continues to unfold . the effect on our operational and financial performance beyond those effects described above , including any impact on sales of roxadustat , will depend in large part on future developments with the pandemic , which can not be predicted with confidence at this time . story_separator_special_tag as a result , we constrained the consideration from this shipment , and recorded $ 1.4 million as current deferred revenue and $ 4.6 million as long-term deferred revenue as of december 31 , 2020. the deferred revenue will be recognized over the duration of the contract and when uncertainty is resolved . in the fourth quarter of 2018 , we were engaged in the final stages of review with our partners over the proposed development of roxadustat for the treatment of chemotherapy-induced anemia . astrazeneca and astellas approved the program in december 2018 and january 2019 , respectively . costs associated with the development of this indication are shared 50-50 between our two partners . for revenue recognition purposes , we concluded that this new indication represents a modification to the europe agreements and will be accounted for separately , meaning the development costs associated with the new indications are distinct from the original development costs . the development service period for roxadustat for the treatment of cia under the europe agreement is estimated to continue through the end of 2023 to allow for development of this indication . in addition , as of december 31 , 2020 , astellas had separate investments of $ 80.5 million in the equity of fibrogen , inc. astrazeneca in july 2013 , we entered into the u.s./row agreement a collaboration agreement with astrazeneca for roxadustat for the treatment of anemia in the u.s. and all territories not previously licensed to astellas , except china . in july 2013 , through our china subsidiary and related affiliates , we entered into the china agreement a collaboration agreement with astrazeneca for roxadustat for the treatment of anemia in china . under these agreements , we provide astrazeneca the right to develop and commercialize roxadustat for anemia in these territories . we share responsibility with astrazeneca for clinical development activities required for u.s. regulatory approval of roxadustat , and fibrogen will transfer the u.s. nda to astrazeneca upon approval . astrazeneca will hold the equivalent regulatory filings in the other licensed countries . in 2015 , we reached the $ 116.5 million cap on our initial funding obligations ( during which time we shared 50 % of the joint initial development costs ) , therefore all development and commercialization costs for roxadustat for the treatment of anemia in ckd in the u.s. , europe , japan and all other markets outside of china have been paid by astellas and astrazeneca since reaching the cap . 94 in china , fibrogen ( china ) medical technology development co. , ltd. ( “ fibrogen beijing ” ) will conduct the development work for ckd anemia , will hold all of the regulatory licenses issued by china regulatory authorities , and will be primarily responsible for regulatory , clinical and manufacturing . china development costs are shared 50/50 . astrazeneca is also responsible for 100 % of development expenses in all other licensed territories outside of china . outside of china , we are responsible , through our contract manufacturers , for the manufacture and supply of all quantities of roxadustat to be used in development and commercialization under the astrazeneca agreements . under the astrazeneca agreements , we will receive upfront and subsequent non-contingent payments totaling $ 402.2 million . potential milestone payments under the agreements total $ 1.2 billion , of which $ 571.0 million are development and regulatory milestones and $ 652.5 million are commercial-based milestones . total consideration under the agreements , excluding development cost reimbursement , transfer price payments , royalties and profit share , could reach $ 1.6 billion . the aggregate amount of such consideration received through december 31 , 2020 totals $ 516.2 million . under the u.s./row agreement , astrazeneca will pay for all commercialization costs in the u.s. and row and astrazeneca will be responsible for the u.s. commercialization of roxadustat , with fibrogen undertaking specified commercial activities in the u.s. in addition , we will receive a transfer price for delivery of commercial product based on a percentage of net sales in the low- to mid-single digit range and astrazeneca will pay us a tiered royalty on net sales of roxadustat in the low 20 % range . under the china agreement , which is conducted through fibrogen china anemia holdings , ltd. ( “ fibrogen cayman ” ) , fibrogen beijing , and fibrogen international ( hong kong ) limited ( collectively , ( “ fibrogen china , the commercial collaboration was structured as a 50/50 profit share , which was amended by the china amendment in the third quarter of 2020 , as discussed and defined below in china amendment . astrazeneca may terminate the u.s./row agreement upon specified events , including our bankruptcy or insolvency , our uncured material breach , technical product failure , or upon 180 days prior written notice at will . if astrazeneca terminates the u.s./row agreement at will , in addition to any unpaid non-contingent payments , it will be responsible for paying for a substantial portion of the post-termination development costs under the agreed development plan until regulatory approval . astrazeneca may terminate the china agreement upon specified events , including our bankruptcy or insolvency , our uncured material breach , technical product failure , or upon advance prior written notice at will . if astrazeneca terminates our china agreement at will , it will be responsible for paying for transition costs as well as make a specified payment to fibrogen . in the event of any termination of the agreements , but subject to modification upon termination for technical product failure , astrazeneca will transfer and assign to us any regulatory filings and approvals for roxadustat in the affected territories that they may hold under our agreements , grant us licenses and conduct certain transition activities . as mentioned above , during the second quarter of 2019 , we received positive topline results from analyses of pooled mace and mace+ data from its phase 3 trials for roxadustat , enabling our u.s. nda submission to the fda .
| financial highlights replace_table_token_2_th our revenue for the year ended december 31 , 2020 included the revenues recognized related to the following : $ 15.0 million regulatory milestone associated with the nda approval in japan ; $ 80.6 million development revenue recognized under collaboration agreements with our partners astellas and astrazeneca ab ( “ astrazeneca ” ) ; $ 72.5 million of net product revenue from roxadustat commercial sales in china ; and $ 8.9 million of drug product revenue related to roxadustat bulk drug or active pharmaceutical ingredient ( “ api ” ) deliveries to astrazeneca and astellas . as comparison , our revenue for the year ended december 31 , 2019 included the revenues recognized related to the following : $ 130.0 million total of two regulatory milestones associated with the planned maa submission to the ema under the collaboration agreement with astellas for roxadustat as a treatment for dialysis and non-dialysis ckd patients ; $ 50.0 million regulatory milestone associated with the nda submission to the fda under the collaboration agreement with astrazeneca for roxadustat as a treatment for dialysis and non-dialysis ckd patients ; $ 22.0 million total of three regulatory milestones associated with roxadustat being included on the updated national reimbursement drug list ( “ nrdl ” ) released by china 's national healthcare security administration ( “ nhsa ” ) ; $ 12.5 million regulatory milestone associated with the nda approval in japan ; and $ 36.3 million reduction in drug product revenue of a change in estimated variable consideration related to the api product revenue that was recognized in 2018 , which reflected the total difference between estimated and actual listed price and yield from the manufacture of bulk product tablets .
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for additional discussion about the 2017 plan , refer to the company 's proxy statement , which was filed with the securities story_separator_special_tag this report on form 10-k contains forward-looking statements within the meaning of section 21e of the securities exchange act of 1934 , as amended , and section 27a of the securities act of 1933 , as amended . the words `` expects , '' `` anticipates , '' `` believes , '' `` intends , '' `` plans '' and similar expressions identify forward-looking statements . in addition , any statements which refer to expectations , projections or other characterizations of future events or circumstances are forward-looking statements . we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this form 10-k with the securities and exchange commission . these forward-looking statements are subject to risks and uncertainties , including , without limitation , those discussed in this section and in item 1a , `` risk factors . '' in addition , new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business . accordingly , our future results may differ materially from historical results or from those discussed or implied by these forward-looking statements . given these risks and uncertainties , the reader should not place undue reliance on these forward-looking statements . overview we are a globally-recognized , provider of sketch-to-scale tm services - innovative design , engineering , manufacturing , and supply chain services and solutions - from conceptual sketch to full-scale production . we design , build , ship and service complete packaged consumer and enterprise products , from athletic shoes to electronics , for companies of all sizes in various industries and end-markets , through our activities in the following segments : communications & enterprise compute ( `` cec '' ) , which includes our telecom business of radio access base stations , remote radio heads , and small cells for wireless infrastructure ; our networking business which includes optical , routing , broadcasting , and switching products for the data and video networks ; our server and storage platforms for both enterprise and cloud-based deployments ; next generation storage and security appliance products ; and rack level solutions , converged infrastructure and software-defined product solutions ; consumer technologies group ( `` ctg '' ) , which includes our consumer-related businesses in connected living , wearables , gaming , augmented and virtual reality , fashion and apparel , and mobile devices ; and including various supply chain solutions for notebook personal computers , tablets , and printers ; industrial and emerging industries ( `` iei '' ) , which is comprised of energy including advanced metering infrastructure , energy storage , smart lighting , electric vehicle infrastructure , smart solar energy , semiconductor and capital equipment , office solutions , industrial , home and lifestyle , industrial automation , and kiosks ; and high reliability solutions ( `` hrs '' ) , which is comprised of our health solutions business , including consumer health , digital health , disposables , precision plastics , drug delivery , diagnostics , life sciences and imaging equipment ; our automotive business , including vehicle electrification , connectivity , autonomous vehicles , and clean technologies . these segments represent components of the company for which separate financial information is available that is utilized on a regular basis by the chief operating decision maker ( “ codm ” ) . our segments are determined based on several factors , including the nature of products and services , the nature of production processes , customer base , delivery channels and similar economic characteristics . refer to note 20 to the consolidated financial statements in item 8 , `` financial statements and supplementary data '' for additional information on our operating segments . 33 our strategy is to provide customers with a full range of cost competitive , vertically-integrated global supply chain solutions through which we can design , build , ship and service a complete packaged product for our customers . this enables our customers to leverage our supply chain solutions to meet their product requirements throughout the entire product life cycle . over the past few years , we have seen an increased level of diversification by many companies , primarily in the technology sector . some companies that have historically identified themselves as software providers , internet service providers or e-commerce retailers have entered the highly competitive and rapidly evolving technology hardware markets , such as mobile devices , home entertainment and wearable devices . this trend has resulted in a significant change in the manufacturing and supply chain solutions requirements of such companies . while the products have become more complex , the supply chain solutions required by such companies have become more customized and demanding , and it has changed the manufacturing and supply chain landscape significantly . we use a portfolio approach to manage our extensive service offerings . as our customers change the way they go to market , we have the capability to reorganize and rebalance our business portfolio in order to align with our customers ' needs and requirements in an effort to optimize operating results . the objective of our business model is to allow us to be flexible and redeploy and reposition our assets and resources as necessary to meet specific customer 's supply chain solutions needs across all the markets we serve and earn a return on our invested capital above the weighted average cost of that capital . during the past several years , we have evolved our long-term portfolio towards a mix of businesses which possess longer product life cycles and higher segment operating margins such as reflected in our iei and hrs businesses . since the beginning of fiscal year 2016 , we launched several programs broadly across our portfolio of services and in some instances we deployed certain new technologies . story_separator_special_tag the decrease in free cash flow is primarily due to lesser cash flows from operations and higher capital expenditures in fiscal year 2018. refer to the liquidity and capital resources section for the free cash flows reconciliation to our most directly comparable gaap financial measure of cash flows from operations . cash used in investing activities increased by approximately $ 0.2 billion to $ 0.9 billion for fiscal year 2018 , compared with $ 0.7 billion for fiscal year 2017 , primarily due to an increase in the amount of cash paid for acquired businesses during fiscal year 2018. cash used in financing activities totaled $ 188 million during fiscal year 2018 , which decreased $ 54 million from $ 242 million in the prior year , primarily due to a lower level of repurchases of ordinary shares . additionally , in fiscal year 2018 , the company initiated targeted restructuring activities , focused on optimizing our cost structure in lower growth areas and , more importantly , streamlining certain corporate and segment functions . the objective of the plan is to make flex a faster , more responsive and agile company , better positioned to react to marketplace opportunities . during the year ended march 31 , 2018 , we recognized $ 91 million of pre-tax restructuring charges , comprised of $ 79 million of cash charges predominantly related to severance costs and $ 12 million of non-cash charges primarily related to asset impairment and other exit charges . audit committee investigation completed as previously disclosed , the audit committee of the company 's board of directors ( the “ audit committee ” ) , with the assistance of independent outside counsel , undertook an independent investigation relating to the accounting treatment of customer obligations and certain related reserves . the independent outside counsel also notified the sec . the audit committee has now completed its investigation . the company , working with its independent registered public accounting firm , identified and the audit committee concurred with such identification , material weaknesses in our internal control over financial reporting which could , if not remediated , result in material misstatements in our financial statements . notwithstanding the identification of such material weaknesses , management believes that the company 's financial statements included in this annual report on form 10-k fairly present , in all material respects , the company 's financial condition , results of operations and cash flows as of , and for the periods presented , in conformity with accounting principles generally accepted in the united states of america . the conclusions of management , with which the audit committee concurred , concerning the material weaknesses in the company 's internal control over financial reporting are described further in item 9a “ controls and procedures ” . we have undertaken , and will continue to undertake , steps to improve our internal control over financial reporting to address and remediate the material weaknesses . the proposed plan to remediate the material weaknesses is described further in item 9a “ controls and procedures ” . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( `` u.s. gaap '' or `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the 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 . actual results may differ from those estimates and assumptions . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . for further discussion of our significant accounting policies , refer to note 2 to the consolidated financial statements in item 8 , `` financial statements and supplementary data . '' revenue recognition 36 we recognize manufacturing revenue when we ship goods or the goods are received by our customer , title and risk of ownership have passed , the price to the buyer is fixed or determinable and recoverability is reasonably assured . generally , there are no formal substantive customer acceptance requirements or further obligations related to manufacturing services . if such requirements or obligations exist , then we recognize the related revenues at the time when such requirements are completed , and the obligations are fulfilled . some of our customer contracts allow the recovery of certain costs related to manufacturing services that are over and above the prices charged for the related products . also , certain customer contracts may contain certain commitments and obligations that may result in additional expenses or decrease in revenue . refer to note 3 to the consolidated financial statements in item 8 , `` financial statements and supplementary data '' for further details . customer credit risk we have an established customer credit policy through which we manage customer credit exposures through credit evaluations , credit limit setting , monitoring , and enforcement of credit limits for new and existing customers . we perform ongoing credit evaluations of our customers ' financial condition and make provisions for doubtful accounts based on the outcome of those credit evaluations . we evaluate the collectability of accounts receivable based on specific customer circumstances , current economic trends , historical experience with collections and the age of past due receivables . to the extent we identify exposures as a result of customer credit issues , we also review other customer related exposures , including but not limited to inventory and related contractual obligations . on april 21 , 2016 , sunedison , inc. ( together with certain of its subsidiaries , `` sunedison '' ) , filed a petition for reorganization under bankruptcy law . during the fiscal year ended march 31 , 2016 , we recognized a bad debt reserve charge of $ 61 million associated with our outstanding sunedison receivables and accepted return of previously shipped inventory of approximately $ 90 million .
| results of operations the following table sets forth , for the periods indicated , certain statements of operations data expressed as a percentage of net sales . the financial information and the discussion below should be read in conjunction with the consolidated financial statements and notes thereto included in item 8 , `` financial statements and supplementary data . '' the data below , and discussion that follows , represents our results from operations . replace_table_token_7_th net sales net sales during fiscal year 2018 totaled $ 25.4 billion , representing an increase of $ 1.5 billion , or 7 % , from $ 23.9 billion during fiscal year 2017 . the overall increase in sales was driven by increases in three of our segments offset by a decline in sales in our cec segment . during fiscal year 2018 , the increase in net sales was primarily driven by an increase of $ 1.3 billion in the americas and to a lesser extent , $ 0.2 billion in asia with europe remaining relatively consistent in fiscal year 2017. net sales during fiscal year 2017 totaled $ 23.9 billion , representing a decrease of $ 0.5 billion , or 2 % , from $ 24.4 billion during fiscal year 2016 . during fiscal year 2017 , net sales decreased $ 0.8 billion in asia , while increasing $ 0.2 billion in the americas , and $ 36 million in europe . the following table sets forth net sales by segments and their relative percentages . historical information has been recast to reflect realignment of customers and or products between segments : replace_table_token_8_th net sales during fiscal year 2018 increased $ 1.0 billion or 20 % in our iei segment , which was mainly driven by our industrial , home and lifestyle businesses in addition to growth in our solar energy business .
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factors that could cause or contribute to these differences include those under “ risk factors ” included in part i , item 1a or in other parts of this annual report on form 10-k. overview rapid7 is advancing security with visibility , analytics , and automation delivered through our insight platform . our solutions simplify the complex , allowing security teams to work more effectively with it and development to reduce vulnerabilities , monitor for misconfigurations and malicious behavior , investigate and shut down attacks , and automate routine tasks . in the 20 years that rapid7 has been in business , security companies and trends have come and gone , while broader technology innovation continues to advance rapidly . every company is now a technology company , and rampant innovation inevitably creates security risk . the migration of businesses to the cloud , more distributed workforces and ubiquitous connected devices present security teams with an increasingly complex , ever-changing , and unpredictable attack surface . we believe as cybersecurity challenges continue to rise exponentially , two key factors can prevent organizations from effectively managing their growing security exposure . first , the tools to manage complex security problems are often equally complicated to use . second , there is a scarcity of cybersecurity professionals who are qualified to successfully manage these sophisticated tools . these two factors compound the difficulties that resource-constrained organizations face when attempting to minimize their security exposure , meet security compliance regulations and provide visibility to their leadership . we call the expanding divide between risk created through innovation and risk effectively managed by security teams the security achievement gap . we believe rapid7 is uniquely positioned to improve how customer security challenges are addressed . all of our solutions and services are built with and supported by the expertise of our dedicated team of security researchers and consultants , who bring knowledge of attacker behavior and emerging vulnerabilities directly to customers . we also continue to invest in further simplifying our technology to improve usability , lowering the barrier for teams and organizations who lack resources to manage their security posture . while our security technology is the foundation of our mission to make successful security accessible to all , technology alone will not solve today 's cybersecurity challenges . our ongoing commitment to researching and partnering with the technology community helps to curb new security risks born through innovation . we are also investing in under-served , at risk communities , like non-profits and hospitals , to better understand their needs and make security technology and services accessible . by continuously improving our technology , stemming the creation of risk in the community , and making security more usable and accessible , rapid7 aims to close the security achievement gap . we market and sell our products and professional services to organizations of all sizes globally , including mid-market businesses , enterprises , non-profits , educational institutions and government agencies . our customers span a wide variety of industries such as technology , energy , financial services , healthcare and life sciences , manufacturing , media and entertainment , retail , education , real estate , transportation , government and professional services . as of december 31 , 2020 , we had over 9,700 customers in 144 countries , including 46 % of the fortune 100. our revenue was not concentrated with any individual customer and no customer represented more than 1 % of our revenue in 2020 , 2019 or 2018. recent developments acquisition of alcide.io ltd. on january 28 , 2021 , we acquired alcide.io ltd. , a leading provider of kubernetes security for a total purchase price of approximately $ 50 million in cash , subject to certain adjustments . covid-19 response rapid7 remains focused on supporting its customers , partners , employees and communities during the covid-19 pandemic . the impact of covid-19 on the global economy and on our business continues to be a fluid situation . we responded quickly to adopt a virtual sales strategy to enable most of our employees to work productively from home , continued our focus on customers and new customers and worked to guard the health and safety of our team , support our customers and partners , mitigate risk , and maximize our financial performance . we are focused on ensuring continuity for our customers and partners . during 2020 , we slowed hiring and reduced discretionary spending from what was initially anticipated at the beginning of the 42 fiscal year 2020. in addition , we continue to realize savings that naturally accrue from less travel and virtual rather than in-person events . the continuing covid-19 pandemic is expected to result in a sustained global slowdown of economic activity that is likely to decrease demand for a broad variety of goods and services , including from our customers . our operational and financial performance were negatively impacted by the slowdown in activity associated with the covid-19 pandemic for the year ending december 31 , 2020 and we expect that to continue going forward . the extent of the impact of the covid-19 on our operational and financial performance will depend on certain developments , including the duration and spread of the disease , its impact on industry events , and its effect on our customers , partners , suppliers and vendors and other parties with whom we do business , all of which are uncertain and can not be predicted at this time . to the extent possible , we are conducting business as usual , with necessary or advisable modifications to employee travel , employee work locations , and cancellation of rapid7 in-person marketing events . we will continue to actively monitor the at times rapidly evolving situation related to covid-19 and may take further actions that alter our business operations , including those that may be required by federal , foreign , state or local authorities , or that we determine are in the best interests of our employees , customers , partners , suppliers , vendors and stockholders . story_separator_special_tag we define a customer as any entity that has ( 1 ) an active rapid7 contract or a contract that expired within 90 days or less of the applicable measurement date ; and for logentries products , those customers with a contract value equal to or greater than $ 2,400 per year , or ( 2 ) purchased rapid7 professional services within the 12 months preceding the applicable measurement date . annualized recurring revenue and growth . annualized recurring revenue ( arr ) is defined as the annual value of all recurring revenue related to contracts in place at the end of the quarter . arr should be viewed independently of revenue and deferred revenue as arr is an operating metric and is not intended to be combined with or replace these items . arr is not a forecast of future revenue , which can be impacted by contract start and end dates and renewal rates and does not include revenue reported as perpetual license or professional services revenue in our consolidated statement of operations . we use arr and believe it is useful to investors as a measure of the overall success of our business . 44 non-gaap financial results to supplement our consolidated financial statements , which are prepared and presented in accordance with gaap , we provide investors with certain non-gaap financial measures , including non-gaap gross profit , non-gaap income ( loss ) from operations , non-gaap net income ( loss ) , non-gaap net income ( loss ) per share and adjusted ebitda . the presentation of the non-gaap financial measures is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . we use these non-gaap financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons , and use certain non-gaap financial measures as performance measures under our executive bonus plan . we believe that these non-gaap financial measures provide useful information about our operating results , enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making . while our non-gaap financial measures are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time , you should review the reconciliation of our non-gaap financial measures to the comparable gaap financial measures included below , and not rely on any single financial measure to evaluate our business . we define non-gaap gross profit , non-gaap income ( loss ) from operations , non-gaap net income ( loss ) and non-gaap net income ( loss ) per share as the respective gaap balances excluding the effect of stock-based compensation expense , amortization of acquired intangible assets , amortization of debt discount and issuance costs , and certain other items such as acquisition-related expenses , follow-on public offering costs and litigation-related expenses . non-gaap net income ( loss ) per basic and diluted share is calculated as non-gaap net income ( loss ) divided by the weighted average shares used to compute net income ( loss ) per share , with the number of weighted average shares decreased to reflect the anti-dilutive impact of the capped call transactions entered into in connection with our convertible senior notes . we believe these non-gaap financial measures are useful to investors in assessing our operating performance due to the following factors : stock-based compensation expense . we exclude stock-based compensation expense because of varying available valuation methodologies , subjective assumptions and the variety of equity instruments that can impact our non-cash expense . we believe that providing non-gaap financial measures that exclude stock-based compensation expense allows for more meaningful comparisons between our operating results from period to period . amortization of acquired intangible assets . we believe that excluding the impact of amortization of acquired intangible assets allows for more meaningful comparisons between operating results from period to period as the intangible assets are valued at the time of acquisition and are amortized over several years after the acquisition . amortization of debt discount and issuance costs . the expense for the amortization of debt discount and debt issuance costs related to our convertible senior notes and revolving credit facility is a non-cash item and we believe the exclusion of this interest expense provides a more useful comparison of our operational performance in different periods . litigation-related expenses . we exclude certain litigation-related expenses consisting of professional fees and related costs incurred by us related to significant litigation outside the ordinary course of business . we believe it is useful to exclude such expenses because we do not consider such amounts to be part of our ongoing operations . acquisition-related expenses and follow-on public offering costs . we exclude acquisition-related expenses and follow-on public offering costs as costs that are unrelated to the current operations and neither are comparable to the prior period nor predictive of future results . anti-dilutive impact of capped call transaction . our capped calls transactions are intended to offset potential dilution from the conversion features in our convertible senior notes . although we can not reflect the anti-dilutive impact of the capped call transactions under gaap , we do reflect the anti-dilutive impact of the capped call transactions in non-gaap net income ( loss ) per diluted share to provide investors with useful information in evaluating our financial performance on a per share basis . we define adjusted ebitda as net loss before ( 1 ) interest income , ( 2 ) interest expense , ( 3 ) other income ( expense ) , net , ( 4 ) provision for income taxes , ( 5 ) depreciation expense , ( 6 ) amortization of intangible assets , ( 7 ) stock-based compensation expense , and ( 8 ) certain other items .
| results of operations replace_table_token_13_th ( 1 ) cost of revenue and operating expenses include stock-based compensation expense and depreciation and amortization expense as follows : replace_table_token_14_th replace_table_token_15_th 50 the following table sets forth our consolidated statements of operations data expressed as a percentage of revenue : replace_table_token_16_th year ended december 31 , 2020 compared to the year ended december 31 , 2019 revenue replace_table_token_17_th total revenue increased by $ 84.5 million in 2020 compared to 2019 which included $ 6.3 million of revenue attributable to the divvycloud acquisition in may 2020. the remainder of the increase in revenue was primarily from existing customers as a result of the continued growth of our customer base . revenue from renewals , upsells and cross-sells are considered revenue from existing customers . the increase in total revenue in 2020 was comprised of $ 68.1 million generated from sales in north america and $ 16.4 million generated from sales from the rest of the world . 51 cost of revenue replace_table_token_18_th total cost of revenue increased by $ 30.4 million in 2020 compared to 2019 , primarily due to a $ 14.3 million increase in personnel costs , inclusive of a $ 1.7 million increase in stock-based compensation expense , resulting from an increase in headcount to support our growing customer base , and a $ 11.4 million increase in cloud computing costs related to growing cloud-based subscription revenue .
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during the third quarter of 2020 , we announced the divestiture of our refrigerated solutions group ( an accumulation of our master-bilt and norlake operating segments ) consistent with our strategy to focus our financial assets and managerial resources on our higher growth and operating margin businesses . the divestiture of the refrigerated solutions group was completed and consideration was exchanged in april of fiscal year 2020. subsequent to the disposition of the refrigeration solutions group , we reviewed the quantitative and qualitative characteristics of our remaining businesses and determined that we now have seven operating segments that aggregate to five reportable segments . all periods presented have been revised accordingly to reflect the new reportable segments . our new reportable segment structure is as follows : ● electronics operating segment ● engraving operating segment ● scientific operating segment ● engineering technologies group operating segment ● specialty solutions – an aggregation of our federal , procon , and hydraulics operating segments . our segments differentiate themselves by collaborating with our customers in order to develop and deliver custom solutions or engineered components that solve problems for our customers or otherwise meet their needs ( a business model we refer to as “ customer intimacy ” ) . overall management , strategic development and financial control are led by the executive staff at our corporate headquarters located in salem , new hampshire . our long-term strategy is to enhance shareholder value by building larger , more profitable “ customer intimacy ” focused industrial platforms through a value creation system that assists management in meeting specific corporate and business unit financial and strategic performance goals in order to create , improve , and enhance shareholder value . in so doing , we expect to focus our financial assets and managerial resources on our higher growth and operating margin businesses while considering divestiture of those businesses that we feel are not strategic or do not meet our growth and return expectations . 19 the standex value creation system is a methodology which provides standard work and consistent tools used throughout the company in order to achieve our organization 's goals . the standex value creation system employs four components : balanced performance plan , growth disciplines , operational excellence , and talent management . the balanced performance plan process aligns annual goals throughout the company and provides a standard reporting , management and review process . it is focused on setting , tracking and reviewing annual and quarterly targets that support our short and long-term goals . the growth disciplines use a standard work playbook of tools and processes including market maps , market tests and growth laneways to identify explore and execute on opportunities that expand the business organically and through acquisitions . operational excellence also employs a standard work playbook of tools and processes , based on lean , to improve operating execution ( effectiveness ) , eliminate waste ( efficiency ) and thereby improve profitability , cash flow and customer satisfaction . finally , talent management is an organizational development process that provides training , development , and succession planning for employees throughout our worldwide organization . the standex value creation system ties all disciplines together under a common umbrella by providing standard playbook of tools and processes to deliver our business objectives . through the use of our standex value creation system , we have developed a balanced approach to value creation . while we intend to continue investing acquisition capital in high margin and growth segments such as electronics and engraving , we will continue to support all of our businesses as they enhance value through deployment of our gdp+ and opex playbooks . it is our objective to grow larger and more profitable business units through both organic initiatives and acquisitions . we seek to identify and implement organic growth initiatives such as new product development , geographic expansion , and the introduction of products and technologies into new markets , key accounts and strategic sales channel partners . also , we have a long-term objective to create sizable business platforms by adding strategically aligned or “ bolt on ” acquisitions to strengthen the individual businesses , create both sales and cost synergies with our core business platforms , and accelerate their growth and margin improvement . we look to create both sales and cost synergies within our core business platforms , accelerate growth and improve margins . we have a particular focus on identifying and investing in opportunities that complement our products and will increase the global presence and capabilities of our businesses . from time to time , we have divested , and likely will continue to divest , businesses that we feel are not strategic or do not meet our growth and return expectations . as part of our ongoing strategy : o subsequent to the end of the fiscal year , during july of 2020 , we acquired renco electronics , a designer and manufacturer of customized standard magnetics components and products including transformers , inductors , chokes and coils for power and rf applications . renco 's end markets and customer base in areas such as consumer and industrial applications are highly complementary to our existing business with the potential to further expand key account relationships and capitalize on cross selling opportunities between the two companies . renco operates one manufacturing facility in florida and is supported by contract manufacturers in asia . renco 's results will be reported within our electronics segment beginning in fiscal year 2021. o during the third quarter of fiscal year 2020 , we initiated a program and signed an agreement to divest our master-bilt and norlake businesses ( together our refrigerated solutions group or rsg ) . this divestiture allows us to continue the simplification of our portfolio and enables us to focus more clearly on those of our businesses that sell differentiated products and which have higher growth and margin profiles . story_separator_special_tag restructuring expenses reflect costs associated with the company 's efforts of continuously improving operational efficiency and expanding globally in order to remain competitive in our end-user markets . we incur costs for actions to size our businesses to a level appropriate for current economic conditions , improve our cost structure , enhance our competitive position and increase operating margins . such expenses include costs for moving facilities to locations that allow for lower fixed and variable costs , external consultants who provide additional expertise starting up plants after relocation , downsizing operations because of changing economic conditions , and other costs resulting from asset redeployment decisions . shutdown costs include severance , benefits , stay bonuses , lease and contract terminations , asset write-downs , costs of moving fixed assets , and moving and relocation costs . vacant facility costs include maintenance , utilities , property taxes and other costs . because of the diversity of the company 's businesses , end user markets and geographic locations , management does not use specific external indices to predict the future performance of the company , other than general information about broad macroeconomic trends . each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to its business and which could impact their performance . those units report pertinent information to senior management , which uses it to the extent relevant to assess the future performance of the company . a description of any such material trends is described below in the applicable segment analysis . we monitor a number of key performance indicators ( “ kpis ” ) including net sales , income from operations , backlog , effective income tax rate , gross profit margin , and operating cash flow . a discussion of these kpis is included below . we may also supplement the discussion of these kpis by identifying the impact of foreign exchange rates , acquisitions , and other significant items when they have a material impact on a specific kpi . we believe the discussion of these items provides enhanced information to investors by disclosing their impact on the overall trend which provides a clearer comparative view of the kpi , as applicable . for discussion of the impact of foreign exchange rates on kpis , the company calculates the impact as the difference between the current period kpi calculated at the current period exchange rate as compared to the kpi calculated at the historical exchange rate for the prior period . for discussion of the impact of acquisitions , we isolate the effect on the kpi amount that would have existed regardless of our acquisition . sales resulting from synergies between the acquisition and existing operations of the company are considered organic growth for the purposes of our discussion . unless otherwise noted , references to years are to fiscal years . impact of covid-19 pandemic on the company given the global nature of our business and the number of our facilities in china , we were impacted by covid-19 related issues beginning in february of our third quarter . we took immediate , and effective action to protect our health and safety , continue to serve our customers , support our communities and manage our cash flows . our priority was and remains the health and safety of all of our employees . each of our facilities is following safe practices as defined in their local jurisdictions as well as sharing experiences and innovative ways of overcoming challenges brought on by the crisis during updates with global site leaders . we are rigorously following health protocols in our plants , including changing work cell configurations and revising shift schedules when appropriate , in order to do our best to continue operations . we were deemed an essential business in most plants and had limited shutdowns in our facilities . shutdowns that have occurred have been primarily centered around our sites in china , india , italy , and mexico . despite most businesses remaining operational , we have experienced revenue losses due to the impact that the pandemic has had on our customers . 22 given the impact that the pandemic created on our backlog and incoming order rate , we took actions to identify and implement cost savings and restructuring actions with each of our operating units as well as our corporate headquarters . actions identified include reducing outside discretionary spend , the natural elimination of travel and trade show expenses that were a result of covid-19 related curtailments , implementation of rolling furloughs in several businesses where appropriate , and the elimination of certain salaried and hourly positions . the costs , including restructuring charges , for many of these items occurred in our fourth quarter of fiscal year 2020. as we look forward into fiscal year 2021 and beyond , the impact of the pandemic on our businesses remains uncertain , however , we have identified further cost reduction actions and stand ready to implement these plans as circumstances in individual businesses or countries require . we exited the fourth quarter with $ 118.8 million in cash and $ 200.0 million of borrowings under our revolving credit facility . our leverage ratio covenant , as defined in our revolving credit agreement , was 1.47 to 1 and allowed us the capacity to borrow an additional $ 203.6 million at june 30 , 2020. as interest rates declined during the third quarter , we took the opportunity to revisit our fixed to floating debt ratio and entered into $ 125 million of new interest rate swaps to lock in additional fixed rate debt financing . we also extended an expiring $ 25 million swap for another five years . the cumulative impact of these items is a reduction in our effective interest rate by approximately 50 basis points or $ 1 million per year going forward .
| income from operations income from operations for the fiscal year 2020 was $ 60.5 million , compared to $ 79.5 million during the prior year . the $ 19.0 million decrease , or 23.8 % , is primarily due to the impact of volume related losses triggered by the covid-19 pandemic along with material inflation , partially offset by cost reduction activities and productivity improvement initiatives implemented in all of our businesses . income from operations for the fiscal year 2019 was $ 79.5 million , compared to $ 78.1 million during the prior year . the $ 1.4 million increase , or 1.7 % , is primarily due to organic sales increases , business mix and lower restructuring costs , which more than offset by material and wage inflation pressures . discussion of the performance of each of our reportable segments is fully explained in the segment analysis that follows . interest expense interest expense for the fiscal year 2020 was $ 7.5 million , a decrease of $ 3.3 million as compared to the prior year . decreased interest expense was a result of lower borrowings and a lower effective interest rate . our effective interest rate of 2.59 % was 129 basis points or 33 % lower than the 2019 effective interest rate of 3.88 % . interest expense for the fiscal year 2019 was $ 10.8 million , an increase of $ 2.8 million as compared to the prior year . increased interest expense was a result of higher borrowing costs and an increase in average outstanding borrowings for the year , primarily to fund acquisition activity .
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income per share basic income per share attributable to cbre group , inc. is computed by dividing net income attributable to cbre group , inc. shareholders by the weighted average number of common shares outstanding story_separator_special_tag overview we are the world 's largest commercial real estate services and investment firm , based on 2016 revenue , with leading full-service operations in major metropolitan areas throughout the world . we provide services in the office , retail , industrial , multifamily and hotel sectors of commercial real estate . as of december 31 , 2016 , we operated in approximately 450 offices worldwide with more than 75,000 employees , excluding independent affiliates , providing commercial real estate services under the cbre brand name , investment management services under the cbre global investors brand name and development services under the trammell crow company brand name . our business is focused on commercial property , corporate facilities , project and transaction management , tenant/occupier and property/agency leasing , capital markets solutions ( property sales , commercial mortgage brokerage , loan origination and servicing ) real estate investment management , valuation , development services and proprietary research . we generate revenue from both management fees ( large multi-year portfolio and per-project contracts ) and from commissions on transactions . we have been included in the fortune 500 since 2008 ( ranking # 259 in 2016 ) and among the fortune most admired companies in the real estate sector for five consecutive years , including 2017. in 2016 , we were ranked by forbes as the 15 th best employer in america , and the international association of outsourcing professionals ( iaop ) has ranked us among the top few outsourcing service providers across all industries for five consecutive years . additionally , we were one of only two companies to be ranked in the top 12 in the barron 's 500 , which evaluates companies on growth and financial performance , in each of 2014 , 2015 and 2016. critical accounting policies our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states , or gaap , which require us to make estimates and assumptions that affect reported amounts . the estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable . actual results may differ from those estimates . we believe that the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements . revenue recognition in order for us to recognize revenue , four basic criteria must be met : existence of persuasive evidence that an arrangement exists ; delivery has occurred or services have been rendered ; the seller 's price to the buyer is fixed and determinable ; and collectability is reasonably assured . our revenue recognition policies are consistent with these criteria . the judgments involved in revenue recognition include understanding the complex terms of agreements and determining the appropriate time and method to recognize revenue for each transaction based on such terms . each transaction is evaluated to determine : ( i ) at what point in time or over what period of time revenue is earned ; ( ii ) whether contingencies exist that impact the timing of recognition of revenue ; and ( iii ) how and when such contingencies will be resolved . the timing of revenue recognition could vary if different judgments were made . our revenues subject to the most judgment are brokerage commission revenue and incentive-based management and development fees . for a detailed discussion of our revenue recognition policies , see the revenue recognition section within note 2 of the notes to consolidated financial statements set forth in item 8 of this annual report on form 10-k , or this annual report . 29 in establishing the appropriate provisions for trade receivables , we make assumptions with respect to future collectability . our assumptions are based on an assessment of a customer 's credit quality as well as subjective factors and trends , including the aging of receivables balances . in addition to these assessments , in general , outstanding trade accounts receivable amounts that are more than 180 days overdue are evaluated for collectability and fully provided for if deemed uncollectible . historically , our credit losses have generally been insignificant . however , estimating losses requires significant judgment , and conditions may change or new information may become known after any periodic evaluation . as a result , actual credit losses may differ from our estimates . goodwill and other intangible assets our acquisitions require the application of purchase accounting , which results in tangible and identifiable intangible assets and liabilities of the acquired entity being recorded at fair value . the difference between the purchase price and the fair value of net assets acquired is recorded as goodwill . in determining the fair values of assets and liabilities acquired in a business combination , we use a variety of valuation methods including present value , depreciated replacement cost , market values ( where available ) and selling prices less costs to dispose . we are responsible for determining the valuation of assets and liabilities and for the allocation of purchase price to assets acquired and liabilities assumed . assumptions must often be made in determining fair values , particularly where observable market values do not exist . assumptions may include discount rates , growth rates , cost of capital , royalty rates , tax rates and remaining useful lives . these assumptions can have a significant impact on the value of identifiable assets and accordingly can impact the value of goodwill recorded . different assumptions could result in different values being attributed to assets and liabilities . since these values impact the amount of annual depreciation and amortization expense , different assumptions could also impact our statement of operations and could impact the results of future asset impairment reviews . story_separator_special_tag we believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flows and the potential for continued variability in the future . 31 macroeconomic conditions economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly . these include : overall economic activity and employment growth ; interest rate levels and changes in interest rates ; the cost and availability of credit ; and the impact of tax and regulatory policies . periods of economic weakness or recession , significantly rising interest rates , fiscal uncertainty , declining employment levels , decreasing demand for commercial real estate , falling real estate values , disruption to the global capital or credit markets , or the public perception that any of these events may occur , will negatively affect the performance of our business . compensation is our largest expense and the sales and leasing professionals in our advisory services business generally are paid on a commission and or bonus basis that correlates with their revenue production . as a result , the negative effect of difficult market conditions on our operating margins is partially mitigated by the inherent variability of our compensation cost structure . in addition , when negative economic conditions have been particularly severe , we have moved decisively to lower operating expenses to improve financial performance , and then have restored certain expenses as economic conditions improved . nevertheless , adverse global and regional economic trends could pose significant risks to the performance of our operations and our financial condition . commercial real estate markets have recovered over the past several years , along with the steady improvement in global economic activity , most particularly in the united states . since 2010 , u.s. leasing markets have been marked by increased demand for space , falling vacancies and higher rents . during this time , healthy u.s. property sales activity has been sustained by gradually improving market fundamentals , low-cost credit availability and increased global and domestic capital flows . property sales volumes slowed in 2016 following several years of strong growth ; however , the market remained active . commercial mortgage services activity rose in 2016 driven by lower interest rates and a favorable lending environment . lending for multi-family properties in the united states was particularly robust , reflecting strong activity with u.s. government sponsored enterprises ( gses ) as well as a long-term trend of increased renting versus home ownership in the united states . european economies began to emerge from recession in 2013 , with most countries returning to positive , albeit modest , economic growth . sales and leasing activity in europe has improved across most of europe for much of the past two years . an exception is london , where uncertainty in advance of and following the united kingdom 's referendum to leave the european union , commonly referred to as brexit , constrained occupier and investor activity in 2016. in asia pacific , the performance of real estate leasing and investment markets has varied from country to country amid slowing economic growth . leasing and investment market activity was generally soft for much of 2016 , but picked up noticeably in the fourth quarter . however , local capital from the asia-pacific region continues to migrate to other parts of the world . real estate investment management and property development markets have been generally favorable with abundant debt and equity capital flows into commercial real estate . real estate equity securities markets weakened in the fourth quarter of 2016 amid concerns about potentially higher interest rates . the performance of our global real estate services and real estate investment businesses depends on sustained economic growth and job creation ; stable , healthy global credit markets ; and continued positive business and investor sentiment . effects of acquisitions we historically have made significant use of strategic acquisitions to add new service competencies , to increase our scale within existing competencies and to expand our presence in various geographic regions around 32 the world . on september 1 , 2015 , cbre , inc. , our wholly-owned subsidiary , pursuant to a stock and asset purchase agreement with johnson controls , inc. ( jci ) , acquired jci 's global workplace solutions ( jci-gws ) business ( which we refer to as the gws acquisition ) . the acquired jci-gws business was a market-leading provider of integrated facilities management solutions for major occupiers of commercial real estate and had significant operations around the world . the purchase price was $ 1.475 billion , paid in cash , plus adjustments totaling $ 46.5 million for working capital and other items . we completed the gws acquisition in order to advance our strategy of delivering globally integrated services to major occupiers in our americas , emea and asia pacific segments . we merged the acquired jci-gws business with our existing occupier outsourcing business line , and the new combined business adopted the global workplace solutions name . strategic in-fill acquisitions have also played a key role in expanding our geographic coverage and broadening and strengthening our service offerings . the companies we acquired have generally been regional or specialty firms that complement our existing platform , or independent affiliates in which , in some cases , we held a small equity interest . in early 2017 , we acquired a leading software as a service ( saas ) platform that produces scalable interactive visualization technologies for commercial real estate and a national boutique commercial real estate finance and consulting firm in the united states . during 2016 , we acquired our independent affiliate in norway , a london-based retail property advisor specializing in the luxury goods retail sector and a leading provider of retail project management , shopping center development and tenant coordination services in the united states . we also made an equity investment in a property services firm in malaysia , acquiring a 49 % interest .
| results of operations the following table sets forth items derived from our consolidated statements of operations for the years ended december 31 , 2016 , 2015 and 2014 ( dollars in thousands ) : replace_table_token_7_th fee revenue , ebitda and adjusted ebitda are not recognized measurements under gaap . when analyzing our operating performance , investors should use these measures in addition to , and not as an alternative for , their most directly comparable financial measure calculated and presented in accordance with gaap . we 35 generally use these non-gaap financial measures to evaluate operating performance and for other discretionary purposes . we believe these measures provide a more complete understanding of ongoing operations , enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business . because not all companies use identical calculations , our presentation of fee revenue , ebitda and adjusted ebitda may not be comparable to similarly titled measures of other companies . fee revenue is gross revenue less both client reimbursed costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients . we believe that investors may find this measure useful to analyze the company 's overall financial performance because it excludes costs reimbursable by clients , and as such provides greater visibility into the underlying performance of our business . ebitda represents earnings before net interest expense , write-off of financing costs on extinguished debt , income taxes , depreciation and amortization . amounts shown for adjusted ebitda further remove ( from ebitda ) the impact of certain cash and non-cash charges related to acquisitions , cost-elimination expenses and certain carried interest incentive compensation ( reversal ) expense to align with the timing of associated revenue .
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through our acquisition in december 2012 of safety-kleen , inc. and its subsidiaries ( `` safety-kleen '' ) , we are also the largest re-refiner and recycler of used oil in the world and the largest provider of parts cleaning and environmental services to commercial , industrial and automotive customers in north america . following our acquisition of safety-kleen , we made changes in early 2013 to the manner in which we manage our business , make operating decisions and assess our performance . the amounts presented for all periods in this discussion and analysis have been recast to reflect the impact of such changes . under the new structure , we report the business in five reportable segments , including : technical services — provides a broad range of hazardous material management services including the packaging , collection , transportation , treatment and disposal of hazardous and non-hazardous waste at company-owned incineration , landfill , wastewater and other treatment facilities . oil re-refining and recycling — processes used oil into high quality base and blended lubricating oils which are then sold to third party customers , and provides recycling of oil in excess of safety-kleen 's current re-refining capacity into recycled fuel oil which is then sold to third parties . processing into base and blended lubricating oils takes place in the company 's three owned and operated re-refineries and recycling of oil into recycled fuel oil takes place in one of the company 's used oil terminals . sk environmental services — provides a broad range of environmental services such as parts cleaning , containerized waste services , oil collection , and other complementary products and services , including vacuum services , allied products and other environmental services . industrial and field services — provides industrial and specialty services such as high-pressure and chemical cleaning , catalyst handling , decoking , material processing , and industrial lodging services to refineries , chemical plants , oil sands facilities , pulp and paper mills , and other industrial facilities . also provides a wide variety of environmental cleanup services on customer sites or other locations on a scheduled or emergency response basis including tank cleaning , decontamination , remediation , and spill cleanup . oil and gas field services — provides fluid handling , fluid hauling , production servicing , surface rentals , seismic services , and directional boring services to the energy sector serving oil and gas exploration and production , and power generation . 2013 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > primarily due to increases in salaries , labor and employee benefits , outside transportation , materials and supplies and outside disposal and rail costs . these increases were due to the incremental 2013 revenue generated from the integration of a portion of the safety-kleen business into the technical services segment . for the year ended december 31 , 2012 , cost of revenues increased 5.9 % , or $ 36.6 million , from the comparable period in 2011 primarily due to salaries , labor and employee benefits , outside transportation , chemicals and consumables and outside disposal and rail costs . our oil re-refining and recycling and sk environmental services segments were added in 2013 due to our acquisition of safety-kleen in december 2012. for the year ended december 31 , 2013 , our oil re-refining and recycling cost of revenues of $ 260.1 million primarily consisted of salaries , labor and employee benefits , outside transportation , oil materials and rail costs . for the year ended december 31 , 2013 , our sk environmental services cost of revenues of $ 551.0 million primarily 28 consisted of salaries , labor and employee benefits , support of our branch network , transportation , used oil purchases and materials and supplies . industrial and field services cost of revenues for the year ended december 31 , 2013 increased 11.1 % , or $ 63.4 million , from the comparable period in 2012 primarily due to the costs of the incremental 2013 revenue consisting of salaries , labor and employee benefits , outside transportation and materials and supplies . for the year ended december 31 , 2012 , cost of revenues increased 12.7 % , or $ 64.2 million , from the comparable period in 2011 primarily due to salary , labor and employee benefits and material and supplies . these increases resulted primarily from costs associated with our acquisitions in 2012 and 2011 , including peak in june 2011. oil and gas field services cost of revenues for the year ended december 31 , 2013 increased 0.7 % , or $ 2.1 million , from the comparable period in 2012 primarily due to increases in salary , labor and employee benefits partially offset by reductions in surface rentals and seismic activities resulting in a reduction in lease operator costs . for the year ended december 31 , 2012 , cost of revenues increased 24.4 % , or $ 59.2 million , from the comparable period in 2011 primarily due to salary , labor and employee benefits and subcontractor fees . these net increases resulted primarily from costs associated with our acquisitions in 2011. corporate items cost of revenues increased $ 6.0 million for the year ended december 31 , 2013 from the comparable period in 2012 primarily due to the impact on safety-kleen 's non-cash acquisition inventory accounting adjustments at december 28 , 2012. selling , general and administrative expenses technical services selling , general and administrative expenses for the year ended december 31 , 2013 , increased 1.2 % , or $ 0.9 million , from the comparable period in 2012 primarily due to increases in salaries , employee benefits and year-over year increases in changes in environmental liability estimates partially offset by a decrease in bonuses . story_separator_special_tag 30 interest expense , net replace_table_token_8_th the year-over-year increases in interest expense , net for 2013 and 2012 were primarily due to the issuance of $ 800.0 million of 5.25 % senior unsecured notes in july 2012 and $ 600.0 million of 5.125 % senior unsecured notes in december 2012 , which was partially offset by our redemption and repurchase during the third quarter of 2012 of $ 520.0 million of previously outstanding 7.625 % senior secured notes . the transactions resulted in an additional principal amount of notes outstanding during 2012 than for the comparable prior period , but at a more favorable interest rate . provision ( benefit ) for income taxes our effective tax rates for fiscal years 2013 , 2012 and 2011 were 33.6 % , ( 1.5 ) % and 31.1 % , respectively . our effective tax rate is affected by recurring items , such as tax rates in canada and the relative amount of income we earn in canada , which has increased due to our canadian acquisitions . the rate is also affected by discrete items that may occur in any given year , but are not consistent from year to year . in addition to state income taxes , the following items had the most significant impact on the differences in our effective tax rate and in our u.s. federal income tax rate : 2013 a $ 10.5 million ( 7.3 % ) reduction resulting from rate differences between canada and the u.s. a $ 4.0 million ( 2.8 % ) reduction resulting from the release of unrecognized tax benefits including accrued interest and penalties . a $ 2.9 million ( 2.0 % ) increase resulting from non-deductible meals and entertainment and penalty expense . 2012 a $ 52.4 million ( 41.0 % ) reduction resulting from the release of unrecognized tax benefits including accrued interest and penalties . a $ 8.6 million ( 6.7 % ) reduction resulting from rate differences between canada and the u.s. a $ 1.7 million ( 1.3 % ) increase resulting from the annual calculation of accrued interest and penalties for uncertain tax positions . a $ 2.2 million ( 1.7 % ) increase resulting from non-deductible transaction costs relating to the 2012 acquisitions . 2011 a $ 6.0 million ( 3.2 % ) reduction resulting from the release of unrecognized tax benefits including interest and penalties . a $ 10.2 million ( 5.5 % ) reduction resulting from rate differences between canada and the u.s. a $ 2.2 million ( 1.2 % ) increase resulting from the annual calculation of accrued interest and penalties for uncertain tax positions . a $ 2.2 million ( 1.2 % ) reduction resulting from a federal solar tax credit . a $ 1.1 million ( 0.6 % ) reduction resulting from the partial release of a valuation allowance on our foreign tax credits . income tax expense for the year ended december 31 , 2013 was $ 48.3 million compared to an income tax benefit of $ 1.9 million for the comparable period in 2012 . the increase in expense in 2013 as compared to 2012 was primarily due to the benefit recorded in 2012. income tax benefit for the year ended december 31 , 2012 was $ 1.9 million compared to an income tax expense of $ 57.4 million for the comparable period in 2011. the benefit in 2012 was primarily due to a decrease in unrecognized tax benefits of $ 52.4 million ( net of interest and penalties of $ 29.3 million ) resulting from expiring statute of limitation periods related to a historical canadian debt restructuring transaction . a valuation allowance is required to be established when , based on an evaluation of available evidence , it is more likely than not that some portion or all of the deferred tax assets will not be realized . at december 31 , 2013 and december 31 , 2012 , we had a remaining valuation allowance of $ 29.7 million and $ 26.3 million , respectively . the increase in valuation allowance primarily relates to the acquisition of eveready and the continued losses by certain domestic and foreign operating entities . the total allowance as of december 31 , 2013 consisted of $ 13.4 million of foreign tax credits , $ 7.0 million of state net operating loss carryforwards , $ 7.5 million of foreign net operating loss carryforwards and $ 1.8 million for the deferred tax assets of a canadian subsidiary . the allowance as of december 31 , 2012 consisted of $ 17.6 million of foreign tax credits , $ 1.4 million of state net operating loss carryforwards and $ 7.3 million of foreign net operating loss carryforwards . the allowance as of 31 december 31 , 2011 consisted of $ 10.2 million of foreign tax credits , $ 1.1 million of state net operating loss carryforwards and $ 0.2 million of foreign net operating loss carryforwards . our accounting policy is to recognize interest and penalties related to income tax matters as a component of income tax expense . the liability for unrecognized tax benefits as of december 31 , 2013 and 2012 included accrued interest and penalties of $ 0.2 million and $ 1.4 million , respectively . tax expense for the years ended december 31 , 2013 , 2012 , and 2011 included interest and penalties , net of federal benefit , of $ 0.2 million , $ 1.7 million and $ 3.4 million , respectively . acquisition of evergreen oil , inc. on september 13 , 2013 , we acquired 100.0 % of the outstanding common shares of evergreen oil , inc. ( “ evergreen ” ) for approximately $ 55.9 million in cash , net of cash acquired . the purchase price is subject to adjustment upon finalization of evergreen 's net working capital balance as of the closing date .
| highlights total revenues for 2013 increased 60.4 % to $ 3.51 billion from $ 2.19 billion in 2012 . increases in total revenue were primarily attributable to the integration of our safety-kleen business complemented by increases in industrial and field services and technical services segments , which are more fully described in our segment performance section below under the heading `` direct revenues . '' income from operations in 2013 was $ 220.6 million compared with $ 202.2 million in 2012 . increases in income from operations were primarily due to increases in total revenue partially offset by increases in cost of revenues and selling , general and administration expenses , which included $ 17.5 million of integration costs and $ 13.6 million of non-cash adjustments related to the acquisition of safety-kleen . adjusted ebitda increased 36.5 % to $ 510.1 million for 2013 from $ 373.8 million for 2012 . additional information , including a reconciliation of adjusted ebitda to net income , appears below under the heading `` adjusted ebitda . '' 26 segment performance performance of our segments is evaluated on several factors of which the primary financial measure is adjusted ebitda . the following table sets forth certain operating data associated with our results of operations for the years ended december 31 , 2013 , 2012 and 2011 . replace_table_token_4_th _ ( 1 ) third party revenue is revenue billed to outside customers by a particular segment . direct revenue is revenue allocated to the segment performing the provided service . ( 2 ) corporate items revenues and costs of revenues for the year ended december 31 , 2013 includes purchase price measurement period adjustments . ( 3 ) cost of revenue is shown exclusive of items shown separately on the statements of income which consist of ( i ) accretion of environmental liabilities and ( ii ) depreciation and amortization .
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note : the above ratings reflect only the view , at the time the ratings are issued or affirmed , of the applicable rating agency , from whom an explanation of the significance of such ratings may be obtained . such ratings are not recommendations to buy , sell or hold any securities ; such ratings may be subject to revision or withdrawal at any time by the rating agencies ; and each rating should be evaluated independently of any other rating . there were no new issuances of common stock through the hawaiian electric industries , inc. dividend reinvestment and stock purchase plan ( drip ) , hawaiian electric industries retirement savings plan ( heirsp ) or the asb 401 ( k ) plan in 2019 , 2018 , or 2017 and hei satisfied the share purchase requirements of the drip , heirsp and asb 401 ( k ) plan through open market purchases of its common stock . operating activities provided net cash of $ 512 million in 2019 and $ 499 million in 2018 . investing activities used net cash of $ 542 million in 2019 and $ 792 million in 2018 . in 2019 , net cash used in investing activities was primarily due to capital expenditures , net increase in loans held for investment , purchases of available-for-sale and held-to-maturity investment securities and stock from federal home loan bank and contributions to low-income housing investments , partly offset by receipt of repayments from available-for-sale and held-to-maturity investment securities , redemption of stock from federal home loan bank and proceeds from sale of available-for-sale investment securities and real estate held for sale . in 2018 , net cash used in investing activities was primarily due to capital expenditures , purchases of available-for-sale investment securities , net increase in loans held for investment , purchases of held-to-maturity investment securities , purchase of stock from federal home loan bank and contributions to low-income housing investments , partly offset by receipt of repayments from available-for-sale investment securities , proceeds from the sale of commercial loans , redemption of stock from federal home loan bank and repayments from held-to-maturity investment securities . financing activities provided net cash of $ 88 million in 2019 and $ 200 million in 2018 . in 2019 , net cash provided by financing activities included proceeds from issuance of long-term debt and short-term debt , net increases in deposits and short-term borrowings , partly offset by payment of common and preferred stock dividends , repayment of long-term debt and funds transferred for redemption of long -term debt and repayment of short-term debt . in 2018 , net cash provided by financing activities included proceeds from issuance of long-term debt , net increases in deposits and retail repurchase agreements , partly offset by payment of common and preferred stock dividends , long-term debt maturities and net decreases in short-term debt and other bank borrowings . for a discussion of 2017 operating , investing and financing activities , please refer to the “ liquidity and capital resources ” section in item 7 , “ management discussion and analysis of financial condition and results of operations—hei consolidated , ” in the company 's 2018 form 10-k. other than capital contributions from their parent company , intercompany services ( and related intercompany payables and receivables ) , hawaiian electric 's periodic short-term borrowings from hei ( and related interest ) and the payment of dividends to hei , the electric utility and bank segments are largely autonomous in their operating , investing and financing activities . ( see the electric utility and bank segments ' discussions of their cash flows in their respective “ liquidity and capital resources ” sections below . ) during 2019 , hawaiian electric and asb ( through asb hawaii ) paid cash dividends to hei of $ 101 million and $ 56 million , respectively . a portion of the net assets of hawaiian electric and asb is not available for transfer to hei in the form of dividends , loans or advances without regulatory approval . in the absence of an unexpected material adverse change in the financial condition of the electric utilities or asb , such restrictions are not expected to significantly affect the operations of hei , its ability to pay 36 dividends on its common stock or its ability to meet its debt or other cash obligations . see note 14 of the consolidated financial statements . forecasted hei consolidated “ net cash used in investing activities ” ( excluding “ investing ” cash flows from asb ) for 2020 through 2022 consists primarily of the net capital expenditures of the utilities , estimated to range from $ 1.1 billion to $ 1.3 billion over the next three years . in addition to the funds required for the utilities ' construction programs and debt maturities ( see “ electric utility–liquidity and capital resources ” below ) , approximately $ 50 million will be required in 2021 and $ 150 million in 2022 to repay hei-issued private placement notes maturing in march 2021 and november 2022 , which are expected to be repaid with the proceeds from the issuance of commercial paper , bank borrowings , other medium- or long-term debt , common stock and or dividends from subsidiaries . additional debt and or equity financing may be utilized to invest in the utilities , bank or pacific current ; to pay down commercial paper or other short-term borrowings ; or to fund unanticipated expenditures not included in the 2020 through 2022 forecast , such as increases in the costs of , or an acceleration of , the construction of capital projects of the utilities or unanticipated utility capital expenditures . in addition , existing debt may be refinanced prior to maturity with additional debt or equity financing ( or both ) . selected contractual obligations and commitments . story_separator_special_tag information about payments under the specified contractual obligations and commercial commitments of hei and its subsidiaries was as follows : replace_table_token_15_th 1 includes contractual obligations and commitments for capital expenditures and expense amounts . the table above does not include other categories of obligations and commitments , such as deferred taxes , trade payables , amounts that will become payable in future periods under collective bargaining and other employment agreements and employee benefit plans , and potential refunds of amounts collected from ratepayers ( e.g. , under the earnings sharing mechanism ) . as of december 31 , 2019 , the fair value of the assets held in trusts to satisfy the obligations of the company 's retirement benefit plans did not exceed the retirement benefit plans ' benefit obligation . minimum funding requirements for retirement benefit plans have not been included in the tables above ; however , see note 10 of the consolidated financial statements for 2020 estimated contributions . there were no material uncertain tax positions as of december 31 , 2019 . see note 3 of the consolidated financial statements for a discussion of fuel and power purchase commitments . see note 4 of the consolidated financial statements for a further discussion of asb 's commitments . the company adopted asu no . 2016-02 on january 1 , 2019 , which had a material effect on its balance sheet as of january 1 , 2019 due to the recognition of lease liabilities and right-of-use assets . see note 1 , “ summary of significant accounting policies—recent accounting pronouncements—leases , ” and note 8 , “ leases , ” of the consolidated financial statements . off-balance sheet arrangements . although the company and the utilities have off-balance sheet arrangements , management has determined that it has no off-balance sheet arrangements that either have , or are reasonably likely to have , a current or future effect on the company 's and the utilities ' financial condition , changes in financial condition , revenues or expenses , 37 results of operations , liquidity , capital expenditures or capital resources that are material to investors , including the following types of off-balance sheet arrangements : 1. obligations under guarantee contracts , 2. retained or contingent interests in assets transferred to an unconsolidated entity or similar arrangements that serve as credit , liquidity or market risk support to that entity for such assets , 3. obligations under derivative instruments , and 4. obligations under a material variable interest held by the company or the utilities in an unconsolidated entity that provides financing , liquidity , market risk or credit risk support to the company or the utilities , or engages in leasing , hedging or research and development services with the company or the utilities . material estimates and critical accounting policies . in preparing financial statements , management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses . actual results could differ significantly from those estimates . material estimates that are particularly susceptible to significant change include the amounts reported for pension and other postretirement benefit obligations ; contingencies and litigation ; income taxes ; regulatory assets and liabilities ; electric utility unbilled revenues ; allowance for loan losses ; fair value ; and asset retirement obligations . management considers an accounting estimate to be material if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the assumptions selected could have a material impact on the estimate and on the company 's results of operations or financial condition . in accordance with sec release no . 33-8040 , “ cautionary advice regarding disclosure about critical accounting policies , ” management has identified the accounting policies it believes to be the most critical to the company 's financial statements—that is , management believes that the policies discussed below are both the most important to the portrayal of the company 's results of operations and financial condition , and currently require management 's most difficult , subjective or complex judgments . the policies affecting both of the company 's two principal segments are discussed below and the policies affecting just one segment are discussed in the respective segment 's section of “ material estimates and critical accounting policies. ” management has reviewed the material estimates and critical accounting policies with the hei audit & risk committee and , as applicable , the hawaiian electric audit & risk committee . for additional discussion of the company 's accounting policies , see note 1 of the consolidated financial statements and for additional discussion of material estimates and critical accounting policies , see the electric utility and bank segment discussions below under the same heading . pension and other postretirement benefits obligations . the company 's reported costs of providing retirement benefits are dependent upon numerous factors resulting from actual plan experience and assumptions about future experience . for example , retirement benefits costs are impacted by actual employee demographics ( including age and compensation levels ) , the level of contributions to the plans , earnings and realized and unrealized gains and losses on plan assets , and changes made to the provisions of the plans . costs may also be significantly affected by changes in key actuarial assumptions , including the expected return on plan assets , the discount rate and mortality . the company 's accounting for retirement benefits under the plans in which the employees of the utilities participate is also adjusted to account for the impact of decisions by the puc . changes in obligations associated with the factors noted above may not be immediately recognized as costs on the income statement , but generally are recognized in future years over the remaining average service period of plan participants . based on various assumptions in note
| results of operations . 2019 vs. 2018 ( in millions ) 2019 2018 increase ( decrease ) primary reason ( s ) interest income $ 266 $ 258 $ 8 higher interest income was due to higher average loan portfolio balances and yields , partly offset by a decrease in balances and yields in the investment securities portfolio . asb 's average loan portfolio balance for 2019 was $ 231 million higher than 2018 's average loan portfolio balance primarily due to increases in the average heloc , residential , commercial and consumer loan portfolio balances of $ 99 million , $ 59 million , $ 40 million and $ 30 million , respectively . the growth in these loan portfolios was consistent with asb 's portfolio mix targets and loan growth strategy . the 2019 loan portfolio yield increased 5 basis points compared to the prior year loan portfolio yield due to the repricing of adjustable rate loans in the latter part of 2018 and early 2019. the average investment securities portfolio balance decreased by $ 86 million and the portfolio yield decreased 14 basis points . the decrease in the portfolio balance was due to asb 's decision to use investment portfolio repayments to fund the growth in the loan portfolio rather than redeploy it into investment securities . the decrease in the investment yields was due to an increase in the amortization of premiums in the investment portfolio . 53 ( in millions ) 2019 2018 increase ( decrease ) primary reason ( s ) noninterest income 73 56 17 noninterest income was higher in 2019 compared to 2018 primarily due to a gain on sale of real estate , an increase in mortgage banking income and higher bank-owned life insurance payouts .
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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. as of december , 31 2016 , we are a diversified operator of 24 wholly-owned gaming entertainment properties . headquartered in las vegas , nevada , we have gaming operations in nevada , illinois , indiana , iowa , kansas , louisiana and mississippi . we view each operating property as an operating segment . for financial reporting purposes , we aggregate our wholly-owned properties into the following three 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 eastside cannery casino and hotel las vegas , nevada aliante casino + hotel + spa north las vegas , nevada cannery casino hotel north 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 par-a-dice hotel and casino east peoria , illinois blue chip casino , hotel & spa michigan city , indiana diamond jo dubuque dubuque , iowa diamond jo worth northwood , iowa kansas star casino mulvane , kansas amelia belle casino amelia , louisiana delta downs racetrack casino & hotel vinton , louisiana evangeline downs racetrack and casino opelousas , louisiana sam 's town hotel and casino shreveport , louisiana treasure chest casino kenner , louisiana ip casino resort spa biloxi , mississippi sam 's town hotel and gambling hall tunica , mississippi 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 . on may 31 , 2016 , we announced that we had entered into an equity purchase agreement to sell our 50 % equity interest in the parent company of borgata hotel casino and spa ( `` borgata '' ) to mgm resorts international ( `` mgm '' ) . this transaction closed on august 1 , 2016. we accounted for our investment in borgata by applying the equity method and reported its results as discontinued operations for all periods presented in this annual report on form 10-k. 28 in third quarter 2016 , the peninsula gaming , llc ( `` peninsula '' ) debt was refinanced , eliminating the financing structure that restricted our ability to transfer cash from peninsula to boyd gaming . as a result of the elimination of this restriction , management concluded that the properties previously comprising the peninsula segment would be aggregated into the midwest and south reportable segment . our las vegas locals segment includes our wholly-owned subsidiaries aliante casino + hotel + spa ( `` aliante '' ) for the period following its september 27 , 2016 acquisition , and cannery casino hotel and eastside cannery casino and hotel ( together , the `` cannery properties '' ) for the period following their december 20 , 2016 acquisition . see note 2 , acquisitions and divestitures , to our consolidated financial statements presented in part ii , item 8. 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 of visits 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 , including our strategic investing in non-gaming amenities ; ( 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 . we are focused on the following strategic initiatives to improve and grow our business . strengthening our balance sheet we are committed to finding opportunities to strengthen our balance sheet through diversifying and increasing cash flow to reduce our debt . operating efficiently we are committed to operating more efficiently , and endeavor to prevent unneeded expense in our business . the efficiencies of our business model position us to flow a substantial portion of revenue gains directly to the bottom line . we manage our business operations to maintain and improve our margins in order to drive profit growth in our business . evaluating acquisition opportunities our evaluations of potential transactions and acquisitions are strategic , deliberate , and disciplined . story_separator_special_tag net income ( loss ) attributable to boyd gaming corporation for the year ended december 31 , 2016 , the net income attributable to boyd gaming was $ 418.0 million , compared with net income attributable to boyd gaming of $ 47.2 million for the corresponding period of the prior year . the $ 370.8 million increase is primarily due to an income tax benefit of $ 201.5 million related to the release of a valuation allowance on our federal and state income tax net operating loss carryforwards and other deferred tax assets and to the gain on the sale of our equity interest in borgata on august 1 , 2016. for the year ended december 31 , 2015 , the net income attributable to boyd gaming was $ 47.2 million compared with net loss attributable to boyd gaming of $ 53.0 million for the corresponding period of the prior year . the $ 100.3 million increase is primarily due to increased gaming revenues and improved results at borgata in discontinued operations , net of tax , and partially offset by an increase of $ 39.2 million of loss on early extinguishments and modifications of debt . operating revenues we derive the majority of our gross revenues from our gaming operations , which generated approximately 75 % of gross revenues for 2016 and 76 % of gross revenues in both 2015 and 2014 . food and beverage gross revenues represent our next most significant revenue source , generating approximately 13 % of gross revenues for 2016 , 2015 , and 2014 . room revenues and other revenues separately contributed less than 10 % of gross revenues during each year . replace_table_token_6_th 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 $ 27.0 million , or 1.5 % , during 2016 as compared to the prior year , which was due to a decrease of $ 58.3 million in the midwest and south segment . the midwest and south segment experienced a 4.8 % decrease in slot handle and a 5.1 % decrease in table game drop . partially offsetting this decrease was an increase of $ 29.2 million in the las vegas locals segment attributable primarily to the acquisitions of aliante and the cannery properties in september and december 31 2016 , respectively , an overall increase in both table game drop and slot hold , as well as a $ 2.1 million increase in the downtown las vegas segment . gaming expenses decreased by $ 20.2 million , or 2.2 % , reflective of the overall reduction in gaming revenues . in 2015 , gross gaming revenues increased by $ 47.4 million , or 2.6 % , as compared to the prior year due to $ 26.6 million , $ 11.2 million and $ 9.6 million increases in the midwest and south , las vegas locals and downtown las vegas segments , respectively , primarily related to increases in table game hold percentages across all segments . our overall slot and table game hold increased 0.1 % and 0.3 % , respectively , from 2014 to 2015. gaming margin improved in 2015 versus the prior year as gaming revenue increases outpaced the increase in expenses . food and beverage food and beverage revenues decreased $ 1.3 million , or 0.4 % , during 2016 as compared to 2015 due to a $ 7.2 million decrease in the midwest and south segment , primarily at par-a-dice and evangeline downs . the decrease in food and beverage revenue was also a result of a decline in food covers across all segments . offsetting this decrease were increases of food and beverage revenues of $ 5.2 million and $ 0.7 million in the las vegas locals segment and downtown las vegas segment , respectively , related to the acquisitions and to increases in average guest check . food and beverage expenses increased by $ 2.0 million and margin remained consistent as compared to last year . food and beverage revenues increased $ 4.0 million , or 1.3 % , during 2015 as compared to 2014 due to a $ 3.2 million and $ 1.9 million increase in the las vegas locals and downtown las vegas segments , respectively , related to increases in average guest check . offsetting this increase was a decrease in food and beverage revenues of $ 1.1 million in the midwest and south segment primarily related to a decrease in food covers . food and beverage expenses decreased by $ 0.6 million and margin remained consistent as compared to 2014. room room revenues increased $ 7.3 million , or 4.5 % , in 2016 compared to 2015 due to an increases in average daily rates across all segments . the increase was offset by a $ 0.4 million decrease in the midwest and south segment due primarily to a 3.1 % decrease in hotel occupancy over the prior year . room revenues increased by $ 6.1 million , or 3.9 % , in 2015 compared to 2014 due primarily to a $ 6.4 million increase in the las vegas locals segment related to an 11.0 % increase in average daily rate . the increase was partially offset by a $ 1.2 million decrease in the midwest and south segment as a result of lower occupancy in some of the properties . room expenses and margin remained consistent as compared to the prior period . 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 $ 1.5 million , or 1.2 % , during 2016 as compared to the prior year due to decreased visitor spending . other revenues increased by $ 1.7 million , or 1.4 % , during 2015 as compared to the prior year due to an increase in other revenue in the midwest and south segment .
| cash flows summary replace_table_token_11_th cash flows from operating activities during 2016 , 2015 and 2014 , we generated net operating cash flow of $ 302.9 million , $ 325.8 million and $ 289.9 million , respectively . generally , operating cash flows decreased $ 22.9 million in 2016 compared to 2015 due to the flow through effect of lower revenues and increased project development expenses , offset by reduced interest expense . generally , operating cash flows increased $ 35.9 million in 2015 compared to 2014 due to the flow through effect of higher revenues , partially offset by the timing of working capital spending . 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 2016 , we incurred net cash outflows for investing activities of $ 739.0 million due to our acquisitions of aliante and the cannery properties and capital expenditures during the period of $ 160.4 million . 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 . 36 in 2014 , we incurred net cash outflows for investing activities of $ 143.5 million due to our capital expenditures during the period of $ 137.8 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 . in 2016 , 2015 and 2014 , our net cash outflows for financing activities totaled $ 99.2 million , $ 199.7 million and $ 138.3 million , respectively , as we used cash generated from operations to extinguish outstanding debt . cash flows from discontinued operations discontinued operations activities in 2016 , 2015 and 2014 represents borgata .
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our primary market area includes the baltimore metropolitan area and its surrounding counties . our principal business consists of attracting retail deposits from the general public in our market area and investing those deposits , together with funds generated from operations and borrowings , primarily in one- to four-family residential mortgage loans , nonresidential real estate loans , construction and land development loans , home equity loans and lines of credit , and , to a lesser extent , commercial business loans and consumer loans . we retain our loans in portfolio depending on market conditions . we sell a majority of our fixed-rate one- to four-family residential mortgage loans in the secondary market . we also invest in various investment securities . our revenue is derived principally from interest on loans and investments and loan sales . our primary sources of funds are deposits and principal and interest payments on loans and securities . we also have access to federal home loan bank advances which are available and may be utilized from time to time . our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities . our results of operations are also affected by our provisions for loan losses , non-interest income and non-interest expense . non-interest income currently consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market , fees and service charges on deposit accounts , income from bank-owned life insurance policies and sales of securities . non-interest expense currently consists primarily of expenses related to salaries and employee benefits , occupancy , data processing related operations , professional fees , real estate owned and other expenses . 30 an increase in interest rates will present us with a challenge in managing our interest rate risk . as a general matter , our interest-bearing liabilities may reprice or mature more quickly than our interest-earning assets , which can result in interest expense increasing more rapidly than increases in interest income as interest rates increase . therefore , increases in interest rates may adversely affect our net interest income and net economic value , which in turn would likely have an adverse effect on our results of operations . as described in management of market risk , our net interest income and our net economic value would decrease as a result of an instantaneous increase in interest rates . to help manage interest rate risk , we promote core deposit products and we are diversifying our loan portfolio by continuing to sell a portion of our longer term conforming fixed-rate one-to four-family residential real estate loans and increase nonresidential real estate lending with shorter repricing terms . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . we expect our return on equity to remain relatively low until we are able to leverage the additional capital we received from the stock offering . business strategy we intend to continue to operate as a well-capitalized and profitable community-oriented bank dedicated to providing exceptional personal service to our individual and business customers . we believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace , our presence in the communities we serve and our long-standing history of providing superior , relationship-based customer service . our core business strategies are discussed below . continue to originate and sell certain residential real estate loans . residential mortgage lending has historically been a significant part of our business , and we recognize that originating one- to four-family residential real estate loans is essential to our status as a community-oriented bank . during the year ended december 31 , 2018 , we originated $ 18.0 million in one- to four-family residential real estate loans , selling $ 8.3 million in one- to four-family residential real estate loans and recording gains of $ 187,000 on the sale of those loans . similarly , during the year ended december 31 , 2017 , we originated $ 21.7 million in one- to four-family residential real estate loans , selling $ 7.4 million in one- to four-family residential real estate loans and recording gains of $ 187,000 on the sale of those loans . we intend to continue to sell in the secondary market a portion of the long-term conforming fixed-rate one- to four-family residential real estate loans that we originate to increase non-interest income and manage the interest rate risk of our loan portfolio . increase nonresidential real estate lending . in order to increase the yield on our loan portfolio and reduce the term to repricing , we plan to increase our nonresidential real estate lending while maintaining what we believe are conservative underwriting standards . we will focus our nonresidential real estate lending on small businesses located in our market area , targeting owner-occupied businesses . maintain high asset quality . strong asset quality is critical to the long-term financial success of a community bank . we attribute our high asset quality to maintaining conservative underwriting standards , the diligence of our loan collection personnel and the stability of the local economy . we hired a chief credit officer , with significant experience , who is critical in our goal to maintain high asset quality . at december 31 , 2018 , our non-performing assets to total assets ratio was 0.98 % . because substantially all of our loans are secured by real estate , and the level of our non-performing loans has been low in recent years , we believe that our allowance for loan losses is adequate to absorb the probable losses inherent in our loan portfolio . increase core deposits , with an emphasis on low-cost commercial demand deposits . deposits are the major source of balance sheet funding for lending and other investments . story_separator_special_tag we also estimate a reserve for deferred tax assets if , based on the available evidence , it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods . these estimates and judgments are inherently subjective . historically , our estimates and judgments to calculate our deferred tax accounts have not required significant revision . 32 in evaluating our ability to recover deferred tax assets , we consider all available positive and negative evidence , including our past operating results and our forecast of future taxable income . in determining future taxable income , we make assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies , these assumptions require us to make judgments about future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences . valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized . in evaluating the need for a valuation allowance , we must estimate our taxable income in future years and the impact of tax planning strategies . if we were to determine that we would not be able to realize a portion of our net deferred tax asset in the future for which there is no valuation allowance , an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made . conversely , if we were to make a determination that it is more likely than not that the deferred tax assets for which we had established a valuation allowance would be realized , the related valuation allowance would be reduced and a benefit to earnings would be recorded . comparison of financial condition at december 31 , 2018 and december 31 , 2017 total assets . total assets increased $ 37.5 million , or 21.08 % , to $ 215.4 million at december 31 , 2018 from $ 177.9 million at december 31 , 2017. the increase in total assets was primarily the result of the capital raise from our stock offering , as discussed in more detail below . cash and cash equivalents . cash and cash equivalents increased $ 6.8 million , or 56.67 % , to $ 18.8 million at december 31 , 2018 from $ 12.0 million at december 31 , 2017. the increase in cash and cash equivalents was primarily driven by the net proceeds received from the stock offering after investing in time deposits in other banks and investment securities discussed below . time deposits in other banks . time deposits in other banks increased by $ 1.9 million , or 38.00 % , to $ 6.9 million at december 31 , 2018 from $ 5.0 million at december 31 , 2017. this increase was due to purchases of time deposits in other banks in the amount of $ 5.7 million offset by maturities of $ 3.8 million . investment securities . investment securities increased $ 27.2 million to $ 37.4 million at december 31 , 2018 from $ 10.2 million at december 31 , 2017. the increase was primarily due to the investment of a portion of the net proceeds as the result of the capital raise from our stock offering . purchases of investment securities of $ 29.0 million were offset by maturities and principal repayments of $ 1.8 million . we transferred during 2018 , at fair value , our held to maturity residential mortgage-backed investment securities in the amount of $ 2.9 million to available for sale . all of our investment securities are currently classified as available for sale . net loans . net loans increased $ 3.3 million , or 2.37 % , to $ 142.3 million at december 31 , 2018 from $ 139.0 million at december 31 , 2017. one-to four-family residential real estate loans increased $ 3.0 million , or 4.46 % , to $ 70.2 million at december 31 , 2018 from $ 67.2 million at december 31 , 2017. our nonresidential loans increased $ 2.9 million , or 5.92 % , to $ 51.9 million at december 31 , 2018 from $ 49.0 million at december 31 , 2017. our commercial loans increased $ 647,000 , or 14.07 % , to $ 5.3 million at december 31 , 2018 from $ 4.6 million at december 31 , 2017. our home equity loans and lines of credit decreased $ 2.0 million , or 21.05 % , to $ 7.5 million at december 31 , 2018 from $ 9.5 million at december 31 , 2017. our construction and land development loans decreased $ 1.1 million , or 11.83 % , to $ 8.2 million at december 31 , 2018 from $ 9.3 million at december 31 , 2017. bank-owned life insurance . we invest in bank-owned life insurance ( boli ) to provide us with a funding source for our benefit plan obligations . bank-owned life insurance also generally provides us noninterest income that is non-taxable . federal regulations generally limit our investment in bank-owned life insurance to 25 % of our tier 1 capital plus our allowance for loan losses at the time of investment . this investment is accounted for using the cash surrender value method and is recorded at the amount that can be realized under the insurance policies at the balance sheet date .
| general . net income was $ 673,000 for the year ended december 31 , 2018 compared to $ 1,000 for the year ended december 31 , 2017. the increase was due to several factors including an increase in net interest income of $ 606,000 , or 9.93 % , to $ 6.7 million for the year ended december 31 , 2018 from $ 6.1 million for the year ended december 31 , 2017 , a decrease in provision for loan losses of $ 450,000 , or 43.90 % , to $ 575,000 for the year ended december 31 , 2018 from $ 1.0 million for the year ended december 31 , 2017 , offset by a decrease in non-interest income of $ 245,000 , or 29.66 % , to $ 581,000 for the year ended december 31 , 2018 from $ 826,000 for the year ended december 31 , 2017 and an increase in non-interest expense of $ 423,000 , or 7.83 % , to $ 5.8 million for the year ended december 31 , 2018 from $ 5.4 million for the year ended december 31 , 2017. the increase in net income was also a result of the tax cuts and jobs act ( the act ) that was signed into law on december 22 , 2017. the act amended the internal revenue code to reduce income tax rates and modify policies , credits and deductions for individuals and businesses . for businesses , the act reduced the federal corporate tax rate from a maximum 35 % to a flat 21 % tax rate . as a result , our net deferred tax assets , which were based on a 34 % corporate tax rate , had to be re-valued as of the year ended december 31 , 2017 to reflect the new tax rate of 21 % .
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the sensiml analytics toolkit from our recently acquired wholly owned subsidiary , sensiml completes the “ full stack ” end-to-end solution with accurate sensor algorithms using ai technology . the full range of platforms , software tools and efpga ip enables the practical and efficient adoption of ai , voice and sensor processing across mobile , wearable , hearable , consumer , industrial , edge and endpoint iot applications . our new products include our eos , quickai , sensiml analytics studio , arcticlink® iii , polarpro®3 , polarpro ii , polarpro , and eclipse ii products ( which together comprise our new product category ) . our mature products include primarily fpga families named pasic®3 and quickram® as well as programming hardware and design software . in addition to delivering our own semiconductor solutions , we have an ip business that licenses our efpga technology for use in other semiconductor companies socs . we began delivering our efpga ip product arcticpro in 2017 , which is included in the new product revenue category . through the acquisition of sensiml , we now have an iot ai software platform that includes saas subscriptions for development , per unit license fees when deployed in production , and proof-of-concept services – all of which are also included in the new product revenue category . our semiconductor solutions typically fall into one of three categories : sensor processing , display and visual enhancement , and smart connectivity . our solutions include a unique combination of our silicon platforms , ip cores , software drivers , and in some cases , firmware and application software . all of our silicon platforms are standard devices and must be programmed to be effective in a system . our ip that enables always-on context-aware sensor applications includes our flexible fusion engine , our sensor manager and communications manager technologies as well as ip that ( i ) improves multimedia content , such as our visual enhancement engine , or vee , technology , and display power optimizer , or dpo , technology ; and ( ii ) implements commonly used mobile system interfaces , such as low voltage differential signaling , or lvds , mobile industry processor interface , or mipi , and secure digital input output , or sdio . through the acquisition of sensiml , our core ip also includes the sensiml ai toolkit that enables oems to develop ai software for a broad array of resource-constrained time-series sensor endpoint applications . these include a wide range of consumer and industrial sensing applications . we also work with mobile processor manufacturers , sensor manufacturers , and voice recognition , sensor fusion and context awareness algorithm developers in the development of reference designs . through reference designs that incorporate our solutions , we believe mobile processor manufacturers , sensor manufacturers , and sensor and voice algorithm companies can expand the available market for their respective products . furthermore , should a solution developed for a processor manufacturer or sensor and or sensor algorithm company be applicable to a set of common oems or original design manufacturers , or odms , we can amortize our research and development , or r & d , investment over that set of oems or odms . there may also be cases when platform providers that intend to use always-on voice recognition will dictate certain performance requirements for the combined software/hardware solution before the platform provider certifies and or qualifies our product for use by end customers . 33 in addition to working directly with our customers , we partner with other companies that are experts in certain technologies to develop additional ip , reference platforms and system software to provide application solutions , particularly in the area of hardware acceleration for ai-type applications . we also work with mobil e processor and communications semiconductor device manufacturers and companies that supply sensor , algorithms and applications . for our sensor processing solutions , we collaborate with sensor manufacturers to ensure interface compatibility . we also collab orate with sensor and voice/audio software companies , helping them optimize their software technology on our silicon platforms in terms of performance , power consumption and user experience . our arcticpro efpga ip are currently developed on 65nm , 40nm and 22nm process nodes . the licensable ip is generated by a compiler tool that enables licensees to create an efpga block that they can integrate into their soc without significant involvement by quicklogic . we believe this flow enables a scalable support model for quicklogic . for our efpga strategy , we work with semiconductor manufacturing partners to ensure our efpga ip is proven for a given foundry and process node before it is licensed to a soc company . in order to grow our revenue from its current level , we depend upon increased revenue from our new products including existing new product platforms , efpga ip and platforms currently in development . we expect our business growth to be driven mainly by our silicon solutions , efpga ip and sensiml ai software . therefore , our revenue growth needs to be strong enough to enable us to sustain profitability while we continue to invest in the development , sales and marketing of our new solution platforms , ip and software . we are expecting revenue growth from eos s3 , sensiml ai saas , and efpga ip licensing in fiscal year 2020. we continue to seek to expand our revenue , including pursuing high-volume sales opportunities in our target market segments , by providing solutions incorporating ip , or industry standard interfaces . our industry is characterized by intense price competition and by lower margins as order volumes increase . while winning large volume sales opportunities will increase our revenue , we believe these opportunities may decrease our gross profit as a percentage of revenue . story_separator_special_tag as the company 's standard payment terms are less than one year , the company has elected , as a practical expedient , to not assess whether a contract has a significant financing component . the company allocates the transa ction price to each distinct product based on its relative standalone selling price . the product price as specified on the purchase order is considered the standalone selling price as it is an observable source that depicts the price as if sold to a simila r customer in similar circumstances . product revenue we generate most of our revenue by supplying standard hardware products , which must be programmed before they can be used in an application . our contracts with customers are generally for products only , and do not include other performance obligations such as services , extended warranties or other material rights . we recognize hardware product revenue at the point of time when control of products is transferred to the customers , when our performance obligation is satisfied , which typically occurs upon shipment from our manufacturing site or our headquarters . intellectual property and software license revenue we also generate revenue from licensing ip , software tools and royalty from licensing our technology . we recognize ip and software license revenue at the point of time when the control of ip or software license has been transferred . some of the ip and software licensing contracts with customers contain multiple performance obligations . for these contracts , we account for individual performance obligations separately if they are distinct . the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis . we determine the standalone selling prices based on our overall pricing objectives , taking into consideration market conditions and other factors , including the value of our contracts , type of the customer , customer tier , type of the technology used , customer demographics , geographic locations , and other factors . software as a service revenue , or saas revenue software products that are offered to the customers with a right to use the hosted software over the contract period without taking the possession of it are billed on a subscription basis . revenue that are billed on a subscription basis is recognized ratably over the contract period . maintenance revenue we recognize revenue from maintenance ratably over the term of the underlying maintenance contract term . renewals of maintenance contracts create new performance obligations that are satisfied over the term with the revenues recognized ratably over the term . royalty revenue we recognize royalty revenue when the later of the following events occurs : a ) the subsequent sale or usage occurs ; b ) the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied . deferred revenue receivables are recognized in the period we ship the product . payment terms on invoiced amounts are based on contractual terms with each customer . when we receive consideration , or such consideration is 36 unconditionally due , prior to transferring goods or services to the customer under the terms of a sales contract , we record deferred revenue , which represents a contract liability . we recognize deferred revenue as net sales once control of goods and or services have been transferred to the customer and all revenue recognition criteria have been met and any constraints have been resolved . we defer the product costs until recognition of t he related revenue occurs . assets recognized from costs to obtain a contract with a customer we recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year . we have concluded that none of the costs we have incurred to obtain and fulfill our fasb accounting standards codification , or asc , 606 contracts meet the capitalization criteria , and as such , there are no costs deferred and recognized as assets on the consolidated balance sheet at december 29 , 2019. practical expedients and exemptions ( i ) taxes collected from customers and remitted to government authorities and that are related to the sales of our products are excluded from revenues . ( ii ) sales commissions are expensed when incurred because the amortization period would have been one year or less . these costs are recorded in selling , general and administrative expense in the condensed consolidated statements of income . ( iii ) we do not disclose the value of unsatisfied performance obligations for ( i ) contracts with original expected lengths of one year or less or ( ii ) contracts for which we recognize revenue at the amount to which we have the right to invoice for the services performed . we record allowance for sales returns . amounts recorded for sales returns for the year ended december 29 , 2019 and december 30 , 2018 were $ 60,000 and $ 156,000 , respectively . revenue recognition prior to the adoption of asc topic no . 606 on january 1 , 2018 we supply standard products which must be programmed before they can be used in an application . the company 's products may be programmed by us , distributors , end-customers or third parties . we recognize revenue as products are shipped if evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable , collection of the resulting receivable is reasonably assured and product returns are reasonably estimable . revenue is recognized upon shipment of programmed and unprogrammed parts to both oem customers and distributors , provided that legal title and risk of ownership have transferred . parts held by distributors may be returned for quality reasons only under its standard warranty policy . we record allowance for sales returns . we account for our ip license revenues and related services in accordance with asc no . 985-605 , software revenue recognition .
| results of operations the following table sets forth the percentage of revenue for certain items in our statements of operations for the periods indicated : replace_table_token_4_th impact of inflation and product price changes on our revenue and on income was immaterial in 2019 , 2018 and 2017. comparison of fiscal years 2019 and 2018 revenue . the table below sets forth the changes in revenue for fiscal year ended december 29 , 2019 , as compared to fiscal year ended december 30 , 2018 ( in thousands , except percentage data ) : replace_table_token_5_th ( 1 ) new products include all products manufactured on 180 nanometer or smaller semiconductor processes , efpga ip license , quickai and sensiml ai software as a service ( saas ) revenues . mature products include all products produced on semiconductor processes larger than 180 nanometer . the 46 % decrease in new product revenue in 2019 was primarily due to lower sales from display bridge solution , efpga license and connectivity product , which was partially offset by an increase in ai saas revenue . the increase in mature product revenue was due primarily to increased orders from our customers in the defense , aerospace , test and instrumentation sectors . gross profit . the table below sets forth the changes in gross profit for fiscal year ended december 29 , 2019 , as compared to fiscal year ended december 30 , 2018 ( in thousands , except percentage data ) : replace_table_token_6_th 41 the increase in gr oss profit and gross profit percentage was primarily due to ( i ) product and customer mix , and ( ii ) additional saas revenue in 2019. in 2019 , mature product revenue was 70 % of total revenue compared to 55 % in the prior year . mature product revenue increased by 4 % compared to 2018. the sale of inventories that were previously written-off was $ 121 ,000 and $ 218 ,000 in 201 9 and 201 8 , respectively .
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overview viad corp ( “ viad ” or the “ company ” ) operates in three reportable business segments : marketing & events u.s. , marketing & events international and travel & recreation group . the marketing & events group , comprised of global experience specialists , inc. and affiliates ( “ ges ” ) , is a global event marketing company that helps clients gain more awareness , more involvement and more value from their trade show programs and other live events . the marketing & events group specializes in all aspects of the design , planning and production of face-to-face events , immersive environments and brand-based experiences for clients , including show organizers , corporate brand marketers and retail shopping centers . the mission of the marketing & events group is to create the world 's most meaningful and memorable experiences for show organizers , brand marketers , event attendees and retail shopping centers . show organizers include for-profit and not-for-profit show owners as well as show management companies . corporate brand marketers include exhibitors and domestic and international corporations that want to promote their brands , services and innovations , feature new products and build business relationships . viad 's retail shopping center customers include major developers , owners and management companies of shopping malls and leisure centers . on september 16 , 2014 , the company acquired blitz communications group limited and affiliates ( collectively , “ blitz ” ) , which has offices in the united kingdom and is a leading audio-visual staging and creative services provider for the live events industry in the united kingdom and continental europe . the purchase price was £15.0 million ( approximately $ 24.4 million ) in cash , subject to certain adjustments . on october 7 , 2014 , the company acquired onpeak llc and travel planners , inc. ( collectively , “ onpeak ” ) for a purchase price of $ 43.0 million and $ 33.7 million , respectively , in cash , subject to certain adjustments . both acquired companies provide event accommodations services in north america to the live events industry . on november 24 , 2014 , the company acquired n200 limited and affiliates ( collectively , “ n200 ” ) for 9.7 million ( approximately $ 12.1 million ) in cash , subject to certain adjustments , plus an earnout payment ( the “ earnout ” ) of up to 1.0 million . the amount of the earnout is based on n200 's achievement of established financial targets for fiscal 2015 ( ending june 30 ) . n200 , which has offices in the united kingdom and the netherlands , is a leading event registration and data intelligence services provider for the live events industry in the united kingdom and the netherlands . the travel & recreation group is an experiential leisure travel provider serving the needs of regional and long-haul visitors to iconic natural and cultural destinations in north america . the travel & recreation group segment consists of brewster inc. ( “ brewster ” ) , glacier park , inc. ( “ glacier park ” ) and alaskan park properties , inc. ( “ alaska denali travel ” ) . brewster provides tourism products and experiential services in the canadian rockies in alberta and in other parts of western canada . brewster 's operations include the banff gondola , columbia icefield glacier adventure , glacier skywalk ( opened may 2014 ) , banff lake cruise , motorcoach services , charter and sightseeing services , inbound package tour operations and hotel operations . during 2014 , glacier park owned and operated seven properties , with accommodation offerings varying from hikers ' cabins to hotel suites , including st. mary lodge , a 115-room , full-service resort lodge located outside the east entrance to glacier national park in st. mary , montana ; glacier park lodge , a historic lodge in east glacier , montana ; grouse mountain lodge , a full-season lodge offering golf , skiing in the winter , hiking in the summer and other seasonal recreational activities , located near glacier national park in whitefish , montana ; the prince of wales hotel in waterton lakes national park , alberta , canada , which is situated on land for which the company has a 42-year ground lease with the canadian government running through january 31 , 2052 ; the west glacier motel & cabins in west glacier , montana , and motel lake mcdonald and the apgar village lodge , which are located inside glacier national park . glacier park also operates the food and beverage services with respect to those properties and the retail shops located near glacier national park . with regard to glacier park 's concession operations within glacier national park , refer to note 24 , discontinued operations , of notes to consolidated financial statements . on july 1 , 2014 , the company acquired the west glacier motel & cabins , the apgar village lodge and related land , food and beverage services and retail operations ( collectively , the “ west glacier properties ” ) . the west glacier motel & cabins is a 32-room property situated on approximately 200 acres at the west entrance of glacier national park , and its full- 19 service amenities include a restaurant , grocery store , gift shops , a gas station and employee accommodations . the apgar village lodge is a 48-room property situated on a 3.8 acre private in-holding inside glacier national park with overnight accommodations , a gift shop and employee accommodations . the purchase price was $ 16.5 million in cash with a working capital adjustment of $ 0.3 million , subject to certain adjustments . for additional information , refer to note 3 , acquisition of businesses , of notes to consolidated financial statements . alaska denali travel operates the denali backcountry lodge and denali cabins . in addition to lodging , alaska denali travel also provides food and beverage operations and package tour and transportation services in and around denali national park and preserve . story_separator_special_tag revpar measures the period-over-period change in rooms revenue for comparable hospitality properties . revpar is affected by average daily rate and occupancy , which have different implications on profitability . average daily rate . adr is calculated as total rooms revenue divided by the total number of room nights sold for all comparable travel & recreation group hospitality properties during the period . adr is used to assess the pricing levels that the hospitality properties are able to generate . increases in adr at hospitality properties lead to increases in rooms revenue with no substantial effect on variable costs , therefore having a greater impact on margins than increases in occupancy . occupancy . occupancy is calculated as the total number of room nights sold divided by the total number of room nights available for all comparable travel & recreation group hospitality properties during the period . occupancy measures the utilization of the available capacity at the hospitality properties . increases in occupancy result in increases in rooms revenue and additional variable operating costs ( including housekeeping services , utilities and room amenity costs ) , as well as increased ancillary non-rooms revenue ( including food and beverage and retail revenue ) . 24 management evaluates the performance of the travel & recreation group attractions business utilizing the number of passengers and total attractions revenue per passenger . the number of passengers allows management to assess the volume of visitor activity at each attraction during the period . total attractions revenue per passenger is calculated as total attractions revenue divided by the total number of passengers at all travel & recreation group attractions during the period . total attractions revenue includes ticket sales and ancillary revenue generated by attractions , such as food and beverage and retail revenue . total attractions revenue per passenger measures the total spend per visitor that attraction properties are able to capture , which is important to the profitability of the attractions business . the following table provides travel & recreation group same-store key performance indicators for the twelve months ended december 31 , 2014 and 2013. the same-store metrics below indicate the performance of all travel & recreation group properties and attractions that were owned by viad and operating at full capacity , considering seasonal closures , for the entirety of both periods presented . for travel & recreation group properties and attractions located in canada , comparisons to the prior year are on a constant u.s. dollar basis , using the current year quarterly average exchange rates for previous periods , to eliminate the positive or negative effects that result from translating . management believes that this same-store constant currency basis provides better comparability between reporting periods . the same-store key performance indicators presented below exclude the hospitality metrics for the west glacier properties ( acquired july 1 , 2014 ) , as well as the attraction metrics for the glacier skywalk attraction ( opened may 2014 ) as they do not have comparable results for the same periods in 2013. replace_table_token_10_th hospitality . the increase in revpar in 2014 was primarily due to higher occupancy and adr at the mount royal hotel , the banff international hotel , and the glacier view inn driven by increased visitation to banff and jasper national parks . the grouse mountain lodge also experienced higher revpar driven by the company 's renovations in 2012 and 2013. these increases were partially offset by reduced occupancy at the denali backcountry lodge , which experienced flooding early in its operating season , and at glacier park lodge , which experienced especially strong occupancy in 2013 as a result of its centennial anniversary . the decrease in adr was primarily driven by offering lower rates at the prince of wales hotel in response to softer demand as compared to prior year and higher occupancy during the off-peak season at the grouse mountain lodge when rates were lower . the decrease in room nights available from 2013 to 2014 was due to changes in seasonal opening and closing dates of certain glacier park properties . management schedules opening and closing dates to optimize profitability based on anticipated travel patterns , and forecasted occupancy levels and operating expenses . attractions . the number of passengers increased in 2014 at all three of brewster 's attractions ( columbia icefield glacier adventure , banff gondola , and banff lake cruise ) . the attractions benefited from increased park visitation traffic , favorable weather conditions , and strong combination ticket sales with the glacier skywalk . the banff lake cruise experienced a substantial increase in individual traffic as a result of implementing additional departure times in 2014. during 2014 , approximately 75 percent of revenue and 90 percent of segment operating income generated in the travel & recreation group segment were derived through its canadian operations . these operations are largely affected by foreign customer visitation , and , accordingly , increases in the value of the canadian dollar , as compared to other currencies , could adversely affect customer volumes , revenue and segment operating income for the travel & recreation group . additionally , the travel & recreation group is affected by consumer discretionary spending on tourism activities . for the 2015 full year , management expects the travel & recreation group 's revenue to increase by a low single-digit rate from 2014 driven by the growth of the underlying business , largely offset by unfavorable currency translation . management anticipates that foreign currency exchange rate variances versus 2014 will have an unfavorable impact on the travel & recreation group 's 2015 full year revenue and operating income of approximately $ 10 million and $ 3 million , respectively . also , management anticipates the five acquisitions completed by viad since the beginning of 2011 will generate approximately $ 35 million in revenue in 2015 with an average adjusted ebitda margin ( defined as adjusted ebitda divided by revenue ) of 25 more than 30 percent .
| results of operations : 2014 vs. 2013 : the following are consolidated highlights : total revenue was $ 1.1 billion , as compared to $ 953.3 million in 2013. the increase in revenue was primarily driven by positive show rotation , continued same-show growth , and the acquisitions of onpeak , blitz and n200 in the marketing & events group u.s. and international segments . the increase in the travel & recreation group revenue was primarily due to brewster 's attractions , with the glacier skywalk ( opened may 2014 ) driving growth at our attractions and the acquisition of the west glacier properties . total segment operating income was $ 59.9 million , as compared to $ 41.9 million in 2013. the increase in segment operating income was primarily driven by higher revenue and increased margins in all three reportable segments . diluted income per share from continuing operations attributable to viad shareholders was $ 2.02 , as compared to $ 0.96 in 2013. income from discontinued operations attributable to viad was $ 11.6 million , as compared to income of $ 2.1 million in 2013 , primarily related to the expiration of glacier park 's concession contract with the park service on december 31 , 2013. the company 's 2013 results related to the operations of glacier park 's concession contract business have been reclassified as discontinued operations . net income attributable to viad was $ 52.4 million , as compared to $ 21.6 million in 2013 . 21 foreign exchange rate variances viad conducts its foreign operations primarily in canada , the united kingdom , germany and to a lesser extent in certain other countries .
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accordingly , while the company believes that a cash distribution is possible , actual results may differ from current estimates , perhaps materially , possibly resulting in no excess cash proceeds being available for distribution to shareholders . moreover , the company continues to consider other possible strategic alternatives other than liquidation of its assets . note 2 - summary of significant accounting policies liquidation basis of accounting the liquidation basis of accounting is appropriate when the liquidation of a company appears imminent and the net realizable value of its assets is reasonably determinable . accordingly , the company implemented the liquidation basis of accounting effective on october 30 , 2011. under this basis of accounting , assets are stated at their net realizable value and liabilities are stated at their net settlement amount and estimated costs over the period of liquidation are accrued to the extent reasonably determinable . a. accrued liquidation costs - under the liquidation basis of accounting , story_separator_special_tag special note regarding forward-looking statements this annual report ( including but not limited to factors discussed below , in the “ management 's discussion and analysis of financial condition and results of operations , ” as well as those discussed elsewhere in this report includes forward-looking statements ( within the meaning of section 27a of the securities act of 1933 and section 21e of the securities and exchange act of 1934 ) and information relating to the company that are based on the beliefs of management of the company as well as assumptions made by and information currently available to management of the company . when used in this annual report , the words “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend , ” “ plan , ” and similar expressions , as they relate to the company or the management of the company , identify forward-looking statements . such statements reflect the current views of the company with respect to future events , the outcome of which is subject to certain risks , including among others general economic and market conditions , possible disruptions in the company 's information or communication systems , possible work stoppages or increases in labor costs , higher than anticipated costs , higher interest rates , unanticipated difficulties which may arise with respect to the company and other factors which may be outside the company 's control . should one or more of these risks or uncertainties materialize , or should underlying assumptions prove incorrect , actual results or outcomes may vary materially from those described herein as anticipated , believed , estimated , expected , intended or planned . subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this paragraph and elsewhere described in this annual report and other reports filed with the sec . on november 2 , 2011 , syms and its subsidiaries filed voluntary petitions for relief under chapter 11 of the united states code ( “ bankruptcy code ” or “ chapter 11 ” ) in the united states bankruptcy court ( “ court ” ) for the district of delaware . disposition of the company 's and filene 's businesses prior to november 2 , 2011 , all of the company 's and filene 's business operations consisted primarily of running retail operations . as the economy worsened , sales continued to erode and , as a result , cash flow suffered . notwithstanding the best efforts of the company and filene 's , significant operational losses continued to threaten the on-going businesses . trade vendors tightened and or ceased credit terms . as a result , the company and filene 's projected that absent additional financing or measures to monetize certain assets , liquidity would come to an end . in response to the chapter 11 filing the company implemented the liquidation basis of accounting effective on october 30 , 2011 , which was the beginning of the fiscal month closest to the petition date . net operating results from october 30 , 2011 to november 1 , 2011 were not material . the liquidation basis of accounting is appropriate when the liquidation of a company appears imminent and the net realizable value of its assets is reasonably determinable . accordingly the company implemented the liquidation basis of accounting on october 30 , 2011. under this basis of accounting , assets and liabilities are stated at their net realizable value and estimated costs through the liquidation date are provided to the extent reasonably determinable . the consolidated financial statements for the period ended february 26 , 2011 and february 27 , 2010 were prepared on the going concern basis of accounting , which contemplated realization of assets and satisfaction of liabilities in the normal course of business . in the opinion of management , the accompanying consolidated statements of operations , shareholders ' equity and cash flows contain all adjustments , including normal recurring adjustments , necessary to present fairly the financial position of the company as of february 26 , 2011 and february 27 , 2010. critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires the appropriate application of certain accounting policies , many of which require us to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes . since future events and their impact can not be determined with certainty , the actual results will inevitably differ from the company 's estimates . such differences could be material to the financial statements . 14 syms corp. the company believes that its application of accounting policies , and the estimates inherently required by the policies , are reasonable . these accounting policies and estimates are reevaluated periodically , and adjustments are made when facts and circumstances dictate a change . story_separator_special_tag in addition , as part of the integration of the syms and filene 's operations , a total of $ 2.1 million of information technology related professional fees , legal fees and severance costs associated with staffing level reductions , which were incurred and were recorded as restructuring charges in fiscal 2010. interest expense for the eight months ended october 29 , 2011 and the twelve months ended february 26 , 2011 was $ 1.1 million and $ 1.4 million , respectively . these expenses were the result of borrowings on the company 's revolving credit facility during these periods . as a result of the above-noted items , the loss before income taxes for the eight month period ended october 29 , 2011 was $ 29.6 million compared with $ 51.7 million for the twelve-month period ended february 26 , 2011. for the eight-month period ended october 29 , 2011 ( pre-filing period ) , the company wrote off its short-term and long-term deferred tax assets of approximately $ 46.3 million as a result of management making the determination that the recovery of the assets was not likely . the effective income tax rate for the eight-month period ended october 29 , 2011 was ( 156.7 % ) . for fiscal 2010 , the effective income tax rate was 36.5 % . in fiscal 2010 , the difference between the effective income tax rate and the federal statutory rate resulted primarily from state income taxes , adjustments related to prior year income taxes , and to a lesser extent permanent differences in the deductibility of expenses for book and tax . fiscal year ended february 26 , 2011 ( fiscal 2010 ) compared to fiscal year ended february 27 , 2010 ( fiscal 2009 ) net sales increased by $ 67.8 million or 18 % to $ 445.1 million during fiscal 2010 from $ 377.3 million in fiscal 2009. this increase was primarily the result of having a full twelve months of sales in fiscal 2010 from the filene 's stores which were acquired in fiscal 2009. net sales in fiscal 2009 included sales from filene 's from june 19 , 2009 ( the company 's first day of operating ownership of filene 's ) . comparable store sales , including filene 's sales for comparable periods , were flat in fiscal 2010. comparable store sales in the prior year , excluding filene 's sales , decreased 15 % . the company 's comparable store sales computation only includes stores that have been owned and operated by the company for a period of at least twelve full fiscal months . in addition , the company opened one store during fiscal 2010 which contributed $ 1.9 million of the sales increase . partially offsetting the above sales increases was the loss of $ 24.7 million of sales in fiscal 2010 resulting from the closing of four stores during fiscal 2010 and five stores during fiscal 2009. by merchandise category , our women 's business grew to 46 % of total company net sales from 44 % in the prior year , domestics grew to 6 % from 5 % last year and shoes grew to 5 % from 4 % in fiscal 2009. this was primarily the result of having a full twelve months of sales in fiscal 2010 from the filene 's stores which were acquired in fiscal 2009. these increases came at the expense of men 's which decreased 4 % , from 42 % of total company net sales in fiscal 2009 to 38 % this year . children 's apparel did not change , remaining at 5 % of total company net sales . comparable store sales for the stores in the new york metropolitan area were negative low single digits . offsetting this were the stores in the south that had flat comparable store sales and stores in other areas of the country that had comparable store sales increase in the low single digits . 17 syms corp. gross profit increased by $ 28.7 million to $ 173.8 million during fiscal 2010 from $ 145.1 million during fiscal 2009. this increase was primarily the result of having a full 12 months of sales in fiscal 2010 from the filene 's stores which were acquired in fiscal 2009. gross profit as a percent of net sales increased 50 basis points to 39.0 % during fiscal 2010 from 38.5 % during the comparable prior year period . this increase was primarily due to the company taking fewer markdowns this year as a result of it being less promotional . partially offsetting the lower markdowns , the company increased its reserve for inventory obsolescence by $ 6.2 million , as it determined that it had not adequately cleared out old season merchandise as of year-end . in addition , the company 's leased department income increased during fiscal 2010. partially offsetting these increases was a lower markup , as the company continued to reduce prices in order to maintain competitiveness with other retailers . the company 's gross profit excludes the cost of its distribution network . for the fiscal years ended february 26 , 2011 and february 27 , 2010 , the amounts incurred for our distribution network that were classified in selling , general and administrative expenses and occupancy costs were $ 19.0 million and $ 15.6 million , respectively . sg & a increased $ 14.9 million to $ 124.4 million during fiscal 2010 as compared to $ 109.5 million during fiscal 2009. this increase was primarily the result of having a full 12 months of expenses in fiscal 2010 from the filene 's stores , which were acquired in fiscal 2009. as a percent of net sales , sg & a decreased approximately 110 basis points to 27.9 % of net sales during fiscal 2010 from 29.0 % of net sales in the comparable prior year period .
| results of operations the following discussion compares the eight months ended october 29 , 2011 and the twelve months ended february 26 , 2011 and february 27 , 2010. both february 26 , 2011 and february 27 , 2010 were comprised of 52 weeks . comparison of the eight months ended october 29 , 2011 ( fiscal 2011 ) compared to twelve months ended february 26 , 2011 ( fiscal 2010 ) the company adopted the liquidation basis of accounting effective october 30 , 2011 and accordingly reported no revenue from the sale of merchandise , no cost of goods sold and no operating expenses thereafter . as a result the amounts reported for fiscal 2011 and fiscal 2010 are not comparable . sales for the eight months ended october 29 , 2011 were $ 258.2 million versus $ 445.1 million for the twelve-month period ended february 26 , 2011. sales volume for the eight months ended october 29 , 2012 , was impacted by the fact that gordon brothers undertook the liquidation of five stores ( rockville pike , md ; watertown , ma ; peabody , ma ; braintree , ma and saugus , ma ) for approximately 18 days during the period . by merchandise category , our women 's business grew to 47 % of total company net sales from 46 % in the prior year and shoes business grew to 6 % from 5 % last year . shoes increased partially due to the introduction of dsw into seven syms locations during the third quarter of fiscal 2011. these increases came at the expense of men 's business which decreased to 37 % of total company net sales from 38 % last year , and domestics business which declined slightly to 5 % from 6 % last year . children 's apparel did not change , remaining at 5 % of total company net sales .
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there was no interest income recognized on a cash basis story_separator_special_tag this discussion presents management 's analysis of the financial condition of the company as of december 31 , 2012 and december 31 , 2011 , and the results of operations for each of the years in the three-year period ended december 31 , 2012. the discussion should be read in conjunction with the consolidated financial statements of the company and the notes related thereto presented elsewhere in this form 10-k annual report ( see item 8 below ) . statements contained in this report or incorporated by reference that are not purely historical are forward looking statements within the meaning of section 21e of the securities exchange act of 1934 as amended , including the company 's expectations , intentions , beliefs , or strategies regarding the future . all forward-looking statements concerning economic conditions , growth rates , income , expenses , or other values which are included in this document are based on information available to the company on the date noted , and the company assumes no obligation to update any such forward-looking statements . it is important to note that the company 's actual results could materially differ from those in such forward-looking statements . risk factors that could cause actual results to differ materially from those in forward-looking statements include but are not limited to those outlined previously in item 1a . critical accounting policies the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states . the financial information and disclosures contained within those statements are significantly impacted by management 's estimates and judgments , which are based on historical experience and various other assumptions that are believed to be reasonable under current circumstances . actual results may differ from those estimates under divergent conditions . critical accounting policies are those that involve the most complex and subjective decisions and assessments , and have the greatest potential impact on the company 's stated results of operations . in management 's opinion , the company 's critical accounting policies deal with the following areas : the establishment of the company 's allowance for loan and lease losses , as explained in detail in note 2 to the consolidated financial statements and in the “ provision for loan losses ” and “ allowance for loan and lease losses ” sections of this discussion and analysis ; the valuation of impaired loans and foreclosed assets , as discussed in note 2 to the consolidated financial statements ; income taxes and deferred tax assets and liabilities , especially with regard to the ability of the company to recover deferred tax assets as discussed in the “ provision for income taxes ” and “ other assets ” sections of this discussion and analysis ; goodwill , which is evaluated annually for impairment based on the fair value of the company and for which it has been determined that no impairment exists , as discussed in note 2 to the consolidated financial statements and in the “ other assets ” section of this discussion and analysis ; and equity-based compensation , which is discussed in greater detail in note 2 to the consolidated financial statements contained herein . critical accounting areas are evaluated on an ongoing basis to ensure that the company 's financial statements incorporate the most recent expectations with regard to these areas . story_separator_special_tag oan relationships totaling approximately $ 28 million . the company 's ratio of nonperforming assets to loans plus foreclosed assets fell to 8.10 % at december 31 , 2012 from 9.25 % at december 31 , 2011 , due to the increase in gross loan balances . 30 · our allowance for loan and lease losses was $ 13.9 million as of december 31 , 2012 , a decline of $ 3.4 million , or 20 % , relative to year-end 2011. the drop during 2012 was due in part to certain loan charge-offs which were taken against previously-established specific reserves and thus did not require replenishment , as well as a reduction in general reserves consistent with improvement in the quality of the company 's performing loans . due to the decline in the overall allowance and the increase in total loans , the allowance fell to 1.58 % of total loans at december 31 , 2012 from 2.28 % at december 31 , 2011. pursuant to management 's detailed analysis , the allowance as of the end of 2012 is expected to be sufficient to cover specifically identified probable losses on impaired loans and leases , as well as probable incurred losses inherent in the remaining loan portfolio . · total deposits increased by $ 88 million , or 8 % , during 2012. non-maturity deposits were up $ 100 million , or 14 % , including significant increases in savings deposits , non-interest bearing demand deposits , and interest-bearing transaction accounts due in part to aggressive deposit acquisition programs and an intensified focus on business relationships . a drop in time deposits partially offset the increase in non-maturity deposits . · total capital was $ 174 million at december 31 , 2012 , reflecting an increase of $ 5 million , or 3 % , for the year . risk-based capital ratios declined , however , as capital was leveraged for organic loan growth . at december 31 , 2012 , the consolidated company 's total risk-based capital ratio was 19.36 % , its tier one risk-based capital ratio was 18.11 % , and its tier one leverage ratio was 13.34 % . results of operations the company earns income from two primary sources . the first is net interest income , which is interest income generated by earning assets less interest expense on deposits and other borrowed money . the second is non-interest income , which primarily consists of customer service charges and fees but also comes from non-customer sources such as bank-owned life insurance . story_separator_special_tag also contributing to the negative pressures on our rate variance was an increase in net interest reversals on loans placed on non-accrual status ; we had $ 276,000 in net interest reversals in 2012 , relative to $ 189,000 in 2011. the company 's net interest margin , which is tax-equivalent net interest income as a percentage of average interest-earning assets , is affected by the same factors discussed above relative to rate and volume variances . our net interest margin was 4.22 % in 2012 , a decline of 36 basis points relative to 2011. the principal negative factors impacting the company 's net interest margin in 2012 include relatively strong growth in lower-yielding investment balances in the first half of the year ( although that trend began to reverse in the second half ) , a shift from higher yielding loan categories to lower-yielding loan types , lower loan yields across the board resulting from increased competition for quality loans , and an increase in net interest reversals . however , those negatives were partially offset by a relatively large increase in the average balance of non-interest bearing demand deposits , a shift in average interest-bearing deposit balances from higher-cost deposits into lower-cost deposit categories , and a drop in certain deposit rates . net interest income declined in 2011 relative to 2010 due to a drop of 32 basis points in our net interest margin , with the margin decline partially offset by a $ 12 million increase in average interest-earning assets . the principle negative factors impacting our net interest margin in 2011 were a shift from average loan balances into lower-yielding investment balances , and lower loan yields resulting from increased competition for quality loans . having a favorable effect on our net interest margin were a shift in average liability balances from higher-cost deposits and borrowings into lower-cost non-maturity deposits , a reduced reliance on interest-bearing liabilities , and a drop in average non-accruing loan balances . provision for loan and lease losses credit risk is inherent in the business of making loans . the company sets aside an allowance for loan and lease losses , a contra-asset account , through periodic charges to earnings which are reflected in the income statement as the provision for loan and lease losses . the severity of economic challenges has contributed to higher loan loss provisions for the past several years than in prior periods of strong economic growth , due to the negative impact of recessionary conditions on many of our borrowers and the resulting credit challenges in our loan portfolio . the company 's loan loss provision totaled $ 14.210 million in 2012 , $ 12.000 million in 2011 , and $ 16.680 million in 2010. the provision was increased by $ 2.210 million , or 18 % , in 2012 relative to 2011 , but reflects a decrease of $ 4.680 million , or 28 % for 2011 relative to 2010. these elevated loan loss provisions have been utilized to establish specific reserves for impaired loans that have migrated into impaired status , enhance specific reserves on other impaired collateral-dependent loans that might have experienced deterioration in the value of their underlying collateral , replenish reserves subsequent to loan charge-offs , and build general reserves for performing loans due to higher historical loss factors . 34 the company 's loan loss provisions have been sufficient to maintain an allowance for loan and lease losses at a level that , in management 's judgment , is adequate to absorb probable loan losses related to specifically-identified impaired loans , as well as probable incurred losses in the remaining loan portfolio . when available information confirms that specific loans and leases , or portions thereof , are uncollectible , those amounts are immediately charged off against the allowance . net loans charged off in 2012 totaled $ 17.620 million , relative to $ 15.855 million in 2011 and $ 19.257 million in 2010. the company 's loan loss provision was lower than loan charge-offs for all three years , since many of the charge-offs were taken against previously-established specific reserves and did not directly result in the need for reserve replenishment via the loan loss provision . the level of charge-offs also affects historical loss factors used in calculating general reserves for non-impaired loans , and higher loss factors can lead to a larger loan loss provision if it is determined that general reserves require enhancement . while this occurred to some extent in 2012 , the impact was partially offset by the adjustment of qualitative factors pursuant to management 's determination that credit risk in non-impaired loans has declined , as discussed in further detail below under “ allowance for loan and lease losses. ” the company 's policies for monitoring the adequacy of the allowance and determining loan amounts that should be charged off , and other detailed information with regard to changes in the allowance , are discussed below under “ allowance for loan and lease losses. ” the process utilized to establish an appropriate allowance for loan and lease losses can result in a high degree of variability in the company 's loan loss provision , and consequently in our net earnings . 35 non-interest revenue and operating expense the following table sets forth the major components of the company 's non-interest revenue and operating expense , along with relevant ratios , for the years indicated : non-interest revenue/expense ( dollars in thousands ) replace_table_token_6_th ( 1 ) tax equivalent the overhead efficiency ratio in the table above represents total operating expense divided by the sum of fully tax-equivalent net interest and non-interest income ( total revenue ) , adjusted to exclude the provision for loan losses , investment gains and losses , and other extraordinary gains and losses from the equation .
| summary of performance recessionary conditions have led to relatively high credit costs , diminished lending activity , and associated earnings pressures at the company for the past five years . there are signs of recovery in the national economy and in certain regions of california , including kern county , but economic conditions have not yet materially improved in tulare , fresno , and kings counties . industry-wide regulatory pressures on certain components of non-interest income have exacerbated the negative impact of the faltering economy on our financial performance in recent years . the company recognized net income of $ 8.185 million in 2012 relative to $ 7.780 million in 2011 and $ 7.363 million in 2010 , representing year-over-year increases in net income for both 2012 and 2011 but still coming in well below levels achieved in pre-recession years . net income per diluted share was $ 0.58 for 2012 , as compared to $ 0.55 for 2011 and $ 0.60 in 2010. the company 's return on average assets and return on average equity were 0.59 % and 4.74 % , respectively , in 2012 , as compared to 0.59 % and 4.73 % , respectively , for 2011 , and 0.56 % and 5.16 % , respectively , in 2010 . 29 the following are some of the major factors impacting the company 's results of operations for the years presented in the consolidated financial statements : · net interest income has been declining , falling by 4 % in 2012 relative to 2011 and by 6 % in 2011 relative to 2010 , due to net interest margin compression .
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f-11 ttec holdings , inc. and subsidiaries notes to the consolidated financial statements restructuring liabilities the company routinely assesses the profitability and utilization of its customer story_separator_special_tag s executive summary ttec holdings , inc. ( “ ttec ” , “ the company ” , “ we ” , “ our ” or “ us ” ) is a leading global customer experience technology and services company focused on the design , implementation and delivery of transformative solutions for many of the world 's most iconic and disruptive brands . we help large global companies increase revenue and reduce costs by delivering personalized customer experiences across every interaction channel and phase of the customer lifecycle as an end-to-end provider of customer engagement services , technologies , insights and innovations . we are organized into two centers of excellence : ttec digital and ttec engage . · ttec digital designs and builds human centric , tech-enabled , insight-driven customer experience solutions . · ttec engage is the company 's global delivery center of excellence that operates turnkey customer acquisition , care , revenue growth , digital fraud prevention and detection , and content moderation services . ttec digital and ttec engage come together under our unified offering , humanify tm customer engagement as a service , which drives measurable results for clients through the delivery of personalized omnichannel interactions that are seamless and relevant . our offering is supported by 52,400 employees delivering services in 23 countries from 85 customer engagement centers on six continents . our end-to-end approach differentiates the company by combining service design , strategic consulting , data analytics , process optimization , system integration , operational excellence , and technology solutions and services . this unified offering is value-oriented , outcome-based , and delivered on a global scale across four business segments : two of which comprise ttec digital - customer strategy services ( “ css ” ) and customer technology services ( “ cts ” ) ; and two of which comprise ttec engage - customer growth services ( “ cgs ” ) and customer management services ( “ cms ” ) . our revenue for fiscal 2018 was $ 1.509 billion , approximately 84 % or $ 1.270 billion of which came from our ttec engage center of excellence and $ 239 million , or 16 % , came from our ttec digital center of excellence . since our establishment in 1982 , we have helped clients strengthen their customer relationships , brand recognition and loyalty by simplifying and personalizing interactions with their customers . we deliver thought leadership , through innovation in programs that differentiate our clients from their competition . to improve our competitive position in a rapidly changing market and stay strategically relevant to our clients , we continue to invest in innovation and growth businesses , diversifying and strengthening our core customer care services with consulting , data analytics and insights technologies , and technology-enabled , outcomes-focused services . we also invest in businesses that enable us to expand our geographic footprint , broaden our product and service capabilities , increase our global client base and industry expertise , and further scale our end-to-end integrated solutions platform . in 2018 , we acquired strategic communications services , a system integrator for multichannel contact center platforms based in the united kingdom . in 2017 , we acquired motif , inc. , a digital fraud prevention and detection and content moderation services company based in india and the philippines , and connextions , inc. , a u.s.-based health services company focused on improving customer relationships for healthcare plan providers and pharmacy benefits managers . we have developed tailored expertise in the automotive , communications , healthcare , financial services , government , logistics , media and entertainment , retail , technology , travel and transportation industries . we target customer-focused industry leaders in the global 1000 and serve approximately 300 clients globally . our integrated service offerings , centers of excellence and business segments we have two centers of excellence that encompass our four operating and reportable segments . ttec digital houses our professional services and technology platforms . these solutions are critical to enabling and accelerating digital transformation for our clients . 24 customer strategy services segment through our strategy and operations , analytics , and learning and performance consulting expertise , we help our clients design , build and execute their customer engagement strategies . we help our clients to better understand and predict their customers ' behaviors and preferences along with their current and future economic value . using proprietary analytic models , we provide the insight clients need to build the business case for customer centricity and to better optimize their investments in customer experience . this insight-based strategy creates a roadmap for transformation . we build customer journey maps to inform service design across automated , human and hybrid interactions and increasingly are developing and implementing strategies around interactive virtual assistants ( chat bots ) . a key component of this segment involves instilling a high-performance culture through management and leadership alignment and process optimization . customer technology services segment in connection with the design of the customer engagement strategy , our ability to architect , deploy and host or manage the client 's customer experience environments becomes a key enabler to achieving and sustaining the client 's customer engagement vision . given the proliferation of mobile communication technologies and devices , we enable our clients ' operations to interact with their customers across the growing array of channels including email , social networks , mobile , web , sms text , voice and chat . we design , implement and manage cloud , on-premise or hybrid customer experience environments to deliver a consistent and superior experience across all touch points on a global scale that we believe result in higher quality , lower costs and reduced risk for our clients . story_separator_special_tag 26 critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( “ gaap ” ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses as well as the disclosure of contingent assets and liabilities . we regularly review our estimates and assumptions . these estimates and assumptions , which are based upon historical experience and on various other factors believed to be reasonable under the circumstances , form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . reported amounts and disclosures may have been different had management used different estimates and assumptions or if different conditions had occurred in the periods presented . below is a discussion of the policies that we believe may involve a high degree of judgment and complexity . revenue recognition – 2018 revenue the company recognizes revenue from contracts and programs when control of the promised goods or services is transferred to the customers , in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services . revenue is recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer . a performance obligation is a promise in a contract to transfer a distinct good or service to the customer . performance obligation is the unit of accounting for revenue recognition under the provisions of asc topic 606 , “ revenue from contracts with customers ” and all related amendments ( “ asc 606 ” ) . a contract 's transaction price is allocated to each distinct performance obligation in recognizing revenue . the bpo inbound and outbound service fees are based on either a per minute , per hour , per fte , per transaction or per call basis , which represents the majority of our contracts . these contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and , therefore , not distinct . for example , services for the training of the company 's agents ( which are separately billable to the customer ) are a separate promise in our bpo contracts , but they are not distinct from the primary service obligations to transfer services to the customers . the performance of the customer service by the agents is highly dependent on the initial , growth , and seasonal training services provided to the agents during the life of a program . the training itself is not considered to have value to the customer on a standalone basis , and therefore , training on a standalone basis can not be considered a separate unit of accounting . the company therefore defers revenue from certain training services that are rendered mainly upon commencement of a new client contract or program , including seasonal programs . revenue is also deferred when there is significant growth training in an existing program . accordingly , recognition of initial , growth , and seasonal training revenues and associated costs ( consisting primarily of labor and related expenses ) are deferred and amortized over the period of economic benefit . with the exception of training which is typically billed upfront and deferred , the remainder of revenue is invoiced on a monthly or quarterly basis as services are performed and does not create a contract asset or liability . in addition to revenue from bpo services , revenue also consists of fees from services for program launch , professional consulting , fully-hosted or managed technology and learning innovation services . the contracts containing these service offerings may contain multiple performance obligations . for contracts with multiple performance obligations , the company allocates the contract 's transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract . the primary method used to estimate standalone selling price is the expected cost plus a margin approach , under which the company forecasts its expected costs of satisfying a performance obligation and then adds an appropriate margin for that distinct good or service . the company forecasts its expected cost based on historical data , current prevailing wages , other direct and indirect costs incurred in recently completed contracts , market conditions , and client specific other cost considerations . for these services , the point at which the transfer of control occurs determines when revenue is recognized in a specific reporting period . where there are product sales , the attribution of revenue is made when fob-destination delivery occurs ( control transfers ) , which is the standard shipment terms , and therefore at a point in time . where services are rendered to a customer , the attribution is aligned with the progress of work and is recognized over time ( i.e . based on measuring the progress toward complete satisfaction of a performance obligation using an output method or an 27 input method ) . where output method is used , revenue is recognized on the basis of direct measurements of the value to the customer of the goods or services transferred relative to the remaining goods or services promised under the contract . the majority of the company 's services are recognized over time using the input method in which revenue is recognized on the basis of efforts or inputs toward satisfying a performance obligation ( for example , resources consumed , labor hours expended , costs incurred , or time elapsed ) relative to the total expected inputs to satisfy the performance obligation . the measures used provide faithful depiction of the transfer of goods or services to the customers .
| results of operations year ended december 31 , 2018 compared to december 31 , 2017 the tables included in the following sections are presented to facilitate an understanding of management 's discussion and analysis of financial condition and results of operations and present certain information by segment for the years ended december 31 , 2018 and 2017 ( amounts in thousands ) . all inter-company transactions between the reported segments for the periods presented have been eliminated . customer management services replace_table_token_5_th the decrease in revenue for the customer management services segment was attributable to a $ 101.5 million net increase in organic and inorganic client programs including the connextions and motif acquisitions , a $ 9.0 million increase related to the adoption of asc 606 for revenue recognition , offset by a $ 7.5 million decrease due to foreign currency fluctuations and by program completions of $ 115.7 million . the operating income as a percentage of revenue decreased to 4.4 % in 2018 as compared to 6.8 % in 2017. the operating margin declined primarily due to an increase in u.s. related labor costs and increased launch costs associated with the higher new business volumes and a $ 3.6 million increase in amortization related to acquisitions . investments in strategy , rebranding , product development , marketing programs and incremental sales resources also negatively affected operating income as similar expenses were not as high during 2017. these were offset by the acquisitions , a $ 4.4 million increase related to the adoption of asc 606 and a $ 5.8 million positive benefit due to foreign currency fluctuations . included in the operating income was amortization related to acquired intangibles of $ 8.2 million and $ 4.6 million for the years ended december 31 , 2018 and 2017 , respectively .
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julie smolyansky has an employment agreement ( the “ employment agreement ” ) with the company pursuant to which she serves as chief executive officer . pursuant to the employment agreement , ms. smolyansky is entitled to an annual base salary and an annual bonus subject to such incentive bonus targets and plans which the company may adopt from time to time . the company has not currently set any such targets in advance or adopted any such plans . in lieu thereof , the board of directors determines ms. smolyansky 's salary and a discretionary bonus on an annual basis concurrently with determining amounts for other executive officers . in the event that ( a ) ms. smolyansky is terminated other than for cause ( as defined therein ) or ( b ) ms. smolyansky terminates her employment for good reason ( as defined therein ) or death , then ms. smolyansky is entitled to a lump sum payment consisting of ( y ) twice her then-current base salary and ( z ) the aggregate of the annual bonus for which she is then eligible under the employment agreement and any plans . there are no employment agreements with other executive officers ( written or unwritten ) . on june 9 , 1995 , the company filed a registration statement on form s-8 with the securities and exchange commission in connection with the “ lifeway foods , inc. consulting and services compensation plan ” ( the “ plan ” ) covering 1,200,000 , as adjusted , shares of its common stock . the plan was adopted by the company on june 5 , 1995. pursuant to such plan , the company may issue common stock or options to purchase common stock to certain consultants , service providers , and employees of the company . there were a total of approximately 940,000 shares eligible for issuance under the plan at december 31 , 2012. the option price , number of shares , grant date , and vesting terms of awards granted under the plan are determined at the discretion of the company 's board of directors . on march 18 , 2014 the company filed a post-effective amendment to the form s-8 to withdraw and remove from registration the shares of common stock registered that remained unissued and unsold as of march 18 , 2014. outstanding equity awards at december 31 , 2013 as of december 31 , 2013 , there were no stock options outstanding or exercisable and no unvested stock awards . there are no agreements with the named executive officers that provide for payments in connection with resignation , retirement , termination of employment or change in control other than the employment agreement described above . director compensation as of december 31 , 2013 replace_table_token_22_th ( 1 ) of the fees paid in cash , $ 408,000 represents the annual fees paid to ms. smolyansky for her services as a consultant to the company . ms. smolyansky did not receive any additional retainer fees or other meeting attendance fees in her capacity as a director . ( 2 ) represents ( i ) the company 's portion of the matching contributions to the company 's 401 ( k ) plan on behalf of ludmila smolyansky : $ 8,200 for 2013 ; and ( ii ) $ 6,000 for health insurance premiums . during 2013 , each story_separator_special_tag story_separator_special_tag during the twelve-months ended december 31 , 2013 compared to net cash provided by operating activities of $ 6,627,684 in the same period in 2012. this decrease is primarily attributable to the decrease in refundable income taxes of $ 886,607 in 2013. net cash used in investing activities was $ 7,862,973 during the twelve-months ended december 31 , 2013 compared to net cash used in investing activities of $ 1,555,914 in the same period in 2012. this increase is primarily due to an increase in purchases of property and equipment of $ 7,051,169 compared to 2012. the company had a net increase of cash and cash equivalents of $ 1,020,382 during the twelve month period ended december 31 , 2013 compared to a net decrease in cash and cash equivalents of $ 1,171,079 during the same period in 2012. the company had cash and cash equivalents of $ 3,306,608 as of december 31 , 2013 compared to cash and cash equivalents of $ 2,286,226 as of december 31 , 2012. assets and liabilities total assets were $ 63,673,801 as of december 31 , 2013 , which is an increase of $ 10,167,175 when compared to december 31 , 2012. this is primarily due to $ 20,824,448 of net property and equipment as of december 31 , 2013 , which is an increase of $ 5,837,672 , when compared to december 31 , 2012. total current liabilities were $ 8,882,241 as of december 31 , 2013 , which is an increase of $ 2,672,547 when compared to december 31 , 2012. this is primarily due to a $ 2,466,454 increase in accounts payable . notes payable increased by $ 4,043,067 as of december 31 , 2013 , when compared todecember31,2012 . the balance of the notes payable as of december 31 , 2013 was $ 8,999,012. total stockholder 's equity was $ 42,949,122 as of december 31 , 2013 , which is an increase of $ 3,636,653 when compared to december 31 , 2012. this is primarily due the increase in retained earnings of $ 3,682,437 when compared to december 31 , 2012. we previously held significant portions of our assets in investment securities . all of our marketable securities are classified as available-for-sale on our balance sheet . all of these securities are stated there on at market value as of the end of the applicable period . gains and losses on the portfolio are determined by the specific identification method . we anticipate being able to fund the company 's foreseeable liquidity requirements internally . we continue to story_separator_special_tag julie smolyansky has an employment agreement ( the “ employment agreement ” ) with the company pursuant to which she serves as chief executive officer . pursuant to the employment agreement , ms. smolyansky is entitled to an annual base salary and an annual bonus subject to such incentive bonus targets and plans which the company may adopt from time to time . the company has not currently set any such targets in advance or adopted any such plans . in lieu thereof , the board of directors determines ms. smolyansky 's salary and a discretionary bonus on an annual basis concurrently with determining amounts for other executive officers . in the event that ( a ) ms. smolyansky is terminated other than for cause ( as defined therein ) or ( b ) ms. smolyansky terminates her employment for good reason ( as defined therein ) or death , then ms. smolyansky is entitled to a lump sum payment consisting of ( y ) twice her then-current base salary and ( z ) the aggregate of the annual bonus for which she is then eligible under the employment agreement and any plans . there are no employment agreements with other executive officers ( written or unwritten ) . on june 9 , 1995 , the company filed a registration statement on form s-8 with the securities and exchange commission in connection with the “ lifeway foods , inc. consulting and services compensation plan ” ( the “ plan ” ) covering 1,200,000 , as adjusted , shares of its common stock . the plan was adopted by the company on june 5 , 1995. pursuant to such plan , the company may issue common stock or options to purchase common stock to certain consultants , service providers , and employees of the company . there were a total of approximately 940,000 shares eligible for issuance under the plan at december 31 , 2012. the option price , number of shares , grant date , and vesting terms of awards granted under the plan are determined at the discretion of the company 's board of directors . on march 18 , 2014 the company filed a post-effective amendment to the form s-8 to withdraw and remove from registration the shares of common stock registered that remained unissued and unsold as of march 18 , 2014. outstanding equity awards at december 31 , 2013 as of december 31 , 2013 , there were no stock options outstanding or exercisable and no unvested stock awards . there are no agreements with the named executive officers that provide for payments in connection with resignation , retirement , termination of employment or change in control other than the employment agreement described above . director compensation as of december 31 , 2013 replace_table_token_22_th ( 1 ) of the fees paid in cash , $ 408,000 represents the annual fees paid to ms. smolyansky for her services as a consultant to the company . ms. smolyansky did not receive any additional retainer fees or other meeting attendance fees in her capacity as a director . ( 2 ) represents ( i ) the company 's portion of the matching contributions to the company 's 401 ( k ) plan on behalf of ludmila smolyansky : $ 8,200 for 2013 ; and ( ii ) $ 6,000 for health insurance premiums . during 2013 , each story_separator_special_tag story_separator_special_tag during the twelve-months ended december 31 , 2013 compared to net cash provided by operating activities of $ 6,627,684 in the same period in 2012. this decrease is primarily attributable to the decrease in refundable income taxes of $ 886,607 in 2013. net cash used in investing activities was $ 7,862,973 during the twelve-months ended december 31 , 2013 compared to net cash used in investing activities of $ 1,555,914 in the same period in 2012. this increase is primarily due to an increase in purchases of property and equipment of $ 7,051,169 compared to 2012. the company had a net increase of cash and cash equivalents of $ 1,020,382 during the twelve month period ended december 31 , 2013 compared to a net decrease in cash and cash equivalents of $ 1,171,079 during the same period in 2012. the company had cash and cash equivalents of $ 3,306,608 as of december 31 , 2013 compared to cash and cash equivalents of $ 2,286,226 as of december 31 , 2012. assets and liabilities total assets were $ 63,673,801 as of december 31 , 2013 , which is an increase of $ 10,167,175 when compared to december 31 , 2012. this is primarily due to $ 20,824,448 of net property and equipment as of december 31 , 2013 , which is an increase of $ 5,837,672 , when compared to december 31 , 2012. total current liabilities were $ 8,882,241 as of december 31 , 2013 , which is an increase of $ 2,672,547 when compared to december 31 , 2012. this is primarily due to a $ 2,466,454 increase in accounts payable . notes payable increased by $ 4,043,067 as of december 31 , 2013 , when compared todecember31,2012 . the balance of the notes payable as of december 31 , 2013 was $ 8,999,012. total stockholder 's equity was $ 42,949,122 as of december 31 , 2013 , which is an increase of $ 3,636,653 when compared to december 31 , 2012. this is primarily due the increase in retained earnings of $ 3,682,437 when compared to december 31 , 2012. we previously held significant portions of our assets in investment securities . all of our marketable securities are classified as available-for-sale on our balance sheet . all of these securities are stated there on at market value as of the end of the applicable period . gains and losses on the portfolio are determined by the specific identification method . we anticipate being able to fund the company 's foreseeable liquidity requirements internally . we continue to
| results of operations comparison of quarter ended december 31 , 2013 to quarter ended december 31 , 2012 the following analysis should be read in conjunction with the audited financial statements of the company and related notes included elsewhere in this annual report and the financial statements and management 's discussion and analysis contained in our quarterly reports on form 10-q , for the fiscal quarters ended march 31 , 2013 , june 30 , 2013 , and september 30 , 2013. total consolidated gross sales increased by $ 6,059,052 ( approximately 26 % ) to $ 28,936,073 during the three-month period ended december 31 , 2013 from $ 22,877,021 during the same three-month period in 2012. this increase is primarily attributable to increased sales and awareness of the company 's flagship line , kefir , as well as probugs® organic kefir for kids and biokefir . total consolidated net sales increased by $ 5,485,743 ( approximately 26 % ) to $ 26,266,697 during the three-month period ended december 31 , 2013 from $ 20,780,954 during the same three-month period in 2012. net sales are recorded as gross sales less promotional activities such as slotting fees paid , couponing , spoilage and promotional allowances as well as early payment terms given to customers . cost of goods sold as a percentage of net sales , excluding depreciation expense , were approximately 80 % during the fourth quarter of 2013 , compared to approximately 65 % during the same period in 2012. the increase was primarily attributable the increased cost of conventional and organic milk , the company 's largest raw material .
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in august 2014 , the fasb issued asu 2014-15 , presentation of financial statements-going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a story_separator_special_tag overview we are a global , late-stage , patient-focused biotechnology company engaged in the discovery and development of a diverse set of novel treatments for patients living with devastating rare and orphan diseases . our lead product candidate migalastat hcl is a small molecule that can be used as a monotherapy and in combination with ert for fabry disease . sd-101 , a product candidate in late-stage development , is a potential first-to-market therapy for the chronic , rare connective tissue disorder eb . we are also leveraging our chart platform technologies to develop next-generation ert products for fabry , pompe and other lsds . we believe that our platform technologies and our advanced product pipeline uniquely position us at the forefront of advanced therapies to treat a range of devastating rare and orphan diseases . program status our personalized medicine approach consists of an oral small molecule pharmacological chaperone monotherapy that is designed to bind to and stabilize a patient 's own endogenous target protein . patients with `` amenable mutations '' may respond based on their genetics . migalastat for fabry disease as a monotherapy : phase 3 global registration program study 011 was a 24-month study of fabry disease patients naïve to or not receiving ert , which investigated the safety and efficacy of oral migalastat , ( 150 mg every other day ) . the study consisted of a 6-month , double-blind , placebo-controlled period , a 6-month open-label period , and a 12-month open-label extension phase . subjects completing study 011 were eligible to continue treatment with migalastat in a long-term , open-label extension study ( study 041 ) . 67 subjects ( 24 male ) were enrolled . all subjects enrolled in study 011 had amenable mutations in the clinical trial human cell-based in vitro assay that was available at study initiation ( clinical trial amenability assay ) . following the completion of enrollment , a glp-validated amenability assay was developed with a third party to measure the criteria for amenability with more quality control and rigor ( migalastat amenability assay ) . approximately 10 % of mutations in the migalastat amenability assay switched categorization between `` amenable '' and `` non-amenable '' when moving from the clinical trial assay to the migalastat amenability assay . therefore , there were changes in categorization from amenable to non-amenable in 17 of the 67 patients enrolled in study 011. study 011 was designed to measure the reduction of the disease substrate gl-3 in the interstitial capillaries of the kidney following treatment with migalastat . the 24-month study began with a 6-month , double-blind , placebo-controlled treatment period , after which all patients were treated with migalastat for a 6-month , open-label follow-up period , and a subsequent 12-month , open-label extension phase . the study also measured clinical outcomes , including renal function , as secondary endpoints . as previously reported , patients on migalastat experienced greater reductions in gl-3 as compared to placebo during the initial 6-month period ; however , this difference was not statistically significant under the original analysis of the primary endpoint ( responder analysis with a 50 % reduction threshold at month 6 ) . the variability and low levels of gl-3 at baseline contributed to a higher-than-anticipated placebo response at month 6. following the unblinding of the 6-month data , and while still blinded to the 12-month data , we reported the mean change in gl-3 from the baseline to month 6 as a post-hoc analysis in the subgroup of patients with amenable mutations in the migalastat amenability assay . this analysis showed a statistically significant reduction in gl-3 in the migalastat group compared to placebo . the mean -81- change in gl-3 was identified as a more appropriate way to control for the variability in gl-3 levels in study 011 and to measure the biological effect of migalastat . results from this subgroup analysis further support use of the migalastat amenability assay in predicting responsiveness to migalastat . following a type c meeting with the fda , we revised the statistical analysis plan to prespecify the primary analysis at month 12 as the mean change in interstitial capillary gl-3 in patients with amenable mutations . throughout 2014 and in early 2015 , we announced positive 12- and 24-month data from study 011 and longer-term data from study 041 in patients with amenable mutations who were naïve to ert . top-line data were announced in april 2014 and data were presented to the scientific community at the ashg in october 2014 and worldsymposium in february 2015. highlights were as follows : subjects who switched from placebo to migalastat after month 6 demonstrated a statistically significant reduction in disease substrate , or kidney interstitial capillary gl-3 , at month 12 ( p=0.013 ) , and a statistically significant reduction of disease substrate in another important biomarker of disease , plasma lyso-gb3 . subjects who remained on migalastat demonstrated a durable reduction in kidney interstitial capillary gl-3 , as well as a durable reduction in lyso-gb3 ; kidney function , as measured by egfr and mgfr , remained stable following 18-24 months of treatment with migalastat in study 011. kidney function , as measured by egfr , continued to remain stable in patients receiving migalastat in study 011 for at least 18 months and continuing migalastat treatment in study 041 for an average of 32 months . mgfr was not collected in study 041 ; reduction in cardiac mass , as measured by lvmi , was statistically significant following treatment with migalastat for up to 36 months ( average of 22 months ) in patients in study 011 and 041 ; there was a significant decrease in diarrhea ( unadjusted p=0.03 ) in patients treated with migalastat versus placebo during the 6-month , double-blind phase ( stage 1 ) . story_separator_special_tag comprehensive studies to -83- assess dermal penetration of the sd-101 active at concentrations ranging from 0.5 to 9 % were conducted in various skin models . results from these studies showed that sd-101 was delivered in a dose-related manner across skin barriers . sd-101 for eb : phase 2 human proof of concept initial human proof of concept for sd-101 was demonstrated in a single-center , open-label , 8-patient study ( sd-002 ) in eb patients of all major eb subtypes , aged six months to nine years . all patients in this study had a target wound at baseline that was at least 10 cm2 in size . in this single-arm study , sd-101 cream containing a 3 % concentration of allantoin was applied to the entire body once daily for three months . seven out of eight patients ( 87.5 % ) experienced complete closure of their target wound at month one , and a 57 % reduction in affected body surface area by month three . daily administration of sd-101 3 % was generally safe and well-tolerated . based on these results , sd-101 became one of the first treatments to receive breakthrough therapy designation from the fda in 2013. following the completion of the phase 2a study and subsequent interactions with the fda , a phase 2b study ( sd-003 ) was conducted to further investigate sd-101 in 48 patients with all major eb subtypes . the phase 2b study was a multicenter , three-arm study that included an arm with a higher 6 % concentration of sd-101 , an arm with the 3 % concentration that was previously evaluated in the phase 2a study , and a placebo arm . patients with smaller wounds , at least 5 cm2 in size , were eligible for enrollment . complete wound healing at month one ( primary endpoint ) was found for 38 % , 53 % , and 41 % of sd-101 3 % , sd-101 6 % and placebo patients , respectively . in post hoc analyses ( month two ; evaluable population ) , complete wound healing was found for 44 % ( n=16 ) , 82 % ( n=11 ) , and 41 % ( n=17 ) of sd-101 3 % , sd-101 6 % , and placebo patients , respectively ( nominal p=0.04 for sd 101 6 % versus placebo ) . the treatment effect for sd-101 6 % was sustained at month three . median time to wound closure , an important secondary endpoint , was 86 , 30 , and 91 days for sd-101 3 % , sd-101 6 % and placebo , respectively , in the evaluable population . treatment-emergent adverse events were similar across treatment groups . no serious aes were reported with sd-101 6 % . all patients that completed the sd-003 study were eligible to continue to receive active therapy in the phase 2 open-label extension study ( sd-004 ) which is currently underway . sd-101 for eb : phase 3 registration study ( sd-005 ) a phase 3 registration study ( sd-005 ) of sd-101 was initiated in march of 2015. sd-005 is a randomized , double-blind , placebo-controlled study being conducted at multiple sites in the u.s. and europe , designed to evaluate the safety and efficacy of sd-101 in up to 150 patients with the three major subtypes of eb , who are at least one-month old . participants will be randomized 1:1 to two treatment groups receiving either sd-101 6 % or placebo applied over their entire body once daily for three months . the primary efficacy endpoint will be evaluation of closure of a selected target chronic wound . in addition , improvement in itching , pain , full-body wound , and lesion coverage will also be assessed . investigators will also assess safety . an open-label extension trial , designated sd-006 , which will evaluate long-term safety , will be offered to patients completing sd-005 . based on the results and experience in the phase 2 studies , we have incorporated key learnings from the phase 2 studies in the design of the phase 3 study to maximize potential for success : 1. optimal concentration : sd-101 6 % was identified as the optimal concentration to compare to placebo in phase 3. patients will be randomized 1:1 to receive sd-101 6 % or placebo ; -84- 2. sample size of ~150 patients : the phase 2b results were used to calculate the sample size for the phase 3 study . a treatment difference of ~17 % or greater between the sd-101 6 % arm versus placebo will result in a p-value of < = 0.05 ; 3. enrollment of patients with larger wounds ( ³ 10 cm 2 instead of > = 5cm 2 ) and evaluation of primary endpoint at month two ( instead of month one ) to minimize placebo response . in post hoc analyses in phase 2b ( month two ; evaluable population ) , complete wound healing was found for 44 % ( n=16 ) , 82 % ( n=11 ) , and 41 % ( n=17 ) of sd-101 3 % , sd-101 6 % , and placebo patients , respectively ( nominal p=0.04 for sd 101 6 % versus placebo ) . the placebo response was even lower in the subset of patients with target wounds ³ 10 cm 2 at month 2 in phase 2b : sd-101 6 % - 50 % ( n= 4 ) vs. placebo 12.5 % ( n=8 ) . sd-101 for eb : regulatory pathway sd-101 was one of the first therapies to receive breakthrough therapy designation by the fda , following the completion of the phase 2a initial human proof-of-concept study . the fda and ema have also reviewed the phase 2b study results and are aligned on the design of the current phase 3 study and the global regulatory pathway forward for sd-101 based on a single phase 3 registration study .
| results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 revenue . we recognized reimbursements for research and development costs of $ 1.2 million under a collaborative agreement as research revenue in 2014. this collaboration agreement ended in september 2014 , and no revenue was recognized for the year ended december 31 , 2015. research and development expense . research and development expense was $ 76.9 million in 2015 , representing an increase of $ 29.3 million or 61.6 % from $ 47.6 million in 2014. the increase in research and development costs was primarily due to an increase in contract manufacturing and clinical research costs . contract manufacturing increased by $ 11.9 million and clinical research by $ 7.0 million due to scale up of pompe ert manufacturing and the continual progress of our programs through the clinical development process . other increases were in personnel costs of $ 7.4 million and external program support of $ 2.2 million . general and administrative expense . general and administrative expense was $ 47.3 million in 2015 , an increase of $ 26.6 million or 128.5 % from $ 20.7 million in 2014. the increase was primarily due to consulting and legal fees of $ 10.4 million , personnel costs of $ 7.5 million , and recruiting fees of $ 2.4 million . the consulting and legal fees also included increases of $ 3.1 million for scioderm acquisition-related transaction costs . also included within the $ 26.6 million increase was $ 12.7 million related to pre-commercial organization costs . changes in fair value of contingent consideration payable .
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the advisory agreement provides that pillar shall be deemed to be in a fiduciary relationship to the ior stockholders ; contains a broad standard governing pillar 's liability for losses incurred by ior ; and contains guidelines for pillar 's allocation of investment opportunities as among itself , story_separator_special_tag the following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report . this report on form 10-k contains forward-looking statements within the meaning of the federal securities laws , principally , but not only , under the captions “ business ” , “ risk factors ” and “ management 's discussion and analysis of financial condition and results of operations ” . we caution investors that any forward-looking statements in this report , or which management may make orally or in writing from time to time , are based on management 's beliefs and on assumptions made by , and information currently available to , management . when used , the words “ anticipate , ” “ believe , ” “ expect , ” “ intend , ” “ may , ” “ might , ” “ plan , ” “ estimate , ” “ project , ” “ should , ” “ will , ” “ result ” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements . these statements are subject to risks , uncertainties and assumptions and are not guarantees of future performance , which may be affected by known and unknown risks , trends , uncertainties and factors that are beyond our control . 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 . we caution you that , while forward-looking statements reflect our good faith beliefs when we make them , they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements . we expressly disclaim any responsibility to update our forward-looking statements , whether as a result of new information , future events or otherwise . accordingly , investors should use caution in relying on past forward-looking statements , which are based on results and trends at the time they are made , to anticipate future results or trends . some of the risks and uncertainties that may cause our actual results , performance or achievements to differ materially from those expressed or implied by forward-looking statements include , among others , the following : ● general risks affecting the real estate industry ( including , without limitation , the inability to enter into or renew leases , dependence on tenants ' financial condition , and competition from other developers , owners and operators of real estate ) ; ● risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments ; ● failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully ; ● risks and uncertainties affecting property development and construction ( including , without limitation , construction delays , cost overruns , inability to obtain necessary permits and public opposition to such activities ) ; ● risks associated with downturns in the national and local economies , increases in interest rates and volatility in the securities markets ; ● costs of compliance with the americans with disabilities act and other similar laws and regulations ; ● potential liability for uninsured losses and environmental contamination ; ● risks associated with our dependence on key personnel whose continued service is not guaranteed ; and ● the other risk factors identified in this form 10-k , including those described under the part i , item 1a . “ risk factors ” . 11 the risks included herein are not exhaustive . other sections of this report , including part i , item 1a . risk factors , include additional factors that could adversely affect our business and financial performance . moreover , we operate in a very competitive and rapidly changing environment . new risk factors emerge from time to time and it is not possible for management to predict all such risk factors , nor can we assess the impact of all such risk factors on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . given these risks and uncertainties , investors should not place undue reliance on forward-looking statements as a prediction of actual results . investors should also refer to our quarterly reports on form 10-q for future periods and current reports on form 8-k as we file them with the sec , and to other materials we may furnish to the public from time to time through forms 8-k or otherwise . overview our primary business is in real estate holdings and investment in mortgage receivables . land held for development or sale is our sole operating segment . the principal source of revenue for the company is interest income on approximately 92.1 million of note receivables due from related parties . since april 30 , 2011 , pillar is the company 's external advisor and cash manager under a contractual arrangement that is reviewed annually by our board of directors . pillar 's duties include , but are not limited to , locating , evaluating and recommending real estate and real estate-related investment opportunities . pillar also arranges , for ior 's benefit , debt and equity financing with third party lenders and investors . as the contractual advisor , pillar is compensated by ior under an advisory agreement . the company has no employees . employees of pillar render services to ior in accordance with the terms of the advisory agreement . story_separator_special_tag the components of the property 's net income that is reflected as discontinued operations include the net gain ( or loss ) upon the disposition of the property held for sale , operating results , depreciation and interest expense ( if the property is subject to a secured loan ) . we generally consider assets to be “ held for sale ” when the transaction has been approved by the company 's board of directors , or its executive committee thereof , and there are no known significant contingencies relating to the sale , such that the property sale within one year is considered probable . following the classification of a property as “ held for sale , ” no further depreciation is recorded on the assets . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc 835-20 “ interest - capitalization of interest ” and asc 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . recognition of revenue our revenues are composed largely of interest income on notes receivable . revenue recognition on the sale of real estate sales and the associated gains or losses of real estate assets are recognized in accordance with the provisions of asc 360-20 , “ property , plant and equipment – real estate sale ” . the specific timing of a sale is measured against various criteria in asc 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties . if the sales criteria for the full accrual method are not met , we defer some or all of the revenue or gain recognition and account for the continued operations of the property by applying the finance , leasing , deposit , installment or cost recovery methods , as appropriate , until the full revenue recognition sales criteria are met . non-performing notes receivable the company considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement . interest recognition on notes receivable we record interest income as earned in accordance with the terms of the related loan agreements . 13 allowance for estimated losses we assess the collectability of notes receivable on a periodic basis , of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note . we recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan . the amount of the impairment to be recognized generally is based on the fair value of the partnership 's real estate that represents the primary source of loan repayment . ( see note 3 , below , notes and interest receivable from related parties , for details on our notes receivable . ) fair value measurement the company applies the guidance in asc 820 , fair value measurements and disclosures , to the valuation of real estate assets . these provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date , establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy . the hierarchy gives the highest priority to quoted prices in active markets ( level 1 measurements ) and the lowest priority to unobservable data ( level 3 measurements ) , such as the reporting entity 's own data . the valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows : level 1—unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets . level 2—quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . level 3—unobservable inputs that are significant to the fair value measurement . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . management reviews the carrying values of our properties and mortgage notes receivable at least annually and whenever events or a change in circumstances indicates that impairment may exist . impairment is considered to exist if the future cash flow from a property ( undiscounted and without interest ) is less than the carrying amount of the property .
| results of operations the following discussion is based on our consolidated financial statements consolidated statement of operations , for the years ended december 31 , 2019 , 2018 , and 2017 from part ii , item 8. financial statements and supplementary data and is not meant to be an all-inclusive discussion of the changes in our net income applicable to common shares . instead , we have focused on significant fluctuations within our operations that we feel are relevant to obtain an overall understanding of the change in income applicable to common shareholders . our operating expenses consist primarily of general and administrative costs such as audit and legal fees and administrative fees paid to a related party . we also have other income and expense items . we receive interest income from the funds deposited with our advisor at a rate of prime plus 1.0 % . we have receivables from related parties which also provide interest income . comparison of the year ended december 31 , 2019 to the year ended december 31 , 2018 we had a net income applicable to common shares of $ 4.1 million or $ .99 per diluted earnings per share for the year ended december 31 , 2019 , compared to a net income applicable to common shares of $ 8.2 million or $ 1.97 per diluted earnings per share for the same period ended 2018. expenses general and administrative expenses were $ 494,000 for the year ended december 31 , 2019. general and administrative expenses were also $ 494,000 for the year ended december 31 , 2018. this included an increase in legal expenses of $ 32,000 and a decrease in reimbursements to pillar and of $ 24,000. net income fee to related party was $ 357,000 for the year ended december 31 , 2019. this represents a decrease of $ 274,000 , compared to the net income fee of $ 631,000 for the year
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forward-looking statements the corporation has made , and may continue to make , certain forward-looking statements with respect to its financial condition and results of operations . do not unduly rely on forward-looking statements . forward-looking statements can be identified by the use of words such as `` may , '' `` should , '' `` will , '' `` could , '' `` estimates , '' `` predicts , '' `` potential , '' `` continue , '' `` anticipates , '' `` believes , '' `` plans , '' `` expects , '' `` future , '' `` intends '' and similar expressions which are intended to identify forward-looking statements . these forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties , some of which are beyond the corporation 's control and ability to predict , that could cause actual results to differ materially from those expressed in the forward-looking statements . the corporation undertakes no obligation , other than as required by law , to update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . many factors could affect future financial results including , without limitation : the impact of adverse changes in the economy and real estate markets , including protracted periods of low-growth and sluggish loan demand ; the effect of market interest rates , particularly a continuing period of low market interest rates , and relative balances of rate-sensitive assets to rate-sensitive liabilities , on net interest margin and net interest income ; the effect of competition on rates of deposit and loan growth and net interest margin ; increases in non-performing assets , which may require the corporation to increase the allowance for credit losses , charge-off loans and incur elevated collection and carrying costs related to such non-performing assets ; non-interest income growth , including the impact of potential regulatory changes ; investment securities gains and losses , including other-than-temporary declines in the value of securities which may result in charges to earnings ; the level of non-interest expenses , including salaries and employee benefits expenses , operating risk losses , amortization of intangible assets and goodwill impairment ; the impact of increased regulatory scrutiny of the banking industry ; the increasing time and expense associated with regulatory compliance and risk management ; the uncertainty and lack of clear regulatory guidance associated with the delay in implementing many of the regulations mandated by the dodd-frank act ; capital and liquidity strategies , including the expected impact of the capital and liquidity requirements proposed by the basel iii standards ; operational risk , i.e . the risk of loss resulting from human error , inadequate or failed internal processes and systems , outsourcing arrangements , compliance and legal risk and external events ; acquisition and growth strategies , including the impact of a less robust merger and acquisition environment in the banking industry and increased regulatory scrutiny ; and the potential impact of the inability of the federal government to effectively address the so-called `` fiscal cliff , '' budget sequestration and the federal debt ceiling . overview fulton financial corporation is a financial holding company comprised of six wholly owned banking subsidiaries which provide a full range of retail and commercial financial services in pennsylvania , delaware , maryland , new jersey and virginia . the corporation generates the majority of its revenue through net interest income , or the difference between interest earned on loans and investments and interest paid on deposits and borrowings . growth in net interest income is dependent upon balance sheet growth and or maintaining or increasing the net interest margin , which is net interest income ( fully taxable-equivalent , or fte ) as a percentage of average interest-earning assets . the corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets , such as loans , investments , lines of business or properties . offsetting these revenue sources are provisions for credit losses on loans , non-interest expenses and income taxes . 29 the following table presents a summary of the corporation 's earnings and selected performance ratios : replace_table_token_8_th ( 1 ) presented on an fte basis , using a 35 % federal tax rate and statutory interest expense disallowances . see also the `` net interest income '' section of management 's discussion . net income increased $ 14.3 million , or 9.8 % , to $ 159.8 million in 2012. during 2012 , the corporation continued to focus on its relationship banking strategy , built upon a foundation of dedicated people and a commitment to superior customer service . this focus and general , albeit slow , economic improvement allowed the corporation to make progress on its 2012 corporate objectives , which included the following : net income per share growth - net income per share increased $ 0.07 , or 9.6 % , in comparison to 2011. this increase was driven largely by a decrease in the provision for credit losses and an increase in mortgage banking income due to higher volumes of residential mortgage loan sales and higher spreads earned on sales , partially offset by a decrease in net interest income and higher non-interest expenses . return on average assets improvement - return on average assets improves when net income increases at a higher rate than average assets . in 2012 , return on average assets increased eight basis points , or 8.9 % , in comparison to 2011 , due to the 9.6 % increase in net income , which exceeded a 0.9 % increase in average assets . average asset growth included a 4.5 % increase in investment securities and a 0.5 % increase in loans . story_separator_special_tag collateral could be in the form of real estate , in the case of impaired commercial mortgages and construction loans , or business assets , such as accounts receivable or inventory , in the case of commercial and industrial loans . commercial and industrial loans may also be secured by real property . for loans secured by real estate , estimated fair values are determined primarily through certified third-party appraisals , discounted to arrive at expected sale prices , net of estimated selling costs . when a real estate secured loan becomes impaired , a decision is made regarding whether an updated certified appraisal of the real estate is necessary . this decision is based on various considerations , including : the age of the most recent appraisal ; the loan-to-value ratio based on the original appraisal ; the condition of the property ; the corporation 's experience and knowledge of the market ; the purpose of the loan ; environmental factors ; payment status ; the strength of any guarantors ; and the existence and age of other indications of value such as broker price opinions , among others . the corporation generally obtains updated certified third-party appraisals for impaired loans secured predominately by real estate every 12 months . when updated certified appraisals are not obtained for loans evaluated for impairment under fasb asc section 310-10-35 that are secured by real estate , fair values are estimated based on the original appraisal values , as long as the original appraisal indicated a very strong loan to value position and , in the opinion of the corporation 's internal loan evaluation staff , there has not been a significant deterioration in the collateral value since the original appraisal was performed . original appraisals are typically used only when the estimated collateral value , as adjusted appropriately for age of appraisal , results in a current loan to value ratio that is lower than the corporation 's loan-to-value requirements for new loans , generally less than 70 % . 31 proper measurement of allowance needs for pools of loans measured for impairment under fasb asc subtopic 450-20. for loan loss allocation purposes , loans are segmented into pools with similar characteristics . these pools are by general loan type , or `` portfolio segments , '' as presented in the table under the heading , `` loans , net of unearned income , '' within note d , `` loans and allowance for credit losses , '' in the notes to consolidated financial statements . certain portfolio segments are further disaggregated and evaluated collectively for impairment based on `` class segments , '' which are largely based on the type of collateral underlying each loan . for commercial loans , class segments include loans secured by collateral and unsecured loans . construction loan class segments include loans secured by commercial real estate , loans to commercial borrowers secured by residential real estate and loans to individuals secured by residential real estate . consumer loan class segments are based on collateral types and include direct consumer installment loans and indirect automobile loans . commercial loans , commercial mortgages and certain construction loans are further segmented into separate pools based on internally assigned risk ratings . residential mortgages , home equity loans , consumer loans , and lease receivables are further segmented into separate pools based on delinquency status . a loss rate is calculated for each pool through a regression analysis based on historical losses as loans migrate through the various risk rating or delinquency categories . estimated loss rates are based on a probability of default ( pd ) and a loss given default ( lgd ) . the loss rate is adjusted to consider qualitative factors , such as economic conditions and trends . overall assessment of the risk profile of the loan portfolio . the allocation of the allowance for credit losses is reviewed to evaluate its appropriateness in relation to the overall risk profile of the loan portfolio . the corporation considers risk factors such as : local and national economic conditions ; trends in delinquencies and non-accrual loans ; the diversity of borrower industry types ; and the composition of the portfolio by loan type . an unallocated allowance is maintained for factors and conditions that exist at the balance sheet date , but are not specifically identifiable , and to recognize the inherent imprecision in estimating and measuring loss exposure . for additional details related to the allowance for credit losses , see note d , `` loans and allowance for credit losses , '' in the notes to consolidated financial statements . goodwill - goodwill recorded in connection with acquisitions is not amortized to expense , but is tested at least annually for impairment . a quantitative annual impairment test is not required if , based on a qualitative analysis , the corporation determines that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired . the corporation completes its annual goodwill impairment test as of october 31st of each year . the corporation tests for impairment by first allocating its goodwill and other assets and liabilities , as necessary , to defined reporting units . a fair value is then determined for each reporting unit . if the fair values of the reporting units exceed their book values , no write-down of the recorded goodwill is necessary . if the fair values are less than the book values , an additional valuation procedure is necessary to assess the proper carrying value of the goodwill . reporting unit valuation is inherently subjective , with a number of factors based on assumptions and management judgments . among these are future growth rates for the reporting units , selection of comparable market transactions , discount rates and earnings capitalization rates . changes in assumptions and results due to economic conditions , industry factors and reporting unit performance and cash flow projections could result in different assessments of the fair values of reporting units and could result in impairment charges .
| results of operations net interest income net interest income is the most significant component of the corporation 's net income . the corporation manages the risk associated with changes in interest rates through the techniques described within item 7a , `` quantitative and qualitative disclosures about market risk . '' the following table provides a comparative average balance sheet and net interest income analysis for 2012 compared to 2011 and 2010. interest income and yields are presented on an fte basis , using a 35 % federal tax rate and statutory interest expense disallowances . the discussion following this table is based on these tax-equivalent amounts . replace_table_token_9_th ( 1 ) includes dividends earned on equity securities . ( 2 ) includes non-performing loans . ( 3 ) includes amortized historical cost for available for sale securities ; the related unrealized holding gains ( losses ) are included in other assets . 34 the following table sets forth a summary of changes in fte interest income and expense resulting from changes in average balances ( volumes ) and changes in rates : replace_table_token_10_th note : changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of the direct changes that are attributable to each component . comparison of 2012 to 2011 fte net interest income decreased $ 15.0 million , or 2.6 % , to $ 561.2 million in 2012. net interest margin decreased 14 basis points , or 3.6 % , from 3.90 % in 2011 to 3.76 % in 2012. fte interest income decreased $ 45.4 million , or 6.4 % . a 35 basis point , or 7.3 % , decrease in yields on interest-earning assets resulted in a $ 52.2 million decrease in interest income , while a $ 164.3 million , or 1.1 % , increase in average interest-earning assets resulted in a $ 6.8 million increase in interest income .
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since the start of the pandemic , the company has experienced various temporary retail store closures in key regions globally , including the closure of a significant majority of its stores during the first quarter of fiscal 2021. during the second quarter of fiscal 2021 , the company gradually reopened most of its global fleet of stores . toward the end of the third quarter of fiscal 2021 , the company started to incur a new round of government-mandated temporary store closures , mostly in europe . 29 table of c ontents while the number of temporarily closed stores ebbed and flowed during the fourth quarter based on local conditions , the overall impact resulted in stores being closed for over 15 % of the total days during the fourth quarter of fiscal 2021. as of january 30 , 2021 , approximately 70 % of our stores were open , with the majority of closed stores located primarily in europe and canada . as of march 27 , 2021 , approximately 77 % of our stores were open . the company will continue to reopen stores ( and or close again , if appropriate ) as governmental guidelines and local conditions permit or require , taking an informed , measured approach based on numerous factors . the company 's e-commerce sites have remained open in all regions throughout the pandemic . in addition to the impact of store closures , retail stores that are open have and continue to experience significant reductions in traffic and revenue . many of the company 's wholesale and licensing partners have also substantially reduced their operations . the company has brought back furloughed store associates and support staff as stores reopen . the extent and duration of the global pandemic remains uncertain and may continue to impact consumer purchasing activity in the foreseeable future . during fiscal 2021 , in addition to the negative impact from lower net revenue , the company 's operating results reflected asset impairment charges as well as additional inventory valuation reserves and higher allowances for markdowns and doubtful accounts due to the ongoing effects of the covid-19 pandemic . these charges were partially offset by lower selling , general and administrative ( “ sg & a ” ) expenses driven primarily by expense savings , both one-time , such as furloughs and temporary salary reductions , and permanent , such as headcount reductions and lower discretionary spending . in addition , the company benefited from various government assistance programs related primarily to the recovery of employee payroll costs as well as certain favorable tax treatments . during fiscal 2021 , the company implemented a number of measures to help mitigate the operating and financial impact of the pandemic , including : ( i ) furloughing its u.s. and canada store associates and significant portions of its u.s. and canada corporate and distribution center associates and permanently reducing u.s. corporate headcount ; ( ii ) implementing temporary tiered salary reductions for management level corporate employees , including its executive officers ; ( iii ) deferring annual merit increases ; ( iv ) executing substantial reductions in expenses , store occupancy costs , capital expenditures and overall costs , including reduced inventory purchases ; ( v ) working globally with country management teams to maximize the company 's participation in all eligible government or other initiatives available to businesses or employees impacted by the covid-19 pandemic ; ( vi ) drawing down on certain credit facilities and entering into certain term loans to ensure financial flexibility and maintain maximum liquidity ; ( vii ) engaging with landlords to negotiate rent deferrals or other rent concessions ; ( viii ) working with vendors to extend payment terms ; and ( ix ) postponing its decision related to the payment of its quarterly cash dividend . during the second quarter of fiscal 2021 , as the situation began to stabilize , the company repaid a significant portion of its previously drawn down credit facilities , continued to bring back furloughed employees , eliminated the temporary tiered salary reductions and invested in share repurchases to return value to its shareholders . the company also announced that it would resume paying its quarterly cash dividend beginning in the third quarter of fiscal 2021 , but decided to not declare any cash dividends for the first and second quarters of fiscal 2021. business segments the company 's businesses are grouped into five reportable segments for management and internal financial reporting purposes : americas retail , americas wholesale , europe , asia and licensing . management evaluates segment performance based primarily on revenues and earnings ( loss ) from operations before corporate performance-based compensation costs , asset impairment charges , net gains ( losses ) from lease modifications , restructuring charges and certain non-recurring credits ( charges ) , if any . the americas retail segment includes the company 's retail and e-commerce operations in the americas . the americas wholesale segment includes the company 's wholesale operations in the americas . the europe segment includes the company 's retail , e-commerce and wholesale operations in europe and the middle east . the asia segment includes the company 's retail , e-commerce and wholesale operations in asia and the pacific . the licensing segment includes the worldwide licensing operations of the company . the business segment operating results exclude corporate overhead costs , which consist of shared costs of the organization , asset impairment charges , net gains ( losses ) on lease modifications , restructuring charges and certain non-recurring credits ( charges ) , if any . corporate overhead costs are presented separately and generally include , among other things , the following unallocated corporate 30 table of c ontents costs : accounting and finance , executive compensation , corporate performance-based compensation , facilities , global advertising and marketing , human resources , information technology and legal . information regarding these segments is summarized in “ part iv . story_separator_special_tag we also plan to manage product buys and inventory ownership rigorously and optimize overall working capital management consistently . during the first quarter of fiscal 2021 , the company announced that its board of directors had deferred the decision with respect to the payment of its quarterly cash dividend . the board of directors decided to continue to postpone its decision with respect to the payment of its quarterly cash dividend during the second quarter of fiscal 2021 , in order to preserve the company 's cash position and provide continued financial flexibility in light of uncertainties related to the covid-19 pandemic . the company announced that it would resume paying its quarterly cash dividend of $ 0.1125 per share beginning in the third quarter of fiscal 2021 , but decided to not declare cash dividends for the first and second quarters of 2021. during the first quarter of fiscal 2020 , the company announced that its board of directors reduced the future quarterly cash dividends that may be paid to holders of the company 's common stock , when , as and if any such dividend is declared by the company 's board of directors , from $ 0.225 per share to $ 0.1125 per share to redeploy capital and return incremental value to shareholders through share repurchases . during the first quarter of fiscal 2020 , the company used $ 170 million of proceeds from its convertible senior notes to enter into an accelerated share repurchase program ( “ asr contract ” ) . the company also repurchased shares of its common stock in open market and privately negotiated transactions totaling $ 38.9 million and $ 118.1 million during fiscal 2021 and 2020 , respectively . comparable store sales except as described below in connection with the covid-19 pandemic , the company reports national retail federation calendar comparable store sales on a quarterly basis for our retail businesses which include the combined results from our brick-and-mortar retail stores and our e-commerce sites . we also separately report the impact of e-commerce sales on our comparable store sales metric . as a result of our omni-channel strategy , our e-commerce business has become strongly intertwined with our brick-and-mortar retail store business . therefore , we believe that the inclusion of e-commerce sales in our comparable store sales metric provides a more meaningful representation of our retail results . sales from our brick-and-mortar retail stores include purchases that are initiated , paid for and fulfilled at our retail stores and directly operated concessions as well as merchandise that is reserved online but paid for and picked-up at our retail stores . sales from our e-commerce sites include purchases that are initiated and paid for online and shipped from either our distribution centers or our retail stores as well as purchases that are initiated in a retail store , but due to inventory availability at the retail store , are ordered and paid for online and shipped from our distribution centers or picked-up from a different retail store . store sales are considered comparable after the store has been open for 13 full fiscal months . if a store remodel results in a square footage change of more than 15 % , or involves a relocation or a change in store 32 table of c ontents concept , the store sales are removed from the comparable store base until the store has been opened at its new size , in its new location or under its new concept for 13 full fiscal months . stores that are permanently closed or temporarily closed for more than seven days in any fiscal month are excluded from the calculation in the fiscal month that they are closed . e-commerce sales are considered comparable after the online site has been operational in a country for 13 full fiscal months and exclude any related revenue from shipping fees . these criteria are consistent with the metric used by management for internal reporting and analysis to measure performance of the store or online sites . definitions and calculations of comparable store sales used by the company may differ from similarly titled measures reported by other companies . as a result of significant temporary store closures resulting from the covid-19 pandemic , the company has not disclosed any comparable store sales measures when discussing the results of operations for fiscal 2021. we believe that comparable store sales measures for fiscal 2021 are not meaningful to the evaluation of the company 's results until the impact from the temporary store closures resulting from the covid-19 pandemic has normalized . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > the company had $ 469.1 million in cash and cash equivalents and $ 0.2 million in restricted cash as of january 30 , 2021 , compared to $ 284.6 million in cash and cash equivalents and $ 0.2 million in restricted cash at february 1 , 2020 . ◦ the company had $ 56.8 million in outstanding borrowings under its term loans as of january 30 , 2021 , compared to none as of february 1 , 2020 and $ 7.3 million in outstanding borrowings under its credit facilities as of january 30 , 2021 , compared to $ 4.0 million as of february 1 , 2020 , to help ensure financial flexibility and liquidity in response to uncertainty surrounding the covid-19 pandemic . ◦ during fiscal 2021 , the company repurchased 4.0 million shares of its common stock for $ 38.9 million ( including commissions ) . during fiscal 2020 , the company used $ 170 million of proceeds from its offering of convertible senior notes to enter into an accelerated share repurchase program ( “ asr contract ” ) , pursuant to which it received a total of approximately 10.6 million shares .
| executive summary overview net loss attributable to guess ? , inc. was $ 81.2 million , or diluted loss of $ 1.27 per common share , for fiscal 2021 , compared to net earnings attributable to guess ? , inc. of $ 96.0 million , or diluted earnings of $ 1.33 per common share for fiscal 2020. during fiscal 2021 , the company recognized $ 80.4 million of asset impairment charges ; a net credit of $ 0.6 million of certain professional service , legal fees and related net credits ; $ 3.4 million of separation charges , $ 2.8 million net gains on lease modifications , and $ 10.4 million of amortization of debt discount related to the company 's convertible senior notes ( or a combined $ 76.7 million negative impact after considering the related tax benefit of these adjustments as well as the impact from cumulative valuation allowances , partially offset by tax benefits from an income tax rate change due to net operating loss carryback of $ 14.2 million ) , or a unfavorable $ 1.20 per share impact . excluding the impact of these items , adjusted net loss attributable to guess ? , inc. was $ 4.5 million and adjusted diluted loss was $ 0.07 per common share for fiscal 2021. during fiscal 2020 , the company recognized $ 10.0 million of asset impairment charges ; a net credit of $ 0.9 million of certain professional service , legal fees and related net credits , $ 0.4 million of separation charges and $ 7.6 million of amortization of debt discount related to the company 's convertible senior notes ( or a combined $ 9.1 million after considering the related tax benefit of these adjustments as well as the impact from changes in the tax law on deferred taxes in certain tax jurisdictions , net tax settlements and adjustments to specific uncertain tax positions totaling $ 8.1 million ) , or an unfavorable $ 0.12 per share impact .
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for the years ended december 31 , 2011 and 2010 , and from inception to december 31 , 2011 f-11 notes to consolidated financial statements f-13 f- 1 report of independent registered public accounting firm to the board of directors and stockholders , cytosorbents corporation : we have audited the accompanying consolidated balance sheets of cytosorbents corporation ( a development stage company ) , as of december 31 , 2011 and 2010 , and the related consolidated statements of operations , stockholders ' equity ( deficiency ) and cash flows for the years then ended and the cumulative period from january 22 , 1997 ( date of inception ) to december 31 , 2011. these consolidated financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these consolidated financial statements based on our audits . we did not audit the consolidated financial statements of cytosorbents corporation for the period from january 22 , 1997 ( date of inception ) to december 31 , 2000. such statements are included in the cumulative total from inception to december 31 , 2011 on the consolidated statements of operations and cash flows and reflect a net loss of 22.6 % of the related cumulative total . those statements were audited by other auditors whose report has been furnished to us and our opinion , insofar as it relates to the amounts for the period from january 22 , 1997 ( date of inception ) to december 31 , 2000 included in the cumulative totals , is based solely upon the report of the other auditors . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement . the company is not required to have , nor were we engaged to perform , an audit of its internal control over financial reporting . our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances , but not for the purpose of expressing an opinion on the effectiveness of the company 's internal control over financial reporting . accordingly , we express no such opinion . an audit also includes examining , on a test basis , evidence supporting the amounts and disclosures in the financial statements , assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation . we believe that our audits provide a reasonable basis for our opinion . in our opinion , based on our audits and the report of other auditors , the consolidated financial statements referred to above present fairly , in all material respects , the consolidated financial position of cytosorbents corporation as of december 31 , 2011 and 2010 and the consolidated results of their operations and their cash flows for the years then ended and the cumulative period from january 22 , 1997 ( date of inception ) to december 31 , 2011 in conformity with accounting principles generally accepted in the united states of america . the accompanying financial statements have been prepared assuming that the company will continue as a going concern . as discussed in note 1 to the consolidated financial statements , the company has suffered recurring net losses and negative cash flows from operations . these matters raise substantial doubt about its ability to continue as a going concern . management 's plans in regard to these matters are also described in note 1. the consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty . withumsmith+brown , pc new brunswick , new jersey march 30 2012 f- 2 * * * * * * * * * * this report is a copy of a previously issued report and has not been reissued by arthur story_separator_special_tag the following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition . the discussion should be read along with our financial statements and notes thereto . this section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance . forward-looking statements are often identified by words like believe , expect , estimate , anticipate , intend , project and similar expressions , or words which , by their nature , refer to future events . you should not place undue certainty on these forward-looking statements . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions . 43 plan of operations overview we are a development stage company and expect to remain so for at least the next several quarters . cytosorbents is a critical care focused company using blood purification to treat disease . in march 2011 , we received european union ( e.u . ) regulatory approval under the ce mark and medical devices directive for our flagship product , cytosorb , as an extracorporeal cytokine filter to be used in clinical situations where cytokines are elevated . cytosorbents has started the process of commercializing its operations with the launch of sales of its cytosorb device in the e.u . in mid-september we started to exhibit the cytosorb device at conferences in germany as part of our product marketing under a controlled-market release in select geographic territories in germany . because of the limited nature of this initial release , we anticipate only modest sales until we expand our marketing efforts into the broader market . story_separator_special_tag our ce mark enables cytosorb to be sold in the european union for clinical use . potential uses include many critical care conditions where cytokines are elevated such as sepsis , trauma , ards , severe burn injury and acute pancreatitis . cytosorbents has also achieved iso 13485:2003 full quality systems certification , an internationally recognized quality standard designed to ensure that medical device manufacturers have the necessary comprehensive management systems in place to safely design , develop , manufacture and distribute medical devices in the european union . we intend to continue to research and seek the necessary regulatory approvals to sell our other proposed products , as well as potential label extensions of our current ce mark . we have completed the targeted enrollment in our european sepsis clinical trial of one hundred ( 100 ) patients with sepsis and respiratory failure with the participation of fourteen trial sites . the purpose of the trial was to demonstrate safety and the broad , and statistically significant reduction of key cytokines such as il-6 in these patients . although the trial was not powered to demonstrate significant reduction in clinical endpoints such as mortality , these were included as secondary and exploratory endpoints in the trial . taking into account all 100 patients , the treatment was well-tolerated with no serious device related adverse events reported in more than 300 human treatments in the trial . the first 22 patients in the study represented a sepsis pilot study . in the next 31 patients , a compromise of the manual randomization schedule at two trial sites led to an imbalance in the severity of illness between the control and treatment patient groups of the study . after a thorough review , the scientific advisory board ( sab ) and the independent data safety monitoring board ( dsmb ) both recommended that due to this enrollment bias , these 31 patients should only be used for safety evaluation purposes and that new patients should be enrolled into the trial using electronic web-based randomization to randomly assign patients into either the control or treatment arms . excluding four patients that withdrew , the remaining forty three ( 43 ) patients enrolled under electronic randomization were relatively balanced in terms of the severity of illness in treatment and control patients , confirming the findings of the sab and dsmb . in these forty three ( 43 ) patients the european sepsis trial successfully demonstrated , on a statistically significant basis ( p < 0.05 ) , cytosorb 's ability to reduce circulating levels of key cytokines from whole blood in treated patients on the average of 30-50 % over the 7 day treatment period . additionally , post-hoc subgroup analyses of the clinical outcome data from patients enrolled under electronic randomization demonstrated statistically significant reduction in mortality in patients at high risk of death in sepsis , specifically in patients with very high cytokine levels ( il-6 ≥ 1,000 pg/ml and or il-1ra ≥ 16,000 pg/ml ) where 28-day mortality was 0 % treated vs 63 % control , p=0.03 , n=14 and patients ≥ age 65 ( 14-day mortality : 0 % treated vs 36 % control , p=0.04 , n=21 ) . 44 we are focusing our efforts on the commercialization of our cytosorb product and have begun a controlled-marketing program in select territories in germany . the initial major market focus for cytosorb is the adjunctive treatment of sepsis , a systemic inflammatory response to a serious infection or traumatic event . cytosorb has been designed to prevent or reduce the accumulation of high concentrations of cytokines in the bloodstream associated with sepsis and is intended for short-term use with standard of care therapy that includes antibiotics . we believe that current state of the art blood purification technology ( such as dialysis ) is incapable of effectively clearing the toxins intended to be absorbed by our cytosorb device . in addition to the sepsis indication , we intend to continue to foster research in other critical care illnesses where cytosorb could be used , such as ards , trauma , severe burn injury and acute pancreatitis , or in other acute conditions that have demonstrated potential in preliminary studies to prevent or reduce the accumulation of cytokines in the bloodstream . these other conditions include the prevention of post-operative complications of cardiac surgery ( cardiopulmonary bypass surgery ) and damage to organs donated for transplant prior to organ harvest . we are also exploring the potential benefits our technology may have in removing drugs and other substances from blood and physiologic fluids . the company is currently manufacturing cytosorb under iso 13485 full quality systems certification for sale in the e.u . and for additional clinical studies . concurrent with its commercialization plans , the company intends to conduct additional clinical studies in sepsis and other critical care diseases to generate additional clinical data to expand the scope of clinical experience for marketing purposes , to increase the number of treated patients , and to support potential future publications . assuming availability of adequate and timely funding , and continued positive results from our clinical studies , the company intends to continue commercializing its product in europe . the clinical protocol for our european sepsis trial was designed to allow us to gather information to support future u.s. studies . in the event we are able to successfully commercialize our products in the european market , we will review our plans for the united states to determine whether to conduct clinical trials in support of 510 ( k ) or pma registration . no assurance can be given that our cytosorb product will work as intended or that we will be able to obtain fda approval to sell cytosorb in the united states . even though we have obtained ce mark approval , there is no guarantee or assurance that we will be successful in obtaining fda approval
| results of operations our financial statements have been presented on the basis that it is a going concern , which contemplates the realization of revenues from our subscriber base and the satisfaction of liabilities in the normal course of business . we have incurred losses from inception . these factors raise substantial doubt about our ability to continue as a going concern . our research and development costs were $ 2,900,005 and $ 1,757,370 for the years ended december 31 , 2011 and 2010 , respectively . we have experienced substantial operating losses since inception . as of december 31 , 2011 , we had an accumulated deficit of $ 92,557,542 , which included net losses of $ 5,481,648 and $ 2,908,865 for the years ended december 31 , 2011 and december 31 , 2010 respectively . historically , our losses have resulted principally from costs incurred in the research and development of our polymer technology , and general and administrative expenses , which together were $ 4,130,194 and $ 2,516,757 for the years ended december 31 , 2011 and december 31 , 2010 respectively . legal , financial , and other consulting costs were $ 342,651and $ 307,262 for the years ended december 31 , 2011 and 2010 , respectively . interest ( income ) expense , net , in the amounts of $ 1,044,881 and $ 84,846 include interest and dividend income in the amounts of $ 1,464 and $ 915 for the years ended december 31 , 2011 and 2010 , respectively . liquidity and capital resources since inception , our operations have been financed through the private placement of our debt and equity securities .
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also on february 10 , 2017 , ifresh repurchased 1,500,000 of such non-redeemable shares promptly at a purchase price of $ 10.00 per share according to an agreement with handy global limited signed on january 11 , 2017. on february 10 , 2017 , ifresh entered into an agreement to repurchasee 200,000 shares of its common stock from lodestar investment holdings corporation for $ 200.00 . at the closing of the redomestication merger : ( i ) one share of ifresh common stock for each share of e-compass common stock , resulting in 1,872,033 non-redeeming e-compass common stock being converted into ifresh common stock ; ( ii ) each ten e-compass rights were converted into one share of common stock of story_separator_special_tag forward-looking statements this report includes forward-looking statements . we have based these forward-looking statements on our current expectations and projections about future events . these forward-looking statements are subject to known and unknown risks , uncertainties and assumptions about us that may cause our 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 such forward-looking statements . in some cases , you can identify forward-looking statements by terminology such as “ may , ” “ should , ” “ could , ” “ would , ” “ expect , ” “ plan , ” “ anticipate , ” “ believe , ” “ estimate , ” “ continue , ” or the negative of such terms or other similar expressions . factors that might cause or contribute to such a discrepancy include , but are not limited to , those described in our other securities and exchange commission ( “ sec ” ) filings . references to “ we ” , “ us ” , “ our , ” “ ifresh ” or the “ company ” are to ifresh inc. , except where the context requires otherwise . the following discussion should be read in conjunction with our unaudited condensed financial statements and related notes thereto included elsewhere in this report . 31 story_separator_special_tag background-color : white '' > 32 factors affecting ifresh 's operating results seasonality ifresh 's business shows seasonal fluctuations . sales in its first and second fiscal quarters ( ending june 30 and december 31 , respectively ) are usually 5 % to 10 % lower than in third and fourth quarters ( ending december 31 and march 31 , respectively ) . in its third fiscal quarter , customers make holiday purchases for thanksgiving and christmas . in its fourth quarter , customers make purchases for traditional chinese holidays , such as the spring festival ( chinese new year , in january or february ) . parking the availability of parking is important to ifresh 's sales volume , and changes in the availability of parking would affect ifresh 's sales volume . for example , one of the two parking lots serving ifresh 's ming store in boston was required to be temporarily lease to a farmers market on sundays by the city of boston from april to october 2016 , which reduced sales at the store by about 10 % during this period . the requirement to lease the parking lot to the farmers market expired on october 31 , 2016. competition competitors opened two new stores in brooklyn 's chinatown in early 2016 , which negatively impacted the sales of ifresh 's two stores located in the area for the year ended march 31 , 2017. ifresh 's management believes that this impact is temporary and expects sales to rebound because the stores are the only ones owned by the operators and therefore lack the sophisticated procurement process that nym has and do not have the same influence over suppliers as ifresh . payroll minimum wage rates in some states increased in 2016. for example , the minimum wage went from $ 10 to $ 11 per hour in massachusetts . payroll and related expenses increased by $ 2.8 million , or 28 % for the year ended march 31 , 2017 as compared to the same period of last year as a result of increase of head count and addition of its business operation and financial reporting department in anticipation of becoming a public company . ifresh plans to implement systems in the future to improve operating efficiency and reduce labor costs . merger with e-compass in march 2016 , nym signed a letter of intent of merger with e-compass and began to engage third parties in connection therewith , including a financial advisor , legal counsel and auditor , and incurred $ 992,000 of professional fees related thereto in the year ended march 31 , 2017. vendor and supply management ifresh believes that a centralized and efficient vendor and supply management system are the keys to profitability . ifresh operates its own wholesale facilities , which supplied about 31 % of its procurement for the fiscal year ended march 31 , 2017. ifresh recently centralized the management of its vendors and procurement . it believes that such centralized vendor management enhances ifresh 's negotiating power and improves its ability to turnover inventory and vendor payables . any changes to the vendor and supply management could affect ifresh 's purchasing costs and operating expenses . 33 store maintenance and renovation from time to time , ifresh conducts maintenance on the fixtures and equipment for its stores . any maintenance or renovations could interrupt the operation of our stores and result in a decline of customer volume , and therefore sales volume , but will , in the opinion of management , boost sales after they are completed . in the fiscal year ended march 31 , 2016 , ifresh conducted a renovation for its store located on east broadway in manhattan , new york , for $ 0.5 million . after completion of the renovation , customer traffic and sales volume increased significantly . story_separator_special_tag on the other hand , our total net wholesale sales increased by $ 5.2 million from $ 18.9 million for the year ended march 31 , 2016 to $ 24.1 million for the year ended march 31 , 2017 , which was attributable to an increase of $ 3.2 million in sales to related parties due to ifresh focusing on improving its central procurement system through its wholesale facilities and an increase of $ 2.0 million from its wholesale revenue to third parties due to expansion of the wholesales business . beginning in 2017 , the company 's wholesale segment started to sell fruits and vegetables . 35 cost of sales , occupancy costs and gross profit replace_table_token_7_th for the retail segment , gross profit was $ 22.5 and $ 24 million for the years ended march 31 , 2017 and 2016 , respectively . gross margin was 21.1 % and 21.4 % for the years ended march 31 , 2017 and 2016 , respectively . the gross profit decreased due to the decrease of sales and we consider the gross margin change is within normal business fluctuations . cost of sales decreased by $ 4 million , or 4.79 % , from $ 81 million for the year ended march 31 , 2016 , to $ 77.1 million for the year ended march 31 , 2017. the decrease was mainly attributable to the decreased sales in the year ended march 31 , 2017 occupancy costs consist of store-level expenses such as rental expense , property taxes and other store specific costs . occupancy costs decreased by approximately 2.0 % , from $ 7.4 million for the year ended march 31 , 2016 to $ 7.2 million for the year ended march 31 , 2017 , which was mainly attributable to the additional cost of approximately $ 200,000 for the temporary use of a warehouse in 2016 , while there was not much temporary rental of warehouse space in 2017. replace_table_token_8_th for wholesale segment , cost of sales increased by $ 2.4 million or 4.79 % from $ 16.3 million in 2016 to $ 18.7 million in 2017. the increase is consistent with the significant increase of sales from the wholesale segment in 2017. gross profit increased by $ 2.8 million , or 110 % from $ 2.6 million in 2016 to $ 5.4 million in 2017. gross margin increased by 8.8 % from 13.6 % to 22.4 % . in 2017 , the company started wholesale business for fruits and vegetables , which accounted for 20 % of its total sales in this segment . gross margin on fruits and vegetables is usually higher than that on other products , from 5 % to 10 % . the company also managed to increase the profit margin for this wholesale segment by centralizing vendor management and procurement to reduce the costs . selling , general and administrative expenses selling , general and administrative expenses was $ 25.7 million for the year ended march 31 , 2017 , an increase of $ 5 million , or 24.2 % , compared to $ 20.7 million for the year ended march 31 , 2016 , which was mainly attributable to an increase of $ 2.7 million in payroll and related insurance and taxes , and an increase of $ 1.0 million of professional fees incurred in connection with the transaction with e-compass , an increase of $ 0.4 million of rental and utility expenses , $ 0.1 million of depreciation expense due to the increase of property and equipment . the remaining $ 0.7 million increase was from other general expense which was due to the expansion of our whole sales business . interest expense interest expense was $ 303,894 for the year ended march 31 , 2017 , an increase of $ 88,400 , or 41 % , from $ 215,494 for the year ended march 31 , 2016 , primarily attributable to the increase of interest due to the key bank loan in the last quarter of 2017 which was amounted to $ 122,000 , offset by the decrease of interest on the credit line of $ 2.8 million that was repaid by nym in july 2015 and the bank of american credit line paid off on december 31 , 2016. other income other income was $ 1.4 million for the year ended march 31 , 2017 , an increase of 367,996 , or 37.1 % , from $ 992,620 for the year ended march 31 , 2016 , primarily attributable to an increase of $ 110,000 of management fee income and advertising fee income charged to non-related third-party stores based on sale volume , $ 200,000 of insurance claims due to the fire accident in ming store and $ 63,000 sublease rental income for our retail space . income taxes provision nym is subject to u.s. federal and state income taxes . income taxes provision was $ 1.7 million for the year ended march 31 , 2017 , a decrease of $ 1.4 million , or 45.1 % , compared to $ 3.0 million for the year ended march 31 , 2016 , which was mainly attributable the decrease in taxable income . the effective income tax rate was 52.0 % for the years ended march 31 , 2017 and 2016. the federal tax rate was 34 % and state and local income tax rates were 12 % for the years ended march 31 , 2017 and 2016 . 36 net income replace_table_token_9_th net income was $ 1.6 million for the year ended march 31 , 2017 , a decrease of $ 2.1 million , or 57.4 % , from $ 3.6 million for the year ended march 31 , 2016 , mainly attributable to the increase of selling , general and administrative expenses as described above as well as decrease in net sales for ming store as result of the parking issue and disruption of the business by the fire .
| overview ifresh inc. ( “ we , ” “ us , ” “ our , ” or “ ifresh ” or the “ company ” ) is a delaware company incorporated in july 2016 in order to reincorporate e-compass acquisition corp. ( “ e-compass ” ) to delaware pursuant to the merger agreement ( as defined below ) . immediately following the reincorporation , we acquired nym holding , inc ( “ nym ” ) . e-compass was a blank check company formed for the purpose of entering into a share exchange , asset acquisition , share purchase , recapitalization , reorganization or other similar business combination with one or more businesses or entities . nym is a fast growing asian/chinese grocery supermarket chain in the north-eastern u.s. providing food and other merchandise hard to find in mainstream grocery stores . since nym was formed in 1995 , nym has been targeting the chinese and other asian population in the u.s. with its in-depth cultural understanding of its target customer 's unique consumption habits . ifresh currently has eight retail supermarkets across new york , massachusetts and florida , with in excess of 6,862,000 sales transactions in its stores in the fiscal year ended march 31 , 2017. it also has two in-house wholesale businesses , strong america limited ( “ strong america ” ) and new york mart group , inc. ( “ nymg ” ) , covering more than 6,000 wholesale products and servicing both nym retail supermarkets and over 1,000 external clients that range from wholesalers to retailing groceries and restaurants . nym has a stable supply of food from farms in new jersey and florida , ensuring reliable supplies of the most popular vegetables , fruits and seafood . its wholesale business and long term relationships with farms insulate nym from supply interruptions and sales declines , allowing it to remain competitive even during difficult markets .
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note 9 - grant revenue cancer research grant contract on august 9 , 2017 , the company entered into a cancer research grant contract ( the “ cprit agreement ” ) with cprit , pursuant to which cprit awarded a grant of approximately $ 16.9 million to the company to fund development of rivo-cel for hematologic cancer ( the “ cprit award ” ) . the cprit award is contingent upon funds being available during the term of the agreement and subject to cprit 's ability to perform its obligations under the agreement . the company and cprit will retain joint ownership over any intellectual property developed under the agreement . with respect to non-commercial use of any intellectual property developed under the cprit agreement ( the “ cprit project results ” ) , the company agreed to grant to cprit a sublicensable , nonexclusive , irrevocable , royalty-free , perpetual worldwide license to any intellectual property of the company that is necessary to exploit the cprit project results . the cprit agreement permits the company to license any cprit project results , subject to the company retaining an exclusive sublicensable license to exploit the cprit project results for non-commercial purposes . the company is obligated to make revenue-sharing payments to cprit with respect to net sales of any product covered by the agreement , up to a maximum repayment of 400 % of the aggregate amount paid to the company by cprit under the cprit agreement . the payments are determined as a percentage of net sales ranging from the low to mid-single digits , which may be reduced if the company is required to obtain a license from a third party to sell any such product . in addition , upon meeting the foregoing limitation on revenue-sharing payments , the company agreed to make continued revenue-sharing payments to cprit of less than 1 % of net sales . the cprit agreement will expire on february 29 , 2020 unless terminated earlier by : mutual consent of the parties ; cprit upon an event of default by the company as specified in the cprit agreement ; cprit if allocated funds become unavailable or cprit is unable to obtain additional funds ; or the company in its sole discretion . 84 notes to the consolidated financial statements during 2017 , the company received $ 4.2 million in advance funding from cprit , which was recorded as deferred revenue . as of december 31 , 2018 and 2017 , the company incurred expenses and accrued revenue of $ 1.1 million and $ 0.1 million , respectively , for work performed under the cprit grant . nih grant during 2013 , the company entered into a grant agreement with the nih . the grant was a modular multi-year grant with funds being awarded each year based on the progress of the program being funded . grant money is not received until expenses for the program are incurred . we have been awarded approximately $ 1.4 million to date . the grant expired march 31 , 2017. note 10 - stockholders ' equity on march 29 , 2017 , the company completed an underwritten public offering of 5,750,000 shares of its common stock at a price of $ 12.00 per share , for an aggregate offering size of $ 69.0 million , pursuant to a registration statement on form s-3 . the net proceeds to the company , after deducting underwriting discounts , and commissions and offering expenses were approximately $ 64.6 million . these costs have been recorded as a reduction of the proceeds received from the offering . on april 20 , 2018 , the company completed an underwritten public offering of 9,200,000 shares of its common stock at a price of $ 7.50 per share , for an aggregate offering size of $ 69.0 million , pursuant to a registration statement on form s-3 . the net proceeds to the company , after deducting underwriting discounts , and commissions and offering expenses was approximately $ 64.7 million . these costs have been recorded as a reduction of the proceeds received from the offering . on october 5 , 2018 , the company entered into an open market sale agreement sm with jefferies llc , as sales agent , pursuant to which the company may offer and sell , from time to time , through jefferies , shares of the company 's common stock having an aggregate offering price of up to $ 60.0 million . the shares will be offered and sold pursuant to the company 's shelf registration statement on form s-3 . note 11 - share-based compensation plans the company has four share-based compensation plans , which authorize the granting of shares of common stock and options to purchase common stock to employees and directors of the company , as well as non-employee consultants , and allows the holder of the option to purchase common stock at a stated exercise price . options vest according to the terms of story_separator_special_tag you should read the following discussion and analysis together with “ item 6. selected financial data ” and our financial statements and related notes included in `` item 8 - financial statements and supplementary data '' in this annual report . the following discussion contains forward-looking statements that involve risks and uncertainties . our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors , including those set forth under the caption “ item 1a . risk factors. ” overview we are a clinical stage biopharmaceutical company focused on discovering and developing novel cellular immunotherapies by modulating t cell function via controllable molecular switches . story_separator_special_tag other cash used in operating activities included cash interest payments of $ 3 million . investment income and fluctuations in net working capital of $ 4.3 million partially offset cash used in operating activities . net cash used in operating activities of $ 73.0 million for the year ended december 31 , 2017 , was primarily comprised of operating expenses of $ 70.4 million , after excluding non-cash charges for share-based compensation and depreciation of $ 17.1 million . other cash used in operating activities included cash interest payments of $ 3.0 million . investment income and fluctuations in net working capital of $ 0.4 million partially offset cash used in operating activities . 65 investing activities net cash provided by investing activities in the year ended december 31 , 2018 was $ 10.4 million . we reduced our investment in marketable securities $ 12.0 million to fund our operations and used $ 1.6 million to purchase property and equipment . net cash used in investing activities for the year ended december 31 , 2017 was $ 3.3 million . during 2017 we reduced our investment in marketable securities $ 8.8 million to fund our operations and used $ 12.1 million to purchase property and equipment . financing activities net cash provided by financing activities for the year ended december 31 , 2018 was $ 68.1 million , which was primarily derived from proceeds of $ 64.6 million received from public stock offering net of offering costs , proceeds of $ 3.3 million received from the exercise of stock options and proceeds of $ 0.2 million received from espp purchases . net cash provided by financing activities for the year ended december 31 , 2017 was $ 78.5 million , which was primarily derived from proceeds of $ 64.7 million received from public stock offering net of offering costs , proceeds of $ 1.5 million received from the exercise of stock options , proceeds of $ 0.3 million received from espp purchases , proceeds of $ 45.0 million received from borrowings on long-term debt , offset by repayment of $ 32.7 million on debt and $ 0.2 million of debt issuance costs . critical accounting policies and significant estimates our financial statements are prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , costs and expenses and related disclosures . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . in many instances , we could have reasonably used different accounting estimates , and in other instances changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from management 's estimates . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . while our significant accounting policies are described in the notes to our financial statements , we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies related to the more significant areas involving management 's judgments and estimates . our management has discussed the development and selection of these critical accounting estimates with the audit committee of our board of directors and the audit committee has reviewed the company 's disclosure relating to it in this md & a . revenue recognition to date , we have only recognized revenue from government grants and we have not generated any product revenue . we have received funds from the cprit , and the nih , which are awarded based on the progress of the program being funded . in cases when the grant money is not received until expenses for the program are incurred , we accrue the revenue based on the costs incurred for the programs associated with the grant . in the future , we may generate revenue from a combination of product sales , government or other third-party grants , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . we expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees , milestone and other payments , and the amount and timing of payments that we receive upon the sale of our products , to the extent any are successfully commercialized . if we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval of them , our ability to generate future revenue , and our results of operations and financial position , would be materially adversely affected . see discussion of “ collaboration agreements ” in note 3 to the audited financial statements included in this annual report . licenses and patents licenses and patent costs are expensed as incurred . costs related to the license of patents from third parties and internally developed patents are classified as research and development expenses . legal costs related to patent applications and maintenance are classified as general and administrative expenses . research and development research and development costs are expensed as incurred . clinical trial and other development costs incurred by third parties are expensed as the contracted work is performed . we accrue for costs incurred as the services are being provided by monitoring the status of the clinical trial or project and the invoices received from our external service providers .
| results of operations comparison of the years ended december 31 , 2018 and 2017 the following table sets forth our results of operations for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th grant revenues we received revenue from one grant in 2018 and two grants in 2017. for additional information about grants that we have received , see note 9 to the audited financial statements contained within `` item 8 - financial statements and supplementary data '' in this annual report . 63 cprit grant on august 9 , 2017 , we entered into a grant agreement with the cancer prevention and research institute of texas , or cprit , whereby cprit awarded approximately $ 16.9 million to fund research of a cancer therapy involving rivo-cel . in 2017 we received cprit funds of $ 4.2 million up front which was initially recorded as deferred revenue and is included in restricted cash on our balance sheet . from the inception of the cprit grant to date , we recognized $ 1.1 million of deferred revenue for expenses incurred under the cprit grant , of which we recognized approximately $ 1.1 million and $ 0.1 million in 2018 and 2017 , respectively . nih grant during 2013 , we entered into a grant agreement with the nih . the grant was a modular multi-year grant with funds being awarded each year based on the progress of the program being funded . grant money was not received until expenses for the program were incurred .
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the increase was primarily driven by the acquisition of ixys , which added $ 378.2 million in net sales and higher volume in electronics segment due to strong demand across various end markets and geographies within the segment . additionally , net sales increased by $ 16.7 million due to favorable changes in foreign exchange rates . the company recognized net income of $ 164.6 million , or $ 6.52 per diluted share for the year ended december 29 , 2018 compared to net income of $ 119.5 million , or $ 5.21 per diluted share , for the year ended december 30 , 2017. the increase in net income reflects operating income increases in both the electronics and automotive segments and lower income tax expense driven by a one-time tax charge ( the `` toll charge '' ) of $ 49.0 million in 2017 due to the enactment of the tax cuts and jobs act , partially offset by $ 36.9 million of purchase accounting inventory step-up charges , higher amortization expense and acquisition-related and integration charges related to the ixys acquisition . additionally , the per share results reflect an increase of 2.1 million shares in the weighted average diluted shares outstanding resulting from the shares issued in conjunction with the acquisition of ixys . net cash provided by operating activities was $ 331.8 million for the year ended december 29 , 2018 as compared to $ 269.2 million for the year ended december 30 , 2017. the increase in net cash provided by operating activities reflected higher earnings and favorable working capital management , which more than offset higher payments related to cash taxes and acquisition and integration costs . on january 17 , 2018 , the company acquired ixys , a global pioneer in the power semiconductor and integrated circuit markets with a focus on medium to high voltage power semiconductors across the industrial , communications , consumer and medical markets . ixys has a broad customer base , serving more than 3,500 customers through its direct sales force and global distribution partners . the purchase price for ixys was $ 856.5 million , which included consideration of cash , littelfuse common stock , and the value of converted or cash settled ixys equity awards . ixys ' operations are included in the electronics segment . 17 on july 6 , 2018 , the trump administration imposed section 301 tariffs on certain products ( known as list 1 ) that are imported into the united states where the country of origin is china . additionally , on august 23 , 2018 , list 2 was put into effect which imposed an additional 25 % tariff to products on the list items . these tariffs primarily impact the electronics segment and , to a lesser extent , our automotive segment . the company continues to evaluate the impact on our future results of operations . outlook vision and strategy the company works with its customers to design and develop technologies that help them build safer , more reliable and more efficient products for a safer , greener and increasingly connected world in virtually every market that uses electrical energy , including automotive and commercial vehicles , industrial applications , data and telecommunications , medical devices , consumer electronics and appliances . built upon that framework , the company 's strategy is centered on growing its core circuit protection business , accelerating its growth in power control , and doubling its sensor platform . the company 's strategic plan is focused on maximizing shareholder value by driving profitable sales growth , earnings per share growth , strong cash flow generation , and maintaining a balanced approach to capital allocation . the company pursues the following major strategic initiatives , which are summarized below , along with more specific areas of focus . strategic objective 2019 and future priorities double digit sales growth ● grow through increased product content with existing customers and increased market share ● expand portfolio into new and underpenetrated geographies and end markets ● increase innovation capabilities and investments ● expand presence in products and applications that are converging across business segments ● targeted mergers and acquisitions eps growth ● focus on higher profitability growth opportunities ● grow operating margins through operational excellence ● disciplined approach to managing costs cash flow and liquidity ● disciplined management of working capital ● prudent deployment of capital ● disciplined approach to mergers and acquisitions ● grow dividend in line with earnings ● periodic share repurchases the company 's strategy is to generate profitable sales growth . in order to accomplish this , the company is focusing on accelerating organic growth by increasing its content and share gains , enhancing technology efforts to drive innovation , capitalizing on cross segment opportunities , and gaining traction in underpenetrated geographies and markets . the company will continue to make targeted strategic acquisitions that align to its strategy and financial targets to support new business , products , markets , and technologies while leveraging existing customers . management believes that sustaining profitability through a combination of profitable organic growth and acquisitions is critical to the company 's competitiveness , while enhancing value the company delivers to its customers . in addition , the company continues to implement initiatives across all platforms to enhance productivity while managing its cost structure , including integration of operations and streamlining administrative and support activities to drive operating margins . the company seeks to deploy its capital using a balanced approach . priorities for capital deployment , over time , include investments to drive increased organic growth , targeted acquisitions that align to the company 's strategic and financial metrics and returning capital to shareholders through dividends and periodic share repurchases . the company uses several key indicators to gauge progress toward achieving these objectives . these indicators include organic sales growth , operating margins , cash flow from operations and capital expenditures . story_separator_special_tag sales revenue and cost of sales are reduced to anticipate estimated returns . volume rebates the company offers volume based sales incentives to certain customers to encourage greater product sales . if customers achieve their specific quarterly or annual sales targets , they are entitled to rebates . the company estimates the projected amount of rebates that will be achieved by the customer and recognizes this estimated cost as a reduction to revenue as products are sold . allowance for doubtful accounts : the company evaluates the collectability of its trade receivables based on a combination of factors . the company regularly analyzes its significant customer accounts and , when the company becomes aware of a specific customer 's inability to meet its financial obligations , the company records a specific reserve for bad debt to reduce the related receivable to the amount the company reasonably believes is collectible . the company also records allowances for all other customers based on a variety of factors including the length of time the receivables are past due , the financial health of the customer , macroeconomic considerations and past experience . historically , the allowance for doubtful accounts has been adequate to cover bad debts . if circumstances related to specific customers change , the estimates of the recoverability of receivables could be further adjusted . inventory the company performs regular detailed assessments of inventory , which include a review of , among other factors , demand requirements , product life cycle and development plans , component cost trends , product pricing , shelf life , and quality issues . based on the analysis , the company records adjustments to inventory for excess quantities , obsolescence or impairment when appropriate to reflect inventory at net realizable value . historically , inventory reserves have been adequate to reflect inventory at net realizable values . 20 goodwill the company 's methodology for allocating the purchase price of acquisitions is based on established valuation techniques that reflect the consideration of a number of factors , including valuations performed by third-party appraisers when appropriate . goodwill is measured as the excess of the cost of an acquired entity over the fair value assigned to identifiable assets acquired and liabilities assumed . based on its current organization structure , the company has seven reporting units for which cash flows are determinable and to which goodwill has been allocated . goodwill is either assigned to a specific reporting unit or allocated between reporting units based on the relative excess fair value of each reporting unit . the company annually tests goodwill for impairment on the first day of its fiscal fourth quarter , or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value . the company also performs an interim review for indicators of impairment each quarter to assess whether an interim impairment review is required for any reporting unit . as part of its interim reviews , management analyzes potential changes in the value of individual reporting units based on each reporting unit 's operating results for the period compared to expected results as of the prior year 's annual impairment test . in addition , management considers how other key assumptions , including discount rates and expected long-term growth rates , used in the last annual impairment test , could be impacted by changes in market conditions and economic events . based on the interim assessments , management concluded that no events or changes in circumstances indicated that it was more likely than not that the fair value for any reporting unit had declined below its carrying value . quantitative assessment for impairment for the seven reporting units with goodwill , the company compared the estimated fair value of each reporting unit to its carrying value . if the carrying value of a reporting unit exceeded the estimated fair value , the difference between the estimated fair value and carrying value is recorded as the amount of the goodwill impairment charge . the results of the goodwill impairment test as of october 1 , 2018 indicated that the estimated fair values for each of the seven reporting units exceeded their respective carrying values . accordingly , there were no goodwill impairment charges recorded as part of the company 's 2018 annual goodwill impairment test . as part of its impairment test for these reporting units , the company engaged a third-party appraisal firm to assist in the company 's determination of the estimated fair values . this determination included estimating the fair value of each reporting unit using both the income and market approaches . the income approach requires management to estimate a number of factors for each reporting unit , including projected operating results , economic projections , anticipated future cash flows , discount rates and the allocation of shared or corporate items . the market approach estimates fair values using comparable marketplace fair value data from within a comparable industry grouping . the company weighted both the income and market approach equally to estimate the concluded fair value of each reporting unit . the determination of fair value requires the company to make significant estimates and assumptions , which primarily include , but are not limited to : the selection of appropriate peer group companies ; control premiums appropriate for acquisitions in which the company competes ; the discount rate ; terminal growth rates ; and forecasts of revenue , operating income , depreciation and amortization and capital expenditures . goodwill impairment assumptions although the company believes its estimates of fair value are reasonable , actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates . changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the fair value of the reporting units .
| fiscal year 2018 also included approximately $ 0.9 million in foreign currency exchange gains primarily attributable to changes in the value of the euro , mexico peso , philippine peso and chinese renminbi against the u.s. dollar , while fiscal year 2017 also included approximately $ 2.4 million in foreign currency exchange losses primarily attributable to changes in the value of the euro , philippine peso and chinese renminbi against the u.s. dollar . replace_table_token_6_th net sales net sales for 2018 of $ 1,718.5 million increased $ 496.9 million , or 40.7 % , compared to the prior year with increases of $ 378.2 million and $ 6.5 million resulting from incremental net sales related to the ixys and u.s. sensor acquisitions , respectively , $ 16.7 million of favorable changes in foreign exchange rates , and volume growth across all three segments . 24 gross profit gross profit was $ 652.5 million , or 38.0 % of net sales , in 2018 , compared to $ 506.5 million , or 41.5 % of net sales , in 2017. the increase in gross profit reflects the ixys acquisition and volume growth and expense leverage across all segments . the decrease in gross margin is primarily due to the purchase accounting inventory charges of $ 36.9 million , which negatively impacted gross margin by 2.1 percentage points , and an unfavorable mix of products from the ixys acquisition , which historically had lower gross margins .
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forward-looking statements the information contained in this section should be read in conjunction with the financial data and consolidated financial statements and notes thereto appearing elsewhere in this report . some of the statements in this report ( including in the following discussion ) constitute forward-looking statements , which relate to future events or our future performance or our financial condition . the forward-looking statements contained in this section involve a number of risks and uncertainties , including : statements concerning the impact of a protracted decline in the liquidity of credit markets ; the general economy , including interest and inflation rates , and its impact on the industries in which we invest ; our future operating results , our business prospects and the adequacy of our cash resources and working capital ; the ability of our portfolio companies to achieve their objectives ; our ability to make investments consistent with our investment objectives , including with respect to the size , nature and terms of our investments ; the ability of new mountain finance advisers bdc , l.l.c . ( the `` investment adviser '' ) or its affiliates to attract and retain highly talented professionals ; actual and potential conflicts of interest with the investment adviser and new mountain capital , l.l.c . ( `` new mountain capital '' , defined as new mountain capital group , l.l.c . and its affiliates ) ; and the risk factors set forth in item 1a.—risk factors . forward-looking statements are identified by their use of such terms and phrases such as `` anticipate '' , `` believe '' , `` continue '' , `` could '' , `` estimate '' , `` expect '' , `` intend '' , `` may '' , `` plan '' , `` potential '' , `` project '' , `` seek '' , `` should '' , `` target '' , `` will '' , `` would '' or similar expressions . actual results could differ materially from those projected in the forward-looking statements for any reason , including the factors set forth in item 1a.—risk factors contained in this annual report . we have based the forward-looking statements included in this report on information available to us on the date of this report . we assume no obligation to update or revise publicly any forward-looking statements , whether as a result of new information , future events or otherwise , except as required by law . although we undertake no obligation to revise or update any forward-looking statements , you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the united states securities and exchange commission ( `` sec '' ) , including annual reports on form 10-k , registration statements on form n-2 , quarterly reports on form 10-q and current reports on form 8-k. 55 overview we are a delaware corporation that was originally incorporated on june 29 , 2010 and completed our initial public offering ( `` ipo '' ) on may 19 , 2011. we are a closed-end , non-diversified management investment company that has elected to be regulated as a business development company ( `` bdc '' ) under the investment company act of 1940 , as amended ( the `` 1940 act '' ) . as such , we are obligated to comply with certain regulatory requirements . we have elected to be treated , and intend to comply with the requirements to continue to qualify annually , as a regulated investment company ( `` ric '' ) under subchapter m of the internal revenue code of 1986 , as amended ( the `` code '' ) . nmfc is also registered as an investment adviser under the investment advisers act of 1940 , as amended ( the `` advisers act '' ) . the investment adviser is a wholly-owned subsidiary of new mountain capital . new mountain capital is a firm with a track record of investing in the middle market and with assets under management totaling more than $ 15.5 billion ( 1 ) , which includes total assets held by us . new mountain capital focuses on investing in defensive growth companies across its private equity , public equity and credit investment vehicles . the investment adviser manages our day-to-day operations and provides us with investment advisory and management services . new mountain finance administration , l.l.c . ( the `` administrator ” ) , a wholly-owned subsidiary of new mountain capital , provides the administrative services necessary to conduct our day-to-day operations . our wholly-owned subsidiary , new mountain finance holdings , l.l.c . ( “ nmf holdings ” or the `` predecessor operating company '' ) , is a delaware limited liability company whose assets are used to secure nmf holdings ' credit facility . for additional information about our organizational structure prior to may 8 , 2014 , see `` —historical structure '' . nmf ancora holdings inc. ( “ nmf ancora ” ) , nmf qid ngl holdings , inc. ( “ nmf qid ” ) and nmf yp holdings inc. ( “ nmf yp ” ) , our wholly-owned subsidiaries , are structured as delaware entities that serve as tax blocker corporations which hold equity or equity-like investments in portfolio companies organized as limited liability companies ( or other forms of pass-through entities ) . we consolidate our tax blocker corporations for accounting purposes . the tax blocker corporations are not consolidated for income tax purposes and may incur income tax expense as a result of their ownership of the portfolio companies . additionally , our wholly-owned subsidiary , new mountain finance servicing , l.l.c . ( “ nmf servicing ” ) serves as the administrative agent on certain investment transactions . new mountain finance sbic , l.p. ( “ sbic lp ” ) and its general partner , new mountain finance sbic g.p. , l.l.c . ( “ sbic gp ” ) , were organized in delaware as a limited partnership and limited liability company , respectively . story_separator_special_tag in connection with the ipo , nmfc and aiv holdings each entered into a joinder agreement with respect to the limited liability company agreement , as amended and restated ( the `` operating agreement '' ) , of nmf holdings , pursuant to which nmfc and aiv holdings were admitted as members of nmf holdings . nmfc acquired from nmf holdings , with the gross proceeds of the ipo and the concurrent private placement , common membership units ( `` units '' ) of nmf holdings ( the number of units were equal to the number of shares of nmfc 's common stock sold in the ipo and the concurrent private placement ) . additionally , nmfc received units of nmf holdings equal to the number of shares of common stock of nmfc issued to the partners of new mountain guardian partners , l.p. guardian aiv was the parent of nmf holdings prior to the ipo and , as a result of the transactions completed in connection with the ipo , obtained units in nmf holdings . guardian aiv contributed its units in nmf holdings to its newly formed subsidiary , aiv holdings , in exchange for common stock of aiv holdings . aiv holdings had the right to exchange all or any portion of its units in nmf holdings for shares of nmfc 's common stock on a one-for-one basis at any time . the original structure was designed to generally prevent nmfc from being allocated taxable income with respect to unrecognized gains that existed at the time of the ipo in the predecessor entities ' assets , and rather such amounts would be allocated generally to aiv holdings . the result was that any distributions made to nmfc 's stockholders that were attributable to such gains generally were not treated as taxable dividends but rather as return of capital . since our ipo , and through december 31 , 2016 , we raised approximately $ 533.1 million in net proceeds from additional offerings of common stock and issued shares of common stock valued at approximately $ 288.4 million on behalf of aiv holdings for exchanged units . we acquired from nmf holdings units of nmf holdings equal to the number of shares of our common stock sold in additional offerings . with the completion of the final secondary offering on february 3 , 2014 , we owned 100.0 % of the units of nmf holdings , which became our wholly-owned subsidiary . restructuring as a bdc , aiv holdings had been subject to the 1940 act , including certain provisions applicable only to bdcs . accordingly , and after careful consideration of the 1940 act requirements applicable to bdcs , the cost of 1940 act compliance and a thorough assessment of aiv holdings ' business model , aiv holdings ' board of directors determined that continuation as a bdc was not in the best interest of aiv holdings and guardian aiv . specifically , given that aiv holdings was formed for 57 the sole purpose of holding units of nmf holdings and aiv holdings had disposed of all of the units of nmf holdings that it was holding as of february 3 , 2014 , the board of directors of aiv holdings approved and declared advisable at an in-person meeting held on march 25 , 2014 the withdrawal of aiv holdings ' election to be regulated as a bdc under the 1940 act . in addition , the board of directors of aiv holdings approved and declared advisable for aiv holdings to terminate its registration under section 12 ( g ) of the securities exchange act of 1934 , as amended ( the `` exchange act '' ) and to dissolve aiv holdings under the laws of the state of delaware . upon receipt of the necessary stockholder consent to authorize the board of directors of aiv holdings to withdraw aiv holdings ' election to be regulated as a bdc , the withdrawal was filed and became effective upon receipt by the u.s. securities and exchange commission ( `` sec '' ) of aiv holdings ' notification of withdrawal on form n-54c on april 15 , 2014. the board of directors of aiv holdings believed that aiv holdings met the requirements for filing the notification to withdraw its election to be regulated as a bdc , upon the receipt of the necessary stockholder consent . after the notification of withdrawal of aiv holdings ' bdc election was filed with the sec , aiv holdings was no longer subject to the regulatory provisions of the 1940 act applicable to bdcs generally , including regulations related to insurance , custody , composition of its board of directors , affiliated transactions and any compensation arrangements . in addition , on april 15 , 2014 , aiv holdings filed a form 15 with the sec to terminate aiv holdings ' registration under section 12 ( g ) of the exchange act . after these sec filings and any other federal or state regulatory or tax filings were made , aiv holdings proceeded to dissolve under delaware law by filing a certificate of dissolution in delaware on april 25 , 2014. until may 8 , 2014 , as a bdc , nmf holdings had been subject to the 1940 act , including certain provisions applicable only to bdcs . accordingly , and after careful consideration of the 1940 act requirements applicable to bdcs , the cost of 1940 act compliance and a thorough assessment of nmf holdings ' current business model , nmf holdings ' board of directors determined at an in-person meeting held on march 25 , 2014 that continuation as a bdc was not in the best interests of nmf holdings . at the joint annual meeting of the stockholders of nmfc and the sole unit holder of nmf holdings held on may 6 , 2014 , the stockholders of nmfc and the sole unit holder of nmf holdings approved a proposal which authorized the board of directors of nmf holdings to withdraw nmf holdings ' election to be regulated as a bdc .
| results of operations under gaap , our ipo did not step-up the cost basis of the predecessor operating company 's existing investments to fair market value at the ipo date . since the total value of the predecessor operating company 's investments at the time of the ipo was greater than the investments ' cost basis , a larger amount of amortization of purchase or original issue discount , and different amounts in realized gain and unrealized appreciation , may be recognized under gaap in each period than if the step-up had occurred . this will remain until such predecessor investments are sold , repaid or mature in the future . we track the transferred ( or fair market ) value of each of the predecessor operating company 's investments as of the time of the ipo and , for purposes of the incentive fee calculation , adjusts income as if each investment was purchased at the date of the ipo ( or stepped up to fair market value ) . the respective `` adjusted net investment income '' ( defined as net investment income adjusted to reflect income as if the cost basis of investments held at the ipo date had stepped-up to fair market value as of the ipo date ) is used in calculating both the incentive fee and dividend payments . see item 8.—financial statements and supplementary data—note 5. agreements for additional details . 69 the following table for the year ended december 31 , 2016 is adjusted to reflect the step-up to fair market value and the allocation of the incentive fees related to hypothetical capital gains out of the adjusted post-incentive fee net investment income . replace_table_token_19_th _ ( 1 ) for the year ended december 31 , 2016 , we incurred total incentive fees of $ 22.0 million , of which none was related to the capital gains incentive fee accrual on a hypothetical liquidation basis .
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as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report on form 10-k , our actual results could differ materially from the results described in or implied by these forward-looking statements . overview penumbra is a global healthcare company focused on interventional therapies . we design , develop , manufacture and market innovative devices and have a broad portfolio of products that addresses challenging medical conditions and significant clinical needs across two major markets , neuro and peripheral vascular . the conditions that our products address include , among others , ischemic stroke , hemorrhagic stroke and various peripheral vascular conditions that can be treated through thrombectomy and embolization procedures . our team focuses on developing , manufacturing and marketing products for use by specialist physicians , including interventional neuroradiologists , neurosurgeons , interventional neurologists , interventional radiologists and vascular surgeons . we design our products to provide these specialist physicians with a means to drive improved clinical outcomes . since our founding in 2004 , we have invested heavily in our product development capabilities in our two key markets : neuro and peripheral vascular . we launched our first neurovascular product in 2007 , our first peripheral vascular product in 2013 and our first neurosurgical product in 2014. to date , we have launched 16 product brands , and we expect to continue to develop and build our portfolio of products based on our thrombectomy , embolization and access technologies . generally , when we introduce a next generation product or a new product designed to replace a current product , sales of the earlier generation product or the product replaced decline . our research and development activities are centered around the development of new products and clinical activities designed to support our regulatory submissions and demonstrate the effectiveness of our products . we manufacture substantially all of our products at our campus in alameda , california , and stock inventory of raw materials , components and finished goods at that location . we rely on a single or limited number of suppliers for certain raw materials and components , and we generally have no long-term supply arrangements with our suppliers , as we order on a purchase order basis . we ship all of our products to our hospital customers and distributors worldwide pursuant to purchase orders . we typically recognize revenue when products are delivered to our hospital customers or distributors , other than our coils , which we ship to our hospital customers on a consignment basis , and for which we recognize revenue when the hospital customers utilize products in a procedure . hospitals purchase our products for use in procedures performed by their specialist physicians , generally seeking reimbursement from third party payors for procedures performed . we believe that the cost-effectiveness of our products is attractive to our hospital customers . in 2016 , 33.1 % of our revenue was generated from customers located outside of the united states . our sales outside of the united states are denominated principally in the euro and japanese yen , with some sales being denominated in other currencies . as a result , we have foreign exchange exposure , but do not currently engage in hedging . in 2016 , no single hospital and only one distributor accounted for more than 10 % of our sales . we sell our products to hospitals primarily through our direct sales organization in the united states , most of europe , canada and australia , as well as through distributors in select international markets . we generated revenue of $ 263.3 million , $ 186.1 million and $ 125.5 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . this represents annual increases of 41.5 % and 48.3 % , respectively . we generated an operating loss of $ 1.4 million for the year ended december 31 , 2016 and operating income of $ 4.2 million and $ 3.0 million for the years ended december 31 , 2015 and 2014 , respectively . our operating loss in the period was driven by lower gross profit margin due to less favorable product and geographic sales mix , additional costs associated with the hiring and training of additional personnel and new product launches , which generally result in lower initial product yields , as well as greater operating expense in sales , general and administrative resulting from greater headcount to support our growth . 46 factors affecting our performance there are a number of factors that have impacted , and we believe will continue to impact , our results of operations and growth . these factors include : the rate at which we grow our salesforce and the speed at which newly hired salespeople become fully effective can impact our revenue growth or our costs incurred in anticipation of such growth . our industry is intensely competitive and , in particular , we compete with a number of large , well-capitalized companies . we must continue to successfully compete in light of our competitors ' existing and future products and their resources to successfully market to the specialist physicians who use our products . we must continue to successfully introduce new products that gain acceptance with specialist physicians and successfully transition from existing products to new products , ensuring adequate supply while avoiding excess inventory of older products and resulting inventory write-downs or write-offs . in addition , as we introduce new products , we generally hire and train additional personnel and build our inventory of components and finished goods in advance of sales , which may cause quarterly fluctuations in our financial condition . publications of clinical results by us , our competitors and other third parties can have a significant influence on whether , and the degree to which , our products are used by specialist physicians and the procedures and treatments those physicians choose to administer for a given condition . story_separator_special_tag income taxes we account for income taxes using the asset and liability method , whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities , and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . we provide a valuation allowance to reduce the net deferred tax assets to their estimated realizable value . as of december 31 , 2016 , we had approximately $ 10.7 million , $ 32.7 million and $ 1.3 million of federal , state and foreign net operating loss carryforwards , respectively , available to offset future taxable income . the state net operating loss carryforwards will begin to expire in 2020. at december 31 , 2016 , we had research credits available to offset federal and state tax liabilities in the amount of $ 3.6 million and $ 5.0 million , respectively . california state tax credits have no expiration . the calculation of our current provision for income taxes involves the use of estimates , assumptions and judgments while taking into account current tax laws , interpretation of current tax laws and possible outcomes of future tax audits . we have established reserves to address potential exposures related to tax positions that could be challenged by tax authorities . although we believe our estimates , assumptions and judgments to be reasonable , any changes in tax law or its interpretation of tax laws and the resolutions of potential tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements . as of december 31 , 2016 , our net deferred tax asset was $ 22.5 million , after reduction of a valuation allowance of $ 6.1 million . the calculation of our deferred tax asset balance involves the use of estimates , assumptions and judgments while taking into account estimates of the amounts and type of future taxable income . deferred tax assets are reduced by a valuation allowance when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved . valuation allowances related to deferred tax assets can be affected by changes to tax laws , statutory tax rates , future taxable income levels and input from our tax advisors . if our management was to determine that we would not be able to realize all or a portion of our net deferred tax assets in the future , a valuation allowance related charge to earnings would be reflected in that period , which could have a material adverse impact on our financial condition and results of operations . we follow fasb asc 740-10 “ accounting for uncertainty in income taxes ” that prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in our income tax return , and also provides guidance on derecognition , classification , interest and penalties , accounting in interim periods and disclosure . 48 we include interest and penalties related to unrecognized tax benefits within income tax expense in the accompanying consolidated statements of operations . components of results of operations revenue . we sell our products directly to hospitals and through distributors for use in procedures performed by specialist physicians to treat patients in two key markets : neuro and peripheral vascular disease . we sell our products through purchase orders , and we do not have long term purchase commitments from our customers . we typically recognize revenue when products are delivered to our hospital customers or distributors . however , with respect to products that we consign to hospitals , which primarily consist of coils , we recognize revenue at the time hospitals utilize products in a procedure . revenue also includes shipping and handling costs that we charge to customers . cost of revenue . cost of revenue consists primarily of the cost of raw materials and components , personnel costs , including stock-based compensation , inbound freight charges , receiving costs , inspection and testing costs , warehousing costs , royalty expense , shipping and handling costs and other labor and overhead costs incurred in the manufacturing of products . we manufacture substantially all of our products in our manufacturing facility at our campus in alameda , california . operating expenses research and development ( r & d ) . r & d expenses primarily consist of product development , clinical and regulatory expenses , materials , depreciation and other costs associated with the development of our products . r & d expenses also include salaries , benefits and other related costs , including stock-based compensation , for personnel and consultants . we expense r & d costs as they are incurred . we expect our r & d expenses could continue to increase as we innovate and develop new products , add personnel , engage in ongoing clinical research and expand our information technologies . sales , general and administrative ( sg & a ) . sg & a expenses primarily consist of salaries , benefits and other related costs , including stock-based compensation , for personnel and consultants engaged in sales , marketing , finance , legal , compliance , administrative , facilities and information technology and human resource activities . our sg & a expenses also include marketing trials , medical education , training , commissions , generally based on a percentage of sales , to direct sales representatives and the medical device excise tax , which was approximately 2.3 % of u.s. sales in 2015. the medical device excise tax has been suspended for a two-year period commencing january 1 , 2016 ; however , it could be reinstated . we expect our sg & a expenses could continue to increase as we expand our marketing programs , information technologies , operations and salesforce . income tax expense .
| results of operations the following table sets forth the components of our consolidated statements of operations in dollars and as a percentage of revenue for the periods presented : replace_table_token_4_th year ended december 31 , 2016 compared to year ended december 31 , 2015 revenue replace_table_token_5_th revenue increased $ 77.2 million , or 41.5 % , to $ 263.3 million in 2016 , from $ 186.1 million in 2015 . our revenue growth resulted from further market penetration of our existing products and sales of new products or products with new indications . increased sales within our neuro and peripheral vascular businesses accounted for slightly less than 60 % and slightly more than 40 % of the revenue increase , respectively , in the year ended december 31 , 2016 . revenue from sales in the u. s. increased $ 48.8 million , or 38.3 % , to $ 176.1 million in 2016 , from $ 127.3 million in 2015 . revenue from sales in international markets increased $ 28.4 million , or 48.4 % , to $ 87.2 million in 2016 , from $ 58.8 million in 2015 . revenue from international sales represented 33.1 % and 31.6 % of our total revenue in 2016 and 2015 , respectively . revenue from our neuro products increased $ 44.1 million , or 31.2 % , to $ 185.5 million in 2016 , from $ 141.4 million in 2015 . our neuro product sales experienced strong momentum due to further market penetration and growth in the market for endovascular treatment of stroke . the overall market growth has led to increases in the number of procedures performed by specialist physicians using our products . increased sales of penumbra system products accounted for approximately half of the neuro revenue increase in the year ended december 31 , 2016 .
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the original effective date of this guidance was for interim and annual reporting periods beginning after december 15 , 2016 , early adoption is not story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes 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 and beliefs . our actual results may differ materially from those contained in or implied by any 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 of our business zillow group , inc. operates the leading real estate and home-related information marketplaces on mobile and the web , with a complementary portfolio of brands and products to help people find vital information about homes and connect with local professionals . zillow group 's brands focus on all stages of the home lifecycle : renting , buying , selling , financing and home improvement . the zillow group portfolio of consumer brands includes real estate and rental marketplaces zillow , trulia , streeteasy and hotpads . in addition , zillow group works with tens of thousands of real estate agents , mortgage and rental professionals , helping maximize business opportunities and connect to millions of consumers . we also own and operate a number of brands for real estate , rental and mortgage professionals , including dotloop , mortech , diverse solutions and retsly . we generate revenue from the sale of advertising services and our suite of tools to businesses and professionals primarily associated with the real estate , rental and mortgage industries . these professionals include local real estate and rental professionals , mortgage professionals and brand advertisers . our two revenue categories are marketplace revenue and display revenue . marketplace revenue for the year ended december 31 , 2015 consisted of real estate , mortgages , and market leader revenue . real estate revenue primarily includes revenue from the sale of advertising services and a suite of tools sold to real estate professionals , as well as revenue generated by zillow group rentals , which includes our rentals marketplace and suite of tools for rental professionals . mortgages revenue primarily includes advertising sold to mortgage lenders and other mortgage professionals , as well as revenue generated by mortech , which provides subscription-based mortgage software solutions , including a product and pricing engine and lead management platform . market leader revenue primarily includes revenue from the sale of a comprehensive premium software-as-a-service based marketing product typically sold to real estate professionals as a bundle of products under a fixed fee subscription . market leader revenue is included in our results of operations from february 17 , 2015 through the date of divestiture of september 30 , 2015. display revenue primarily consists of graphical mobile and web advertising sold on a cost per thousand impressions ( cpm ) or cost-per-click ( cpc ) basis to advertisers promoting their brands on our mobile applications and websites and our partner websites . impressions are delivered when a sold advertisement appears on pages viewed by users of our mobile applications and websites . overview of significant milestones and results the following is a summary of our significant milestones for the year ended december 31 , 2015 : in january , we launched the zillow data dashboard , a new listing management and reporting platform that allows multiple listing services , or mlss , and brokers to provide listings directly to zillow group . since january 2015 , nearly 400 mlss have signed agreements to send listings directly to zillow and trulia . effective february 17 , 2015 , zillow group acquired trulia , and zillow and trulia became wholly owned subsidiaries of zillow group ( the trulia acquisition ) . 45 in february , we announced the release of our fifth tv spot , lake house , and in june , we announced the release of our sixth tv spot , homecoming , both as part of our award-winning find your way home national advertising campaign . in march , we announced the launch of agent finder , a new way for home buyers and sellers to search for , and find , a real estate agent based on their local expertise and reputation . in july , we announced that our board of directors approved a distribution of shares of our non-voting class c capital stock as a dividend to our class a and class b common shareholders ( the class c stock split ) . holders of class a common stock and class b common stock as of the close of business on july 31 , 2015 , the record date for the class c stock split , received on august 14 , 2015 a distribution of two shares of class c capital stock for each share of class a and class b common stock held by them as of the record date . the distribution had the effect of a 3-for-1 stock split . on august 17 , the first trading day following the issuance date of the class c stock split , our class c capital stock began trading on the nasdaq global select market ( nasdaq ) under the symbol z and our class a common stock began trading on nasdaq under the symbol zg . all references made to share or per share amounts in this management 's discussion and analysis of financial condition and results of operations have been retroactively adjusted to reflect the class c stock split . in august , zillow group appointed chief operating officer kathleen philips to the position of chief financial officer and appointed chief marketing officer amy bohutinsky to chief operating officer . story_separator_special_tag the growth in display revenue in 2015 was primarily due to the inclusion of trulia after february 17 , 2015. as of december 31 , 2015 , we had 2,204 full-time employees compared to 1,215 full-time employees as of december 31 , 2014. the increase in the number of full-time employees was primarily due to the inclusion of trulia after february 17 , 2015. acquisition of trulia , inc. effective february 17 , 2015 , pursuant to the agreement and plan of merger dated as of july 28 , 2014 ( the merger agreement ) , each of zillow and trulia became wholly owned subsidiaries of zillow group . upon completion of the acquisition , each outstanding share of class a common stock of zillow was converted into the right to receive one share of fully paid and nonassessable class a common stock of zillow group , each outstanding share of class b common stock of zillow was converted into the right to receive one share of fully paid and nonassessable class b common stock of zillow group , and each outstanding share of trulia common stock was converted into the right to receive 0.444 of a share of fully paid and nonassessable class a common stock of zillow group . the total purchase price of trulia was approximately $ 2.0 billion . for additional information regarding the transaction with trulia , see note 7 to our consolidated financial statements . 47 on february 17 , 2015 , in connection with the trulia acquisition , zillow group undertook a restructuring plan that resulted in a total workforce reduction of nearly 350 employees , primarily to eliminate overlapping positions in the sales and marketing functions related to trulia 's workforce at its bellevue , denver , new york and san francisco locations . the restructuring plan is a result of the integration of trulia 's business and operations with and into zillow group 's business . employees directly affected by the restructuring plan were provided with severance payments , stock vesting acceleration and outplacement assistance . for additional information regarding the restructuring , see note 18 to our consolidated financial statements . key growth drivers to analyze our business performance , determine financial forecasts and help develop long-term strategic plans , we frequently review the following key growth drivers : unique users measuring unique users is important to us because our marketplace revenue depends in part on our ability to enable real estate , rental and mortgage professionals to connect with our users , and our display revenue depends in part on the number of impressions delivered . furthermore , our community of users improves the quality of our living database of homes with their contributions . we count a unique user the first time an individual accesses one of our mobile applications using a mobile device during a calendar month and the first time an individual accesses one of our websites using a web browser during a calendar month . if an individual accesses our mobile applications using different mobile devices within a given month , the first instance of access by each such mobile device is counted as a separate unique user . if an individual accesses more than one of our mobile applications within a given month , the first access to each mobile application is counted as a separate unique user . if an individual accesses our websites using different web browsers within a given month , the first access by each such web browser is counted as a separate unique user . if an individual accesses more than one of our websites in a single month , the first access to each website is counted as a separate unique user since unique users are tracked separately for each domain . zillow measures unique users with google analytics and trulia measures unique users with omniture analytical tools . beginning on february 17 , 2015 , the reported monthly unique users reflect the effect of zillow group 's february 17 , 2015 acquisition of trulia . beginning in september 2013 , the reported monthly unique users reflect the effect of zillow 's august 26 , 2013 acquisition of streeteasy , inc. replace_table_token_5_th * for december 2014 , the reported monthly unique user metric was estimated by zillow based on historical trends by calculating the percentage change in monthly unique users from november 2013 to december 2013 and multiplying that percentage change by the reported november 2014 monthly unique users . zillow transitioned to an upgraded version of the google analytics measurement service , universal analytics , in the month of december 2014 on both its mobile application and website platforms . as a result , we are not able to provide an accurate count of the monthly unique users as reported by the service for december 2014 . 48 agent advertisers the number of agent advertisers is an important driver of revenue growth because each advertiser pays us a fee to purchase advertising services . we define an agent advertiser as a real estate professional with an active advertising contract at the end of a period . beginning on february 17 , 2015 , the reported agent advertisers reflect the effect of zillow group 's february 17 , 2015 acquisition of trulia . the number of agent advertisers excludes users of our market leader products who do not also have an active advertising contract for our premier agent advertising products . replace_table_token_6_th basis of presentation revenue we generate revenue from the sale of advertising services and our suite of tools to businesses and professionals primarily associated with the real estate and mortgage industries . these professionals include local real estate and rental professionals , mortgage professionals and brand advertisers . our two revenue categories are marketplace revenue and display revenue . marketplace revenue . marketplace revenue for the year ended december 31 , 2015 consisted of real estate , mortgages , and market leader revenue .
| results of operations the following tables present our results of operations for the periods indicated and as a percentage of total revenue : replace_table_token_7_th 52 ( 3 ) see adjusted ebitda below for more information and for a reconciliation of adjusted ebitda to net loss , the most directly comparable financial measure calculated and presented in accordance with u.s. generally accepted accounting principles , or gaap . replace_table_token_8_th adjusted ebitda to provide investors with additional information regarding our financial results , we have disclosed adjusted ebitda within this annual report on form 10-k , a non-gaap financial measure . we have provided a reconciliation below of adjusted ebitda to net loss , the most directly comparable gaap financial measure . we have included adjusted ebitda in this annual report on form 10-k as it is a key metric used by our management and board of directors to measure operating performance and trends and to prepare and approve our annual budget . in particular , the exclusion of certain expenses in calculating adjusted ebitda facilitates operating performance comparisons on a period-to-period basis . our use of adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for analysis of our results as reported under gaap .
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the number of shares exercisable as of december 31 , 2012 , story_separator_special_tag you should read the following discussion in conjunction with selected financial data , our consolidated financial statements and the notes thereto , the cautionary notice regarding forward-looking statements , item 1a entitled risk factors and the other information appearing elsewhere , or incorporated by reference , in this annual report on form 10-k. background and overview we are an education services holding company that owns strayer university . strayer university is an institution of higher education which offers undergraduate and graduate degree programs at physical campuses , predominantly located in the eastern united states , and online . set forth below are average enrollment , full-time tuition rates , revenues , income from operations , net income , and diluted net income per share for the last three years . replace_table_token_8_th 47 strayer university derives approximately 96 % of its revenue from tuition for educational programs , whether delivered in person at a physical campus or delivered online . the academic year of the university is divided into four quarters , which approximately coincide with the four quarters of the calendar year . students make payment arrangements for the tuition for each course at the time of enrollment . tuition revenue is recognized in the quarter of instruction . if a student withdraws from a course prior to completion , the university refunds a portion of the tuition depending on when the withdrawal occurs . tuition revenue is shown net of any refunds , withdrawals , corporate discounts , employee tuition discounts and scholarships . the university also derives revenue from other sources such as textbook-related income , certificate revenue , certain academic fees , licensing revenue , and other income , which are all recognized when earned . we record tuition receivable and deferred revenue for our students upon the start of the academic term . because the university 's academic quarters coincide with the calendar quarters , at the end of the fiscal quarter ( and academic term ) , tuition receivable represents amounts due from students for educational services already provided and deferred revenue represents advance payments from students for academic services to be provided in the future . based upon past experience and judgment , the university establishes an allowance for doubtful accounts with respect to accounts receivable . any uncollected account more than one year past due is charged against the allowance . accounts less than one year past due are reserved according to the length of time the balance has been outstanding . in establishing our reserve amounts , we also consider the status of students as to whether or not they are currently enrolled for the next term , as well as the likelihood of recovering balances that have previously been written off , based on our historical experience . our bad debt expense as a percentage of revenues for the years ended december 31 , 2012 , 2013 , and 2014 , was 4.2 % , 4.4 % and 3.8 % , respectively . below is a description of the nature of the costs included in our operating expense categories : instruction and educational support expenses generally contain items of expense directly attributable to educational activities of the university . this expense category includes salaries and benefits of faculty and academic administrators , as well as administrative personnel who support and serve student interests . instruction and educational support expenses also include costs of educational supplies and facilities , including rent for campus facilities , certain costs of establishing and maintaining computer laboratories and all other physical plant and occupancy costs , with the exception of costs attributable to the corporate offices . bad debt expense incurred on delinquent student account balances is also included in instruction and educational support expenses . marketing expenses include the costs of advertising and production of marketing materials and related personnel costs . admissions advisory expenses include salaries , benefits and related costs of personnel engaged in admissions . general and administration expenses include salaries and benefits of management and employees engaged in accounting , human resources , legal , regulatory compliance , and other corporate functions , along with the occupancy and other related costs attributable to such functions . investment income consists primarily of earnings and realized gains or losses on investments , and interest expense consists of interest incurred on our outstanding borrowings , unused revolving credit facility fees , and amortization of deferred financing costs . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosures of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates and judgments related to its allowance for doubtful accounts ; income tax provisions ; the useful lives of property and equipment ; redemption rates for scholarship programs ; fair value of future contractual operating lease obligations for facilities that have been closed ; valuation of deferred tax 48 assets , goodwill , and intangible assets ; valuation of our interest rate swap arrangement ; forfeiture rates and achievability of performance targets for stock-based compensation plans ; and accrued expenses . management bases its estimates and judgments on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources . management regularly reviews its estimates and judgments for reasonableness and may modify them in the future . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag our experience is that payment of outstanding balances is significantly influenced by whether the student returns to the institution as we require students to make payment arrangements for their outstanding balances prior to enrollment . therefore , we monitor outstanding tuition receivable balances through subsequent terms , increasing the reserve on such balances over time as the likelihood of returning to the institution diminishes and our historical experience indicates collection is less likely . we periodically assess our methodologies for estimating bad debts in consideration of actual experience . if the financial condition of our students were to deteriorate , resulting in evidence of impairment of their ability to make required payments for tuition payable to us , additional allowances or write-offs may be required . during 2013 and 2014 , our bad debt expense was 4.4 % and 3.8 % of revenue , respectively . a change in our allowance for doubtful accounts of 1 % of gross tuition receivable as of december 31 , 2014 would have changed our income from operations by approximately $ 0.3 million . accrued lease and related costs we estimate potential sublease income and vacancy periods for space that is not in use , adjusting our estimates when circumstances change . if we enter into subleases at rates that are substantially different than our current estimates , we will adjust our liability for lease and related costs . in 2014 , we reduced our estimated liability for leases by approximately $ 4.1 million . other estimates we record estimates for certain of our accrued expenses and income tax liabilities . we estimate the useful lives of our property and equipment . we periodically assess goodwill and intangible assets for impairment . we assess the value of our interest rate swap arrangement every quarter . we periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary . should actual results differ from our estimates , revisions to our accrued expenses , carrying amount of goodwill and intangible assets , stock-based compensation expense , and income tax liabilities may be required . story_separator_special_tag division : div_10-k page position : 54 -- > general and administration expenses . general and administration expenses decreased $ 19.8 million , or 31 % , to $ 44.8 million in 2014 from $ 64.6 million in 2013 primarily due to lower personnel and facility costs following the restructuring in the fourth quarter of 2013 , when we incurred a charge of $ 18.2 million for lease abandonments , asset write-offs , and severance charges . general and administration expenses as a percentage of revenues decreased to 10.1 % for 2014 from 12.8 % in 2013. income from operations . income from operations increased $ 49.0 million , or 150 % , to $ 81.7 million in 2014 from $ 32.7 million in 2013. although we had $ 57.6 million less revenue in 2014 compared to 2013 , our operating expenses were significantly lower following the restructuring in the fourth quarter of 2013 , when we incurred a charge of $ 54.7 million , as discussed above . interest expense . interest expense decreased slightly to $ 5.2 million in 2014 from $ 5.4 million in 2013 , primarily due to lower average debt outstanding in 2014. provision for income taxes . income tax expense increased $ 19.4 million , or 179 % , to $ 30.3 million in 2014 from $ 10.9 million in 2013 , primarily due to the increase in income before income taxes attributable to the factors discussed above . our effective tax rate was 39.5 % for 2014 compared to 39.8 % for 2013 , reflecting the recognition of certain state tax benefits in 2014. we expect our tax rate for 2015 to be approximately 39.0 % . net income . net income increased $ 30.0 million to $ 46.4 million in 2014 from $ 16.4 million in 2013 due to the factors discussed above . year ended december 31 , 2013 compared to year ended december 31 , 2012 enrollment . average enrollment decreased 11 % to 43,969 students for the year ended december 31 , 2013 from 49,323 students for the same period in 2012. revenues . revenues decreased 10 % to $ 503.6 million in 2013 from $ 562.0 million in 2012 principally due to lower average enrollment . in late 2013 , we introduced a new pricing structure for new undergraduate students which could significantly reduce their cost of tuition . a shift in enrollment toward students eligible for the lower tuition will result in lower revenue per student in the future . instruction and educational support expenses . instruction and educational support expenses increased $ 10.3 million , or 3 % , to $ 310.4 million in 2013 from $ 300.1 million in 2012. this increase is primarily attributable to lease abandonments , asset write-offs , and severance charges of $ 36.2 million associated with the restructuring , partially offset by lower overall personnel-related costs due to lower average enrollment . these expenses as a percentage of revenues increased to 61.7 % in 2013 from 53.4 % in 2012. marketing expenses . marketing expenses increased $ 3.5 million , or 5 % , to $ 75.4 million in 2013 from $ 71.9 million in 2012. this increase is primarily due to the full year impact in 2013 of new markets opened during 2012. these expenses as a percentage of revenues increased to 15.0 % in 2013 from 12.8 % in 2012 , largely due to marketing expenses increasing while tuition revenues declined . admissions advisory expenses .
| results of operations in 2014 , we generated $ 446.0 million in revenue , an 11 % decrease compared to 2013 , primarily as a result of a decline in average enrollment of 8 % and a 3 % decline in revenue per student . income from operations was $ 81.7 million in 2014 , and includes approximately $ 4.1 million in adjustments to reduce our liability for losses on facilities no longer in use . income from operations in 2013 was $ 32.7 million , which includes $ 54.7 million in charges related to the company 's restructuring implemented in the fourth quarter of that year . net income in 2014 was $ 46.4 million , including approximately $ 2.6 million in after-tax benefits from adjustments to the company 's liability for facilities no longer in use , compared to $ 16.4 million for the same period in 2013 , which reflected approximately $ 33.0 million in after-tax charges related to the restructuring . diluted earnings per share was $ 4.35 compared to $ 1.55 for the same period in 2013. diluted earnings per share for 2014 includes $ 0.23 per share in after-tax earnings related to the reduction of the 50 company 's liability for losses on facilities no longer in use , and diluted earnings per share for 2013 reflects approximately $ 3.10 per share in after-tax charges related to the restructuring . key enrollment trends by quarter were as follows : replace_table_token_9_th although we do not know for sure why our enrollment trends and that of the proprietary higher education sector generally have been volatile , we believe that sustained levels of high unemployment ( even though declining recently ) , the resulting lower confidence in job prospects , competition , and the high cost of a college education are all contributing factors .
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under previous gaap , ambac generally amortized story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) contains certain financial measures , in particular the presentation of adjusted earnings and adjusted book value , which are not presented in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . we are presenting these non-gaap financial measures because they provide greater transparency and enhanced visibility into the underlying drivers of our business . we do not intend for these non-gaap financial measures to be a substitute for any gaap financial measures and they may differ from similar reporting provided by other companies . readers of this form 10-k should use these non-gaap financial measures only in conjunction with the comparable gaap financial measures . adjusted earnings and adjusted book value are non-gaap financial measures that adjust for the impact of certain non-recurring or non-economic gaap accounting requirements and include the addition of certain items that the company has or expects to realize in the future , but that are not reported under gaap . we provide reconciliations to the most directly comparable gaap measures ; adjusted earnings to net income attributable to common stockholders and adjusted book value to total ambac financial group , inc. stockholders ' equity . company overview see note 1. background and business description for a description of the company and our key strategies to achieve our primary goal to maximize shareholder value . story_separator_special_tag reinsurance in december 2019 for $ 228 million of par exposure , including $ 153 million of watch list credits ; completing work in january 2019 , with an issuer to refinance two watch list asset-backed lease securitizations with net par outstanding of $ 95 million at december 31 , 2018 ; a commutation in february 2019 , via a refunding , of an adversely classified public finance transaction with net par outstanding of $ 350 million at december 31 , 2018 ; working with an issuer and noteholders to negotiate the removal of the guarantee from a tranche of notes on a watch list credit in december 2019 with net par of $ 300 million outstanding at december 31 , 2018 ; working closely with servicers and owners of master servicing rights to exercise their clean-up call rights on several watch list and adversely classified rmbs transactions with total net par outstanding of $ 200 million at december 31 , 2018 ; and the final paydown , refunding , or partial commutation of various watch list exposures and adversely classified exposures that were subject to risk remediation efforts with total net par outstanding at december 31 , 2018 of $ 463 million . the following table provides a comparison of total , adversely classified credits ( `` acc '' ) and watch list net par outstanding in the insured portfolio at december 31 , 2019 and 2018 . ( see note 2. basis of presentation and significant accounting policies t o the consolidated financial statements , included in part ii , item 8 in this form 10-k for a description of adversely classified and watch list credits . ) net par exposures within the u.s. public finance market includes capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds . replace_table_token_7_th the overall reduction in total net par outstanding was significantly impacted by active de-risking initiatives at ambac assurance and ambac uk , including the transactions noted above , as well as scheduled maturities , amortizations , refundings and calls . the decrease in watch list and acc exposures is primarily due to active de-risking and paydowns or calls by issuers , mostly related to puerto rico , ballantyne , international asset-backed , public finance , aircraft asset-backed and residential mortgage-backed securities . although our insured portfolio generally performed satisfactorily in 2019 , we continue to experience stress in certain insured exposures , particularly within our approximately $ 1,123 million of exposure to puerto rico , consisting of several different issuing entities ( all below investment grade ) . each issuing entity has its own credit risk profile attributable to , as applicable , discrete revenue sources , direct general obligation pledges and or general obligation guarantees . during 2019 , ambac made partial paydowns of the ambac note ( as defined in note 1. background and business description t o the consolidated financial statements , included in part ii , item 8 in this form 10-k ) by $ 178 million . | ambac financial group , inc. 27 2019 form 10-k | afg as of december 31 , 2019 net assets of afg were $ 483 million . replace_table_token_8_th ( 1 ) includes surplus notes ( fair value of $ 63 ) issued by ambac assurance that are eliminated in consolidation . ( 2 ) includes accruals for tolling payments from ambac assurance in accordance with the intercompany tax sharing agreement of $ 28 . as a result of positive taxable income at ambac assurance in 2017 , afg has accrued approximately $ 28 million in tax tolling payments . in may 2018 , afg executed a waiver under the intercompany tax sharing agreement pursuant to which ambac assurance was relieved of the requirement to make this payment by june 1 , 2018. afg also agreed to continue to defer the tolling payment for the use of net operating losses in 2017 by ambac assurance until such time as oci ( as defined in note 1. background and business description t o the consolidated financial statements , included in part ii , item 8 in this form 10-k ) consents to the payment . story_separator_special_tag the loss reserves for transactions which have no direct issuer support , such as most structured finance exposures , including rmbs and student loan exposures , are derived from the default activity and loss given default of underlying collateral supporting the transactions . in addition , many transactions have a combination of issuer/entity and collateral support . loss reserves reflect our assessment of the transaction 's overall structure , support and expected performance . loss reserve volatility will be a direct result of the credit performance of our insured portfolio , including the number , size , bond types and quality of credits included in our loss reserves ; our ability to execute workout strategies and commutations ; economic and market conditions ; and management 's judgments with regards to the current performance and future developments within the insured portfolio . the number and severity of credits included in our loss reserves depend to a large extent on transaction specific attributes , but will generally increase during periods of economic stress and decline during periods of economic prosperity . reinsurance contracts mitigate our loss reserves but since ambac currently has minimal exposure ceded to reinsurers on credits with loss reserves , the existing reinsurance contracts are unlikely to have a significant effect on loss reserve volatility . loss reserve volatility will also be materially impacted by changes in interest rates from period to period . the table below indicates the gross par outstanding and gross loss reserves ( including loss expenses ) related to policies in ambac 's loss and loss expense reserves at december 31 , 2019 and 2018 : replace_table_token_9_th ( 1 ) ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves are $ 511 and $ 26 respectively , at december 31 , 2019 and $ 540 and $ 23 , respectively at december 31 , 2018 . ceded loss and loss expense reserves are included in reinsurance recoverable on paid and unpaid losses . ( 2 ) gross par outstanding includes capital appreciation bonds , which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bond . ( 3 ) loss and loss expense reserves at december 31 , 2019 of $ ( 482 ) are included in the balance sheet in the following line items : loss and loss expense reserves : $ 1,548 and subrogation recoverable : $ 2,029 . loss and loss expense reserves at december 31 , 2018 of $ ( 107 ) are included in the balance sheet in the following line items : loss and loss expense reserves : $ 1,826 and subrogation recoverable : $ 1,933 . ( 4 ) ambac records as a component of its loss and loss expense reserves , estimated recoveries related to securitized loans in rmbs transactions that breached certain representations and warranties . ambac has recorded gross estimated recoveries of $ 1,727 and $ 1,771 at december 31 , 2019 and 2018 , respectively . see note 2. basis of presentation and significant accounting policies t o the consolidated financial statements , included in part ii , item 8 in this form 10-k for a description of the cash flow and statistical methodologies used to develop loss reserves . most of our reserved credits with large loss reserves utilize the cash flow method of reserving . alternative cash flow scenarios are developed to represent the range of possible outcomes and resultant future claim payments and timing . scenarios and probabilities of each are adjusted regularly to reflect changes in status , outlook and our analysis and views . significant judgment is used to develop the cash flow assumptions and related probabilities , and there can be no certainty that the scenarios or probabilities will not deviate materially from ultimate outcomes . in some cases , such as rmbs and student loans , cash flow projections include the modeling of an issuer or transaction 's future revenues and expenses to determine the resources available to pay debt service on our insured obligations . with respect to rmbs , a component of our loss reserve estimate includes subrogation recoveries related to securitized loans in such transactions that breached certain representations and warranties ( `` r & w '' ) . in other cases , such as many public finance exposures including our puerto rico exposures , we consider the issuers ' overall ability and willingness to pay , as it relates to the existing fiscal , economic , legal , restructuring and or political framework relevant to a particular exposure or group of exposures . we then develop multiple scenarios where issuer debt service is paid , missed and or haircut with claims paid then modeled for any recovery amount and timing . there is no certainty our assumptions as to scenarios or probabilities will not be subject to material changes as developments occur . | ambac financial group , inc. 29 2019 form 10-k | in estimating loss reserves , we also incorporate scenarios which represent the potential outcome of remediation strategies . remediation scenarios may include ( i ) a potential refinancing of the transaction by the issuer ; ( ii ) the issuer 's ability to redeem outstanding securities at a discount , thereby increasing the structure 's ability to absorb future losses ; and ( iii ) our ability to terminate , restructure or commute the policy in whole or in part . the remediation scenarios and the related probabilities of occurrence vary by policy depending on ongoing and expected discussions and negotiations with issuers and or investors . in addition to commutation negotiations that are underway with various counterparties in various forms , our reserve estimates may also include scenarios which incorporate our ability and or expectation to commute additional exposure with other counterparties . valuation of certain financial instruments the fair value measurement topic of the asc requires financial instruments to be classified within a three-level fair value hierarchy .
| executive summary ambac assurance and subsidiaries a key strategy for afg is to increase the value of its investment in ambac assurance by actively managing its assets and liabilities . asset management primarily entails maximizing the risk adjusted return on non-vie invested assets and managing liquidity to help ensure resources are available to meet operational and strategic cash needs . these strategic cash needs include activities associated with ambac 's liability management and loss mitigation programs . asset management investment portfolios are subject to internal investment guidelines , as well as limits on types and quality of investments imposed by applicable insurance laws and regulations . as part of its investment strategy , and in accordance with the aforementioned guidelines , ambac assurance and ambac assurance uk limited ( `` ambac uk '' ) , purchase distressed ambac-insured securities based on their relative risk/reward characteristics . the investment portfolios of ambac assurance and ambac uk also hold fixed income securities and various pooled investment funds . refer to note 10. investments to the consolidated financial statements , included in part ii , item 8 in this form 10-k for further details of fixed income investments by asset category and pooled investment funds by investment type . during the year ended december 31 , 2019 , ambac did not acquire a significant amount of distressed ambac-insured securities . at december 31 , 2019 , ambac owned $ 436 million of distressed | ambac financial group , inc. 26 2019 form 10-k | ambac-insured bonds , including $ 158 million of puerto rico bonds and excluding ambac 's holdings of secured notes issued by ambac lsni ( the `` secured notes '' ) in connection with the rehabilitation exit transactions ( as defined in note 1. background and business description to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k ) .
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overview ruth 's hospitality group , inc. is a leading restaurant company focused on the upscale dining segment . ruth 's hospitality group , inc. and its subsidiaries ( the company ) operate ruth 's chris steak house , mitchell 's fish market and cameron 's steakhouse restaurants and sell franchise rights to ruth 's chris steak house franchisees giving the franchisees the exclusive right to operate similar restaurants in a particular location designated in the franchise agreement . as december 29 , 2013 , there were 161 restaurants operating , including 85 company owned restaurants , 75 franchisee-owned restaurants and one restaurant operating under a management agreement . the ruth 's chris menu features a broad selection of high-quality usda prime- and choice-grade steaks and other premium offerings served in ruth 's chris ' signature fashion— “ sizzling ” and topped with butter—complemented by other traditional menu items inspired by our new orleans heritage . the ruth 's chris restaurants reflect the almost 50-year commitment to the core values instilled by our founder , ruth fertel , of caring for our guests by delivering the highest quality food , beverages and service in a warm and inviting atmosphere . we believe that ruth 's chris is one of the strongest brands in the upscale steakhouse category . our ruth 's chris restaurants cater to special occasion diners and frequent customers , in addition to the business clientele traditionally served by upscale steakhouses , by providing a dining experience designed to appeal to a wide range of guests . we believe our focus on creating this broad appeal provides us with opportunities to expand into a wide range of markets , including many markets not traditionally served by upscale steakhouses . we offer usda prime- and choice-grade steaks that are aged and prepared to exact company standards and cooked in 1,800-degree broilers . we also offer veal , lamb , poultry and seafood dishes and a broad selection of appetizers . we complement our distinctive food offerings with an award-winning wine list . during the fiscal year ended december 29 , 2013 , the average check was $ 73.00 per person . 21 all company-owned restaurants are located in the united states . the franchisee-owned restaurants include eighteen international franchisee-owned restaurants in aruba , canada , china ( hong kong and shanghai ) , el salvador , japan , mexico , singapore , taiwan and the united arab emirates . four new ruth 's chris steak house locations opened in fiscal year 2013 , including a second franchise restaurant located in san juan in april 2013 , a franchise restaurant located in chattanooga , tn in july 2013 , a franchise restaurant in shanghai in december 2013 and a franchise restaurant in early 2013 in las vegas , nv under a licensing agreement with harrah 's casino under which we receive a fee based on a percentage of sales . due to an expiring lease term , we closed our company-owned ruth 's chris steak house restaurant in phoenix , az on march 31 , 2013. our ruth 's chris steak house in houston , tx was relocated in july 2013. a franchise restaurant located in dubai was closed in july 2013. we are currently targeting to open four new company-owned ruth 's chris steak house restaurants during the next twelve months – one each in denver , co , dallas , tx , gaithersburg , md and los angeles , ca . we expect that franchisees will open three to four new restaurants during 2014. in february 2014 , we acquired the franchisee-owned restaurant located in austin , texas . due to an expiring lease term , in march 2014 we are closing the ruth 's chris steak house in kansas city , mo after 17 years of operation . kansas city will remain one of the areas that we will evaluate for opportunities for future ruth 's chris steak house restaurants . due to local market conditions and disappointing financial results , we have negotiated an early termination of the stamford , ct mitchell 's fish market facility lease . the stamford restaurant , which opened in 2007 , is closing in march 2014. in january 2013 , we signed an agreement with the ko group for the development of four new franchised ruth 's chris steak house restaurants to be opened in the people 's republic of china over the next three years . the shanghai restaurant which opened in december 2013 was the first restaurant opened under this agreement . the ko group has had success as an existing franchisee , with seven restaurants in hong kong , japan , taiwan and singapore . the company operates nineteen mitchell 's fish markets and three cameron 's steakhouse restaurants , located primarily in the midwest and florida . on february 19 , 2008 , we completed the acquisition of the operating assets and intellectual property of mitchell 's fish market , operating under the names mitchell 's fish market and columbus fish market , and cameron 's steakhouse , operating under the names cameron 's steakhouse and mitchell 's steakhouse from cameron mitchell restaurants , llc . there are currently nineteen mitchell 's fish markets and three cameron 's steakhouse 's with restaurants in the midwest , northeast and florida . mitchell 's fish market is an award-winning , upscale yet comfortable , seafood restaurant and bar recognized for its high-quality food , contemporary dining atmosphere , and excellent service . we believe that mitchells ' focus on upscale casual dining complements the ruth 's chris brand . mitchell 's fish market is committed to serving the freshest seafood . although the menu changes frequently based on availability and season , it includes more than 60 seafood dishes , including fish from all over the world . during the fiscal year ended december 29 , 2013 , the average check was $ 36.50 per person . accounting change the portion of gift cards sold to customers which are never redeemed is commonly referred to as gift card breakage . story_separator_special_tag comparable restaurant sales growth is primarily influenced by customer traffic , which is measured by the number of entrées sold , and the average guest check . customer traffic is influenced by the popularity of our menu items , our guest mix , our ability to deliver a high-quality dining experience and overall economic conditions . average guest check , a measure of total restaurant sales divided by the number of entrées , is driven by menu mix and pricing . franchise income . franchise income includes ( 1 ) franchise and development option fees charged to franchisees and ( 2 ) royalty income . franchise royalties consist of 5.0 % of adjusted gross sales from each franchisee-owned restaurant . in addition , our more recent franchise agreements require up to a 1 % advertising fee to be paid by the franchisee , which is applied to national advertising expenditures . under our prior franchise agreements , the company would pay 1 % out of the 5 % royalty toward national advertising . we evaluate the performance of our franchisees by measuring franchisee-owned restaurant operating weeks , which is impacted by franchisee-owned restaurant openings and closings , and comparable franchisee-owned restaurant sales growth , which together with operating weeks , drives royalty income . other operating income . other operating income consists primarily of breakage income associated with gift cards , and also includes fees earned from a management agreement , banquet-related guarantee and services revenue and other incidental guest fees . food and beverage costs . food and beverage costs include all restaurant-level food and beverage costs of company-owned restaurants . we measure food and beverage costs by tracking cost of sales as a percentage of restaurant sales and cost per entrée . food and beverage costs are generally influenced by the cost of food and beverage items , distribution costs and menu mix . restaurant operating expenses . we measure restaurant-operating expenses for company-owned restaurants as a percentage of restaurant sales . restaurant operating expenses include the following : labor costs , consisting of restaurant management salaries , hourly staff payroll and other payroll-related items , including taxes and fringe benefits . we measure our labor cost efficiency by tracking hourly and total labor costs as a percentage of restaurant sales ; operating costs , consisting of maintenance , utilities , bank and credit card charges , and any other restaurant-level expenses ; and occupancy costs , consisting of both fixed and variable portions of rent , common area maintenance charges , insurance premiums and real property taxes . marketing and advertising . marketing and advertising includes all media , production and related costs for both local restaurant advertising and national marketing . we measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues . we have historically spent approximately 2.5 % to 4.0 % of total revenues on marketing and advertising and expect to maintain this level in the near term . all franchise agreements executed based on our new form of franchise agreement include up to a 1.0 % advertising fee in addition to the 5.0 % royalty fee . we spend this designated advertising fee on national advertising and record these fees as liabilities against which specified advertising and marketing costs will be charged . 23 general and administrative . general and administrative costs include costs relating to all corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company and franchisee growth . general and administrative costs are comprised of management , supervisory and staff salaries and employee benefits , travel , performance-based compensation , information systems , training , corporate rent , professional and consulting fees , technology and market research . we measure our general and administrative expense efficiency by tracking these costs as a percentage of total revenues . depreciation and amortization . depreciation and amortization includes depreciation of fixed assets and certain definite life intangible assets . we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . pre-opening costs . pre-opening costs consist of costs incurred prior to opening a company-owned restaurant , which are comprised principally of manager salaries and relocation costs , employee payroll and related training costs for new employees , including practice and rehearsal of service activities as well as lease costs incurred prior to opening . 24 story_separator_special_tag times new roman , times , serif ; font-size : 10pt '' > food and beverage costs . food and beverage costs increased $ 397 thousand , or 0.3 % , to $ 120.6 million during fiscal year 2013 from fiscal year 2012. food and beverage costs , as a percentage of restaurant sales , decreased 69 basis points to 31.1 % compared to fiscal year 2012 due to a cumulative menu pricing increase of 2.0 % , partially offset by higher beef costs . restaurant operating expenses . restaurant operating expenses increased $ 3.8 million , or 2.0 % , to $ 194.5 million during fiscal year 2013 from fiscal year 2012. restaurant operating expenses , as a percentage of restaurant sales , decreased 28 basis points to 50.1 % largely due to leveraging higher sales on fixed costs . marketing and advertising . marketing and advertising expenses increased $ 495 thousand to $ 11.7 million during fiscal year 2013 from fiscal year 2012. the increase in marketing and advertising expenses during fiscal year 2013 was attributable to planned advertising spending . general and administrative . general and administrative expenses increased $ 2.1 million to $ 30.4 million during fiscal year 2013 from fiscal year 2012 , primarily due to a $ 2.2 million increase in performance-based compensation . depreciation and amortization expenses . depreciation and amortization expense decreased $ 1.5 million to $ 13.1 million during fiscal year 2013 , primarily due to certain property and equipment becoming fully depreciated . loss on impairment and asset disposals .
| results of operations the table below sets forth certain operating data expressed as a percentage of restaurant sales and total revenues for the periods indicated . our historical results are not necessarily indicative of the operating results that may be expected in the future . certain prior year amounts have been reclassified to conform to the current year presentation of discontinued operations . replace_table_token_9_th 25 segment profitability replace_table_token_10_th segment profitability information is presented in note 4 of the consolidated financial statements . not all operating expenses are allocated to operating segments . the ruth 's chris steak house , mitchell 's fish market and cameron 's steakhouse restaurant concepts in north america are managed as operating segments . the concepts operate within the full-service dining industry , providing similar products to similar customers . for financial reporting purposes , the ruth 's chris steak house and cameron 's steakhouse restaurants are both included in the company-owned steakhouse restaurant segment . the company-owned fish market restaurant segment consists entirely of mitchell 's fish market restaurants . the franchise operations are reported as a separate operating segment . no costs are allocated to the franchise operations segment . fiscal year 2013 segment profits for the company-owned steakhouse restaurant segment increased by $ 5.7 million to $ 68.6 million from fiscal year 2012. the increase was driven by increased revenues . fiscal year 2013 segment profits for the company-owned fish market restaurant segment decreased by $ 477 thousand to $ 6.4 million from fiscal year 2012 due to a decrease in revenues . it is noteworthy that because fiscal year 2013 included 52 weeks whereas fiscal year 2012 included 53 weeks , fiscal year 2012 benefited from one more week of sales . the $ 1.2 million increase in franchise operations segment profitability to $ 15.0 million is attributable to eight new locations which opened in 2013 and 2012 and an increase in comparable franchise restaurant sales .
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the valuation of level 2 is based on quoted prices for similar assets and liabilities in active markets that are observable either story_separator_special_tag financial condition and results of operations ( dollars in millions , except per share data ) business overview we manufacture alloy steel , as well as carbon and micro-alloy steel , with an annual melt capacity of approximately 2 million tons and shipment capacity of 1.5 million tons . our portfolio includes special bar quality ( sbq ) bars , seamless mechanical tubing ( tubes ) , value-add solutions such as precision steel components , and billets . in addition , we supply machining and thermal treatment services and manage raw material recycling programs , which are used as a feeder system for our melt operations . our products and services are used in a diverse range of demanding applications in the following market sectors : oil and gas ; octg ; automotive ; industrial equipment ; mining ; construction ; rail ; aerospace and defense ; heavy truck ; agriculture ; and power generation . based on our knowledge of the steel industry , we believe we are the only focused sbq steel producer in north america and have the largest sbq steel large bar ( 6-inch diameter and greater ) production capacity among north american steel producers . in addition , we are the only steel manufacturer able to produce rolled sbq steel large bars up to 16-inches in diameter . sbq steel is made to restrictive chemical compositions and high internal purity levels and is used in critical mechanical applications . we make these products from nearly all recycled steel , using our expertise in raw materials to create custom steel products . we focus on creating tailored products and services for our customers ' most demanding applications . our engineers are experts in both materials and applications , so we can work closely with each customer to deliver flexible solutions related to our products as well as to their applications and supply chains . we believe our unique operating model and production assets give us a competitive advantage in our industry . the sbq bar , tube , and billet production processes take place at our canton , ohio manufacturing location . this location accounts for all of the sbq bars , seamless mechanical tubes and billets we produce and includes three manufacturing facilities : the faircrest , harrison , and gambrinus facilities . our value-add solutions production processes take place at three downstream manufacturing facilities : timkensteel material services ( houston , texas ) , tryon peak ( columbus , north carolina ) , and st. clair ( eaton , ohio ) . many of the production processes are integrated , and the manufacturing facilities produce products that are sold in all of our market sectors . as a result , investments in our facilities and resource allocation decisions affecting our operations are designed to benefit the overall business , not any specific aspect of the business . we conduct our business activities and report financial results as one business segment . the presentation of financial results as one reportable segment is consistent with the way we operate our business and is consistent with the manner in which the codm evaluates performance and makes resource and operating decisions for the business as described above . furthermore , the company notes that monitoring financial results as one reportable segment helps the codm manage costs on a consolidated basis , consistent with the integrated nature of our operations . markets we serve we sell products and services that are used in a diverse range of demanding applications around the world . no one customer accounted for 10 % or more of net sales in 2018 . key indicators for our market include the u.s. light vehicle production seasonally adjusted annual rate , oil and gas rig count activity and u.s. footage drilled , and industrial production for agriculture and construction markets , distribution , and mining and oil field machinery products . in addition , we closely monitor the purchasing managers ' index , which is a leading indicator for our overall business . impact of raw material prices and lifo in the ordinary course of business , we are exposed to the volatility of the costs of our raw materials . whenever possible , we manage our exposure to commodity risks primarily through the use of supplier pricing agreements that enable us to establish the purchase prices for certain inputs that are used in our manufacturing process . we utilize a raw material surcharge mechanism when pricing products to our customers which is designed to mitigate the impact of increases or decreases in raw material costs , although generally with a lag effect . this timing effect can result in raw material spread whereby costs can be over- or under-recovered in certain periods . while the surcharge generally protects gross profit , it has the effect of diluting gross margin as a percent of sales . we value a majority of our inventory utilizing the lifo inventory valuation method . changes in the cost of raw materials and production activities are recognized in cost of products sold in the current period even though these materials and other costs 21 may have been incurred in different periods at significantly different values due to the length of time of our production cycle . in periods of rising inventories and deflating raw material prices , the likely result will be a positive impact to net income . conversely , in periods of rising inventories and increasing raw materials prices , the likely result will be a negative impact to net income . story_separator_special_tag replace_table_token_6_th other expense , net was $ 18.6 million for the year ended december 31 , 2018 compared to expense of $ 4.1 million and $ 68.0 million for the years ended december 31 , 2017 and december 31 , 2016. the variance is primarily due to the change in the loss from remeasurement of benefit plans . story_separator_special_tag the availability of borrowings may be further modified by reserves established from time to time by the administrative agent in its permitted discretion . the interest rate per annum applicable to loans under the amended credit agreement will be , at our option , equal to either ( i ) the alternate base rate plus the applicable margin or ( ii ) the relevant adjusted libo rate for an interest period of one , two , three or six months ( as selected by the company ) plus the applicable margin . the base rate will be a fluctuating rate per annum equal to the greatest of ( i ) the prime rate of the administrative agent , ( ii ) the effective federal reserve bank of new york rate plus 0.50 % and ( iii ) the adjusted libo rate for a one-month interest period on the applicable date , plus 1.00 % . the adjusted libo rate will be equal to the applicable london interbank offered rate for the selected interest period , as adjusted for statutory reserve requirements for eurocurrency liabilities . the applicable margin will be determined by a pricing grid based on our average quarterly availability . in addition , we will pay a commitment fee on the average daily unused amount of the credit facility in a percentage determined by our average daily availability for the most recently completed calendar month . the interest rate under the amended credit agreement was 4.4 % as of december 31 , 2018 . the amount available under the amended credit agreement as of december 31 , 2018 was approximately $ 182.4 million . the amended credit agreement matures on january 26 , 2023. prior to the maturity date , amounts outstanding are required to be repaid ( without reduction of the commitments thereunder ) from mandatory prepayment events from the proceeds of certain asset sales , equity or debt issuances or casualty events . the amended credit agreement contains certain customary covenants , including covenants that limit the ability of the company and its subsidiaries to , among other things , ( i ) incur or suffer to exist certain liens , ( ii ) make investments , ( iii ) incur or guaranty additional indebtedness , ( iv ) enter into consolidations , mergers , acquisitions , sale-leaseback transactions and sales of assets , ( v ) make distributions and other restricted payments , ( vi ) change the nature of its business , ( vii ) engage in transactions with affiliates and ( viii ) enter into restrictive agreements , including agreements that restrict the ability to incur liens or make distributions . in addition , the amended credit agreement requires us to ( i ) unless certain conditions are met , maintain certain minimum liquidity as specified in the amended credit agreement during the period commencing on march 1 , 2021 and ending on june 1 , 29 2021 and ( ii ) maintain a minimum specified fixed charge coverage ratio on a springing basis if minimum availability requirements as specified in the amended credit agreement are not maintained . the amended credit agreement contains certain customary events of default . if any event of default occurs and is continuing , the lenders would be entitled to take various actions , including the acceleration of amounts due under the amended credit agreement , and exercise other rights and remedies . as of december 31 , 2018 , we were in compliance with the covenants of the amended credit agreement . we expect to remain in compliance with our debt covenants for at least the next twelve months . if at any time we expect that we will be unable to meet the covenants under the amended credit agreement , we would seek to further amend the amended credit agreement to be in compliance and avoid a default or pursue other alternatives , such as additional financing . if , contrary to our expectations , we were unable to amend the terms of our amended credit agreement to remain in compliance or refinance the debt under the amended credit agreement , we would experience an event of default and all outstanding debt under the revolving credit facility would be subject to acceleration and may become immediately due and payable . for additional discussion regarding risk factors related to our business and our debt , see risk factors in this annual report on form 10-k. revenue refunding bonds in connection with entering into the amended credit agreement , on january 23 , 2018 , we redeemed in full $ 12.2 million of ohio water development revenue refunding bonds ( originally due on november 1 , 2025 ) , $ 9.5 million of ohio air quality development revenue refunding bonds ( originally due on november 1 , 2025 ) and $ 8.5 million of ohio pollution control revenue refunding bonds ( originally due on june 1 , 2033 ) . additional liquidity considerations the following represents a summary of key liquidity measures under the amended credit agreement as of december 31 , 2018 and the credit agreement as of december 31 , 2017 : replace_table_token_10_th our principal sources of liquidity are cash and cash equivalents , cash flows from operations and available borrowing capacity under our amended credit agreement . we currently expect that our cash and cash equivalents on hand , expected cash flows from operations and borrowings available under the amended credit agreement will be sufficient to meet liquidity needs ; however , these plans rely on certain underlying assumptions and estimates that may differ from actual results . such assumptions include growing market demand , lower operating costs and continued working capital management .
| results of operations net sales the charts below present net sales and shipments for the years 2018 , 2017 , and 2016. net sales for the year ended december 31 , 2018 were $ 1,610.6 million , an increase of $ 281.4 million or 21.2 % compared to the year ended december 31 , 2017 . excluding surcharges , net sales increased $ 167.4 million , or 16.1 % . the increase was due to favorable price/mix of approximately $ 107 million and higher volumes of approximately $ 61 million , as we focused efforts to sell our higher margin products . this resulted in net sales per ton increasing 16.2 % from 2017. for the year ended december 31 , 2018 , ship tons increased by 49 thousand tons , or 4.3 % , compared to the year ended december 31 , 2017 , due primarily to higher demand in industrial and energy end markets , partially offset by a reduction in billet shipments . net sales for the year ended december 31 , 2017 were $ 1,329.2 million , an increase of $ 459.7 or 52.9 % compared to the year ended december 31 , 2016 . excluding surcharges , net sales increased $ 262.1 million , or 33.8 % . the increase was due to higher volumes of $ 441.0 million , offset by price/mix of approximately $ 179 million . for the year ended december 31 , 2017 , ship tons increased by 403 thousand tons or 54.0 % compared to the year ended december 31 , 2016 , due primarily to market penetration , end-market demand recovery and sales initiatives , including 211 thousand tons of new billet business to the tube manufacturers supplying the octg market . 22 gross profit gross profit for the year ended december 31 , 2018 increased $ 37.1 million , or 54.7 % , compared to the year ended december 31 , 2017 .
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in particular , the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements . these forward-looking statements can be identified by the use of words such as “ believes , ” “ estimates , ” “ could , ” “ possibly , ” “ probably , ” “ anticipates , ” “ projects , ” “ expects , ” “ may , ” “ will , ” or “ should ” or other variations or similar words . no assurance can be given that the future results anticipated by the 39 forward-looking statements will be achieved . forward-looking statements reflect management 's current expectations and are inherently uncertain . our actual results may differ significantly from management 's expectations . the following discussion and analysis should be read in conjunction with our financial statements , included herewith . this discussion should not be construed to imply that the results discussed herein will necessarily continue into the future , or that any conclusion reached herein will necessarily be indicative of actual operating results in the future . such discussion represents only the best present assessment of our management . overview we are focused on developing and commercializing our precision cancer monitoring technology , which can inform oncologists and guide treatment decisions by determining a tumor 's mutational status and enabling physicians to track therapeutic response and resistance over time . we are expanding the body of clinical evidence supporting our urine-based cell-free molecular diagnostic platform through collaborations with major cancer treatment centers and integrated healthcare networks . we expect that the benefits of our precision cancer monitoring technology will become more apparent in terms of its clinical utility and impact on patient outcomes . our intellectual property estate protecting our technology includes methods of extracting , purifying , preparing , and detecting cell-free dna and rna mutations in urine . through december 31 , 2015 , our cumulative total deficit was $ 108,887,243 . to date , we have generated minimal revenues and expect to incur additional losses to perform further research and development activities and commercial expansion . during 2015 , we advanced our business with the following activities : we formed the trovagene research institute in europe with alberto bardelli , ph.d. , an internationally recognized leader in cell-free dna cancer research , and currently affiliated with the department of oncology , torino medical school and the candiolo cancer institute in italy . we appointed dr. bardelli as the scientific director and transferred core technologies from the university of torino . trovagene research institute intends to improve cancer care through advanced genomic solutions with the mission of accelerating adoption of our pcm platform in translational research and clinical applications . clinical study results were presented by hatim husain , m.d. , from the university of california , san diego moores cancer center at the 2015 european lung cancer conference . in that study , our urinary ctdna assay identified 100 % of tissue biopsy confirmed egfr t790m mutations ( n=10 ) in metastatic lung cancer patients . our assay also detected t790m mutations in three subjects that dr. husain speculated may have been tissue biopsy false negatives . in addition , data from the study suggest that our assay may be capable of detecting cancer progression earlier than standard imaging and may be useful in determining patient response to novel egfr t790m inhibitors . clinical study results from a second large-scale clinical trial for our urine-based hpv test were presented by adriana lorenzi , a research fellow at the institute of education and research and molecular oncology research center , barretos cancer hospital - pio xii foundation , barretos , brazil at the 30th international papillomavirus conference . in the trial , urine samples collected from women prior to treatment of cervical pre-cancer lesions ( referral population ) were tested with our hpv hr test , and results were compared to roche 's cobas® hpv test results from cervical samples . the trial results were consistent with previously reported predictors 4 data , which demonstrated that sensitivity with our hpv hr test for the detection of cervical intraepithelial neoplasia grade two or higher ( “ cin2+ ” ) and grade three or higher ( “ cin3+ ” ) were comparable to other established cervical cancer screening tests . in the brazilian cohort , 271 cases of cin2+ and 202 cases of cin3+ disease were tested . clinical study results for our pcm platform were presented by julia johansen , m.d . at herlev hospital , copenhagen , and hatim husain , m.d. , from the university of california , san diego moores cancer center at the european cancer congress . results demonstrated that quantitative detection and monitoring of ctdna and driver mutations can be used to rapidly detect treatment response . we completed an underwritten public offering of 4,600,000 shares of common stock with net proceeds of approximately $ 37.4 million in july 2015. we entered into a clinical collaboration with memorial sloan kettering cancer center to monitor response to immunotherapy in melanoma patients using our pcm platform . 40 we launched our “ yellow is the new red ” marketing campaign for our pcm service at the 2015 american society of clinical oncology annual meeting . the campaign is centered on our clinical experience program , in which qualified oncologists can gain hands on clinical experience with our proprietary urinary liquid biopsy tests . we completed an underwritten public offering of 5,111,110 shares of common stock with net proceeds of approximately $ 21.3 million in february 2015. we recruited matthew posard to our executive management team as chief commercial officer to lead our commercial operations . we entered into a clinical collaboration with university of california , san diego moores cancer center to determine the utility of detecting and monitoring egfr mutations in lung cancer patients using our pcm platform . story_separator_special_tag such warrants are classified as derivative liabilities under the provisions of the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 815 , derivatives and hedging ( “ asc 815 ” ) and are recorded at their fair market value as of each reporting period . such warrants do not meet the exemption that a contract should not be considered a derivative instrument if it is ( 1 ) indexed to its own stock and ( 2 ) classified in stockholders ' equity . changes in fair value of derivative liabilities are recorded in the consolidated statement of operations under the caption “ change in fair value of derivative instruments. ” the fair value of warrants is determined using the black-scholes option-pricing model using assumptions regarding volatility of our common stock price , remaining life of the warrant , and risk-free interest rates at each period end . therefore we use model-derived valuations where inputs are observable in active markets to determine the fair value and accordingly classify such warrants in level 3 per asc topic 820 , fair value measurements and disclosures ( “ asc 820 ” ) . at december 31 , 2015 and 2014 , the fair value of such warrants was $ 3,297,077 and $ 3,006,021 , respectively , which is included in the derivative financial instruments ' liability on our balance sheet . 42 cost of revenue cost of revenue represents the cost of materials , personnel costs and costs associated with processing specimens including pathological review , quality control analyses , and delivery charges necessary to render an individualized test result . costs associated with performing tests are recorded as the tests are processed . research and development research and development expense , which includes expenditures in connection with an in-house research and development laboratory , salaries and staff costs , application and filing for regulatory approval of proposed products , regulatory and scientific consulting fees and clinical samples , as well as clinical collaborators and insurance , are accounted for in accordance with fasb asc topic 730-10-55-2 , research and development . also , as prescribed by this guidance , patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense . we are providing the following summary of our research and development expense to supplement the more detailed discussions under “ results of operations ” below . costs are not allocated to projects as the majority of the costs relate to employees and facilities costs and we do not track employees ' hours by project or allocate facilities costs on a project basis . replace_table_token_3_th while certain of our research and development costs may have future benefits , our policy of expensing all research and development expenditures is predicated on the fact that we have no history of successful commercialization of molecular diagnostic products to base any estimate of the number of future periods that would be benefited . fasb asc topic 730 , research and development requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized . as the related goods are delivered or the services are performed , or when the goods or services are no longer expected to be provided , the deferred amounts are recognized as an expense . there are no non-refundable advance payments that are deferred and capitalized as of december 31 , 2015 , 2014 and 2013 . stock-based compensation we rely heavily on incentive compensation in the form of stock options to recruit , retain and motivate directors , executive officers , employees and consultants . incentive compensation in the form of stock options and warrants is designed to provide long-term incentives , develop and maintain an ownership stake and conserve cash . stock-based compensation expense for employees and directors is recognized in the statement of operations based on estimated amounts , including the grant date fair value and the expected service period . for stock options , we estimate the grant date fair value using a black-scholes model . stock-based compensation recorded in our statement of operations is based on awards expected to ultimately vest and has been reduced for estimated forfeitures . we recognize the value of the awards on a straight-line basis over the awards ' requisite service periods . the requisite service period is generally the time over which our stock-based awards vest . we account for equity instruments granted to non-employees in accordance with fasb asc topic 505-50 “ equity-based payment to non-employees ” , where the value of the stock-based compensation is based upon the measurement date as determined at either : ( 1 ) the date at which a performance commitment is reached , or ( 2 ) the date at which the necessary performance to earn the equity instruments is complete . accordingly , the fair value of these options is being “ marked to market ” quarterly until the measurement date is determined . fair value of financial instruments financial instruments consist of cash and cash equivalents , accounts receivable , accounts payable , debt and derivative liabilities . we have adopted asc 820 for financial assets and liabilities that are required to be measured at fair value and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis . these financial instruments 43 are stated at their respective historical carrying amounts , which approximate fair value due to their short term nature as they reflect current market interest rates . debt is stated at its respective historical carrying amounts , which approximate fair value as they reflect current market interest rates . asc 820 provides that the measurement of fair value requires the use of techniques based on observable and unobservable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions .
| results of operations years ended december 31 , 2015 and 2014 revenues our total revenues were $ 312,812 and $ 280,178 for the years ended december 31 , 2015 and 2014 , respectively . total revenues consisted of the following : replace_table_token_4_th the $ 4,470 increase in royalty income in the year ended december 31 , 2015 is primarily a result of certain licensees ' payments exceeding their minimum royalties as compared to the prior year . according to our revenue recognition policy , we do not record royalty revenues in excess of minimum royalty amounts until we have received payment of such royalties . in the year ended december 31 , 2014 , we received a $ 10,000 license fee related to a licensing agreement signed in the second quarter of 2014. there were no license fees earned during the year ended december 31 , 2015. diagnostic service revenue is recognized when payment is received for the test results . we received $ 13,789 in diagnostic service revenue in the year ended december 31 , 2015 , primarily as a result of our clinical laboratory tests . there was no diagnostic service revenue for the year ended december 31 , 2014 as no payments were received . other revenue consists primarily of revenue from the sale of collection kits . in the year ended december 31 , 2015 , we entered into supply agreements with our customers to sell specimen collection kits . revenue was recognized when kits were delivered . there was no such revenue for the year ended december 31 , 2014 . 44 we expect our royalty income to fluctuate as the royalties are based on the minimum royalty payments as well as the timing of when payments are received for royalties in excess of minimum royalties . milestone and license fee revenues are difficult to predict and can vary significantly from period to period .
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critical accounting policies the accounting and reporting policies followed by the company conform with u.s. generally accepted accounting principles ( `` gaap '' ) and they conform to general practices within the banking industry . the company 's critical accounting policies , which are summarized below , relate to ( 1 ) the allowance for loan losses , ( 2 ) mergers and acquisitions , ( 3 ) acquired loans with specific credit-related deterioration and ( 4 ) goodwill impairment . a summary of the company 's significant accounting policies is set forth in note 1 to the consolidated financial statements . the financial information contained within the company 's financial statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . a variety of factors could affect the ultimate value that is obtained when earning income , recognizing an expense , recovering an asset , or relieving a liability . in addition , gaap itself may change from one previously acceptable method to another method . allowance for loan losses the purpose of the allowance for loan losses ( `` alll '' ) is to provide for probable losses in the loan portfolio . the allowance is increased by the provision for loan losses and by recoveries of previously charged-off loans . loan charge-offs decrease the allowance . the goal of the company is to maintain an appropriate , systematic , and consistently applied process to determine the amounts of the alll and the provision for loan loss expense . the company uses certain practices to manage its credit risk . these practices include ( 1 ) appropriate lending limits for loan officers , ( 2 ) a loan approval process , ( 3 ) careful underwriting of loan requests , including analysis of borrowers , cash flows , collateral , and market risks , ( 4 ) regular monitoring of the portfolio , including diversification by type and geography , ( 5 ) review of loans by the loan review department , which operates independently of loan production , ( 6 ) regular meetings of the credit committee to discuss portfolio and policy changes and make decisions on large or unusual loan requests , and ( 7 ) regular meetings of the asset quality committee which reviews the status of individual loans . risk grades are assigned as part of the loan origination process . from time to time , risk grades may be modified as warranted by the facts and circumstances surrounding the credit . calculation and analysis of the alll is prepared quarterly by the finance department . the company 's credit committee , capital management committee , audit committee , and the board of directors review the allowance for adequacy . the company 's alll has two basic components : the formula allowance and the specific allowance . each of these components is determined based upon estimates and judgments . the formula allowance uses historical loss experience as an indicator of future losses , along with various qualitative factors , including levels and trends in delinquencies , nonaccrual loans , charge-offs and recoveries , trends in volume and terms of loans , effects of changes in underwriting standards , experience of lending staff , economic conditions , and portfolio concentrations , regulatory , legal , competition , quality of loan review system , and value of underlying collateral . in the formula allowance for commercial and commercial real estate loans , the historical loss rate is combined with the qualitative factors , resulting in an adjusted loss factor for each risk-grade category of loans . the period-end balances for each loan risk-grade category are multiplied by the adjusted loss factor . allowance calculations for residential real estate and consumer loans are calculated based on historical losses for each product category without regard to risk grade . this loss rate is combined with qualitative factors resulting in an adjusted loss factor for each product category . 25 index the specific allowance uses various techniques to arrive at an estimate of loss for specifically identified impaired loans . these include : · the present value of expected future cash flows discounted at the loan 's effective interest rate . the effective interest rate on a loan is the rate of return implicit in the loan ( that is , the contractual interest rate adjusted for any net deferred loan fees or costs and any premium or discount existing at the origination or acquisition of the loan ) ; · the loan 's observable market price , or · the fair value of the collateral , net of estimated costs to dispose , if the loan is collateral dependent . the use of these computed values is inherently subjective and actual losses could be greater or less than the estimates . no single statistic , formula , or measurement determines the adequacy of the allowance . management makes subjective and complex judgments about matters that are inherently uncertain , and different amounts would be reported under different conditions or using different assumptions . for analytical purposes , management allocates a portion of the allowance to specific loan categories and specific loans . however , the entire allowance is used to absorb credit losses inherent in the loan portfolio , including identified and unidentified losses . the relationships and ratios used in calculating the allowance , including the qualitative factors , may change from period to period as facts and circumstances evolve . furthermore , management can not provide assurance that in any particular period the bank will not have sizeable credit losses in relation to the amount reserved . management may find it necessary to significantly adjust the allowance , considering current factors at the time . mergers and acquisitions business combinations are accounted for under accounting standards codification ( `` asc '' ) 805 , business combinations , using the acquisition method of accounting . story_separator_special_tag all references in this section relate to average yields and rates and average asset and liability balances during the periods discussed . net interest income on a taxable equivalent basis decreased $ 3,357,000 or 6.5 % in 2013 from 2012 , following a $ 9,577,000 or 22.6 % increase in 2012 from 2011. the decrease in net interest income in 2013 was primarily due to changes in interest rates and lower accretion income related to the midcarolina acquired loan portfolio . yields on loans were 5.65 % in 2013 compared to 6.06 % in 2012. costs of funds were lower in 2013 compared to 2012 , especially with respect to time deposits , which were 1.22 % for 2013 compared to 1.36 % for 2012. deposit rates for demand account decreased to 0.07 % in 2013 from 0.13 % in 2012 and money market accounts decreased to 0.19 % in 2013 from 0.30 % in 2012. management regularly reviews deposit pricing and attempts to keep costs as low as possible , while remaining competitive . the net interest margin was 4.10 % for 2013 , 4.44 % for 2012 , and 4.35 % for 2011. during 2008 , the federal open market committee of the frb reduced the federal funds rate seven times from 4.25 % to 0.25 % , where it has remained through 2013 and into early 2014. this historically low rate environment has had a significant effect on the company 's net interest margin . based on recent frb pronouncements , rates are expected to remain at or near historical lows for the foreseeable future . however , the recent beginning of reductions in the federal reserve 's policy of quantitative easing may result in upper pressure on some market interest rates . net interest income on a taxable equivalent basis increased $ 9,577,000 or 22.6 % in 2012 from 2011 , following a $ 13,899,000 or 48.7 % increase in 2011 from 2010. the increase in net interest income in 2012 was primarily due to the july 2011 merger with midcarolina , driven mostly by accretion income related to the acquired loan portfolio . yields on loans were 6.06 % in 2012 compared to 6.05 % in 2011. costs of funds were lower in 2012 compared to 2011 , especially with respect to time deposits , which were 1.36 % for 2012 compared to 1.63 % for 2011. deposit rates for demand account decreased to 0.13 % in 2012 from 0.21 % in 2011 and money market accounts decreased to 0.30 % in 2012 from 0.43 % in 2011. management actively and regularly reviews deposit pricing and attempts to keep costs as low as possible . the net interest margin was 4.44 % for 2012 , 4.35 % for 2011 , and 3.78 % for 2010 . 28 index the following presentation is an analysis of net interest income and related yields and rates , on a taxable equivalent basis , for the last three years . nonaccrual loans are included in average balances . interest income on nonaccrual loans , if recognized , is recorded on a cash basis or when the loan returns to accrual status . net interest income analysis ( in thousands , except yields and rates ) replace_table_token_3_th 29 index the following table presents the dollar amount of changes in interest income and interest expense , and distinguishes between changes resulting from fluctuations in average balances of interest earning assets and interest bearing liabilities ( volume ) , and changes resulting from fluctuations in average interest rates on such assets and liabilities ( rate ) . changes attributable to both volume and rate have been allocated proportionately . changes in net interest income ( rate / volume analysis ) ( in thousands ) replace_table_token_4_th noninterest income noninterest income is generated from a variety of sources , including fee-based deposit services , trust and investment services , mortgage banking , and retail brokerage . noninterest income also includes net gains or losses on sales , calls , or impairment of investment securities . 2013 compared to 2012 noninterest income was $ 10,827,000 in 2013 compared to $ 11,410,000 in 2012 , a decrease of $ 583,000 or 5.1 % . fees from the management of trusts , estates , and asset management accounts were $ 3,689,000 in 2013 compared to $ 3,703,000 in 2012 , a $ 14,000 or 0.4 % decrease . this decrease was primarily the result of a $ 330,000 refund , paid in the first quarter of 2013 , related to an error in a trust agreement going back two decades . this error was detected during a review and has been resolved and recorded as a reduction in trust income . the facts and circumstances of this trust relationship are unique . a substantial portion of trust fees are earned based on account market values , so changes in the equity markets may have a large impact on income . service charges on deposit accounts were $ 1,750,000 in 2013 compared to $ 1,757,000 in 2012 , a $ 7,000 or 0.4 % decrease . 30 index other fees and commissions were $ 1,864,000 in 2013 compared to $ 1,768,000 in 2012 , a $ 96,000 or 5.4 % increase , due primarily to increases in visa check card income . mortgage banking income was $ 2,008,000 in 2013 compared to $ 2,234,000 in 2012 , a $ 226,000 or 10.1 % decrease . recent increases in mortgage interest rates have slowed demand on mortgage loan refinancing and have , accordingly , reduced volume and income . secondary market mortgage loan volume for the year was $ 79,000,000 compared to over $ 100,000,000 the prior year . securities gains were $ 192,000 in 2013 compared to $ 158,000 in 2012. other noninterest income was $ 1,324,000 in 2013 compared to $ 1,790,000 in 2012 , a $ 466,000 or 26.0 % decrease .
| summary of loan loss experience ( in thousands ) replace_table_token_13_th 42 index the following table summarizes the allocation of the allowance for loan losses by major portfolio segments for the past five years . allocation of allowance for loan losses ( dollars in thousands ) replace_table_token_14_th asset quality indicators the following table provides certain qualitative indicators relevant to the company 's loan portfolio for the past five years . replace_table_token_15_th nonperforming assets ( loans and other real estate owned ) nonperforming loans include loans on which interest is no longer accrued and accruing loans that are contractually past due 90 days or more . nonperforming loans include loans originated and loans acquired . nonperforming loans to total loans were 0.64 % at december 31 , 2013 compared to 0.67 % at december 31 , 2012. nonperforming assets include nonperforming loans and foreclosed real estate . nonperforming assets represented 0.65 % of total assets at december 31 , 2013 , compared to 0.90 % at december 31 , 2012. in most cases , it is the policy of the company that any loan that becomes 90 days past due will automatically be placed on nonaccrual loan status , accrued interest reversed out of income , and further interest accrual ceased . any payments received on such loans will be credited to principal . in some cases a loan in process of renewal may become 90 days past due . in these instances the loan may still be accruing because of a delayed renewal process in which the customer has not been billed . 43 index loans will only be restored to full accrual status after six consecutive months of payments that were each less than 30 days delinquent . the company strictly adheres with this policy before restoring a loan to normal accrual status . at december 31 , 2013 , no non-accrual loans were excluded from impaired loan classifications .
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risk factors for a discussion of the factors that could cause actual results to differ materially from those projected in these statements . the following information concerning our business , results of operations and financial condition should also be read in conjunction with the information included under item 1. business , item 1a . risk factors , item 6. selected financial data and item 8. financial statements and supplementary data . executive summary business update the outbreak of covid-19 and its development into a pandemic in march 2020 have resulted in significant economic disruption globally . actions taken by various governmental authorities , individuals and companies around the world to prevent the spread of covid-19 through social distancing have restricted travel , many business operations , public gatherings and the overall level of individual movement and in-person interaction across the globe . this has in turn significantly reduced global economic activity , including a dramatic reduction in airline flights and a decrease in motor vehicle use . as a result , there has been a decline in the demand for the refined petroleum products that we manufacture and sell , which coupled with a decline in the price of crude oil for most of 2020 resulted in a significant decrease in the price and volume of our production and sales of refined petroleum products . during 2020 , there were significant variations in the market prices of products held in our inventories . in each quarter of 2020 , these variations required us to record either inventory valuation charges or benefits to reflect the valuation of our inventories at the lower of cost or market . we have been and continue to actively respond to the impacts that these matters are having on our business . our response has focused on establishing three strategic short-term priorities : strengthen competitive position of assets we are committed to positioning our assets so that we are a leader in operational , financial , and sustainability performance and are evaluating the strength and fit of assets in our portfolio . our goal is that each individual asset generates free-cash-flow back to the business and contributes to shareholder returns . with our investments we are focused on high returning projects that we believe will enhance the competitiveness of our portfolio , including our investments in sustainable fuels and technologies that lower our carbon intensity as the global energy mix evolves . improve commercial performance we are focused on leveraging advantaged raw material selection , new approaches in the commercial space to be more dynamic amidst changing market conditions , and achieving technology improvements to advance our commercial performance . lower cost structure we are committed to achieving operational excellence by reducing costs , improving efficiency , and driving operational improvements . in response to the pandemic , in march of 2020 , we committed to immediately reducing our capital spending and operating expenses . we accomplished our goal of significantly reducing our capital spending levels by over $ 1.4 billion from our initial 2020 plans . we also reduced our 2020 forecasted operating expenses by more than our target of $ 950 million . in connection with these three strategic short-term priorities , in the third quarter of 2020 we announced strategic actions to lay a foundation for long-term success , including plans to optimize our assets and structurally lower costs in 2021 and beyond . these actions included indefinitely idling the gallup refinery , initiating actions to strategically reposition the martinez refinery to a renewable diesel facility and the approval of an involuntary workforce reduction plan . in connection with these strategic actions , we recorded restructuring expenses of $ 367 million for the year ended december 31 , 2020 . 49 table of contents in addition to these measures to address our operations , throughout the year we took action to address our liquidity as outlined below : share repurchases were temporarily suspended . the timing and amount of future repurchases will depend upon several factors , including market and business conditions . on april 27 , 2020 , we entered into an additional $ 1.0 billion 364-day revolving credit facility , which expires in 2021 , to provide incremental liquidity and financial flexibility during the commodity price and demand downturn . in february 2021 , we elected to terminate this credit agreement as we no longer believe the facility is necessary as an additional source for liquidity , and we do not intend to replace it . on april 27 , 2020 , we closed on the issuance of $ 2.5 billion of senior notes . proceeds from the senior notes were used to pay down certain amounts outstanding on the five-year revolving credit facility . during june 2020 , we repaid the remaining amounts outstanding on the five-year revolving credit facility . on september 23 , 2020 , we entered into a 364-day revolving credit agreement , which provides for a $ 1.0 billion unsecured revolving credit facility that matures in september 2021 , and which replaced a similar 364-day revolving credit agreement that expired on september 28 , 2020. at december 31 , 2020 , we had $ 6.73 billion available on our variable credit facilities , net of commercial paper borrowings of $ 1.02 billion . many uncertainties remain with respect to covid-19 , including its resulting economic effects , and we are unable to predict the ultimate economic impacts from covid-19 and how quickly national economies can recover once the pandemic ultimately subsides . however , the adverse impact of the economic effects on mpc has been and will likely continue to be significant . we believe we have proactively addressed many of the known impacts of covid-19 to the extent possible and will strive to continue to do so , but there can be no guarantee the measures will be fully effective . story_separator_special_tag in addition to the market changes indicated by the crack spreads , the sour differential and the sweet differential , our refining & marketing margin is impacted by factors such as : the selling prices realized for refined products ; the types of crude oil and other charge and blendstocks processed ; our refinery yields ; the cost of products purchased for resale ; the impact of commodity derivative instruments used to hedge price risk ; the potential impact of lcm adjustments to inventories in periods of declining prices : and the potential impact of lifo liquidation charges due to draw-downs from historic inventory levels . inventories are stated at the lower of cost or market . costs of crude oil , refinery feedstocks and refined products are stated under the lifo inventory costing method and aggregated on a consolidated basis for purposes of assessing if the cost basis of these inventories may have to be written down to market values . at december 31 , 2020 , market values for refined products exceed their cost basis and , therefore , there is no lcm inventory valuation reserve at the end of the year . based on movements of refined product prices , future inventory valuation adjustments could have a negative effect to earnings . such losses are subject to reversal in subsequent periods if prices recover . 54 table of contents refining & marketing segment income from operations is also affected by changes in refining operating costs and refining planned turnaround costs in addition to committed distribution costs . changes in operating costs are primarily driven by the cost of energy used by our refineries , including purchased natural gas , and the level of maintenance costs . refining planned turnarounds , requiring temporary shutdown of certain refinery operating units , are periodically performed at each refinery . distribution costs primarily include long-term agreements with mplx , as discussed below , which are based on committed volumes and will negatively impact income from operations in periods when throughput or sales are lower or refineries are idled . the following table lists the refineries that had significant planned turnaround and major maintenance activities for each of the last three years and only reflects the activity for the acquired refineries after october 1 , 2018. year refinery 2020 canton , catlettsburg , el paso , galveston bay , garyville , kenai , los angeles and salt lake city 2019 catlettsburg , gallup , galveston bay , garyville , los angeles , martinez , robinson and st. paul park 2018 canton , detroit , galveston bay and martinez we have various long-term , fee-based commercial agreements with mplx . under these agreements , mplx , which is reported in our midstream segment , provides transportation , storage , distribution and marketing services to our refining & marketing segment . certain of these agreements include commitments for minimum quarterly throughput and distribution volumes of crude oil and refined products and minimum storage volumes of crude oil , refined products and other products . certain other agreements include commitments to pay for 100 percent of available capacity for certain marine transportation and refining logistics assets . midstream our midstream segment transports , stores , distributes and markets crude oil and refined products , principally for our refining & marketing segment . the profitability of our pipeline transportation operations primarily depends on tariff rates and the volumes shipped through the pipelines . the profitability of our marine operations primarily depends on the quantity and availability of our vessels and barges . the profitability of our light product terminal operations primarily depends on the throughput volumes at these terminals . the profitability of our fuels distribution services primarily depends on the sales volumes of certain refined products . the profitability of our refining logistics operations depends on the quantity and availability of our refining logistics assets . a majority of the crude oil and refined product shipments on our pipelines and marine vessels and the refined product throughput at our terminals serve our refining & marketing segment and our refining logistics assets and fuels distribution services are used solely by our refining & marketing segment . as discussed above in the refining & marketing section , mplx , which is reported in our midstream segment , has various long-term , fee-based commercial agreements related to services provided to our refining & marketing segment . under these agreements , mplx has received various commitments of minimum throughput , storage and distribution volumes as well as commitments to pay for all available capacity of certain assets . the volume of crude oil that we transport is directly affected by the supply of , and refiner demand for , crude oil in the markets served directly by our crude oil pipelines , terminals and marine operations . key factors in this supply and demand balance are the production levels of crude oil by producers in various regions or fields , the availability and cost of alternative modes of transportation , the volumes of crude oil processed at refineries and refinery and transportation system maintenance levels . the volume of refined products that we transport , store , distribute and market is directly affected by the production levels of , and user demand for , refined products in the markets served by our refined product pipelines and marine operations . in most of our markets , demand for gasoline and distillate peaks during the summer driving season , which extends from may through september of each year , and declines during the fall and winter months . as with crude oil , other transportation alternatives and system maintenance levels influence refined product movements . our midstream segment also gathers and processes natural gas and ngls . ngl and natural gas prices are volatile and are impacted by changes in fundamental supply and demand , as well as market uncertainty , availability of ngl transportation and fractionation capacity and a variety of additional factors that are beyond our control .
| results select results for continuing operations for 2020 and 2019 are reflected in the following table . replace_table_token_19_th ( a ) includes lifo liquidation charge of $ 561 million for 2020 . ( b ) reflects corporate costs of $ 26 million and $ 28 million for 2020 and 2019 , respectively , that are no longer allocated to speedway under discontinued operations accounting . ( c ) 2020 reflects impairments of goodwill , equity method investments and long-lived assets . 2019 reflects impairments of goodwill and equity method investments . ( d ) 2020 restructuring expense include $ 195 million for exit costs related to the martinez and gallup refineries and $ 172 million of employee separation costs . ( e ) 2020 and 2019 include costs incurred in connection with the midstream strategic review and other related efforts . 2019 includes employee severance , retention and other costs related to the acquisition of andeavor . effective october 1 , 2019 , we discontinued reporting andeavor transaction-related costs as one year has passed since the acquisition and these costs are immaterial . costs incurred in connection with the speedway separation are included in discontinued operations . select results for discontinued operations are reflected in the following table . replace_table_token_20_th ( a ) as of august 2 , 2020 , mpc ceased recording depreciation and amortization for speedway . asset write-offs and retirement charges , which totaled $ 7 million for the fourth quarter of 2020 , are presented as depreciation and amortization in our financial statements . speedway depreciation and amortization was $ 244 million and $ 413 million for the twelve months ended december 31 , 2020 and 2019 , respectively . ( b ) costs related to the speedway separation . 51 table of contents the following table includes net income ( loss ) per diluted share data .
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also , when we use words such as `` anticipate , '' `` believe , '' `` estimate , '' `` expect , '' `` intend , '' `` plan , '' `` probably , '' or similar expressions , we are making forward-looking statements . numerous risks and uncertainties may impact the matters addressed by our forward-looking statements , any of which could negatively and materially affect our future financial results and performance . although we believe that the assumptions underlying our forward-looking statements are reasonable , any of these assumptions , and , therefore , the forward-looking statements based on these assumptions , could themselves prove to be inaccurate . in light of the significant uncertainties inherent in the forward-looking statements that are included in this report , our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved . in light of these risks , uncertainties and assumptions , any forward-looking event discussed in this report may not occur . our forward-looking statements speak only as of the date made , and we undertake no obligation to update or review any forward-looking statement , whether as a result of new information , future events or other developments , unless the securities laws require us to do so . overview utg , inc. , a delaware corporation , is a life insurance holding company . the company 's dominant business is individual life insurance , which includes the servicing of existing insurance policies in-force , the acquisition of other companies in the life insurance business , the acquisition of blocks of business and the administration and processing of life insurance business for other entities . utg has a strong philanthropic program . the company generally allocates a portion of its earnings to be used for its philanthropic efforts primarily targeted to christ-centered organizations or organizations that help the weak or poor . the company also encourages its staff to be involved on a personal level through monetary giving , volunteerism and use of their talents to assist those less fortunate than themselves . through these efforts , the company hopes to make a positive difference in the local community , state , nation and world . critical accounting policies we have identified the accounting policies below as critical to the understanding of our results of operations and our financial condition . the application of these critical accounting policies in preparing our consolidated financial statements requires management to use significant judgments and estimates concerning future results or other developments including the likelihood , timing or amount of one or more future transactions or amounts . actual results may differ from these estimates under different assumptions or conditions . on an on-going basis , we evaluate our estimates , assumptions and judgments based upon historical experience and various other information that we believe to be reasonable under the circumstances . for a detailed discussion of other significant accounting policies , see note 1 – summary of significant accounting policies in the notes to the consolidated financial statements . future policy benefits – because of the long-term nature of insurance contracts , the insurance company is liable for policy benefit payments that will be made in the future . the liability for future policy benefits is determined by standard actuarial procedures common to the life insurance industry . the accounting policies for determining this liability are disclosed in note 1 – summary of significant accounting policies in the notes to the consolidated financial statements . cost of insurance acquired – the costs of acquiring blocks of insurance form other companies or through the acquisition of other companies are deferred and recorded as deferred acquisition costs . the deferred amounts are recorded as an asset and amortized to expense in a systematic manner as indicated in note 1 – summary of significant accounting policies in the notes to the consolidated financial statements . valuation of securities – the company 's investment portfolio consists of fixed maturities , equity securities , trading securities , mortgage loans and real estate to provide funding of future policy contractual obligations . the company 's fixed maturities and equity securities are classified as available-for-sale . available-for-sale investments are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income ( loss ) in the consolidated balance sheets . the company 's trading securities are carried at fair value with unrealized gains and losses reported in income in the consolidated statements of operations . fair value is the price that the company would expect to receive upon sale of the asset in an orderly transaction . mortgage loans on real estate are carried at their unpaid principal balances , adjusted for amortization of premium or discount and valuation allowances . valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected . a portion of the mortgage loan balance consists of discounted mortgage loans that were purchased at deep discounts through an auction process led by the federal government . in general , the discounted mortgage loans are non-performing and there is a significant amount of uncertainty surrounding the timing and amount of cash flows to be received by the company . accordingly , the company records its investment in the discounted mortgage loans at its original purchase price adjusted for any principal receipts received . investment real estate held for sale is reported at the lower of cost or fair value less cost to sell . expenses to maintain the property are expensed as incurred . while the available-for-sale securities are generally expected to be held to maturity , they are classified as available-for-sale and are sold periodically to manage risk . story_separator_special_tag as previously mentioned in the results of operations – other income section of the md & a , the company did not renew its largest third party administration contract . the non-renewal of this contract allowed the company to recognize cost saving measures therefore reducing operating expenses incurred by the company during 2015. information technology expenses decreased approximately 29 % compared to the prior year . information technology expenses were higher in the prior year as a result of additional expenses incurred in relation to the conversion to a new administrative system . following an extensive analysis of administrative systems available in the market place , early in 2014 the company determined it would change its administrative system . the company will be fully converted to the new system during the first quarter of 2016. management believes this system change will better position the company for the future by providing a more modern and flexible operating system while reducing ongoing operating costs . charitable contributions decreased approximately 63 % when comparing current and prior year expenditures . as mentioned above in the overview section of the management discussion and analysis , utg has a strong philanthropic program . the company generally allocates a portion of its earnings to be used for its philanthropic efforts primarily targeted to christ-centered organizations or organizations that help the weak or poor . charitable contributions made by the company are expected to vary from year to year depending on the earnings of the company . net amortization of cost of insurance acquired decreased approximately 8 % when comparing current and prior year activity . cost of insurance acquired is established when an insurance company is acquired or when the company acquires a block of in-force business . the company assigns a portion of its cost to the right to receive future profits from insurance contracts existing at the date of the acquisition . cost of insurance acquired is amortized with interest in relation to expected future profits , including direct charge-offs for any excess of the unamortized asset over the projected future profits . the interest rates may vary due to risk analysis performed at the time of acquisition on the business acquired . the company utilizes a 12 % discount rate on the remaining unamortized business . the amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised . amortization of cost of insurance acquired is particularly sensitive to changes in interest rate spreads and persistency of certain blocks of insurance in-force . this expense is expected to decrease , unless the company acquires a new block of business . management has been working on a plan and has made the determination it is in the company 's best long term interest to relocate its main operations from springfield , illinois to stanford , kentucky . the company 's majority shareholder , jess correll , headquarters his other operating entities in stanford , kentucky . management believes this move will provide the company with significant synergies , improve efficiencies and reduce overall operating expenses . the relocation is anticipated to occur during the third quarter of 2016. significant time and planning has been put into this relocation to help ensure as smooth a transition as possible . management continues to place significant emphasis on expense monitoring and cost containment . maintaining administrative efficiencies directly impacts net income . financial condition investment information investments are the largest asset group of the company . the company 's insurance subsidiary is regulated by insurance statutes and regulations as to the type of investments they are permitted to make , and the amount of funds that may be used for any one type of investment . the following table reflects , by investment category , the investments held by the company as of december 31 : replace_table_token_5_th replace_table_token_6_th the company 's investments are generally managed to match related insurance and policyholder liabilities . the comparison of investment return with insurance or investment product crediting rates establishes an interest spread . interest crediting rates on adjustable rate policies have been reduced to their guaranteed minimum rates , and as such , can not be lowered any further . policy interest crediting rate changes and expense load changes become effective on an individual policy basis on the next policy anniversary . therefore , it takes a full year from the time the change was determined for the full impact of such change to be realized . if interest rates decline in the future , the company will not be able to lower rates and both net investment income and net income will be impacted negatively . the company 's total investments represented 85 % and 84 % of the company 's total assets as of december 31 , 2015 and 2014 , respectively . fixed maturities consistently represented a substantial portion , 49 % , of the total investments during 2014 and 2015 . the overall investment mix , as percentage of total investments , remained fairly consistent when comparing the investments held as of december 31 , 2015 and 2014 . as of december 31 , 2015 , the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets , shareholders ' equity or results from operations . to provide additional flexibility and liquidity , the company has identified all fixed maturity securities as `` investments available for sale '' . investments available for sale are carried at market , with changes in market value charged directly to shareholders ' equity . changes in the market value of available for sale securities resulted in net unrealized losses of approximately $ ( 7.2 ) million during 2015 and net unrealized gains of approximately $ 4.2 million during 2014 .
| results of operations on a consolidated basis , the company had net income attributable to common shareholders of $ 900,000 and $ 7 million in 2015 and 2014 , respectively . in 2015 , income before income taxes was $ 273,000 compared to $ 11.1 million in 2014 . total revenue was $ 28.8 million in 2015 and $ 43.6 million in 2014 . one-time events , primarily reflected in realized gains , comprise a substantial portion of the net income and revenue reported by the company during 2015 and 2014 . the magnitude of realized investment gains and losses in a given year is a function of the timing of trades of investments relative to the markets themselves as well as the recognition of any impairments on investments . future earnings will be significantly negatively impacted should earnings from these one-time items not be realizable in a future period . while management believes there remain additional investments with such one-time earnings , when or if realized remains uncertain . total benefits and other expenses paid in 2015 were $ 28.5 million compared to $ 32.5 million in 2014 . revenues premiums and policy fee revenues , net of reinsurance premiums and policy fees , decreased approximately 5 % when comparing 2015 to 2014 . the company writes very little new business . unless the company acquires a new company or a block of in-force business , management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience . the company 's average persistency rate for all policies in-force for 2015 and 2014 was approximately 96.2 % and 96.6 % , respectively . persistency is a measure of insurance in-force retained in relation to the previous year .
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accordingly , the company has continued to maintain its deferred tax valuation reserve against the potential carry-forward benefit . suttle costa rica , s.a. operates in costa rica and is subject to costa rica income taxes . in 2005 , the board of directors of suttle costa rica s. a. declared a dividend in the amount of $ 3,500,000 payable to the company . the dividend and related dividend reinvestment plan qualify under internal revenue code sec . 965 , which allows the company to receive an 85 % dividend received deduction if the amount of the dividend is reinvested in the united states pursuant to a domestic reinvestment plan . the company made the required qualified capital expenditures in 2006. it is the company 's intention to maintain the remaining undistributed earnings in its costa rica subsidiary to support continued operations there . no deferred taxes have been provided for the undistributed earnings . suttle costa rica had pretax income of $ 168,000 , $ 155,000 and $ 80,000 in 2012 , 2011 and 2010 respectively . at the end of 2012 , suttle costa rica 's net operating loss carry-forward was $ 0 . 48 the provision for income taxes for continuing operations varied from the federal statutory tax rate as follows : replace_table_token_39_th deferred tax assets and liabilities as of december 31 related to the following : replace_table_token_40_th as part of previous acquisitions , the company purchased net operating loss carry-forwards in the amount of $ 3,790,000 . at december 31 , 2012 , the company had $ 303,000 remaining net operating loss carry-forwards for income tax purposes which expire in 2014. utilization of net operating loss carry-forwards is limited to $ 228,000 per year in future years . the company assesses uncertain tax positions in accordance with asc 740. under this method , the company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution . the company 's practice is to recognize interest and penalties related to income tax matters in income tax expense . 49 changes in the company 's unrecognized tax benefits are summarized as follows : replace_table_token_41_th included in the balance of unrecognized tax benefits at december 31 , 2012 are $ 251,000 of tax benefits that if recognized would affect the tax rate . the company 's unrecognized tax benefits could be reduced by $ 66,000 in the next twelve months due to statute of limitations expirations . the company 's income tax liability accounts included accruals for interest and penalties of $ 168,000 at december 31 , 2012. the company 's 2012 story_separator_special_tag overview communications systems , inc. is a global company with sales in over 90 countries and facilities supporting design , manufacturing and distribution in the united states , costa rica , china and the united kingdom . csi provides physical connectivity infrastructure and services for global deployments of broadband networks . focusing on innovative , cost-effective solutions , csi provides customers the ability to deliver , manage , and optimize their broadband network services and architecture . from the integration of fiber optics in any application and environment to efficient home voice and data deployments to optimization of data and application access , csi provides the tools for maximum utilization of the network from the edge to the user . along with our broad range of technology offered , csi has built a reputation as a reliable global innovator focusing on quality and customer service . the voice , video and data markets in which we sell products provide services that are vital to the modern world . therefore , we expect the size of these markets will , generally , continue to expand , although the pace of growth will be affected by economic conditions in the united states and around the world . this growth , along with inevitable technological change , will generate challenges and opportunities for the type of products we sell . from our customers ' perspective , our goal is to become a market leader delivering high quality , competitively priced products and services . from our shareholders ' perspective , our goal is to steadily and consistently increase our revenues and profits . achieving these goals will require success in the following areas : we must apply our financial resources to support increased sales , maintain brand loyalty , improve product quality and develop new products . at the same time , we must maintain price levels and control expenses to provide adequate margins and superior bottom line results . finally , to accelerate our growth we must continue to expand our sales outside of the us and prudently acquire complementary businesses and product lines . while we face the many challenges and risks that we discussed earlier in this report , we believe our greatest challenges will be responding to intense market competition and successfully introducing new products . some of our competitors are larger and better capitalized , and some are based outside the us . these firms often have greater capacity to both ( i ) absorb lower margins that are inconsistent with our financial goals and ( ii ) support a higher level of new product development using their greater resources or lower cost structure . story_separator_special_tag in developing our discounted cash flow analysis , assumptions about future revenues and expenses , capital expenditures and changes in working capital are based on our annual operating plan and long-term business plan for each of our reporting units . these plans take into consideration numerous factors including historical experience , anticipated future economic conditions and growth expectations for the industries and end markets in which we participate . these assumptions are determined over a five-year , long-term planning period . the five-year growth rates for revenues and operating profits vary for each reporting unit being evaluated . revenues and operating profit beyond the five-year period are projected to grow at a nominal perpetual growth rate for all reporting units . the discount rate calculations are determined by assuming a company beta , market premium risk , size premium , the cost of debt and debt-to-capital ratio of a market participant . in connection with completing this analysis during the fourth quarter of 2012 , we determined that the fair value of our transition networks reporting unit did not exceed its carrying value by a significant amount . goodwill for this reporting unit was $ 6.0 million at december 31 , 2012. as part of our step one process for determining the estimated fair value of our reporting units , we make several assumptions , including our earnings and cash flow projections and discount rate , each of which have a significant impact on these values . for our transition networks business unit , if cash flow projections decreased by 18.5 percent per year or if the discount rate , currently estimated at 17.2 percent , was 3.3 percentage points higher , we would have failed step one of the impairment test for this reporting unit , requiring a step two analysis . 21 the company believes that accounting estimates related to goodwill impairment are critical because the underlying assumptions used for the discounted cash flow analysis can change from period to period and could potentially cause a material impact to the income statement . management 's assumptions about inflation rates and other internal and external economic conditions , such as earnings growth rate , require significant judgment based on fluctuating rates and expected revenues . revenue recognition : the company recognizes revenue when the earnings process is complete , evidenced by persuasive evidence of an agreement , delivery has occurred or services have been rendered , the price is fixed or determinable , and collectability is reasonably assured . in the suttle and transition networks segments , the earning process completion is evidenced through the shipment of goods , based on the sales terms of these segments , the risk of loss is transferred upon shipment or delivery to customers and there are no significant obligations subsequent to that point . there are not significant estimates related to revenue recognition for these segments . jdl technologies records revenue on hardware , software and related equipment sales and installation contracts when the revenue recognition criteria are met and the products are installed and accepted by the customer . jdl records revenue on service contracts on a straight-line basis over the contract period , unless evidence suggests that the revenue is earned in a different pattern . each contract is individually reviewed to determine when the earnings process is complete . story_separator_special_tag compared to $ 39,578,000 in 2010. sales by product groups in 2011 and 2010 were : replace_table_token_10_th suttle 's sales by customer groups in 2011 and 2010 were : replace_table_token_11_th the increase in sales is due primarily to increased sales to suttle 's domestic telecommunication customers . sales to the telephone companies increased 6 % to $ 27,124,000 in 2011 compared to $ 25,581,000 in 2010 due to fulfillment of new product contracts and increased sales tied to enhanced network deployments . sales to these customers accounted for 68 % of suttle 's sales in 2011 compared to 65 % of sales in 2010. sales to distributors decreased 15 % and accounted for 11 % of sales in 2011 compared to 13 % in 2010. the decline in this customer group is a direct result of reduced opportunities in the domestic market for new sfu and mdu construction . international sales accounted for 20 % of suttle 's 2011 sales but declined 9 % compared to 2010. the decrease in sales in this customer group is due primarily to volatility in fulfillment of dsl business , and decreased sales of voice products due to land-line loss . suttle 's gross margin decreased 6 % to $ 9,132,000 in 2011 compared to $ 9,664,000 in 2010. the gross margin percentage was 23 % in 2011 compared to 24 % in 2010. this decrease is a result of shifting product mix , as sales from modular connecting blocks decreased . suttle realizes its highest selling margins on modular connecting products . selling , general and administrative expenses increased 6 % to $ 8,218,000 in 2011 compared to $ 7,723,000 in 2010 due to increases in spending on technology development . suttle reported an operating loss of $ 358,000 in 2011 as compared to operating income of $ 1,942,000 in 2010 due in part to the margin erosion mentioned above and a goodwill impairment charge of $ 1,272,000 in the second quarter of 2011 . 25 transition networks transition networks sales increased 35 % to $ 91,450,000 in 2011 compared to $ 67,782,000 in 2010. transition networks organizes its sales force and segments its customers geographically . sales by customer groups in 2011 and 2010 were : replace_table_token_12_th the following table summarizes transition networks ' 2011 and 2010 sales by product group : replace_table_token_13_th sales in north america increased 37 % or $ 21,024,000 compared to 2010 due to $ 32,836,000 in revenue from a one-time large network upgrade project with a fortune 500 company .
| results of operations 2012 compared to 2011 sales were $ 104,250,000 in 2012 , a 27 % decrease from sales of $ 143,775,000 in 2011. operating income decreased 81 % to $ 3,396,000 in 2012 as compared to $ 17,515,000 in 2011. income before income taxes decreased 81 % to $ 3,398,000 from $ 17,620,000 in 2011. net income decreased 77 % to $ 2,238,000 in 2012 compared to $ 9,798,000 in 2011. suttle the company realigned its business operations effective january 1 , 2012 and as a result , the austin taylor operations are now included within the suttle business unit . the company has reclassified austin taylor 's 2011 operations to conform to this presentation . suttle sales increased 13 % to $ 45,030,000 in 2012 compared to $ 39,924,000 in 2011. sales by product groups in 2012 and 2011 were : replace_table_token_5_th suttle 's sales by customer groups in 2012 and 2011 were : replace_table_token_6_th 22 the increase in sales is due primarily to increased sales to suttle 's domestic telecommunication customers . sales to the telephone companies increased 24 % to $ 33,645,000 in 2012 compared to $ 27,124,000 in 2011 due to fulfillment of new product contracts and increased sales tied to enhanced network deployments . sales to these customers accounted for 75 % of suttle 's sales in 2012 compared to 68 % of sales in 2011. sales to distributors decreased 24 % and accounted for 12 % of sales in 2012 compared to 11 % in 2011. the increase in this customer group is a result of increased opportunities in the domestic market for new single family unit ( sfu ) and multi-dwelling unit ( mdu ) construction .
| 3,098 |
we operate in the united states , canada , australia , the united kingdom , japan , new zealand , the republic of korea , taiwan , denmark , germany , south africa , singapore , austria , the netherlands , norway , sweden , mexico , the czech republic , estonia , finland , and the republic of ireland . our switzerland office was created to manage certain day-to-day business needs of non-north american markets . we conduct our business as a single operating segment and primarily sell our products through a network of approximately 372,000 independent associates and members who had purchased our products and or packs during the last 12 months , who we refer to as current independent associates and members . new recruits and pack sales are leading indicators for the long-term success of our business . new recruits include new independent associates and members purchasing our packs and products for the first time . we operate as a seller of nutritional supplements , topical and skin care products , and weight-management products through our network marketing distribution channels operating in twenty-one countries . we review and analyze net sales by geographical location and by packs and products on a consolidated basis . each of our subsidiaries sells similar products and exhibits similar economic characteristics , such as selling prices and gross margins . because we sell our products through network marketing distribution channels , the opportunities and challenges that affect us most are : recruitment of new and retention of independent associates and members ; entry into new markets and growth of existing markets ; niche market development ; new product introduction ; and investment in our infrastructure . current economic conditions and recent developments we introduced several concepts at the end of 2010 that we believed would be instrumental in effectively navigating through the challenging economic times . these concepts included : ( i ) achieving desired levels of revenue largely through attracting and retaining associates ; ( ii ) international expansion ; ( iii ) new product introductions ; and ( iv ) financial discipline . the primary challenge of 2010 was the overall reduction in recruiting , which continued during 2011 and resulted in revenue declines . in january 2011 , we began selling products in mexico . we opened customer service centers in guadalajara and mexico city . in late 2011 , we opened a training center in monterrey . in addition to the mexico launch , we began operations in the european countries of czech republic , estonia , finland , and the republic of ireland in june 2011. these markets constituted 1 % of the consolidated revenue during 2011. we continue to believe the international markets will constitute the majority of revenue growth in the future . as a company devoted to nutritional innovation , we consider our intellectual property to be one of our most valuable corporate assets . in 2011 , we received six patents for technologies related to our ambrotose® and ambrotose ao® products , five of which were issued by international patent offices . our ambrotose® and ambrotose ao® technologies have been granted patents from governing bodies around the world . we believe these patents further establish our company as an industry leader in nutrition and wellness technologies . 38 in 2011 , we continued to focus on product development in an effort to continually improve and reformulate our existing products . an example of this was the introduction of our omega-3 supplement that now contains vitamin d 3 . the decision to add vitamin d 3 was prompted by the rapidly expanding scientific research documenting the extensive health benefits of vitamin d 3 . during 2011 , we continued to focus on restoring profitability and generating positive cash flow . in june 2011 , we announced a restructuring of our us operations and elimination of 98 work force positions . the restructuring reduced the costs of operations by $ 7.2 million for the second half of 2011. additionally , as opportunities were identified , other operating costs were reduced internationally . our consolidated balance sheet at the end of the year remained stable in comparison to 2010. we continued to operate virtually debt-free during 2011. although we generated a consolidated net loss , our cash and cash equivalents as well as our liabilities remained essentially unchanged . a large portion of the consolidated net loss was generated by depreciation expense amounting to $ 5.7 million from our enterprise resource planning ( “ erp ” ) system , which went into operation in 2007 and is recorded as computer software costs within property and equipment on our balance sheet . in 2012 , the remaining net book value of the erp system will be fully recognized by the second quarter reducing depreciation expense as compared to 2011. the reduction in depreciation expense along with continued financial discipline should improve operating income . we continue to increase operational efficiency . we have made certain changes to our management structure to provide stronger foundation for growth and better align our organization with our long-term goals . we believe that efficiencies gained from the organization realignment will help us to improve cost controls and distinguish us in the marketplace by adding emphasis to brand management , associate recruitment , new product development , and international expansion . even during difficult times , we have maintained our focus to be a generous and socially responsible company . we continue our charitable donations to mannarelief , a non-profit organization that provides charitable services for children in need . in 2010 , mannarelief and mannatech partnered together to launch the give for real sm program . this “ donation-through-consumption ” initiative was designed to allow consumers and associates to help undernourished children around the world . for every purchase on an automatic order containing certain products , mannatech provides nutritional supplements through donations to mannarelief for children in need worldwide . in 2012 , our primary goal is to restore sales volume , profitability , and generate positive cash flow . story_separator_special_tag the decrease in commissions was due to the decrease in commissionable net sales . for the year ended december 31 , 2011 , commissions as a percentage of net sales increased to 41.7 % as compared to 41.1 % for the same period of 2010. incentive costs increased for the year ended december 31 , 2011 by 8.6 % , or $ 0.3 million , to $ 3.8 million , as compared to $ 3.5 million for the same period in 2010. the costs of incentives , as a percentage of net sales , increased to 1.9 % for the year ended december 31 , 2011 , as compared to 1.5 % for the same period in 2010. the total number of independent associates who qualified for the annual incentive trip in 2011 was 747 , as compared to 715 in 2010 . 44 selling and administrative expenses selling and administrative expenses include a combination of both fixed and variable expenses . these expenses consist of compensation and benefits for employees , temporary and contract labor , outbound shipping and freight , and marketing-related expenses , such as monthly magazine development costs and costs related to hosting our corporate-sponsored events . for the year ended december 31 , 2011 , overall selling and administrative expenses decreased by $ 7.0 million , or 11.1 % , to $ 55.7 million , as compared to $ 62.7 million for the same period in 2010. the decrease in selling and administrative expenses consisted of a $ 3.8 million decrease in payroll and payroll-related costs , a $ 1.2 million decrease in freight cost , $ 0.8 million decrease in marketing costs , a $ 1.0 million decrease in contract labor costs , and a $ 0.2 million decrease in stock-based compensation expense . selling and administrative expenses , as a percentage of net sales , for the year ended december 31 , 2011 remained relatively flat at 27.8 % , as compared to 27.5 % for the same period in 2010. other operating costs other operating costs include travel , accounting/legal/consulting fees , royalties , credit card processing fees , banking fees , off-site storage fees , utilities , and other miscellaneous operating expenses . changes in other operating costs are associated with the changes in our net sales . for the year ended december 31 , 2011 , other operating costs decreased by $ 2.0 million , or 5.6 % , to $ 33.3 million , as compared to $ 35.3 million for the same period in 2010. for the year ended december 31 , 2011 , other operating costs , as a percentage of net sales , were 16.6 % , as compared to 15.5 % for the same period in 2010. the decrease in other operating costs was primarily due to a reduction in office expenses of $ 1.5 million , consulting fees of $ 1.2 million , and credit card fees of $ 0.6 million . also contributing to the reduction in other operating costs were research and development expenses of $ 0.3 million , travel expenses of $ 0.2 million , and repairs and maintenance costs of $ 0.2 million . these reductions were partially offset by a $ 2.0 million increase in legal costs primarily due to a settlement with one of our raw materials suppliers . for more information , see note 13 “ litigation ” . depreciation and amortization expense for the year ended december 31 , 2011 , depreciation and amortization expense was $ 10.7 million , as compared to $ 11.5 million for the same period in 2010. as a percentage of net sales , depreciation and amortization expense increased slightly to 5.3 % from 5.0 % for the same period in 2010. provision for income taxes provision for income taxes include current and deferred income taxes for both our domestic and foreign operations . our statutory income tax rates by jurisdiction are as follows , for the years ended december 31 : replace_table_token_13_th 45 income from our international operations is subject to taxation in the countries in which we operate . although we may receive foreign income tax credits that would reduce the total amount of income taxes owed in the united states , we may not be able to utilize our foreign income tax credits in the united states . we use the recognition and measurement provisions of fasb asc topic 740 , income taxes ( “ topic 740 ” ) to account for income taxes . the provisions of topic 740 require a company to record a valuation allowance when the “ more likely than not ” criterion for realizing a deferred tax asset can not be met . a company is to use judgment in reviewing both positive and negative evidence of realizing a deferred tax asset . furthermore , the weight given to the potential effect of such evidence is commensurate with the extent the evidence can be objectively verified . as a result , we reviewed the operating results , as well as all of the positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance in each tax jurisdiction . as of december 31 , 2011 and 2010 , we maintained our valuation allowance for deferred tax assets in the following table ( in millions ) , as we believe the “ more likely than not ” criterion for recognition and realization purposes , as defined in topic 740 , can not be met . replace_table_token_14_th the dollar amount of the provisions for income taxes is directly related to our results of operations and changes in taxable income among countries . for the years ended december 31 , 2011 and 2010 , our effective income tax rate was ( 15.6 ) % and 3.8 % , respectively . for 2011 , we had a provision for income tax despite the pre-tax losses primarily because of increases in the valuation allowance for deferred tax assets , increases in uncertain income tax positions , and differences from foreign operations .
| results of operations year ended december 31 , 2011 compared to year ended december 31 , 2010 the tables below summarize our consolidated operating results in dollars and as a percentage of net sales for the years ended december 31 , 2011 and 2010 ( in thousands , except percentages ) . replace_table_token_7_th 40 consolidated net sales by customer location for the years ended december 31 , 2011 and 2010 were as follows ( in millions , except percentages ) : net sales in dollars and as a percentage of consolidated net sales replace_table_token_8_th ( 1 ) the company began operations in mexico in january 2011 . ( 2 ) includes sales for the czech republic , estonia , and the republic of ireland , which began operations in june 2011. their combined consolidated sales for the year ended december 31 , 2011 were approximately $ 0.1 million and are included in net sales for united kingdom . ( 3 ) the company began operations in finland in june 2011. net sales for the year ended december 31 , 2011 , our operations outside of the united states accounted for approximately 58.2 % of our consolidated net sales , whereas in the same period in 2010 , our operations outside of the united states accounted for approximately 55.9 % of our consolidated net sales .
| 3,099 |
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