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if the decline in the fair value is determined to be other than temporary , the cost basis of the security is written down to fair value and the amount of the write-down is included in the consolidated statement of operations . for qualifying investments in debt or equity securities , a temporary impairment charge would be recognized in other comprehensive income ( loss ) . redeemable noncontrolling interests and related party transactions in 2011 , we sold a 49 % voting equity interest in ncr brasil - indústria de equipamentos para automação s.a. , a subsidiary of the company ( ncr manaus ) to scopus tecnologia ltda . ( scopus ) . under our investment agreements with scopus , scopus may elect to sell its shares in story_separator_special_tag business overview ncr is a leading global provider of omni-channel technology solutions that enrich the interactions of businesses with their customers . our solutions are designed to allow businesses in the financial services , retail , hospitality , travel and telecommunications and technology industries to deliver a rich , integrated and personalized experience to consumers across physical and digital commerce channels . our offerings include a portfolio of omni-channel platform software and other software applications , industry-focused smart-edge devices including automated teller machines ( atms ) , point of sale ( pos ) terminals and devices and self-service kiosks , and a complete suite of consulting , implementation , maintenance and managed services . we also resell third-party networking products and provide related service offerings in the telecommunications and technology sectors . our solutions create value for our customers by increasing productivity and allowing them to address consumer demand for convenience , value and individual service across different commerce channels . we have three operating segments : software , services , and hardware . each of our operating segments derives its revenue in each of the sales theaters in which ncr operates . our solutions are based on a foundation of long-established industry knowledge and expertise , omni-channel platform and other software , industry-focused hardware and smart-edge devices , and global implementation , consulting , maintenance , support and managed services . ncr 's reputation is founded upon over 133 years of providing quality products , services and solutions to our customers . at the heart of our customer and other business relationships is a commitment to acting responsibly , ethically and with the highest level of integrity . this commitment is reflected in ncr 's code of conduct , which is available on the corporate governance page of our website . 2017 overview as more fully discussed in later sections of this md & a , the following were significant themes and events for 2017 : revenue was flat year-over-year , and increased 1 % after adjusting for the divestiture of our interactive printer solutions ( ips ) business ; software revenue increased 3 % from the prior year , driven by cloud revenue growth of 6 % and professional services revenue growth of 5 % . net annual contract value , which is a measure of our net bookings for cloud revenue and is an indicator of potential cloud revenue growth in future periods , grew 46 % in 2017 ; services revenue increased 3 % and operating margin rate expanded 340 basis points from the prior year ; hardware revenue decreased 6 % and operating margin rate declined 270 basis points from the prior year ; we generated cash flows from operations and free cash flow of $ 755 million and $ 453 million , respectively , in 2017 ; and we repurchased approximately 7.4 million shares of our common stock for $ 350 million in the first quarter of 2017 and subsequently announced a new $ 300 million share repurchase program and a replacement for our dilution offset share repurchase program . overview of strategic initiatives and trends the rise of digital commerce , mobile engagement and globalization have dramatically altered the relationship between business and consumer . increasingly , mega-trends such as big data , the internet of things and the cloud are driving the next generation of changes in consumer behavior . consumers now expect businesses to provide a rich , integrated and personalized experience across all commerce channels , including in-store , online and mobile . ncr is at the forefront of this shift to an omni-channel experience , assisting businesses of every size in their omni-channel , digital enablement and channel transformation journeys . our mission is to innovate and enable the next generation of consumer experiences and productivity gains to enrich the interactions of businesses with their customers . to fulfill this mission , we have developed a long-term strategy built on being a global technology solutions company that uses cloud-based and other software , coupled with end-to-end smart-edge hardware and services solutions , to help our customers deliver on the promise of an omni-channel experience . we believe that our mission and long-term strategy position ncr to continue to drive sustainable revenue , profit and cash flow , and to improve value for all of our stakeholders . to deliver on our mission and strategy , we are focused on the following main initiatives in 2018 : 27 strategic and recurring revenue - continuing our focus on cloud , software platform , smart-edge devices and professional and managed services to drive profitable revenue and operating income . sales effectiveness - providing our sales force with the training , tools , support and coverage model necessary to optimize efficiency and achieve our sales plan . services transformation - driving performance and sustainable margin improvement by focusing on productivity and efficiency improvements , expanding our remote diagnostics and repair capabilities , creating greater discipline in our product lifecycle management , and employing a higher mix of managed services . evolving our business model - continuing the shift in our business model to provide innovative end-to-end solutions for our customers , with best in class support while keeping an efficient cost structure to create competitive advantage . story_separator_special_tag gross margin for the year ended december 31 , 2016 included $ 38 million expense from pension mark-to-market adjustments , $ 4 million related to restructuring and transformation costs , and $ 58 million related to amortization of acquisition related intangible assets . excluding these items , gross margin increased approximately 70 basis points driven by continued focus on productivity improvements in our services segment . 2016 compared to 2015 story_separator_special_tag 2014. research and development expenses research and development expenses increased $ 14 million to $ 256 million in 2017 from $ 242 million in 2016 . as a percentage of revenue , these costs were 3.9 % in 2017 and 3.7 % in 2016 . in 2017 , research and development expenses included $ 17 million of pension mark-to-market adjustments and $ 4 million of transformation costs . in 2016 , research and development expenses included $ 23 million of pension mark-to-market adjustments and zero of transformation costs . after considering this item , research and development expenses increased from 3.3 % in 2016 to 3.6 % in 2017 driven by planned incremental investments to further advance our software and hardware solutions . research and development expenses increased $ 12 million to $ 242 million in 2016 from $ 230 million in 2015 . as a percentage of revenue , these costs were 3.7 % in 2016 and 3.6 % in 2015 . research and development expenses included pension mark-to-market adjustments of $ 23 million in 2016 and $ 18 million in 2015 . after considering this item , research and development expenses remained consistent as a percentage of revenue at 3.3 % . restructuring-related charges in 2016 , the company recorded restructuring-related charges of $ 15 million related to the restructuring program announced in 2014. the charges consist of severance and other employee related costs of $ 4 million , other exit costs of $ 9 million and asset-related charges of $ 2 million . in 2015 , the company recorded restructuring-related charges of $ 62 million related to the restructuring program announced in july 2014. the charges consist of severance and other employee related costs of $ 20 million , other exit costs of $ 13 million and asset-related charges of $ 29 million . interest expense interest expense was $ 163 million in 2017 compared to $ 170 million in 2016 and $ 173 million in 2015 . interest expense in all years was primarily related to the company 's senior unsecured notes and borrowings under the company 's senior secured credit facility . other expense other ( expense ) , net was $ 31 million in 2017 compared to $ 50 million in 2016 and $ 57 million in 2015 . interest income was $ 3 million in 2017 , $ 4 million in 2016 and $ 5 million in 2015 . in 2017 , other ( expense ) , net included $ 26 million related to losses from foreign currency fluctuations and foreign exchange contracts and $ 8 million in bank-related fees . in 2016 , other ( expense ) , net included $ 40 million related to losses from foreign currency fluctuations and foreign exchange contracts , $ 8 million in bank-related fees , $ 6 million related to the loss on sale of the ips business and entity liquidations . in 2015 , other ( expense ) , net included $ 21 million related to losses from foreign currency fluctuations and foreign exchange contracts , $ 9 million in bank-related fees , and $ 34 million related to the loss on the then pending sale of the ips business . 32 income taxes our effective tax rate was 50 % in 2017 , 24 % in 2016 , and ( 58 ) % in 2015 . during 2017 , our tax rate includes a provisional charge of approximately $ 130 million as a result of the impact of u.s. tax reform enacted in december 2017. the provisional charge primarily relates to the application of the newly enacted 21 % corporate income tax rate to our net u.s deferred income tax assets in addition to the repatriation tax . the $ 130 million provisional charge represents ncr 's current best estimate , which may be refined and adjusted over the course of 2018. during 2016 , our tax rate was impacted by a less favorable mix of earnings , primarily driven by actuarial pension losses in foreign jurisdictions with a valuation allowance against deferred tax assets . during 2015 , there was no tax benefit recorded on the $ 427 million charge related to the settlement of the uk london pension plan due to a valuation allowance against deferred tax assets in the united kingdom . refer to note 8 , “ employee benefit plans ” of the notes to consolidated financial statements included in item 8 of part ii of this report for additional discussion on the settlement of the uk london pension plan . additionally , we favorably settled examinations with canada for tax years 2002 through 2006 that resulted in a tax benefit of $ 10 million in 2015. during 2014 , the internal revenue service ( irs ) finalized an examination of our 2009 and 2010 income tax returns and commenced an examination of our 2011 , 2012 and 2013 income tax returns , which is ongoing . while we are subject to numerous federal , state and foreign tax audits , we believe that appropriate reserves exist for issues that might arise from these audits . should these audits be settled , the resulting tax effect could impact the tax provision and cash flows in future periods . during 2018 , the company expects to resolve certain tax matters related to u.s. and foreign jurisdictions . these resolutions could have a material impact on the effective tax rate in 2018 . we regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized .
| results discussion revenue revenue increased 3 % in 2016 from 2015 due to growth in software and services . foreign currency fluctuations and the ips divestiture unfavorably impacted the revenue comparison by 1 % and 3 % , respectively . software revenue increased 5 % driven by growth in all of our software revenue streams , which include software license , software maintenance , cloud , and professional services . services revenue increased 4 % from 2015 driven by growth in both implementation services and hardware maintenance services as a result of our focus on improving the customer experience . hardware revenue was flat due to growth in atm revenue and self-checkout revenue offset by declines in point-of-sale revenue and consumables revenue as a result of the ips divestiture . gross margin gross margin as a percentage of revenue was 27.2 % in 2016 compared to 23.1 % in 2015 . gross margin for the year ended december 31 , 2016 included $ 38 million in pension mark-to-market adjustments , $ 4 million related to restructuring and transformation costs , and $ 58 million related to amortization of acquisition related intangible assets . gross margin for the year ended december 31 , 2015 included $ 313 million in pension mark-to-market adjustments which primarily included the settlement of the uk london pension plan , $ 12 million related to restructuring and $ 63 million related to amortization of acquisition related intangible assets . excluding these items , gross margin was slightly down , due to investment associated with new hardware product introductions offset by growth in our software segment .
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such statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . the forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties . our plans and objectives are based , in part , on assumptions involving the continued expansion of our business . assumptions relating to the foregoing involve judgments with respect to , among other things , future economic , competitive and market conditions and future business decisions , all of which are difficult or impossible to predict accurately and many of which are beyond our control . although we believe that our assumptions underlying the forward-looking statements are reasonable , any of the assumptions could prove inaccurate and , therefore , there can be no assurance that the forward-looking statements included in this report will prove to be accurate . in light of the significant uncertainties inherent in the forward-looking statements included herein , the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved . we undertake no obligation to revise or update publicly any forward-looking statements for any reason . overview we are a nevada corporation , formerly named blue moose media , inc. in october , 2011 , we changed our name to liqtech international , inc. for more than a decade we have developed and provided state-of-the-art technologies for gas and liquid purification using ceramic silicon carbide filters , particularly highly specialized filters for the control of soot exhaust particles from diesel engines and for liquid filtration . using nanotechnology , liqtech develops products using proprietary silicon carbide technology . liqtech 's products are based on unique silicon carbide membranes which facilitate new applications and improve existing technologies . in particular , liqtech systems a/s ( www.provital.dk ) , the company 's subsidiary , has developed a new standard of water filtration technology to meet the ever increasing demand for higher water quality . by incorporating liqtech 's sic liquid membrane technology with its longstanding systems design experience and capabilities it offers solutions to the most difficult water pollution problem . acquisition of liqtech systems on the july 29 , 2014 , the company , through its subsidiary , liqtech int . dk , completed the acquisition of all of the issued and outstanding capital stock ( the `` shares '' ) of provital solutions a/s , a danish company ( now known as liqtech systems ) from masu a/s , a danish company ( `` masu '' ) controlled by sune mathiesen . in consideration for the shares , masu received cash consideration in the sum of dkk12,600,000 , that is , approximately $ 2,300,000 ( at july 28 , 2014 ) , and 4,044,782 shares of the company 's common st ock ( the `` payment shares '' ) . two-thirds ( 2/3 ) of the payment shares were held in escrow and subject to achievement of certain milestones . the milestones were not achieved and such payment shares were forfeited and returned to treasury on december 31 , 2016 . 2017 developments on january 5 , 2017 , we announced that we and grundfos biobooster a/s ( grundfos ) have signed a framework agreement for the delivery of silicon carbide ceramic discs . the agreement has a minimum value of $ 450,000 and an initial term of 2 years . the ceramic discs will be used in grundfos´s ultra filtration systems for water re-use . on january 17 , 2017 , we announced that we had received a $ 120,000 order for the company´s water treatment systems for flue gas condensate . the order was received from tjæreborg industri a/s , a danish company who specializes in the development and manufacturing of equipment for power plants . the system has been installed at uldum varmeværk , denmark in 2017 . 18 on april 17 , 2017 , we announced that we had received a $ 480,000 order for the company´s standardized systems for treatment of waste water from marine scrubbers . on may 15 , 2017 , we announced that we had received a $ 380,000 order for the company´s system for treatment of waste water from marine scrubbers . the order is from a new customer and includes an option for further two systems . on may 19 , 2017 , we announced that we had received subscription agreements for 7,300,000 new shares at a price of $ 0.25 per share . the private placement was made directly by liqtech and the company plans to use the net proceeds of $ 1,825,000 million for acceleration of its business in the marine scrubber industry . on june 8 , 2017 , we announced that we had been informed by hunan yonker investment group ( yonker ) that its application for a usd 4 million investment in liqtech has been declined by the national development and reform commission ( ndrc ) . on june 14 , 2017 , we announced that we had received a $ 290,000 order for the company´s system for treatment of waste water from marine scrubbers . on august 28 , 2017 , we announced that we had received two new orders for the company 's systems for treatment of waste water from marine scrubbers . on november 22 , 2017 , we completed a private placement of 2,200,837 shares of preferred stock ( 1 to 4 conversion rate ) or 8,803,348 shares of our common stock at a per share price of $ 1.20 per preferred share for aggregate proceeds of $ 2,641,004,40. on december 11 , 2017 , we announced that we had received three new orders for the company 's standardized systems for treatment of waste water from marine scrubbers . the orders came from two different customers . story_separator_special_tag this decrease is attributable to decreased research and development expenditures for the period ended december 31 , 2016 compared to the same period in 2015. impairment of goodwill for the year ended december 31 , 2016 was $ 7,343,208 compared to $ 0 for the same period in 2015 , representing an increase of $ 7,343,208. the company recorded an impairment charge on goodwill , during the year ended december 31 , 2016 , as managements estimated fair value of the reporting unit did not exceeded the carrying value during 2016 fourth quarter testing . net loss net loss attributable to the company for the year ended december 31 , 2016 was a loss of $ 16,418,634 compared to a loss of $ 2,209,857 for the comparable period in 2015 , representing an increase of $ 14,208,777. this decrease was primarily attributable to a decrease of $ 1,781,995 in our gross profit , an increase in operating expenses of $ 7,953,330 , and a decrease in total other income of $ 577,624. the largest contributor to the increase in operating expenses was the impairment write down of $ 7,343,208 . 22 liquidity and capital resources the accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the united states of america , which contemplate continuation of the company as a going concern . however , the company has limited cash and incurred significant recent losses raising substantial doubt about the ability of the company to continue as a going concern . in the event that the company is unable to raise funds , the company will be required to reduce or curtail operations . we have historically satisfied our capital and liquidity requirements through offerings of equity instruments , internally generated cash from operations and our available lines of credit . at the filing date , the company did not have any available lines of credit with any lender . at dec ember 31 , 2017 , we had cash of $ 2,486,199 and working capital of $ 4 , 659,877 and at december 31 , 2016 , we had cash of $ 1,208,650 and working capital of $ 3,497,578. at december 31 , 2017 , our working capital increased by $ 1,162,299 , compared to december 31 , 2016. total current assets were $ 9,427,697 and $ 8,506,321 at december 31 , 2017 and at december 31 , 2016 , respectively , and total current liabilities were $ 4,767,820 and $ 5,008,743 at december 31 , 2017 and at december 31 , 2016 , respectively . in connection with certain orders , we have to give the customer a working guarantee or a prepayment guarantee or security bond . for that purpose , we previously had a guarantee credit line of dkk 94,620 ( approximately $ 15,193 at december 31 , 2017 ) with a bank , subject to certain base limitations . as of december 31 , 2017 , we had dkk 94,620 ( approximately $ 15,193 ) in working guarantee against the line . this line of credit is guaranteed by vækstfonden ( the danish state 's investments fund ) and is secured by certain assets of liqtech systems such as receivables , inventory and equipment . we will need additional funds to sustain our business . we may raise such funds from time to time through public or private sales of equity or debt securities . financing may not be available on acceptable terms , or at all , and our failure to raise capital when needed could materially adversely impact our financial condition and results of operations . additional equity financing may be dilutive to holders of our common stock , and debt financing , if available , may involve significant cash payment obligations and covenants that restrict our ability to operate our business . in the event that the company is unable to raise funds , there is substantial doubt about the ability of the company to continue as a going concern . cash flows year ended december 31 , 201 7 compared to y ear ended december 31 , 2016 cash provided ( used ) by operating activities is net income ( losses ) adjusted for certain non-cash items and changes in assets and liabilities . cash used by operating activities for the year ended december 31 , 2017 was $ 3,315,362 , representing a decrease of $ 3,731,156 compared to cash provided by operating activities of $ 415,794 for the year ended december 31 , 2016. the $ 3,731,156 decrease in cash provided by operating activities for the year ended december 31 , 2017 was mainly due to decreases in account payable of $ 487,458 , a net loss of $ 4,460,352 and increase in accounts receivables of $ 241,256 , offset by a decrease in inventory of $ 564,359 , an increase in accrued expenses of $ 80,797 , and an increase in long-term contracts of $ 353,070. the decreases in accounts payable , the net loss , the increase in accounts receivables , the decrease in inventory , the increase in accrued expenses and the increase in long-term contracts were all due to normal variations in the ordinary course of business . cash used in investing activities was $ 123,673 for the year ended december 31 , 2017 , as compared to cash used in investing activities of $ 373,740 for the year ended december 31 , 2016. cash used in investing activities decreased of $ 250,067 for the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. this decrease was due to a period over period decrease of $ 236,067 in the purchase of property and proceeds from sale of property and equipment of $ 14,001 in 2017. cash provided by financing activities was $ 4,101,700 for the year ended december 31 , 2017 , as compared to cash used by financing activities of $ 202,619 for the year ended december 31 , 2016. this change of $ 4,307,319 in cash provided by financing activities for the year
| results of operations results of operations for the year ended december 31 , 201 7 compared to the year ended december 31 , 201 6 the following table sets forth our revenues , expenses and net income for the year ended december 31 , 201 7 and 2016. replace_table_token_4_th 19 revenues net sales for the year ended december 31 , 201 7 were $ 11,343,177 compared to $ 13,906,394 for the same period in 2016 , representing a decrease of $ 2,563,217 , or 18.4 % . the decrease in sales consist of an increase in sales of dpfs of $ 1,409,623 , a decrease in sales of liquid filters of $ 3,743,655 and a decrease in sales of kiln furniture $ 229,185 respectively . the increase in demand for our dpfs is mainly due to an increase in market activity in china compared to the same period last year . the decrease in demand for our liquid filters and systems is due significant larger water filtrations systems sales in 2016 compared to 2017 and the delay in marine scrubber systems sales anticipated in 2017 compared to 2016. the decrease in demand for our kiln furniture is due to our decision to close down this product line . gross profit gross profit for the year ended december 31 , 2017 was $ 206,751 compared to $ 1,432,429 for the same period in 2016 , representing a decrease of $ 1,225,678 , or 85.6 % . the decrease in gross profit was due to lower sales activity in general , lower gross margin and due to lower sales activity for our liquid filters and systems , which historically have a higher gross margin , compared to the same period in 2016. included in the gross profit is depreciation of $ 939,500 and $ 1,378,277 for the years ended december 31 , 2017 and 2016 , respectively .
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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 appearing elsewhere in 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 on form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . 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 , the forward-looking statements contained in the following discussion and analysis . overview we are a multi-asset , clinical-stage biopharmaceutical company focused on identifying , developing and commercializing treatments in high unmet need areas involving multi-drug resistant , or mdr , bacterial infections and rare diseases . our most advanced product candidate , tebipenem pivoxil hydrobromide , or tebipenem hbr ( previously spr994 ) , is designed to be the first broad-spectrum oral carbapenem-class antibiotic for use in adults to treat multi-drug resistant , or mdr , gram-negative infections . treatment with effective orally administrable antibiotics may prevent hospitalizations for serious infections and enable earlier , more convenient and cost-effective treatment of patients after hospitalization . we are also developing spr720 , a novel oral antibiotic designed for the treatment of non-tuberculous mycobacterial , or ntm , disease , a rare , orphan disease caused by pulmonary non-tuberculous mycobacterial infections . in addition , we also have a platform technology known as our potentiator platform , which includes an intravenous , or iv , -administered product candidate , spr206 , which is being developed to treat mdr gram-negative infections in the hospital . we believe that our novel product candidates , if successfully developed and approved , would have a meaningful patient impact and significant commercial applications for the treatment of mdr infections in both the community and hospital settings . since our inception in 2013 , we have focused substantially all of our efforts and financial resources on organizing and staffing our company , business planning , raising capital , acquiring and developing product and technology rights , building our intellectual property portfolio and conducting research and development activities for our product candidates . we do not have any products approved for sale and have not generated any revenue from product sales . we have experienced net losses and significant cash outflows from cash used in operating activities since our inception . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates . as of december 31 , 2019 , we had an accumulated deficit of $ 199.4 million , and cash , cash equivalents and marketable securities of $ 82.0 million . we expect to continue to incur significant expenses and increasing operating losses for at least the next several years . based on our current plans , we believe that our existing cash , cash equivalents and marketable securities , together with the committed funding from our existing barda contract and other non-dilutive funding commitments , together with the net proceeds from our rights offering completed in early march 2020 , will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2021 , including through the filing of an nda for tebipenem hbr . because these funds will not sufficient to fund our operations , as currently planned , for more than one year beyond the filing date of this annual report on form 10-k , we have determined that there is substantial doubt regarding our ability to continue as a going concern . we will require additional funding to fund the development of our product candidates through regulatory approval and commercialization , and to support our continued operations . there is no assurance that we will be successful in obtaining sufficient funding on acceptable terms , if at all and we could be forced to delay , reduce or eliminate some or all of our research and development programs , product portfolio expansion or commercialization efforts , which could materially adversely affect our business prospects or our ability to continue operations . we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates . if we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership , we expect to incur significant expenses related to developing our internal commercialization capability to support product sales , marketing and distribution . further , we expect to incur additional costs associated with our continued operation as a public company . as a result , we will need substantial additional funding to support our continuing operations and pursue our growth strategy . until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through a combination of equity offerings , debt financings , government funding arrangements , collaborations , strategic alliances and marketing , distribution or licensing arrangements . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our product candidates . 71 because of the numerous risks and uncertainties associated with pharmaceutical product development , we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . story_separator_special_tag analysis of preliminary , blinded data from the phase 1 double-blind , placebo-controlled sad and mad clinical trial in healthy adult volunteers suggests that spr206 is well-tolerated at doses that are likely to be within a therapeutic range for target mdr gram-negative bacterial infections and has a safety profile that we believe supports the further development of spr206 . the decision to continue development of spr206 is also supported by data from nonclinical studies in which spr206 demonstrated activity as a single agent against mdr and extensively drug resistant , or xdr , bacterial strains , including isolates of pseudomonas aeruginosa , acinetobacter baumannii and carbapenem-resistant enterobacteriaceae , in both in vitro and in vivo models of infection . the phase 1 clinical trial of spr206 ( study spr206-101 ) evaluated the safety , tolerability and pharmacokinetics of intravenously administered spr206 at single doses ranging from 10 mg to 400 mg in seven sad cohorts and repeat total daily doses ranging from 75 mg to 450 mg for seven consecutive days and 300 mg for 14 consecutive days across five mad cohorts . a total of 96 healthy volunteers were randomized to receive spr206 or placebo . all reported adverse events were mild to moderate and there were no reported severe or serious adverse events . no evidence of nephrotoxicity was observed and there were no subjects with clinically significant changes in laboratory tests during the study . although the data remain blinded , an analysis of preliminary data indicates that spr206 was well-tolerated at doses up to 100 mg administered three-times a day , a total of 300 mg daily , for 14 consecutive days . preliminary analyses of pharmacokinetic data across the cohorts indicates dose linearity and dose proportionality as well as mean plasma drug exposures of spr206 that are concordant with preclinical models predictive for clinical efficacy against target gram-negative pathogens . we expect to receive a development milestone payment from our partner everest medicines upon delivery of the spr206-101 sad/mad clinical study report , or csr , as specified under the regional collaboration launched in 2019 and expects to present final data from the phase 1 clinical trial in the first half of 2020. in conjunction with everest medicines , and through its grant from dod awarded in july 2019 , we plan to conduct a phase 1 bal clinical trial assessing the penetration of spr206 into the pulmonary compartment in the second half of 2020 as well as initiate a renal impairment study of spr206 . based on the foregoing , we have determined to discontinue development of spr741 , effective january 1 , 2020. we believe that the collective data from the recent phase 1 and preclinical studies suggest a potency and safety profile for spr206 that may be superior to spr741 . further , we believe spr206 may have a potentially faster path to pivotal clinical trials when compared with spr741 because spr206 is being developed as a single agent . as a result of this decision , we have terminated our license agreement with northern antibiotics oy ( ltd. ) relating to spr741 . effective january 1 , 2020 , the intellectual property rights associated with spr741 have entirely reverted to northern antibiotics and we no longer have any rights with respect thereto and we no longer have any obligations for the cost of maintaining such intellectual property . components of our results of operations grant revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future . if our development efforts for our product candidates are successful and result in regulatory approval , we may generate revenue in the future from product sales . we can not predict if , when , or to what extent we will generate revenue from the commercialization and sale of our product candidates . we may never succeed in obtaining regulatory approval for any of our product candidates . to date , the majority of our revenue has been derived from government awards . we expect that our revenue for the next several years will be derived primarily from payments under our government awards that we have currently entered into and that we may enter into in the future . collaboration revenue collaboration revenue relates to our agreement with everest medicines . 73 operating expenses research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , and the development of our product candidates , which include : employee-related expenses , including salaries , related benefits , travel and share-based compensation expense for employees engaged in research and development functions ; expenses incurred in connection with the preclinical and clinical development of our product candidates , including under agreements with contract research organizations , or cros ; costs incurred in connection with our government awards ; the cost of consultants and contract manufacturing organizations , or cmos , that manufacture drug products for use in our preclinical studies and clinical trials ; facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and supplies ; and payments made under third-party licensing agreements . prior to novation of the niaid contract to us in december 2017 , under our agreements with pbb and certain of its affiliates , cai continued to perform research and development at our direction . we paid cai for such research and development services at an agreed-upon rate that took into consideration costs incurred by cai , net of amounts reimbursed to cai by niaid . thus , prior to novation of the niaid contract to us in december 2017 , the amount we record as research and development expenses is net of the niaid reimbursement amount that cai received . we also paid cai a portion of the niaid reimbursement received at rates specified in the agreement , which we also recorded as research and development expense .
| results of operations our financial statements have been presented on the basis that we are a going concern , which contemplates the realization of revenues and the satisfaction of liabilities in the normal course of business . we have incurred losses from the inception of our operations . these factors raise substantial doubt about our ability to continue as a going concern . comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_4_th grant revenue replace_table_token_5_th grant revenue recognized during 2019 and 2018 consisted of the reimbursement of qualifying expenses incurred in connection with our various government awards . the increase in revenue during 2019 was primarily due to funding received under our barda contract , which was awarded to us in july 2018 , and for which we began incurring qualified expenses in the second half of 2018. offsetting this increase , we received lower funding from our other government contracts and awards , as well as our carb-x award , which had a performance period through march 31 , 2018. research and development expenses replace_table_token_6_th 78 direct costs related to our tebipenem hbr program increased during 2019 compared to 2018 due to an increase of $ 26.9 million in clinical trial expenses related to the adapt-po pivotal phase 3 clinical trial of tebipenem hbr , for which activities began in 2018 and enrollment initiated in the first quarter of 2019. in addition to these higher clinical trial costs , we have incurred higher expenses during 2019 related to formulation development , manufacturing process and manufacturing of clinical trial material .
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management believes that the reserve for losses and lae , net of reinsurance recoverables , is appropriately established in the aggregate and adequate to story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements , related notes and other financial information appearing elsewhere in this annual report on form 10-k file with the u. s. securities and exchange commission ( “ sec ” ) . forward-looking statements certain statements contained in this annual report on form 10-k , which are not statements of historical fact , are forward-looking statements within the meaning of section 27a of the securities act of 1933 , as amended , as section 21e of the securities exchange act of 1934 , as amended . forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance . words such as “ anticipate , ” “ believe , ” “ estimate , ” “ expect , ” “ intend , ” “ may , ” “ plan , ” “ seek ” and similar terms and phrases , or the negative thereof , may be used to identify forward-looking statements . the forward-looking statements contained in this report are based on management 's good-faith belief and reasonable judgment based on current information . the forward-looking statements are qualified by important factors , risks and uncertainties , many of which are beyond our control , which could cause our actual results to differ materially from those in the forward-looking statements , including those described above in item 1a risk factors and subsequent reports filed with or furnished to the sec . any forward-looking statement made by us in this report speaks only as of the date hereof or as of the date specified herein . we undertake no obligation to publicly update any forward-looking statement , whether as a result of new information , future developments or otherwise , except as may be required by any applicable laws or regulations . business overview we are an insurance holding company that markets and services our product offerings through specialty commercial and specialty personal insurance business lines . our growth has been significant since our founding in 2009. currently , we are authorized to write insurance as an excess and surplus lines carrier in 44 states , we are licensed to write insurance in 29 states as an admitted carrier and we offer our insurance products in all 50 states . our revenues are primarily derived from premiums earned from our insurance operations . we also generate other revenues through investment income and other income which mainly consists of : installment fees and policy issuance fees generally related to the policies we write and commission income from sia 's 50 % owned agency in south carolina ( the `` affiliate '' ) . the affiliate places small commercial risks mainly for alarm and security guard markets . our expenses consist primarily of losses and loss adjustment expenses , agents ' commissions , and other underwriting and administrative expenses . we organize our operations in two insurance businesses : commercial insurance lines and personal insurance lines . through our commercial insurance lines , we offer coverage for both commercial property and commercial liability . within these two main lines we offer coverage for property , commercial multi-peril as part of commercial property and general liability and liquor liability as a part of our commercial liability . we also offer coverage for commercial automobiles and workers ' compensation . our insurance policies are sold to targeted small and mid-sized businesses on a single or multiple-coverage basis . through our personal insurance lines , we offer nonstandard homeowners insurance and dwelling fire insurance products to individuals in four states . our midwest homeowners insurance line is comprised of dwelling insurance tailored for owners of lower valued homes , which we have historically offered in illinois and indiana . we are now expanding into other regions of the u.s. , including louisiana and texas ( where we have an office in waco ) , and have renamed our midwest homeowners line to “ low-value dwelling. ” our specialty homeowners products include wind-exposed homeowners coverage , including hurricane and wind coverage to underserved homeowners in florida , hawaii , and texas . we have renamed our specialty homeowners line to “ wind-exposed homeowners. ” there has been no change in our approach to managing or evaluating these lines . recent developments on february 25 , 2016 , the company announced its board of directors authorized a stock repurchase program , under which the company may repurchase up to $ 2.1 million of its outstanding common stock over a one-year period . under this program , management is authorized to repurchase shares at prevailing market prices through open market purchases , privately negotiated transactions , block purchases or otherwise in accordance with applicable federal securities laws , including rule 31 10b5-1 and 10b-18 of the securities exchange act of 1934 , as amended . the actual timing , number and value of shares repurchased under the program will be determined by management in its discretion and will depend on a number of factors , including the market price of the company 's stock , general market conditions , and other factors . repurchases may be made from time to time , without prior notice . the company may suspend or discontinue the program at any time . on august 18 , 2015 , we completed our ipo , raising net proceeds of $ 30.4 million , after deducting offering underwriting discounts and commissions of $ 2.4 million and other offering expenses of $ 1.8 million . we used $ 17.0 million of the proceeds to pay down all of the revolver and $ 6.3 million to buy back all of the outstanding preferred stock . story_separator_special_tag our actuaries give different weights to each of these methods based upon the amount of historical experience data by line of business and by accident year , and based on judgment as to what method is believed to result in the most accurate estimate . the application of each method by line of business and by accident year may change in the future if it is determined that a different emphasis for each method would result in more accurate estimates . our actuaries also analyze several diagnostic measures by line of business and accident year , including but not limited to : reported and closed frequency and severity , claim reporting and claim closing patterns , paid and incurred loss ratio development , and ratios of paid loss and lae to incurred loss and lae . after the actuarial methods and diagnostic measures have been performed and analyzed , our actuaries use their judgment and expertise to select an estimated ultimate loss and lae by line of business and by accident year . our actuaries estimate an ibnr reserve for our unallocated lae not specifically identified to a particular claim , namely our internal claims department salaries and associated general overhead and administrative expenses associated with the adjustment and processing of claims . these estimates , which are referred to as unallocated loss adjustment expenses ( `` ulae '' ) reserves , are based on internal cost studies and analyses reflecting the relationship of ulae paid to actual paid and incurred losses . we select factors that are applied to case reserves and ibnr reserve estimates in order to estimate the amount of ulae reserves applicable to estimated loss reserves at the balance sheet date . we allocate the applicable portion of our estimated loss and lae reserves to amounts recoverable from reinsurers under reinsurance contracts and report those amounts separately from our loss and lae reserves as an asset on our balance sheet . the estimation of ultimate liability for losses and lae is a complex , imprecise and inherently uncertain process , and therefore involves a considerable degree of judgment and expertise . our loss and lae reserves do not represent an exact measurement of liability , but are estimates based upon various factors , including but not limited to : actuarial projections of what we , at a given time , expect to be the cost of the ultimate settlement and administration of claims reflecting facts and circumstances then known ; estimates of future trends in claims severity and frequency ; 33 assessment of asserted theories of liability ; and analysis of other factors , such as variables in claims handling procedures , economic factors , and judicial and legislative trends and actions . most or all of these factors are not directly or precisely quantifiable , particularly on a prospective basis , and are subject to a significant degree of variability over time . in addition , the establishment of loss and lae reserves makes no provision for the broadening of coverage by legislative action or judicial interpretation or for the extraordinary future emergence of new types of losses not sufficiently represented in our historical experience or which can not yet be quantified . as a result , an integral component of our loss and lae reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses and lae . accordingly , the ultimate liability may be more or less than the current estimate . the effects of change in the estimated loss and lae reserves are included in the results of operations in the period in which the estimate is revised . our reserves consist entirely of reserves for property and liability losses , consistent with the coverages provided for in the insurance policies directly written or assumed by us under reinsurance contracts . occasionally , several years may elapse between the occurrence of an insured loss , the reporting of the loss to us and our payment of the loss . the level of ibnr reserves in relation to total reserves depends upon the characteristics of the specific line of business , particularly related to the speed with which claims are reported and outstanding claims are paid . lines of business for which claims are reported slowly will have a higher percentage of ibnr reserves than lines of business that report and settle claims more quickly . the following table shows the ratio of ibnr reserves to total reserves net of reinsurance recoverables as of december 31 , 2015 ( dollars in thousands ) : replace_table_token_9_th although we believe that our reserve estimates are reasonable , it is possible that our actual loss and lae experience may not conform to our assumptions and may , in fact , vary significantly from our assumptions . accordingly , the ultimate settlement of losses and the related lae may vary significantly from the estimates included in our financial statements . we continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us . such adjustments are included in current operations . our loss and lae reserves do not represent an exact measurement of liability , but are estimates . the most significant assumptions affecting our ibnr reserve estimates are the loss development factors applied to paid losses and case reserves to develop ibnr by line of business and accident year . although historical loss development provides us with an indication of future loss development , it typically varies from year to year . thus , for each accident year within each line of business we select one loss development factor out of a range of historical factors . 34 we generated a sensitivity analysis of our net reserves which represents reasonably likely levels of variability in our selected loss development factors . we believe the most meaningful approach to the sensitivity analysis is to vary the loss development factors that drive the ultimate loss and lae estimates .
| underwriting results we measure the performance of our consolidated results , in part , based on our underwriting gain or loss . the following table provides the underwriting gain or loss for the years ended december 31 , 2015 and 2014 ( dollars in thousands ) : underwriting gain ( loss ) replace_table_token_17_th * percentage change is not meaningful investment income net investment income increased by $ 727,000 , or 61.9 % , to $ 1.9 million for the year ended december 31 , 2015 , as compared to $ 1.2 million for the year ended december 31 , 2014 . this increase was the result of growth of the investment portfolio and a change in the mix of investments . average invested assets as of december 31 , 2015 were $ 111.5 million as compared to $ 81.2 million at december 31 , 2014 , an increase of $ 30.3 million , or 37.3 % . as of december 31 , 2015 , the average invested asset balance was comprised of 85.8 % fixed matur ities , 3.8 % equity securities and 10.4 % short-term investments , compared to the december 31 , 2014 mix of 79.2 % fixed maturities , 4.8 % equity securities and 16.0 % short term investments . the portfolio 's average quality was aa at december 31 , 2015 and december 31 , 2014 . the portfolio produced a tax equivalent book yield of 2.1 % and 1.9 % for the years ended december 31 , 2015 and 2014 , respectively . the average duration of the fixed maturity portfolio was 3.1 y ears at december 31 , 2015 and 2014 . interest expense interest expense was $ 769,000 and $ 584,000 for the years ended december 31 , 2015 and 2014 , respectively . interest expense increased primarily due to the additional outstanding borrowings under the revolver and 2014 term note .
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2018‑15 , “ story_separator_special_tag the following management 's discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes to those statements included elsewhere in this annual report on form 10‑k . business summary we are a global hospitality company that develops , owns and operates , manages and licenses upscale and polished casual , high-energy restaurants and lounges and provides turn-key food and beverage ( “ f & b ” ) services for hospitality venues including hotels , casinos and other high-end locations . turn-key f & b services are food and beverage services that can be scaled , customized and implemented by us at a particular hospitality venue and customized for the client . we were established with the vision of becoming a global market leader in the hospitality industry by melding high-quality service , ambiance , high-energy and cuisine into one great experience that we refer to as “ vibe dining ” . all our restaurants , lounges and f & b services are designed to create a social dining and high-energy entertainment experience within a destination location . we believe that this design and operating philosophy separates us from more traditional restaurant and foodservice competitors . our primary restaurant brands are stk , a multi-unit steakhouse concept that combines a high-energy , social atmosphere with the quality and service of a traditional upscale steakhouse , and kona grill , a bar-centric grill concept featuring american favorites , award-winning sushi , and specialty cocktails in a polished casual atmosphere . our f & b hospitality management services include developing , managing and operating restaurants , bars , rooftop lounges , pools , banqueting and catering facilities , private dining rooms , room service and mini bars tailored to the specific needs of high-end hotels and casinos . our f & b hospitality clients operate global hospitality brands such as the w hotel , hippodrome casino , and me hotels . we opened our first restaurant in january 2004 in new york , new york , and , as of december 31 , 2019 , we owned , operated , managed or licensed 55 venues including 20 stks and 24 kona grills in major metropolitan cities in north america , europe and the middle east and including f & b services provided to four hotels and casinos in the united states and europe . for those restaurants and venues that are managed or licensed , we generate management and incentive fee revenue based on a percentage of the location 's revenues and net profits . the table below reflects our venues by restaurant brand and geographic location as of december 31 , 2019 : replace_table_token_5_th ( 1 ) locations with an stk and stk rooftop are considered one venue location . this includes the stk rooftop in san diego , ca , which is a licensed location . ( 2 ) includes concepts under the company 's f & b hospitality management agreements and other venue brands such as angel , bagatelle , heliot , hideout , marconi and radio . acquisitions on october 4 , 2019 , we acquired substantially all of the assets of kona grill inc. and its affiliates ( “ kona grill ” ) comprising 24 domestic restaurants . we purchased the assets for a contractual price of $ 25.0 million plus approximately 24 $ 1.5 million of consideration paid primarily for the apportionment of rent and utilities . we also assumed approximately $ 7.7 million in current liabilities . the purchase was financed with proceeds from the credit and guaranty agreement we entered into with goldman sachs bank usa in conjunction with the acquisition ( “ goldman sachs credit agreement ” ) . over the next twelve months , we intend to integrate kona grill by leveraging our corporate infrastructure , our bar-business knowledge and unique vibe dining program , to elevate the brand experience and drive improved performance . uncertainties related to covid-19 the negative effect of the novel coronavirus ( “ covid-19 ” ) on our business is significant . we experienced an initial decline in restaurant revenue that began in early march 2020 as business travel decreased . public anxiety about the spread of covid-19 has since increased . on march 11 , 2020 , the world health organization declared covid-19 a pandemic disease , and on march 13 , 2020 , president trump declared a state of emergency concerning covid-19 . other government agencies have since recommended that people not visit restaurants or bars . in some jurisdictions in the u.s. , people have been instructed to shelter in place to reduce the spread of covid-19 . in response to these conditions , and out of concern for our customers and partners , we have temporarily closed several restaurants and we have shifted operations at others to provide only take-out and delivery service . we expect that we will not be able to return to normal operations for weeks or months , and we expect that our results of operations to be materially and negatively affected by these actions in the first and second quarters of 2020. we have implemented measures to reduce our costs during the covid-19 period , including significant reductions in employees , deferral of capital projects , and we expect to return to more normal operations late in the second quarter of 2020 or early in the third quarter of 2020. our resumption of normal operations is subject to events beyond our control , including the effectiveness of governmental efforts to halt the spread of covid-19 . executive summary on october 4 , 2019 , we acquired 24 owned , domestic kona grill restaurants . additionally , in 2019 , we opened an owned stk restaurant in nashville , tennessee , two licensed stk restaurants located in doha , qatar and san juan , puerto rico , and a managed rooftop bar concept , angel , in florence , italy . story_separator_special_tag % for the compared to the same prior year period . kona grill sss increased 3.9 % for the period from acquisition on october 4 , 2019 to december 31 , 2019 as compared to the same prior year period . number of restaurant openings . number of restaurant openings reflects the number of restaurants opened during a particular fiscal period . for each restaurant opening , we incur pre-opening costs , which are defined below . typically , new restaurants open with an initial start-up period of higher than normalized sales volumes ( also referred to in the restaurant industry as the “ honeymoon ” period ) , which decrease to a steady level approximately 18 to 24 months after opening . however , operating costs during this initial period are also higher than normal , resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase to a steady level approximately 18 26 to 24 months after opening . some new restaurants may experience a “ honeymoon ” period that is either shorter or longer than this time frame . in 2019 , we opened an owned stk restaurant in nashville , tennessee , two licensed stk restaurants located in doha , qatar and san juan , puerto rico , and a managed rooftop bar concept , angel , in florence , italy . average check . average check is calculated by dividing total restaurant sales by total entrees sold for a specified period . our management team uses this indicator to analyze trends in customers ' preferences , customer expenditures and the overall effectiveness of menu changes and price increases . for our comparable stk restaurants , our average check was $ 109.00 compared to $ 106.00 for the years ended december 31 , 2019 and 2018 , respectively . the average check was $ 26.00 for kona grill restaurants for the period from october 4 , 2019 to december 31 , 2019. average comparable restaurant revenue . average comparable restaurant revenue consists of the average sales of our comparable restaurants over a certain period of time . this measure is calculated by dividing total comparable restaurant sales in a given period by the total number of comparable restaurants in that period . this indicator assists management in measuring changes in customer traffic , pricing and development of our brand . our average comparable stk restaurant revenues was $ 11.1 million and $ 10.2 million for the years ended december 31 , 2019 and 2018 , respectively . our average comparable kona grill restaurant revenues was $ 1.0 million for the period from october 4 , 2019 to december 31 , 2019. in 2019 , the average restaurant revenues for kona grill restaurants was $ 4.2 million . key financial terms and metrics we evaluate our business using a variety of key financial measures : segment reporting in the fourth quarter of 2019 , in conjunction with the kona grill acquisition , we implemented certain organizational changes , including the reorganization of our internal reporting structure to better facilitate our strategy for growth , operational efficiency and management accountability . as a result of these organizational changes , we identified our reportable operating segments as follows : · stk . the stk segment consists of the results of operations from stk restaurant locations , competing in the full-service dining industry , as well as management , license and incentive fee revenue generated from the stk brand and operations of stk restaurant locations . · kona grill . the kona grill segment includes the results of operations of kona grill restaurant locations . · one hospitality . the one hospitality segment is comprised of the management , license and incentive fee revenue and results of operations generated from our other brands and venue concepts , which include angel , bagatelle , heliot , hideout , marconi , and radio . additionally , this segment includes the results of operations generated from f & b hospitality management agreements with hotels , casinos and other high-end locations . · corporate . the corporate segment consists of the following : general and administrative costs , stock-based compensation , depreciation and amortization , acquisition related gains and losses , pre-opening expenses , lease termination expenses , transaction costs , and other income and expenses . this segment also includes our major off-site events group , which supports all brands and venue concepts , and revenue generated from gift card programs . see note 18 to our consolidated financial statements set forth in item 15 of the annual report on form 10‑k for further information on our segment reporting . prior year amounts have been revised to conform to the current year segment presentation . revenues owned restaurant net revenues . owned restaurant net revenues consist of food and beverage sales by owned restaurants net of any discounts associated with each sale and of any ancillary f & b hospitality services at owned locations . additionally , revenues from offsite banquets , our major off-site events group , and our gift card programs are included in owned restaurant net revenues . for the year ended december 31 , 2019 , beverage sales comprised 34 % of 27 food and beverage sales , before giving effect to any discounts , and food sales comprised the remaining 66 % . this indicator assists management in understanding the trends in gross margins of the restaurants . our primary owned restaurant brands are stk and kona grill . we specifically look at comparable sales from both owned and managed restaurants to understand customer count trends and changes in average check as it relates to our primary restaurant brands . management , license and incentive fee revenue . management , license and incentive fee revenues include fees received pursuant to management and license agreements . management agreements typically call for a management fee based on a percentage of revenue , a monthly marketing fee based on a percentage of revenues and an incentive fee based on a managed venue 's net profits .
| results of operations the following table sets forth certain statements of operations data for the periods indicated ( in thousands ) : replace_table_token_6_th 30 the following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated . certain percentage amounts may not sum to total due to rounding . replace_table_token_7_th ( 1 ) these expenses are being shown as a percentage of owned restaurant net revenue . 31 the following table presents a reconciliation of net income to ebitda and adjusted ebitda for the periods indicated ( in thousands ) : replace_table_token_8_th ( 1 ) primarily transaction costs incurred with the kona grill acquisition and subsequent integration activities and internal costs associated with capital raising activities , most recently the bank of america credit agreement , the goldman sachs credit agreement , and costs associated with the preparation of the form s-8 . ( 2 ) lease termination expense are costs associated with closed , abandoned and disputed locations or leases . ( 3 ) non-cash rent expense is included in owned restaurant operating expenses and general and administrative expense on the consolidated statements of income and comprehensive income . the following tables show our operating results by segment for the periods indicated ( in thousands ) . prior year amounts have been revised to conform to the current year segment presentation . replace_table_token_9_th replace_table_token_10_th 32 results of operations for the years ended december 31 , 2019 and december 31 , 2018 revenues owned restaurant net revenue .
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as a result of the prepayments in 2018 , $ 5.7 million of debt issuance costs were written off as a loss on the extinguishment of debt , which is presented as part of other income ( expense ) , net in our consolidated statements of operations . convertible senior notes due 2025 on august 7 , 2017 , we completed a private placement of $ 192.5 million aggregate principal amount of our 2025 notes . the proceeds include the 2025 notes sold pursuant to the $ 17.5 million over-allotment option granted by us story_separator_special_tag management 's discussion and analysis ( `` md & a '' ) is intended to facilitate an understanding of our business and results of operations . this discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this annual report on form 10-k. the information contained in this discussion and analysis or set forth elsewhere in this annual report on form 10-k , including information with respect to our plans and strategy for our business , our operating expenses , and future payments under our collaboration agreements , includes 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 . such statements are based upon current expectations that involve risks and uncertainties . you should review the section entitled `` risk factors '' in item 1a of part i above for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . see the section entitled `` special note regarding forward looking statements '' above for more information . management overview innoviva , inc. ( `` innoviva '' , the `` company '' , the `` registrant '' or `` we '' and other similar pronouns ) is focused on royalty management . innoviva 's portfolio includes the respiratory assets partnered with glaxo group limited ( `` gsk '' ) , including relvar ® /breo ® ellipta ® ( fluticasone furoate/ vilanterol , `` ff/vi '' ) , anoro ® ellipta ® ( umeclidinium bromide/ vilanterol , `` umec/vi '' ) and trelegy ® ellipta ® ( the combination ff/umec/vi ) . under the long-acting beta2 agonist ( `` laba '' ) collaboration agreement , innoviva is entitled to receive royalties from gsk on sales of relvar ® /breo ® ellipta ® as follows : 15 % on the first $ 3.0 billion of annual global net sales and 5 % for all annual global net sales above $ 3.0 billion ; and royalties from the sales of anoro ® ellipta ® which tier upward at a range from 6.5 % to 10 % . innoviva is also entitled to 15 % of royalty payments made by gsk under its agreements originally entered into with us , and since assigned to theravance respiratory company , llc ( `` trc '' ) , including trelegy ® ellipta ® and any other product or combination of products that may be discovered or developed in the future under the laba collaboration agreement and the strategic alliance agreement with gsk ( referred to herein as the `` gsk agreements '' ) , which have been assigned to trc other than relvar ® /breo ® ellipta ® and anoro ® ellipta ® . our company structure and organization are tailored to our focused activities of managing our respiratory assets with gsk , the commercial and developmental obligations associated with the gsk agreements , intellectual property , licensing operations , and providing for certain essential reporting and management functions of a public company . as of december 31 , 2018 , we had six employees . our revenues consist of royalties and potential milestone payments , if any , from our respiratory partnership agreements with gsk . financial highlights in the year ended december 31 , 2018 , the net income attributable to innoviva stockholders was $ 395.1 million , an improvement of $ 261.0 million from net income of $ 134.1 million in the year ended december 31 , 2017 , primarily due to an income tax benefit of $ 196.1 million , an increase in net royalty revenue , reduction in operating expenses and a decrease in interest expense . cash , cash equivalents , and marketable securities totaled $ 114.9 million as of december 31 , 2018 , a decrease of $ 14.2 million 36 from december 31 , 2017. the decrease was primarily due to the principal repayments of $ 230.0 million on our term b loan . these outflows were partially offset by cash provided by operating activities of $ 223.5 million . collaborative arrangements with gsk laba collaboration in november 2002 , we entered into laba collaboration with gsk to develop and commercialize once-daily laba products for the treatment of copd and asthma ( the `` laba collaboration agreement '' ) . for the treatment of copd , the collaboration has developed three combination products : relvar ® /breo ® ellipta ® ( `` ff/vi '' ) ( breo ® ellipta ® is the proprietary name in the u.s. and canada and relvar ® ellipta ® is the proprietary name outside the u.s. and canada ) , a once-daily combination medicine consisting of a laba , vilanterol ( vi ) , and an inhaled corticosteroid ( `` ics '' ) , fluticasone furoate ( `` ff '' ) , anoro ® ellipta ® ( `` umec/vi '' ) , a once-daily medicine combining a long-acting muscarinic antagonist ( `` lama '' ) , umeclidinium bromide ( `` umec '' ) , with a laba , vi , and trelegy ® ellipta ® ( the combination ff/umec/vi ) , a once-daily combination medicine consisting of an ics , lama and laba . story_separator_special_tag under the new guidance , revenue is recognized when our customer obtains control of promised goods or services , in an amount that reflects the consideration which we expect to receive in exchange for those goods or services . revenue is recognized through a five-step process : ( i ) identify the contract with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price for the contract ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) a performance obligation is satisfied . the adoption of asc 606 did not have a material impact on our consolidated financial statements as we do not have any unrecognized transaction price , other than sales-based royalty revenue , or any 38 remaining performance obligations under our collaboration agreements . we continue to recognize the royalty revenue on licensee net sales of products with respect to which we have contractual royalty rights in the period in which the royalties are earned and reported to us . royalties are recognized net of amortization of capitalized fees associated with any approval and launch milestone payments made to gsk . under the gsk agreements , we recognized net revenue of $ 261.0 million , $ 217.2 million and $ 133.6 million for the years ended december 31 , 2018 , 2017 and 2016 , respectively . capitalized fees paid to a related party we capitalize fees paid to licensors related to agreements for approved products or commercialized products ( `` capitalized fees '' ) . our gross capitalized fees of $ 220.0 million as of december 31 , 2018 consist of registrational and launch-related milestone fees paid to gsk . we capitalized these fees as capitalized fees paid to a related party and amortize these capitalized fees on a straight-line basis over their estimated useful lives upon the commercial launch of the products . the estimated useful lives of these capitalized fees are based on a country-by-country and product-by-product basis , as the later of the expiration or termination of the last patent right covering the compound in such product in such country and 15 years from first commercial sale of such product in such country , unless the agreement is terminated earlier . consistent with our policy for classification of costs under the research and development collaborative arrangements , the amortization of these capitalized fees is recognized as a reduction of royalty revenue . amortization expense for each of the years ended december 31 , 2018 , 2017 and 2016 was $ 13.8 million . the remaining estimated amortization expense is $ 13.8 million for each of the years from 2019 to 2023 and $ 83.9 million thereafter . we review our capitalized fees for impairment on a product-by-product basis for each major geographic area when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . the recoverability of capitalized fees is measured by comparing the asset 's carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . the determination of recoverability typically requires various estimates and assumptions , including estimating the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we derive the required cash flow estimates from near-term forecasted product sales and long-term projected sales in the corresponding market . based upon our analyses , no impairment charges have been recorded on the capitalized fees as of december 31 , 2018. fair value of stock-based compensation awards we use the black-scholes-merton option pricing model to estimate the fair value of options as of the date of grant . the black-scholes-merton option valuation model requires the use of assumptions , including the expected term of the award and the expected stock price volatility . we use the `` simplified '' method as described in staff accounting bulletin no . 107 , `` share based payment , '' for the expected option term . we use our historical volatility to estimate expected stock price volatility . the estimated fair value of the option is expensed on a ratable basis over the expected term of the grant . we determine the fair value of rsus and rsas based on the fair market values of the underlying stock on the dates of grant . the fair value of service based rsus and rsas is expensed on a ratable or straight-line basis over the expected term of the vesting . the fair value of performance-contingent rsus and rsas is expensed using an accelerated method over the requisite service period based on management 's best estimate as to whether it is probable that the shares awarded are expected to vest . we assess the probability of the performance indicators being met on a continuous basis . the grant date fair value of the rsus and rsas with a market condition is determined using a monte carlo valuation model and the compensation expense is recognized over the implied service period . 39 stock-based compensation expense was calculated based on awards ultimately expected to vest and was reduced for estimated forfeitures as of the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differed from those estimates . the estimated annual forfeiture rates for stock options , rsus and rsas are based on our historical forfeiture experience . for more information , refer to note 6 , `` stock-based compensation , '' to the consolidated financial statements appearing in this annual report on form 10-k. accounting for convertible senior notes due 2025 on august 7 , 2017 , we completed a private placement of $ 192.5 million aggregate principal amount of our 2025 notes .
| results of operations net revenue total net revenue , as compared to the prior years , was as follows : replace_table_token_3_th * not meaningful total net revenue increased for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 and the year ended december 31 , 2016 , primarily due to continuing growth in 40 prescriptions and market share for both relvar ® /breo ® ellipta ® and anoro ® ellipta ® , and initiation of sales by gsk of trelegy ® ellipta ® in the fourth quarter of 2017. in the fourth quarter of 2017 , due to the completion of innoviva 's performance obligations under the maba program , we revised the performance period , which was previously estimated to end in june 2020. the change in this estimate resulted in full recognition of the remaining deferred revenue balance . the revenue growth during the years ended december 31 , 2018 and 2017 may not be indicative of our future revenue growth , if any . research & development research & development ( `` r & d '' ) expenses , as compared to the prior years , were as follows : replace_table_token_4_th * not meaningful we did not incur r & d expenses during the year ended december 31 , 2018. r & d expenses for the years ended december 31 , 2017 and 2016 related to the late-stage partnered respiratory assets with gsk . general & administrative general and administrative expenses , as compared to the prior years , were as follows : replace_table_token_5_th general and administrative expenses for the year ended december 31 , 2018 were $ 20.1 million compared with $ 32.3 million in the year ended december 31 , 2017 , a decrease of $ 12.2 million . the amount for the year ended december 31 , 2017 included $ 8.1 million of net proxy contest and associated litigation costs .
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options and restricted stock units granted to our non-employee directors vest in full 76 myriad genetics , inc. and subsidiaries notes to consolidated financial statements ( dollars and shares in millions , except per share data ) upon the earlier of ( i ) one full year of service on the board following date of grant or ( ii ) the date of the next annual meeting of stockholders . the fair value of each option grant is estimated on the date of the grant using the black-scholes option-pricing model with the following weighted-average assumptions used for grants for the fiscal year ended june 30 : replace_table_token_47_th expected option lives and volatilities are based on historical data of the company and other factors . stock options a summary of option activity is as follows for the fiscal years ended june 30 : replace_table_token_48_th the following table summarizes information about stock options outstanding at june 30 , 2016 : replace_table_token_49_th 77 myriad genetics , inc. and subsidiaries notes to consolidated financial statements ( dollars and shares in millions , except per share data ) options exercisable at june 30 , 2016 had a weighted average remaining contractual life of 4.6 years . as of june 30 , 2016 , there was $ 6.5 of total unrecognized share-based compensation expense related to stock options that will be recognized over a weighted-average period of 0.9 years . restricted stock units a summary of rsu activity is as follows : replace_table_token_50_th as of june 30 , 2016 , there was $ 30.9 of total unrecognized share-based compensation expense related to rsus that will be recognized over a weighted-average period of 2.3 years . share-based compensation expense recognized and included in the consolidated statements of operations for the fiscal years ended june 30 , 2016 , 2015 and 2014 was as follows : replace_table_token_51_th in october 2014 , the company and its former chief financial officer entered into a resignation agreement under which the vesting of certain awards were modified such that the specified awards were vested in full . as a result of this award modification the company recognized approximately $ 3.1 in story_separator_special_tag overview our consolidated revenues consist primarily of sales of molecular diagnostic tests and pharmaceutical and clinical services through our wholly-owned subsidiaries myriad genetic laboratories , inc. , myriad genetics gmbh , crescendo bioscience , inc. , myriad rbm , privatklinik dr. robert schindlbeck gmbh ( the clinic ) & co. kg and sividon diagnostics gmbh . during the year ended june 30 , 2016 , we reported total revenues of $ 753.8 million , net income of $ 125.3 million and diluted earnings per share of $ 1.71 that included income tax expense of $ 43.6 million . in may 2016 , we completed the acquisition of sividon diagnostics gmbh ( sividon ) , a leading breast cancer prognostic company , for $ 39.0 million cash up front with the potential for 15.0 ( $ 16.7 converted at the june 30 , 2016 end rate ) in additional performance-based milestones . we believe the acquisition brings us the best-in-class breast cancer prognostic test and strengthens our market leading oncology portfolio of high value personalized medicine products . in february 2015 , we completed the acquisition of the clinic located in germany approximately 15 miles from the company 's european laboratories for total consideration of $ 20.1 million . we believe acquisition of the clinic should facilitate our penetration into the german molecular diagnostic market . the clinic will allow us to directly negotiate reimbursement with government and private insurance providers in the german market and collaborate with hospitals and physician groups . see note 15 segment and related information in the notes to our consolidated financial statements for information regarding our operating segments . our research and development expenses include costs incurred in formulating , improving , validating and creating alternative or modified processes related to and expanding the use of our current molecular diagnostic test offerings and costs incurred for the discovery , development and validation of our pipeline of molecular diagnostic and companion diagnostic candidates . in general , costs associated with research and development can fluctuate dramatically due to the timing of clinical studies , the staging of products in the pipeline and other factors . our selling , general and administrative expenses include costs associated with growing our businesses domestically and internationally . selling , general and administrative expenses consist primarily of salaries , commissions and related personnel costs for sales , marketing , customer service , billing and collection , legal , finance and accounting , information technology , human resources , and allocated facilities expenses . we expect that our selling , general and administrative expenses will continue to increase and that such increases may be substantial , depending on the number and scope of any new molecular diagnostic test launches , our efforts in support of our existing molecular diagnostic tests and pharmaceutical and clinical services as well as our continued international expansion efforts . story_separator_special_tag sales , that we will have adequate funds to maintain our current and planned operations for the foreseeable future , although no assurance can be given that changes will not occur that would consume available capital resources more quickly than we currently expect and that we may need or want to raise financing . the following table represents the balances of cash , cash equivalents and marketable investment securities : replace_table_token_14_th in 2016 , the increase in cash , cash equivalents and marketable investment securities was primarily driven by $ 166.3 million in cash flows from operations and $ 94.3 million in net proceeds from common stock issued under share-based compensation plans . these increases were partially offset by $ 162.6 million used for the repurchase and retirement of common stock and $ 49.4 million in net purchases of marketable investment securities . story_separator_special_tag ; risks related to public concern over genetic testing in general or our tests in particular ; risks related to regulatory requirements or enforcement in the united states and foreign countries and changes in the structure of the healthcare system or healthcare payment systems ; risks related to our ability to obtain new corporate collaborations or licenses and acquire new technologies or businesses on satisfactory terms , if at all ; risks related to our ability to successfully integrate and derive benefits from any technologies or businesses that we license or acquire ; risks related to our projections about the potential market opportunity for our products ; the risk that we or our licensors may be unable to protect or that third parties will infringe the proprietary technologies underlying our tests ; the risk of patent-infringement claims or challenges to the validity of our patents ; risks related to changes in intellectual property laws covering our molecular diagnostic tests and pharmaceutical and clinical services and patents or enforcement in the united states and foreign countries , such as the supreme court decision in the lawsuit brought against us by the association for molecular pathology et al ; risks of new , changing and competitive technologies and regulations in the united states and internationally ; and other factors discussed under the heading risk factors contained in item 1a of this annual report . in light of these assumptions , risks and uncertainties , the results and events discussed in the forward-looking statements contained in this annual report or in any document incorporated by reference might not occur . stockholders are cautioned not to place undue reliance on the forward-looking statements , which speak only as of the date of this annual report . we are not under any obligation , and we expressly disclaim any obligation , to update or alter any forward-looking statements , whether as a result of new information , future events or otherwise . all subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section . 48 market , industry and other data this annual report on form 10-k contains estimates , projections and other information concerning our industry , our business and relevant molecular diagnostics markets , including data regarding the estimated size of relevant molecular diagnostic markets , patient populations , and the perceptions and preferences of patients and physicians regarding certain therapies , as well as data regarding market research and estimates . information that is based on estimates , forecasts , projections , market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information . unless otherwise expressly stated , we obtained this industry , business , market and other data from reports , research surveys , studies and similar data prepared by market research firms and other third parties , industry , medical and general publications , government data and similar sources that we believe to be reliable . in some cases , we do not expressly refer to the sources from which this data is derived . in that regard , when we refer to one or more sources of this type of data in any paragraph , you should assume that other data of this type appearing in the same paragraph is derived from the same sources , unless otherwise expressly stated or the context otherwise requires . critical accounting policies critical accounting policies are those policies which are both important to the portrayal of a company 's financial condition and results and require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . our critical accounting policies are as follows : revenue recognition ; allowance for doubtful accounts ; goodwill ; and income taxes . revenue recognition . revenue includes the sale of our molecular diagnostic tests and of our pharmaceutical and clinical services . revenue is recorded at the invoiced amount net of any discounts or allowances and is recognized when persuasive evidence of an agreement exists , delivery has occurred , the fee is fixed or determinable , and collection is reasonably assured . revenue is recognized upon completion of the test or service , communication of results , and when collectability is reasonably assured . allowance for doubtful accounts . the preparation of our financial statements in accordance with u.s. gaap requires us to make estimates and assumptions that affect the reported amount of assets at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . trade accounts receivable are comprised of amounts due from sales of our molecular diagnostic tests , which are recorded net of any discounts or contractual allowances . we analyze trade accounts receivable and consider historic experience , customer creditworthiness , facts and circumstances specific to outstanding balances , and payment terms when evaluating the adequacy of the allowance for doubtful accounts . we periodically evaluate and adjust the allowance for doubtful accounts when trends or significant events indicate that a change in estimate is appropriate . such changes in estimate could materially affect our results of operations or financial position ; however , to date these changes have not been material . it is possible that we may need to adjust our estimates in future periods . after a review of our allowance for doubtful accounts as of june 30 , 2016 and 2015 , we have determined that a hypothetical ten percent increase in our allowance for doubtful accounts would result in additional bad debt expense and an increase to our allowance for doubtful accounts of $ 0.7 million and $ 0.8 million , respectively . goodwill .
| results of operations years ended june 30 , 2016 , 2015 and 2014 revenue replace_table_token_7_th 43 in 2016 , the increase in revenue was primarily driven by an increase of $ 20.5 million in pharmaceutical and clinical services revenue mainly from the inclusion of $ 14.3 million in full-year revenue from the clinic , which we acquired in february 2015 and a $ 9.2 million increase in prolaris revenues from increased volumes and the initiation of medicare coverage for a portion of the medicare population . in 2015 , the decrease in revenue was primarily driven by the loss of a one-time bolus of our bracanalysis revenue generated by celebrity publicity during the prior year , approximately $ 50.0 million . in addition , 2015 revenue was impacted by a $ 12.0 million loss of a contract with a payor and a $ 3.0 million decrease due to the reduction in medicare reimbursement rates , offset by $ 29.7 million increase from the inclusion of sales of our vectrada test for the full fiscal year . the following table presents additional detail regarding the composition of our total revenue : replace_table_token_8_th cost of sales replace_table_token_9_th cost of sales as a percentage of revenues increased from 20.4 % to 20.9 % during fiscal 2016 compared to fiscal 2015. the increase was primarily driven by our acquisition of the clinic in february 2015 , which has a higher cost of sales than our molecular diagnostic testing business , and a change in existing product mix . this increase was partially offset by improved efficiencies in the laboratory performing molecular diagnostic tests . we expect to continue to see improved efficiencies in our laboratories .
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these statements are “ forward-looking ” statements as that term is defined in the private securities litigation reform act of 1995. such forward-looking statements may be contained in , among other things , sec filings , such as the forms 10-k , 10-q and 8-k , the annual report to shareholders , press releases made by the company , the company 's internet websites ( including websites of its subsidiaries ) , and oral statements made by the officers of the company . except for historical information contained in these written or oral communications , such communications contain forward-looking statements . these include , for example , all references to 2018 or future years . new risk factors emerge from time to time and it is not possible for the company to predict all such risk factors , nor can it assess the impact of all such risk factors on the company 's business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . accordingly , forward-looking statements can not be relied upon as a guarantee of future results and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected in the statements , including but not limited to the factors that are described in part i , item 1a under the caption of “ risk factors ” of this form 10-k , which section is incorporated herein by reference . the company is not required , and undertakes no obligation , to revise or update forward-looking statements or any factors that may affect actual results , whether as a result of new information , future events , or circumstances occurring after the date of this report . overview management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide a discussion of the company 's financial condition , results of operations , liquidity and certain other factors that may affect its future results from the perspective of management . the discussion that follows is intended to provide information that will assist in understanding the changes in the company 's consolidated financial statements from year to year , the primary factors that accounted for those changes , and how certain accounting principles , policies and estimates affect the company 's consolidated financial statements . md & a is provided as a supplement to , and should be read in conjunction with the consolidated financial statements and the accompanying notes to the consolidated financial statements in item 8 of part ii below . md & a is presented in the following sections : · business outlook · consolidated results of operations · analysis of operating revenue and income by segment · liquidity and capital resources · contractual obligations , commitments , contingencies and off-balance sheet arrangements · critical accounting estimates · other matters 27 business outlook the following is the company 's fourth quarter 2017 discussion and 2018 outlook : ocean transportation : ocean transportation : the hawaii economy experienced modest growth in the fourth quarter 2017 ; however , the company 's container volume was 11.1 percent lower year-over-year due primarily to an extra week in 2016 and lower construction-related volumes as the construction cycle in oahu transitions from high-rise projects to the master planned community projects in west oahu . the company expects flat-to-modest volume growth in 2018 , reflecting a growing hawaii economy and stable market share . in china , the company 's container volume in the fourth quarter 2017 was 14.3 percent lower year-over-year largely due to an additional week in 2016 as well as volume gains in prior year period related to the hanjin bankruptcy . the company continued to realize a sizeable rate premium in the fourth quarter 2017 and achieved average freight rates moderately higher than the fourth quarter 2016. for 2018 , the company expects pricing to remain as favorable as 2017 and volume to be modestly lower compared to the levels achieved in 2017. in guam , as expected , the company 's container volume in the fourth quarter 2017 was lower on a year-over-year basis , the result of competitive losses to a u.s. flagged containership service that increased its service frequency to weekly in december 2016. for 2018 , the company expects a continued heightened competitive environment and lower volume when compared to levels achieved in 2017. in alaska , the company 's container volume for the fourth quarter 2017 was 10.1 percent lower year-over-year , primarily due to volume in the additional week in the prior year . for the full year 2018 , we expect volume to approximate the level in 2017 with modest improvement in northbound volumes , offset by lower southbound seafood-related volume due to a moderation from the very strong seafood harvest levels in 2017. as a result of the business outlook noted above , the company expects full year 2018 ocean transportation operating income to approximate the level achieved in 2017. in the first quarter 2018 , the company expects ocean transportation operating income will be moderately higher than the level achieved in the first quarter 2017 primarily due to the timing of fuel surcharge collections . logistics : in the fourth quarter 2017 , operating income for the company 's logistics segment was roughly flat compared to the operating income achieved in the prior year period . for the full year 2018 , the company expects logistics operating income to increase modestly compared to the level achieved in 2017. in the first quarter 2018 , the company expects operating income to approximate the level achieved in the first quarter 2017. depreciation and amortization : for the full year 2018 , the company expects depreciation and amortization expense to be approximately $ 135 million , inclusive of dry-docking amortization of approximately $ 36 million . story_separator_special_tag ocean transportation revenue increased $ 43.1 million , or 2.9 percent , during the year ended december 31 , 2016 compared with the year ended december 31 , 2015. this increase was primarily due to the inclusion of revenue from the company 's acquired alaska service for the full year period , partially offset by lower freight rates in the company 's china service and lower fuel surcharge revenue . on a year-over-year feu basis , hawaii container volume increased by 0.6 percent as modest market growth was offset by the absence of volume gains attributed to a competitor 's service reconfiguration and vessel mechanical failure in the prior year ; alaska volume was higher due to the inclusion of a full year period in 2016 ; china volume declined by 1.8 percent ; and guam volume was 2.7 percent lower as competitive losses associated with the launch of a competitor 's bi-weekly u.s. flagged containership service in january 2016 were partially offset by modest market growth . ocean transportation operating income decreased $ 45.1 million , or 24.0 percent , during the year ended december 31 , 2016 compared with the year ended december 31 , 2015. the decrease was primarily due to lower freight rates in the company 's china service , higher vessel operating expenses related to the deployment of additional vessels in the hawaii trade in the first half of 2016 , unfavorable timing of fuel surcharge collections , higher terminal handling expenses , and higher vessel dry-docking amortization . partially offsetting these unfavorable items were the absence of general and administrative expenses related to the horizon acquisition and costs related to the molasses settlement , and container yield improvements in hawaii . the company 's ssat terminal joint venture investment contributed $ 15.8 million during the year ended december 31 , 2016 , compared to $ 16.5 million in the year ended december 31 , 2015. on a year-over-year basis , ssat 's lift volume improved during 2016 ; however , the positive impact of lift volume was offset by the absence of the benefits related to the clearing of international cargo volume after the u.s. west coast labor disruptions in the first half 2015 and by an increase in ssat 's allowance for doubtful accounts receivable . logistics : 2017 compared with 2016 : replace_table_token_13_th ( 1 ) logistics operating results include span alaska operating results from the date of acquisition on august 4 , 2016 . 32 logistics revenue increased $ 74.6 million , or 18.6 percent , during the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. this increase was primarily due to the inclusion of freight forwarding revenue from the acquired span alaska business , higher intermodal volumes , and higher fuel surcharge revenue . logistics operating income increased $ 8.7 million during the year ended december 31 , 2017 , compared to the year ended december 31 , 2016. the increase was primarily due to the inclusion of freight forwarding operating results attributable to the acquired span alaska business , partially offset by lower intermodal yield . logistics : 2016 compared with 2015 : replace_table_token_14_th ( 1 ) logistics operating results include span alaska operating results from the date of acquisition on august 4 , 2016. logistics revenue increased $ 13.6 million , or 3.5 percent , during the year ended december 31 , 2016 compared to the year ended december 31 , 2015. this increase was primarily due to the inclusion of freight forwarding revenue from the acquired span alaska business , partially offset by lower fuel surcharge revenue . logistics operating income increased $ 3.4 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the increase was primarily due to the inclusion of freight forwarding operating results attributable to the acquired span alaska business and higher intermodal volume , partially offset by lower intermodal yield . liquidity and capital resources sources of liquidity : sources of liquidity available to the company at december 31 , 2017 compared to december 31 , 2016 , were as follows : replace_table_token_15_th ( 1 ) eligible accounts receivable of $ 134.8 million and $ 174.7 million at december 31 , 2017 and 2016 , respectively , were assigned to the ccf . ( 2 ) the decrease in cash on deposit in the ccf deposits relates to withdrawals from the ccf used for vessel construction progress payments ( see note 7 to the consolidated financial statements in item 8 of part ii below for additional information about ccf ) . revolving credit facility : as of december 31 , 2017 , the company had $ 294.7 million of available borrowing under the revolving credit facility ( see note 8 to the consolidated financial statements in item 8 of part ii below for additional information about debt ) . changes in the cash and cash equivalents : significant changes in the company 's cash and cash equivalents for the year ended december 31 , 2017 compared to december 31 , 2016 were as follows : replace_table_token_16_th 33 ( 1 ) changes in net cash provided by operating activities : changes in net cash provided by operating activities for the year ended december 31 , 2017 compared to the prior year were due to the following : replace_table_token_17_th the change in deferred income taxes is primarily related to the remeasurement of the company 's deferred assets and liabilities , and other discrete tax adjustments resulting from applying the tax act as of december 31 , 2017. equity in income of terminal joint venture increased primarily due to $ 17.5 million of distributions received from ssat during the year ended december 31 , 2017 , compared to no distributions received in the prior year . decrease in deferred dry-docking payments was due to fewer dry-docking activities during the year ended december 31 , 2017 , compared to the prior year .
| consolidated results of operations the following analysis of the financial condition and results of operations of matson should be read in conjunction with the consolidated financial statements in item 8 of part ii below . consolidated results : 2017 compared with 2016 : replace_table_token_9_th fiscal year : fiscal years ended december 31 , 2017 and 2016 include 52 weeks and 53 weeks , respectively . consolidated operating revenue for the year ended december 31 , 2017 increased $ 105.3 million , or 5.4 percent , compared to the prior year due to increases of $ 30.7 million and $ 74.6 million in ocean transportation and logistics revenues , respectively . operating costs and expenses for the year ended december 31 , 2017 increased $ 110.5 million , or 6.2 percent , compared to the prior year . the increase was due to an increase of $ 44.6 million and $ 65.9 million in operating costs and expenses for ocean transportation and logistics , respectively . operating income during the year ended december 31 , 2017 decreased $ 5.2 million , or 3.4 percent , compared to the prior year . the decrease was due to a decrease of $ 13.9 million for ocean transportation , partially offset by an increase of $ 8.7 million for logistics in operating income . the reasons for changes in operating revenue , operating costs and expenses , and operating income are described below , by business segment , in the analysis of operating revenue and income by segment . interest expense during the year ended december 31 , 2017 was $ 24.2 million compared to $ 24.1 million for the year ended december 31 , 2016. the increase in interest expense was due to higher borrowings as a result of recent acquisitions and vessel construction payments , offset by higher capitalized interest .
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additionally , the financial statements of our operations for which the functional currency is a currency other than the united states dollar are translated into united states dollars at the rate of exchange in story_separator_special_tag the following discussion and analysis of our operations , cash flows , liquidity and capital resources should be read in conjunction with our consolidated financial statements contained in this report . 35 overview we are a global apparel company that designs , sources , markets and distributes products bearing the trademarks of our owned tommy bahama® and lilly pulitzer® lifestyle brands , as well as certain licensed and private label apparel products . during fiscal 2015 , 91 % of our net sales were from products bearing brands that we own , and 66 % of our net sales were sales of our products through our direct to consumer channels of distribution . in fiscal 2015 , more than 95 % of our consolidated net sales were to customers located in the united states , with the sales outside the united states primarily being sales of our tommy bahama products in canada and the asia-pacific region . our business strategy is to develop and market compelling lifestyle brands and products that evoke a strong emotional response from our target consumers . we consider lifestyle brands to be those brands that have a clearly defined and targeted point of view inspired by an appealing lifestyle or attitude . furthermore , we believe that lifestyle brands like tommy bahama and lilly pulitzer , that create an emotional connection with consumers , can command greater loyalty , higher price points at retail and create licensing opportunities , which may result in higher earnings . we believe that the attraction of a lifestyle brand to consumers is dependent on creating compelling product , effectively communicating the respective lifestyle brand message and distributing the product to the consumer where and when they want it . our ability to compete successfully in styling and marketing is directly related to our proficiency in foreseeing changes and trends in fashion and consumer preference , and presenting appealing products for consumers . our design-led , commercially informed lifestyle brand operations strive to provide exciting , differentiated products each season . in order to further strengthen each lifestyle brand 's connections with consumers , we communicate regularly with consumers via the use of electronic and print media . we believe that our ability to effectively communicate with consumers and create an emotional connection is critical to the success of the brands . we distribute our owned lifestyle branded products through our direct to consumer channel , consisting of our retail stores and e-commerce sites , and our wholesale distribution channel . our direct to consumer operations provide us with the opportunity to interact directly with our customers , present to them the full line of our current season products and provide an opportunity for consumers to be immersed in the theme of the lifestyle brand . we believe that presenting our products in a setting specifically designed to showcase the lifestyle on which the brands are based enhances the image of our brands . our 123 tommy bahama and 34 lilly pulitzer full-price retail stores provide high visibility for our brands and products , and allow us to stay close to the preferences of our consumers , while also providing a platform for long-term growth for the brands . in tommy bahama , we also operate 16 restaurants , generally adjacent to a tommy bahama full-price retail store locations , which we believe further enhance the brand 's image with consumers . additionally , our e-commerce websites , which represented 17 % of our consolidated net sales in fiscal 2015 , provide the opportunity to increase revenues by reaching a larger population of consumers and at the same time allow our brands to provide a broader range of products . our tommy bahama and lilly pulitzer e-commerce flash clearance sales on our websites , as well as our 41 tommy bahama outlet stores , play an important role in overall brand and inventory management by allowing us to sell discontinued and out-of-season products in brand appropriate settings and at better prices than are typically available from third parties . the wholesale operations of our lifestyle brands complement our direct to consumer operations and provide access to a larger group of consumers . as we seek to maintain the integrity of our lifestyle brands by limiting promotional activity in our full-price retail stores and e-commerce websites , we generally target select wholesale customers that follow this same approach in their stores . our wholesale customers for our tommy bahama and lilly pulitzer brands include better department stores and specialty stores . within our lanier apparel operating group , we sell tailored clothing and sportswear products under licensed brands , private label products and owned brands to department stores , national chains , warehouse clubs , discount retailers , specialty retailers and others throughout the united states . all of our operating groups operate in highly competitive apparel markets in which numerous u.s.-based and foreign apparel firms compete . no single apparel firm or small group of apparel firms dominates the apparel industry and our direct competitors vary by operating group and distribution channel . we believe that the principal competitive factors in the apparel industry are the reputation , value and image of brand names ; design ; consumer preference ; price ; quality ; marketing ; and customer service . the apparel industry is cyclical and very dependent upon the overall level of discretionary consumer spending , which changes as regional , domestic and international economic conditions change . often , negative economic conditions have a longer and more severe impact on the apparel industry than these conditions may have on other industries . we believe the global economic conditions and resulting economic uncertainty that have prevailed in recent years continue to impact our 36 business , and the apparel industry as a whole . story_separator_special_tag corporate and other is a reconciling category for reporting purposes and includes our corporate offices , substantially all financing activities , elimination of inter-segment sales , lifo inventory accounting adjustments , other costs that are not allocated to the operating groups and operations of other businesses which are not included in our operating groups . comparable store sales we often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods . our disclosures of comparable store sales include net sales from full-price stores and our e-commerce sites , excluding sales associated with e-commerce flash clearance sales . we believe that the inclusion of both our full-price stores and e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results , given similar inventory planning , allocation and return policies , as well as our cross-channel marketing and other initiatives for the direct to consumer channel . for our comparable store sales disclosures , we exclude ( 1 ) outlet store sales , warehouse sales and e-commerce flash clearance sales , as those sales are used primarily to liquidate end of season inventory , which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our full-price direct to consumer sales , and ( 2 ) restaurant sales , as we do not currently believe that the inclusion of restaurant sales is meaningful in assessing our consolidated results of operations . comparable store sales information reflects net sales , including shipping and handling revenues , if any , associated with product sales . for purposes of our disclosures , we consider a comparable store to be , in addition to our e-commerce sites , a physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during the relevant periods , and is not within the current fiscal year scheduled to have , ( 1 ) a remodel resulting in the store being closed for an extended period of time ( which we define as a period of two weeks or longer ) , ( 2 ) a greater than 15 % change in the size of the retail space due to expansion , reduction or relocation to a new retail space , ( 3 ) a relocation to a new space that was significantly different from the prior retail space , or ( 4 ) a closing or opening of a tommy bahama restaurant adjacent to the retail store . for those stores which are excluded from comparable stores based on the preceding sentence , the stores continue to be excluded from comparable store sales until the criteria for a new store is met subsequent to the remodel , relocation or restaurant closing or opening . a store that is remodeled generally will continue to be included in our comparable store sales metrics as a store is not typically closed for a two week period during a remodel ; however , in some cases a store may be closed for more than two weeks during a remodel . a store that is relocated generally will not be included in our comparable store sales metrics until that store has been open in the relocated space for the entirety of the prior fiscal year as the size or other characteristics of the store typically change significantly from the prior location . additionally , any stores that were closed during the prior fiscal year or current fiscal year , or which we plan to close or vacate in the current fiscal year , are excluded from the definition of comparable store sales . definitions and calculations of comparable store sales differ among retail companies , and therefore comparable store sales metrics disclosed by us may not be comparable to the metrics disclosed by other companies . 38 story_separator_special_tag , ( 4 ) an increase in e-commerce flash clearance sales of $ 1.7 million to $ 18.4 million in fiscal 2015 , and ( 5 ) $ 0.9 million higher sales at the june warehouse sale . as of january 30 , 2016 , we operated 34 lilly pulitzer retail stores compared to 28 retail stores as of january 31 , 2015 . the following table presents the proportion of net sales by distribution channel for lilly pulitzer for each period presented : replace_table_token_19_th lanier apparel : the decrease in net sales for lanier apparel of $ 21.3 million , or 16.9 % , reflects a decrease in net sales in the private label and branded businesses for both tailored clothing and sportswear . the branded and private label businesses were unfavorably impacted by the reduction in or exit from certain replenishment and other programs . corporate and other : corporate and other net sales primarily consist of the net sales of our lyons , georgia distribution center as well as the impact of the elimination of intercompany sales between our operating groups , which exceeded net sales of our lyons , 40 georgia distribution center in fiscal 2014. the increase in corporate and other sales was primarily due to a smaller unfavorable impact of the elimination of intercompany sales in fiscal 2015. gross profit the table below presents gross profit by operating group and in total for fiscal 2015 and fiscal 2014 as well as the change between those two periods . our gross profit and gross margin , which is calculated as gross profit divided by net sales , may not be directly comparable to those of our competitors , as statement of operations classification of certain expenses may vary by company .
| results of operations the following table sets forth the specified line items in our consolidated statements of operations both in dollars ( in thousands ) and as a percentage of net sales . we have calculated all percentages based on actual data , but percentage columns may not add due to rounding . replace_table_token_15_th fiscal 2015 compared to fiscal 2014 the discussion and tables below compare certain line items included in our statements of operations for fiscal 2015 and fiscal 2014 . each dollar and percentage change provided reflects the change between these periods unless indicated otherwise . each dollar and share amount included in the tables is in thousands except for per share amounts . individual line items of our consolidated statements of operations may not be directly comparable to those of our competitors , as classification of certain expenses may vary by company . unless otherwise indicated , all references to assets , liabilities , revenues , expenses and other information in this report reflect continuing operations and exclude any amounts related to the discontinued operations of our former ben sherman operating group . refer to note 12 in our consolidated financial statements included in this report for additional information about discontinued operations . net sales replace_table_token_16_th consolidated net sales increased $ 49.0 million , or 5.3 % , in fiscal 2015 compared to fiscal 2014 reflecting changes in net sales of each operating group , as discussed below .
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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 gradually increased during fiscal 2018 correlating with the overall growth in the industrial economy . the ism pmi registered 60.2 in june 2018 , an increase from the june 2017 revised reading of 56.7. 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_2_th year ended june 30 , 2018 vs. 2017 the following table is included to aid in review of applied 's statements of consolidated income . replace_table_token_3_th sales in fiscal 2018 were $ 3.1 billion , which was $ 479.5 million or 18.5 % above the prior year , with sales from acquisitions accounting for $ 264.7 million or 10.2 % of the increase , and favorable foreign currency translation accounting for an increase of $ 16.0 million or 0.6 % . there were 251.5 selling days in fiscal 2018 and 252.5 selling days in fiscal 2017 . excluding the impact of businesses acquired and the impact of foreign currency translation , sales were up $ 198.8 million or 7.7 % during the year , of which 5.9 % is from the service center based distribution segment and 2.1 % is from the fluid power & flow control segment , offset by a 0.3 % decrease due to one less sales day . the following table shows changes in sales by reportable segment . replace_table_token_4_th sales of our service center based distribution segment , which operates primarily in mro markets , increased $ 166.0 million , or 7.6 % . acquisitions within this segment increased sales by $ 3.6 million or 0.2 % , and favorable foreign currency translation increased sales by $ 16.0 million or 0.7 % . excluding the impact of businesses acquired and the impact of foreign currency translation , sales increased $ 146.4 million or 6.7 % , driven by an increase of 7.0 % from operations , offset by a 0.3 % decrease due to one less sales day . sales of our fluid power & flow control segment increased $ 313.5 million or 75.8 % . acquisitions within this segment increased sales $ 261.1 million or 63.2 % . excluding the impact of businesses acquired , sales increased $ 52.4 million or 12.7 % , driven by an increase of 13.1 % from operations , offset by a 0.4 % decrease due to one less sales day . 16 the following table shows changes in sales by geographical area . other countries includes mexico , australia , new zealand , and singapore . replace_table_token_5_th sales in our u.s. operations increased $ 432.5 million or 19.8 % , with acquisitions adding $ 261.1 million or 12.0 % . excluding the impact of businesses acquired , u.s. sales were up $ 171.4 million or 7.8 % , of which 8.2 % is growth from operations , offset by a 0.4 % decrease due to one less sales day . sales from our canadian operations increased $ 21.6 million or 8.6 % , and favorable foreign currency translation increased canadian sales by $ 11.3 million or 4.5 % . excluding the impact of foreign currency translation , canadian sales were up $ 10.3 million or 4.1 % , of which 3.7 % is growth from operations , and the remaining 0.4 % increase is due to one additional sales day . consolidated sales from our other country operations increased $ 25.4 million or 16.0 % compared to the prior year . acquisitions added sales of $ 3.6 million or 2.3 % and favorable foreign currency translation increased other country sales by $ 4.7 million or 2.9 % . excluding the impact of businesses acquired and the impact of foreign currency translation , other country sales were up $ 17.1 million or 10.8 % compared to the prior year , driven by an increase from operations of 11.0 % , offset by a decrease of 0.2 % due to one less sales day in australia , new zealand , and singapore . the sales product mix for fiscal 2018 was 67.9 % industrial products and 32.1 % fluid power/flow control products compared to 71.5 % and 28.5 % , respectively , in the prior year . our gross profit margin increased to 28.8 % in fiscal 2018 compared to 28.4 % in fiscal 2017 due to the acquisition of fcx , which favorably impacted the gross profit margin by 38 basis points in fiscal 2018 . the following table shows the changes in sd & a . replace_table_token_6_th selling , distribution and administrative expense ( sd & a ) consists of associate compensation , benefits and other expenses associated with selling , purchasing , warehousing , supply chain management , and providing marketing and distribution of the company 's products , as well as costs associated with a variety of administrative functions such as human resources , information technology , treasury , accounting , insurance , legal , facility related expenses and expenses incurred with acquiring businesses . sd & a increased $ 95.9 million or 17.0 % during fiscal 2018 compared to the prior year , and as a percent of sales decreased to 21.4 % from 21.7 % in fiscal 2017 . changes in foreign currency exchange rates had the effect of increasing sd & a by $ 3.9 million or 0.7 % compared to the prior year . sd & a from businesses acquired added $ 74.7 million or 13.3 % of sd & a expenses , including $ 6.1 million of one-time costs and $ 9.6 million of intangibles amortization related to the fcx acquisition . story_separator_special_tag excluding the impact of businesses acquired and prior to the impact of foreign currency translation , sales were up $ 44.3 million or 1.8 % during fiscal 2017 , driven by an increase of 1.6 % from our traditional core operations in addition to an increase of 0.6 % from our upstream oil and gas-focused subsidiaries , offset by a 0.4 % decrease due to one less sales day . the following table shows changes in sales by reportable segment . replace_table_token_8_th sales of our service center based distribution segment , which operates primarily in mro markets , increased $ 29.9 million , or 1.4 % . acquisitions within this segment increased sales by $ 19.8 million or 0.9 % , while unfavorable foreign currency translation decreased sales by $ 1.1 million or 0.1 % . excluding the impact of businesses acquired and unfavorable currency translation impact , sales increased $ 11.2 million or 0.6 % , driven by an increase of 0.7 % from our upstream oil and gas-focused subsidiaries and an increase of 0.3 % from within our traditional core operations , offset by a 0.4 % decrease due to one less sales day . sales of our fluid power & flow control segment increased $ 44.4 million or 12.0 % . acquisitions within this segment increased sales $ 11.3 million or 3.1 % . excluding the impact of businesses acquired , sales increased $ 33.1 million or 8.9 % , driven by an increase from operations , primarily in the u.s. , of 9.3 % , offset by a decrease of 0.4 % due to one less sales day . the following table shows changes in sales by geographical area . other countries includes mexico , australia , new zealand , and singapore . replace_table_token_9_th sales in our u.s. operations increased $ 65.1 million or 3.1 % , with acquisitions adding $ 25.1 million or 1.2 % . excluding the impact of businesses acquired , u.s. sales were up $ 40.0 million or 1.9 % , of which 1.4 % was from our traditional core operations and 0.9 % was from our upstream oil and gas-focused subsidiaries , offset by a 0.4 % decrease due to one less sales day . sales from our canadian operations decreased $ 5.8 million or 2.2 % , with unfavorable foreign currency translation decreasing canadian sales by $ 0.2 million or 0.1 % . acquisitions added $ 6.0 million , or 2.3 % . excluding the impact of businesses acquired and unfavorable foreign currency translation impact , canadian sales were down $ 11.6 million or 4.4 % , of which 2.0 % related to the upstream oil and gas-focused subsidiaries , 2.0 % was from the traditional core operations , and the remaining 0.4 % decrease due to one less sales day . consolidated sales from our other country operations , which include mexico , australia , new zealand , and singapore , increased $ 15.0 million or 10.4 % compared to fiscal 2016. unfavorable foreign currency translation decreased other country sales by $ 0.9 million or 0.7 % . prior to the impact of currency translation , other country sales were up $ 15.9 million or 11.1 % compared to the fiscal 2016 , driven by an increase from operations of 13.0 % , primarily in australia and singapore , offset by a decrease of 1.9 % due to fewer sales days . the sales product mix for fiscal 2017 was 71.5 % industrial products and 28.5 % fluid power products compared to 72.9 % industrial and 27.1 % fluid power in fiscal 2016. our gross profit margin increased to 28.4 % in fiscal 2017 compared to 28.1 % in fiscal 2016. the increase was primarily due to recording a more favorable impact from lifo layer liquidations which increased gross profit by $ 9.4 million in fiscal 2017 and $ 2.1 million in fiscal 2016 , offset by a $ 4.8 million increase in scrap expense in fiscal 2017 compared to fiscal 2016. further , the gross profit margin for fiscal 2016 was negatively impacted by $ 3.6 million of 19 restructuring expense recorded within cost of sales related to inventory reserves for excess and obsolete inventory for the upstream oil and gas-focused operations . the following table shows the changes in sd & a . replace_table_token_10_th selling , distribution and administrative expenses ( sd & a ) consist of associate compensation , benefits and other expenses associated with selling , purchasing , warehousing , supply chain management , and providing marketing and distribution of the company 's products , as well as costs associated with a variety of administrative functions such as human resources , information technology , treasury , accounting , legal , facility related expenses and expenses incurred with acquiring businesses . sd & a increased $ 9.5 million or 1.7 % during fiscal 2017 compared to fiscal 2016 , and as a percent of sales decreased to 21.7 % from 21.9 % in fiscal 2016. changes in foreign currency exchange rates had the effect of increasing sd & a by $ 0.1 million or less than 0.1 % compared to fiscal 2016. additional sd & a from businesses acquired in fiscal 2017 added $ 8.2 million or 1.5 % of sd & a expenses including $ 1.0 million associated with intangibles amortization . excluding the impact of businesses acquired and the unfavorable impact from foreign currency translation , sd & a increased $ 1.2 million or 0.2 % during fiscal 2017 compared to fiscal 2016. excluding the impact of acquisitions , total compensation increased $ 12.9 million during fiscal 2017 compared to fiscal 2016 as a result of merit increases , improved company performance , and increased costs related to health care claims .
| and results of operations . 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 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 , 2018 , business was conducted in the united states , puerto rico , canada , mexico , australia , new zealand , and singapore from 610 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 .
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in november 2016 , the fasb issued new guidance requiring amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the amounts shown on the 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 included in `` financial statements and supplementary data . '' some of the information contained in this discussion and analysis , including information with respect to our plans and strategy for our business , includes forward-looking statements involving significant risks and uncertainties . as a result of many factors , such as those set forth in `` risk factors , '' our actual results may differ materially from the results described in , or implied by , these forward-looking statements . ( throughout this discussion and analysis , dollars are in millions , excluding arpu or unless otherwise noted . ) overview we are the global market leader in domain name registration . securing a domain is a necessary first step to creating a digital identity and our domain products often serve as the starting point in our customer relationships . as of december 31 , 2016 , approximately 93 % of our customers had purchased a domain from us and we had approximately 63.5 million domains under management . according to verisign 's domain name industry brief , we had 19 % of the world 's domains registered as of june 30 , 2016 . we also offer hosting , presence and business applications products and services enhancing our value proposition to our customers by enabling them to create , manage and syndicate their , or their customers ' , digital identities . while these products are often purchased in conjunction with , or subsequent to , an initial domain registration , they are also frequently the starting points in our customer relationships . as we have grown , our hosting , presence and business applications products have become increasingly important parts of our business , constituting 50 % of total revenue in 2016 . financial highlights below are our key financial highlights for the year ended december 31 , 2016 . all comparisons are to the year ended december 31 , 2015 . total revenue of $ 1,847.9 million , an increase of 15.0 % , or approximately 16.7 % on a constant currency basis ( 1 ) . international revenue of $ 497.8 million , an increase of 20.0 % , or approximately 26.5 % on a constant currency basis ( 1 ) . total bookings ( 2 ) of $ 2,155.5 million , an increase of 12.6 % , or approximately 13.8 % on a constant currency basis ( 1 ) . total customers increased 7.0 % to 14.7 million . arpu increased 6.8 % to $ 130 . cash and cash equivalents were $ 566.1 million . net cash provided by operating activities was $ 386.5 million . capital expenditures were $ 61.5 million . ( 1 ) discussion of constant currency is set forth in `` quantitative and qualitative disclosures about market risk . '' ( 2 ) a reconciliation of total bookings to total revenue , its most directly comparable gaap financial measure , is set forth in `` selected financial data—reconciliation of bookings . '' 57 our financial model we have developed a stable and predictable business model driven by efficient customer acquisition , high customer retention rates and increasing lifetime spend . we grew our total customers from 12.7 million as of december 31 , 2014 to 14.7 million as of december 31 , 2016 , primarily through a combination of brand advertising , direct marketing efforts and customer referrals . in each of the five years ended december 31 , 2016 , our customer retention rate exceeded 85 % and our retention rate for customers who had been with us for over three years was approximately 90 % . we believe the breadth and depth of our product offerings and the high quality and responsiveness of our customer care team build strong relationships with our customers and are key to our high level of customer retention . we generate bookings and revenue from sales of product subscriptions , including domain products , hosting and presence offerings and business applications , as described below . we offer our product subscriptions on a variety of terms , which are typically one year , but can range from monthly terms to multi-annual terms of up to ten years depending on the product . we monitor total bookings as we typically collect payment at the time of sale and recognize revenue ratably over the term of our customer contracts . accordingly , we believe total bookings is an indicator of the expected growth in our revenue and the operating performance of our business . see `` selected financial data—reconciliation of bookings '' for a reconciliation of total revenue to total bookings . domains . we generated 50 % of our 2016 total revenue from the sale of domain products , primarily from domain name registrations and renewals , domain add-ons such as privacy and aftermarket sales . total revenue from domains products grew at a cagr of 11.4 % over the three years ended december 31 , 2016 . hosting and presence . we generated 37 % of our 2016 total revenue from the sale of hosting and presence products , primarily from a variety of web-hosting offerings , website builder products , ssl certificates and e-commerce products . these products generally have higher margins than conventional domain sales . total revenue from hosting and presence products grew at a cagr of 21.3 % over the three years ended december 31 , 2016 . business applications . we generated 13 % of our 2016 total revenue from the sale of business applications products , primarily from productivity tools such as domain-specific email accounts , which generally also have higher margins than conventional domain sales . story_separator_special_tag cost of revenue increased $ 91.9 million , or 16.2 % , from $ 565.9 million in 2015 to $ 657.8 million in 2016 . this increase was primarily attributable to increased domain costs driven by the 3.1 % increase in domains under management , higher registration costs associated with many new gtlds and increased aftermarket domain sales , a $ 22.8 million increase in software licensing fees primarily related to increased sales of email and productivity solutions , increased third-party commissions driven by increased aftermarket domain sales as well as increased payment processing fees due to the overall bookings increase . 2015 compared to 2014 . cost of revenue increased $ 47.5 million , or 9.2 % , from $ 518.4 million in 2014 to $ 565.9 million in 2015 . this increase was primarily attributable to increased domain costs driven by the 4.6 % increase in domains under management and higher costs associated with many new gtld registrations , a $ 12.1 million increase in software licensing fees primarily related to increased sales of our email and productivity solutions and increased payment processing fees due to the overall bookings increase . technology and development technology and development expenses represent the costs associated with the creation , development and distribution of our products and websites . these expenses primarily consist of personnel costs associated with the design , development , deployment , testing , operation and enhancement of our products , as well as costs associated with the data centers and systems infrastructure supporting those products , excluding depreciation expense . we expect technology and development expense to increase in absolute dollars as we continue to enhance existing products , develop new products and geographically diversify our data center footprint . technology and development expenses may increase or decrease as a percentage of total revenue depending on our level of investment in additional personnel and the expansion of our global infrastructure footprint . our investments in additional technology and development expenses are made to enhance our integrated technology infrastructure and to support our new and enhanced product offerings and the overall growth of our business . replace_table_token_11_th 2016 compared to 2015 . technology and development expenses increased $ 17.6 million , or 6.5 % , from $ 270.2 million in 2015 to $ 287.8 million in 2016 . this increase was primarily attributable to increased compensation-related costs driven by increased average headcount associated with the continued growth of our business . 62 2015 compared to 2014 . technology and development expenses increased $ 19.4 million , or 7.7 % , from $ 250.8 million in 2014 to $ 270.2 million in 2015 . the increase was primarily attributable to increased compensation-related costs , including a $ 7.8 million increase in equity-based compensation , increased data center rent related to the continued growth of our business and increased technology-related professional fees to support our internal development team and expedite delivery of product enhancements to our customers . marketing and advertising marketing and advertising expenses represent the costs associated with attracting and acquiring customers , primarily consisting of fees paid to third parties for marketing and advertising campaigns across television and radio , search engines , online display , social media and spokesperson and event sponsorships . these expenses also include personnel costs and affiliate program commissions . we expect marketing and advertising expenses to fluctuate both in absolute dollars and as a percentage of total revenue depending on the size and scope of our future campaigns , particularly related to new product introductions and the growth of our international business . replace_table_token_12_th 2016 compared to 2015 . marketing and advertising expenses increased $ 26.6 million , or 13.2 % , from $ 202.2 million in 2015 to $ 228.8 million in 2016 . the increase was primarily attributable to increased discretionary advertising spend driven by our international growth and new product launches . 2015 compared to 2014 . marketing and advertising expenses increased $ 37.5 million , or 22.8 % , from $ 164.7 million in 2014 to $ 202.2 million in 2015 . the increase was primarily attributable to increased discretionary advertising spend driven by our international expansion . customer care customer care expenses represent the costs to advise and service our customers , primarily consisting of personnel costs . we expect these expenses to increase in absolute dollars in the future as we expand our domestic and international customer care teams due to increases in total customers . we expect customer care expenses to fluctuate as a percentage of total revenue depending on the level of personnel required to support the continued growth of our business . replace_table_token_13_th 2016 compared to 2015 . customer care expenses increased $ 20.6 million , or 9.3 % , from $ 221.5 million in 2015 to $ 242.1 million in 2016 . the increase was primarily due to increased compensation-related costs associated with the continued growth of our business as well as increased costs associated with the continued expansion of our international third-party customer care locations . 2015 compared to 2014 . customer care expenses increased $ 31.0 million , or 16.3 % , from $ 190.5 million in 2014 to $ 221.5 million in 2015 . the increase was primarily due to increased compensation-related costs , primarily driven by increased average headcount , as well as incremental costs associated with the continued expansion of our international third-party customer care locations . general and administrative general and administrative expenses primarily consist of personnel costs for our administrative functions , professional service fees , office rent for all locations , all employee travel expenses , acquisition-related expenses , sponsor-based costs and other general costs . we expect general and administrative expenses to increase in absolute dollars in the future as a result of our overall growth , increased personnel costs and public company expenses .
| results of operations the following table sets forth our consolidated results of operations for the periods presented . the period-to-period comparison of financial results is not necessarily indicative of future results . replace_table_token_8_th comparison of years ended december 31 , 2016 , 2015 and 2014 revenue we generate substantially all of our revenue from sales of product subscriptions , including domain registrations and renewals , hosting and presence offerings and business applications . our subscription terms are typically one year , but can range from monthly terms to multi-annual terms of up to ten years depending on the product . we generally collect the full amount of subscription fees at the time of sale , but recognize revenue ratably over the applicable contract term . domains revenue primarily consists of revenue from the sale of domain registration subscriptions , domain add-ons and aftermarket domain sales . domain registrations provide a customer with the exclusive use of a domain during the applicable contract term . after the contract term expires , unless renewed , the customer can no longer access the domain . hosting and presence revenue primarily consists of revenue from the sale of subscriptions for our website hosting products , website building products and services , online visibility products , security products and an online store . 60 business applications revenue primarily consists of revenue from the sale of subscriptions for email accounts , online calendar , online data storage , third-party productivity applications and email marketing tools . revenue is presented net of refunds , and we maintain a reserve to provide for refunds granted to customers . our reserve is an estimate based on historical refund experience . refunds reduce deferred revenue at the time they are granted and result in a reduced amount of revenue recognized over the applicable subscription terms compared to the amount originally expected .
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specific forward-looking statements in this report include , but are not limited to : ( i ) statements about our focus in the fiscal year beginning july 1 , 2019 and ending june 30 , 2020 ( fiscal 2020 ) on growth in earnings and cash flows ; ( ii ) creating value through investments in broader enterprise information management ( eim ) capabilities ; ( iii ) our future business plans and business planning process ; ( iv ) statements relating to business trends ; ( v ) statements relating to distribution ; ( vi ) the company 's presence in the cloud and in growth markets ; ( vii ) product and solution developments , enhancements and releases and the timing thereof ; ( viii ) the company 's financial conditions , results of operations and earnings ; ( ix ) the basis for any future growth and for our financial performance ; ( x ) declaration of quarterly dividends ; ( xi ) future tax rates ; ( xii ) the changing regulatory environment including the tax reform legislation enacted through the tax cuts and jobs act in the united states and its impact on our business ; ( xiii ) annual recurring revenues ; ( xiv ) research and development and related expenditures ; ( xv ) our building , development and consolidation of our network infrastructure ; ( xvi ) competition and changes in the competitive landscape ; ( xvii ) our management and protection of intellectual property and other proprietary rights ; ( xviii ) foreign sales and exchange rate fluctuations ; ( xix ) cyclical or seasonal aspects of our business ; ( xx ) capital expenditures ; ( xxi ) potential legal and or regulatory proceedings ; ( xxii ) statements about the impact of magellan and release 16 ; ( xxiii ) statements about acquisitions and their expected impact ; and ( xxiv ) other matters . in addition , any statements or information that refer to expectations , beliefs , plans , projections , objectives , performance or other characterizations of future events or circumstances , including any underlying assumptions , are forward-looking , and based on our current expectations , forecasts and projections about the operating environment , economies and markets in which we operate . forward-looking statements reflect our current estimates , beliefs and assumptions , which are based on management 's perception of historic trends , current conditions and expected future developments , as well as other factors it believes are appropriate in the circumstances . the forward-looking statements contained in this report are based on certain assumptions including the following : ( i ) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports ; ( ii ) our continued operation of a secure and reliable business network ; ( iii ) the stability of general economic and market conditions , currency exchange rates , and interest rates ; ( iv ) equity and debt markets continuing to provide us with access to capital ; ( v ) our continued ability to identify , source and finance attractive and executable business combination opportunities ; and ( vi ) our continued compliance with third party intellectual property rights . management 's estimates , beliefs and assumptions are inherently subject to significant business , economic , competitive and other uncertainties and contingencies regarding future events and , as such , are subject to change . we can give no assurance that such estimates , beliefs and assumptions will prove to be correct . forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause our actual results , performance or achievements to differ materially from the anticipated results , performance or achievements expressed or implied by such forward-looking statements . the risks and uncertainties that may affect forward-looking statements include , but are not limited to : ( i ) integration of acquisitions and related restructuring efforts , including the quantum of restructuring charges and the timing thereof ; ( ii ) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on our outstanding debt securities ; ( iii ) the possibility that the company may be unable to meet its future reporting requirements under the exchange act , and the rules promulgated thereunder , or applicable canadian securities regulation ; ( iv ) the risks associated with bringing new products and services to market ; ( v ) fluctuations in currency exchange rates ( including as a result of the impact of brexit and any policy changes resulting from trade and tariff disputes ) ; ( vi ) delays in the purchasing decisions of the company 's customers ; ( vii ) the competition the company faces in its industry and or marketplace ; ( viii ) the final determination of litigation , tax audits ( including tax examinations in the united states , canada or elsewhere ) and other legal proceedings ; ( ix ) potential exposure to greater than anticipated tax liabilities or expenses , including with respect to changes in canadian , u.s. or international tax regimes ; ( x ) the possibility of technical , logistical or planning issues in connection with the deployment of the company 's products or services ; ( xi ) the continuous commitment of the company 's customers ; ( xii ) demand for the company 's products and services ; ( xiii ) increase in exposure to international business risks ( including as a result of the impact of brexit and any policy changes resulting from the new u.s. administration , including any transition from the north american free trade agreement to the united states-mexico-canada agreement ) as we continue to increase our international operations ; ( xiv ) inability to raise capital at all or on not unfavorable terms in the future ; ( xv ) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities ( including in connection story_separator_special_tag fiscal 2019 summary : during the first quarter of fiscal 2019 , we adopted accounting standards codification ( asc ) topic 606 `` revenue from contracts with customers '' ( topic 606 ) using the cumulative effect approach and recorded a net increase of approximately $ 30 million to retained earnings as of july 1 , 2018. results for reporting periods commencing on july 1 , 2018 are presented under topic 606 , while prior periods , unless specifically referred to in this md & a , continue to be reported under the previous 34 standard . please refer to note 1 `` basis of presentation '' and note 3 `` revenues '' to our consolidated financial statements for additional details . during fiscal 2019 we saw the following activity : total revenue was $ 2,868.8 million , up 1.9 % compared to the prior fiscal year ; up 3.8 % after factoring the impact of $ 53.2 million of foreign exchange rate changes . total annual recurring revenue , which we define as the sum of cloud services and subscriptions revenue and customer support revenue , was $ 2,155.7 million , up 4.6 % compared to the prior fiscal year ; up 6.2 % after factoring the impact of $ 34.0 million of foreign exchange rate changes . cloud services and subscriptions revenue was $ 907.8 million , up 9.5 % compared to the prior fiscal year ; up 10.8 % after factoring the impact of $ 10.8 million of foreign exchange rate changes . license revenue was $ 428.1 million , down 2.2 % compared to the prior fiscal year ; up 0.4 % after factoring the impact of $ 11.2 million of foreign exchange rate changes . gaap-based eps , diluted , was $ 1.06 compared to $ 0.91 in the prior fiscal year . non-gaap-based eps , diluted , was $ 2.76 compared to $ 2.56 in the prior fiscal year . gaap-based gross margin was 67.6 % compared to 66.2 % in the prior fiscal year . non-gaap-based gross margin was 74.1 % compared to 73.0 % in the prior fiscal year . gaap-based net income attributable to opentext was $ 285.5 million compared to $ 242.2 million in the prior fiscal year . non-gaap-based net income attributable to opentext was $ 744.7 million compared to $ 683.6 million in the prior fiscal year . adjusted ebitda was $ 1,100.3 million compared to $ 1,020.4 million in the prior fiscal year . operating cash flow was $ 876.3 million for the year ended june 30 , 2019 , up 23.8 % from the prior fiscal year . cash and cash equivalents was $ 941.0 million as of june 30 , 2019 , compared to $ 682.9 million as of june 30 , 2018 . see `` use of non-gaap financial measures '' below for definitions and reconciliations of gaap-based measures to non-gaap-based measures . see `` acquisitions '' below for the impact of acquisitions on the period-to-period comparability of results . acquisitions our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies , products , services and capabilities . in light of the continually evolving marketplace in which we operate , on an ongoing basis we regularly evaluate acquisition opportunities within the eim market and at any time may be in various stages of discussions with respect to such opportunities . we believe our acquisitions support our long-term strategic direction , strengthen our competitive position , expand our customer base , provide greater scale to accelerate innovation , grow our earnings and provide superior shareholder value . we expect to continue to strategically acquire companies , products , services and technologies to augment our existing business . our acquisitions , particularly significant ones , can affect the period-to-period comparability of our results . see note 18 `` acquisitions '' to our consolidated financial statements for more details . catalyst repository systems inc. ( catalyst ) on january 31 , 2019 , we acquired all of the equity interest in catalyst , a leading provider of ediscovery that designs , develops and supports market-leading cloud ediscovery software , for approximately $ 70.8 million in an all cash transaction . this acquisition complements and extends our eim portfolio . the results of operations of this acquisition have been consolidated with those of opentext beginning january 31 , 2019 . liaison technologies , inc. ( liaison ) on december 17 , 2018 , we acquired all of the equity interest in liaison , a leading provider of cloud-based business to business integration , for approximately $ 310.6 million in an all cash transaction . this acquisition complements and extends our eim portfolio . the results of operations of this acquisition have been consolidated with those of opentext beginning december 17 , 2018 . outlook for fiscal 2020 as an organization , our management believes in delivering “ total growth ” , meaning we strive towards delivering value through organic initiatives , innovations and acquisitions , as well as financial performance . this growth is further enhanced 35 through our direct and indirect sales distribution channels . with an emphasis on increasing recurring revenues and expanding our margins , we believe our “ total growth ” strategy will ultimately drive overall cash flow generation , thus helping to fuel our disciplined capital allocation approach and further drive our ability to deepen our account coverage and identify and execute strategic acquisitions . with strategic acquisitions , we are better positioned to expand our product portfolio and improve our ability to innovate and grow organically , which then further helps us to meet our long-term growth targets . we believe this “ total growth ” strategy is a durable model that will create shareholder value over both the near and long-term . we are committed to continuous innovation . our investments in research and development ( r & d ) drive product innovation , increasing the value of our offerings to our installed customer base , which includes global 10,000 companies .
| summary of results of operations replace_table_token_3_th 42 replace_table_token_4_th ( 1 ) total revenues by geography are determined based on the location of our end customer . ( 2 ) americas consists of countries in north , central and south america . ( 3 ) emea primarily consists of countries in europe , the middle east and africa . ( 4 ) asia pacific primarily consists of the countries japan , australia , china , korea , philippines , singapore and new zealand . ( 5 ) see `` use of non-gaap financial measures '' ( discussed later in this md & a ) for definitions and reconciliations of gaap-based measures to non-gaap-based measures . revenues , cost of revenues and gross margin by product type 1 ) license : our license revenue can be broadly categorized as perpetual licenses , term licenses and subscription licenses , all of which are deployed on the customer 's premises ( on-premise ) . our license revenues are impacted by the strength of general economic and industry conditions , the competitive strength of our software products , and our acquisitions . cost of license revenues consists primarily of royalties payable to third parties . replace_table_token_5_th license revenues decreased by $ 9.4 million or 2.2 % during the year ended june 30 , 2019 as compared to the prior fiscal year ; up 0.4 % after factoring the impact of $ 11.2 million of foreign exchange rate changes . geographically , the overall change was attributable to an increase in americas of $ 8.2 million , offset by a decrease in asia pacific of $ 10.6 million and a decrease in emea of $ 7.0 million . during fiscal 2019 , we closed 153 license deals greater than $ 0.5 million , of which 49 deals were greater than $ 1.0 million , contributing approximately $ 144.1 million of license revenues .
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in addition , any forfeited , terminated or expired shares that would otherwise return to the 2003 plan are available under the 2011 plan . as of december 31 , 2016 , the 2011 plan has 2,763,300 shares of common stock reserved for issuance to employees , which includes 263,300 shares that transferred from the 2003 plan . shares issued as options or stock appreciation rights ( `` sars `` ) are charged against the 2011 plan 's share reserve as one share for one share issued . shares subject to story_separator_special_tag business overview and highlights we are a leader in the development , manufacture and sale of innovative medical devices used in infusion therapy , critical care and oncology applications . our product line include needlefree connection devices , custom infusion sets , cstd for the handling of hazardous drugs , advanced sensor catheters , closed blood sampling systems and innovative hemodynamic monitoring systems . our products are used in acute care hospitals and ambulatory clinics in more than 65 countries throughout the world . we categorize our products into three main market segments : infusion therapy , critical care and oncology . our primary products include : infusion therapy needlefree connector products ◦ microclave ® and microclave clear ® ◦ neutron ® ◦ nanoclave ® ◦ clave ® ◦ swabcap ® custom infusion sets tego ® needlefree hemodialysis connector critical care hemodynamic monitoring systems closed blood sampling and conservation systems consumable blood pressure transducers other critical care products and accessories oncology chemolock ® cstd and components chemoclave ® cstd and components diana ® hazardous drug compounding system the following table sets forth , for the periods indicated , total revenues by market segment and its major product groups as a percentage of total revenues : replace_table_token_7_th we currently sell our products through direct channels , which include distributors and the end users of our products and as an oem supplier . our largest customer has been hospira , inc. , a subsidiary of pfizer , to which we distributed our products as an oem supplier . pfizer accounted for 30 % of our worldwide revenues in 2016 and 36 % of our worldwide revenues in both 2015 and 2014 . pfizer has been a major supplier of infusion pumps and iv solutions , and has helped us achieve market share where they have multiple products under contract with a customer or broader international distribution channels than we would have been able to have on our own . our agreements with pfizer , which were terminated upon our acquisition of pfizer 's his business , provided them with conditional rights to distribute certain of our clave and other products to certain categories of customers both in the united states and foreign countries . depending on the product and category of customer , these rights may have been exclusive or nonexclusive . our relationship with pfizer has been important for our growth but we have had significant earnings exposure to a single customer . eliminating this concentration risk was an important factor in making the decision to acquire pfizer 's his business , see `` acquisitions . '' 33 we believe that as healthcare providers continue to either consolidate or join major buying organizations , the success of our products will depend , in part , on our ability , either independently or through strategic relationships , to secure long-term contracts with large healthcare providers and major buying organizations . as a result of this marketing and distribution strategy we derive most of our revenues from a relatively small number of distributors and manufacturers . the loss of a strategic relationship with a customer or a decline in demand for a manufacturing customer 's products could have a material adverse effect on our operating results . we believe that achievement of our growth objectives worldwide will require increased efforts by us in sales and marketing and product development ; however , there is no assurance that we will be successful in implementing our growth strategy . product development or acquisition efforts may not succeed , and even if we do develop or acquire additional products , there is no assurance that we will achieve profitable sales of such products . increased expenditures for sales and marketing and product acquisition and development may not yield desired results when expected , or at all . while we have taken steps to control these risks , there are certain risks that may be outside of our control , and there is no assurance that steps we have taken will succeed . seasonality/quarterly results the healthcare business in the united states is subject to quarterly fluctuations due to frequency of illness during the seasons , elective procedures , and over the last few years , the economy . in europe , the healthcare business generally slows down in the summer months due to vacations resulting in fewer elective surgeries . in addition , we can experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers , which may be driven more by production scheduling and their inventory levels , and less by seasonality . our expenses often do not fluctuate in the same manner as net sales , which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue . acquisitions on october 6 , 2016 , we entered into a stock and asset purchase agreement ( the “ purchase agreement ” ) to acquire pfizer 's his business . on january 5 , 2017 , we amended and restated the original purchase agreement to modify the terms of the agreement as a result of changes in the performance of his that affect expectations for the transaction . story_separator_special_tag legal settlements during 2015 , we recorded a net settlement charge of $ 1.8 million , less than 1 % of revenues , due to the following claims : an arbitrator ruled on a breach of contract claim between us and a service provider , awarding us a gross settlement of $ 8.8 million . our legal counsel for this matter represented us under a contingency fee agreement . we recorded a settlement award , net of legal fees and costs , of $ 5.3 million ; and an arbitrator ruled on a breach of contract claim between us and a customer , hospira , awarding hospira a settlement and that we pay 75 % of hospira 's legal fees and expenses , resulting in a $ 7.1 million legal settlement charge . 38 impairment of assets held-for-sale during 2015 , our board of directors authorized us to close our vrable , slovakia manufacturing facility . the closure was to enable for greater efficiency of our ensenada , mexico facility . after receiving the board of director 's authorization , we reclassified the assets related to the slovakia facility as held-for-sale , and recorded the value of those assets at the lower of their carrying value or their estimated fair value , less costs to sell , which was based on a third party fair market valuation . as the estimated fair value , less cost to sell was lower than the carrying value of the assets held-for-sale we recorded an impairment charge of $ 4.1 million . during 2016 , we completed the closure of our slovakia manufacturing facility and sold the land and building held-for-sale for $ 3.3 million , net of costs to sell , resulting in an additional impairment loss of $ 0.7 million . bargain purchase gain in 2016 , we recognized a bargain purchase gain of $ 1.5 million in connection with the tangent acquisition . the bargain purchase gain represented the excess of the estimated fair market value of the identifiable tangible and intangible assets acquired and liabilities assumed , net of deferred tax assets over the total purchase consideration . the bargain purchase was driven by our ability to realize acquired deferred tax assets . other income other income was $ 0.8 million , $ 1.1 million and $ 0.8 million in 2016 , 2015 and 2014 , respectively . income taxes income taxes were accrued at an estimated annual effective tax rate of 26 % , 35 % and 34 % in 2016 , 2015 and 2014 , respectively . the effective tax rate for 2016 differs from the federal statutory rate principally because of the effect of foreign and state income taxes , tax credits , deductions for domestic production activities , and included material discrete tax benefits related to the adoption of asu no . 2016-09 , compensation - stock compensation ( topic 718 ) : improvements to employee share-based payment accounting ( see note 1 of the consolidated financial statements in this annual report on form 10-k ) . the 2016 material discrete tax benefit related to the impact of asu 2016-09 , adopted during the second quarter of 2016 was $ 7.6 million . the income tax benefit was treated as a discrete item when determining the annual estimated effective tax rate . included in the 2015 estimated annual effective tax rate are the effects of foreign and state income taxes , tax credits , deductions for domestic production activities and discrete tax items related to the conclusion of state tax examinations , one-time tax effects related to the acquisition of exc , and tax impact related to the proposed shut down of our slovakia plant . liquidity and capital resources during 2016 , our cash , cash equivalents and investment securities increased by $ 67.7 million from $ 377.4 million at december 31 , 2015 to $ 445.1 million at december 31 , 2016 . as of december 31 , 2016 , we had liquidated all of our short-term and long-term investment securities to fund the pending acquisition of his . cash flows from operating activities : our cash provided by operations was $ 89.9 million in 2016 . net income plus adjustments for non-cash net expenses contributed $ 98.7 million to cash provided by operations . net cash used by operations as a result of changes in operating assets and liabilities was $ 8.8 million . the changes in operating assets and liabilities included a $ 5.5 million increase in inventories , a $ 3.0 million increase in prepaid expenses and other assets , a $ 1.2 million decrease in accrued liabilities , and a $ 0.5 million decrease in accounts payable , partially offset by a $ 0.7 million decrease in accounts receivable and a $ 0.7 million net change in prepaid and deferred income taxes . the increase in inventories was primarily due to building finished good safety stock , to support better customer deliveries , raw materials related to our slovakia plant closure , and related transfer to our mexico plant , and inventory associated with the acquired swabcap product-line . the increase in prepaid expenses and other assets was primarily due to repayment of state aid and interest related to the closure of our slovakian manufacturing facilities . the 39 decrease in accrued liabilities was primarily due to the payment of accrued restructuring charges related to the closure of our slovakian manufacturing facility and the payment of acquisition-related accruals from our 2015 exc acquisition . the decrease in accounts payable was a result of the timing of disbursements . the decrease in accounts receivable was due to collection efforts on our past due accounts . the net changes in income taxes was a result of the timing of payments for cash tax purposes , which includes true-ups for 2015 overpayment and 2016 estimated taxes .
| consolidated results of operations we present summarized income statement data in item 6. selected financial data . the following table shows , for the three most recent years , the percentages of each income statement caption in relation to total revenues . replace_table_token_8_th a portion of our sales is conducted in currencies other than the u.s. dollar , particularly the euro . significant fluctuations in foreign currency exchange rates can impact the comparability of our total revenues . when exchange rate changes significantly impact our revenues , in addition to comparing changes in revenue on a u.s. gaap basis , we also compare the changes in revenue from one period to another using constant currency . if significant , we provide constant currency information to enhance the visibility of underlying business trends , excluding the effects of changes in foreign currency translation rates . to calculate our constant currency results , we apply the average exchange rate for revenues from the prior year to the current year results . these results should be considered in addition to , not as a substitute for , results reported in accordance with gaap . results on a constant currency basis , as we present them , may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with gaap . foreign currency exchange rate changes did not significantly impact our revenue results for 2016 , as compared to 2015 , however , they did have significant impact when comparing 2015 revenue results to the comparable 2014 period . as such , the constant currency comparison is discussed below for 2015 , as compared to 2014 period results . total revenues for 2016 , 2015 and 2014 were $ 379.4 million , $ 341.7 million and $ 309.3 million , respectively .
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the ownership structure of four ref-fuel facilities located in new york , new jersey , and connecticut was modified to give american ref-fuel company llc operational control of those entities . this transaction allowed us to reduce our debt requirements by approximately $ 300 million and reduced our letter of credit requirements by $ 200 million . during the year ended 2001 , we reported approximately $ 23 million in revenues , $ 3 million in operating income and $ 14 million of equity earnings from american ref-fuel . 84 allied waste industries , inc. notes to consolidated financial statements at december 31 , 2001 , our equity investment story_separator_special_tag the following discussion should be read in conjunction with our consolidated financial statements and the notes thereto , included elsewhere herein . please note that unless otherwise specifically indicated , discussion of our results relate to our continuing operations . executive summary our business is characterized by a very stable customer base resulting in consistent cash flow generation . we provide a very basic , industrial-type service to our customers that is essential to their needs . competition is driven by local economic and demographic factors as well as fluctuations in capacity utilization , in both the collection and landfill business . we believe capacity utilization tends to ultimately impact pricing for our services through the economics of supply and demand . the order of magnitude for year over year price and volume changes over the past three years has been less than three percent to both the positive and negative . customer service levels industry-wide are very high since the collection customer has a very low tolerance for poor service . our operating costs are largely predictable , commensurate with the stability of our customer base . labor costs are the most significant at approximately one-third of our total operating costs , consistent with our extensive workforce . the direct cost of disposing of waste at third-party sites is approximately 16 % of our total operating costs . direct disposal costs excludes the disposal costs associated with the 72 % of our collected waste which is disposed of at our own facilities ; the costs thereof are included in each of the other landfill related operating cost line items . repairs and maintenance expense is approximately 13 % of our total operating costs and each of transportation , vehicle operating and safety and insurance range from approximately 5 % to 10 % of our total operating costs . our selling , general and administrative costs are also largely predictable since salaries and management incentive compensation represents approximately 59 % of our selling , general and administrative costs . we spend a large amount of capital to support the ongoing operations of our business . in 2003 , we incurred $ 492 million in capital expenditures , including $ 310 million to support and sustain the landfill and transfer business and $ 182 million to reinvest in the collection business . landfills are highly engineered , sophisticated facilities similar to civil works . each year we spend capital at our 166 active landfills to ensure sufficient capacity to receive the waste volume we handle . in addition , we have approximately 13,500 collection vehicles and over 100,000 containers to serve our collection customers . they endure rough conditions each day and must be routinely replaced . that said , we have a certain amount of flexibility as to when and how we spend capital on these assets without materially impeding operations . cash flows in our business are for the most part predictable as a result of the nature of our customer base , operating costs and capital spending . as a result , our business is conducive to servicing a significant level of indebtedness . knowing this , we have incurred debt to acquire the assets we own . we paid cash to acquire existing cash flow . this financial model will allow us over time to transfer the enterprise value of the company from debt holders to shareholders as we use our cash flow to repay debt . we , of course , need to prudently manage our debt depending on the varying economic and capital market conditions to avoid unnecessary risk . over the next four to five years , if you consider our average cash flow generation of the last three years , we may approach a point where our credit ratios would allow us to avail the company of the economic benefits of a crossover investment grade company . as this occurs , we believe two things will happen . first , the cost of debt and interest expense will decline . second , we will have the opportunity to choose the best use of our excess cash flow : further repay debt , pay a dividend , repurchase stock or reinvest in growing the size of our company . if opportunities arise to accelerate the de-leveraging process , we may take advantage of them as long as the opportunities have a positive effect on cash flows . 18 story_separator_special_tag landfill services on a same store basis . ( 2 ) excludes amounts reclassified to discontinued operations . overall , during 2003 , we have continued to experience pricing pressures as a result of general economic conditions . landfill revenues increased as a result of a 6 % increase in landfill volumes , and a slight increase in per unit pricing for 2003 when compared to 2002. revenue from the collection businesses remained fairly consistent from 2002 to 2003 with volumes and per unit pricing remaining flat . commodity revenues increased by $ 34 million in 2003 compared to 2002 primarily due to an increase in the average per unit price received for old corrugated cardboard and various grades of paper , our primary commodities and an increase in processing fees associated with a recycling contract , offset by a decline in commodity volume primarily due to the sale or closure of processing facilities . story_separator_special_tag in connection with the exchange , we recorded a reduction to net income available to common shareholders of $ 496.6 million for the fair value ( using a stock price on the date of conversion of $ 13.50 ) of the 36.8 million incremental shares of common stock issued to the holders of the preferred stock over the amount the holders would have received under the original conversion provisions . years ended december 31 , 2002 and 2001 revenues . revenues decreased by 0.8 % in 2002. following is a summary of the change in revenues ( in millions ) : replace_table_token_13_th ( 1 ) core business represents revenues from collection , transfer and landfill services on a same store basis . ( 2 ) excludes amounts reclassified to discontinued operations . during 2002 , pricing pressures were primarily experienced in the landfill , roll-off and commercial collection businesses . the residential collection business remained fairly constant . landfill volumes increased by 4.0 % , partially offset by 2.0 % decrease in landfill pricing when compared to 2001. commodity revenues increased as a result of increases in the average price per ton , while volumes remained fairly constant when comparing 2002 to 2001. cost of operations . cost of operations increased by 2.5 % in 2002. the 2001 costs of operations included $ 10.4 million of bfi transition costs . these costs are not recurring costs of ongoing operations since they primarily related to the bfi transitional employees . there were no bfi transition costs expensed during 2002. the remaining increase in cost of operations in 2002 of 2.9 % is attributable to an increase in overall operating costs from normal inflation that we have not been able to recover due to pricing pressures . in addition , our annual medical , property and casualty insurance costs increased in excess of normal inflationary increases . selling , general and administrative expenses . selling , general and administrative expenses increased by 6.4 % in 2002. included in selling , general and administrative expenses were $ 17.4 million of bfi transition costs for the year ended december 31 , 2001. these costs are not recurring costs of ongoing operations and primarily related to the billing system conversion associated with the acquisition of bfi . there were no bfi transition costs expensed during 2002. the increase in the remaining selling , general and administrative expenses was 10.9 % , which is attributable to increased costs associated with the field infrastructure expansion and higher professional fees . depreciation and amortization . depreciation and amortization increased by 6.6 % in 2002. the increase was primarily attributable to an increase in landfill volumes and increased capital expenditures . 25 goodwill amortization . effective january 1 , 2002 , we discontinued the amortization of our goodwill upon the adoption of sfas 142. non-cash ( gain ) loss on divestiture of assets . as part of our ongoing review of operations and our goal of having a self-funding market development program , we sell operations from time to time . in october 2002 , we sold certain collection operations for net proceeds of approximately $ 77.5 million and reflected a gain of approximately $ 9.3 million ( $ 8.2 million loss on an after-tax basis ) . the proceeds were used to repay debt and were subsequently redeployed to purchase assets in other markets . during february 2001 , we sold certain operations for approximately $ 53 million and reflected a non-cash loss of approximately $ 107 million ( $ 65 million , net of income tax benefit ) in the reported results for the first quarter of 2001. the proceeds were used initially to repay debt and subsequently redeployed to purchase other assets in other markets . equity in earnings of unconsolidated affiliates . on april 30 , 2002 , we completed the exchange of our minority interest in the four ref-fuel facilities for the 99 % interest in our equipment purchasing subsidiaries owned by subsidiaries of american ref-fuel company llc . we no longer have any interest in the ref-fuel entities and we own 100 % of the equipment purchasing subsidiaries . during 2001 , we reported approximately $ 23.2 million in revenues , $ 3.5 million in operating income and $ 14.1 million of equity earnings from american ref-fuel . interest expense and other . interest expense and other decreased by 1.4 % in 2002. following are the components of interest expense and other ( in millions ) : replace_table_token_14_th the 7.2 % decrease in gross interest expense and cash settlements of de-designated interest rate swap contracts is attributable primarily to the repayment of debt from our continued de-leveraging strategy , partially offset by a reduction in the amount of interest we capitalized . we reduced our debt balance by $ 377.5 million in 2002. at december 31 , 2002 , approximately 98 % of our debt was fixed , 72 % directly through a fixed coupon , and 26 % through interest rate swap agreements . on december 31 , 2001 , certain interest rate swap contracts were de-designated as accounting hedges . the non-cash gain on de-designated interest rate swap contracts reflects the change in market value of the underlying interest rate swap contract driven by both prevailing interest rates and the remaining term of the interest rate swap contract . prior to de-designation , the changes in market value were recorded as a component of equity in accumulated other comprehensive income . the amortization of accumulated other comprehensive income for de-designated interest rate swap contracts represents the amortization of the cumulative amount of net market value remaining in equity at the time of de-designation . 26 costs incurred to early extinguish debt are driven by the amount , terms , nature , frequency and timing of debt extinguishments . the total costs incurred to early extinguish debt are dependent on the specific facts and circumstances of the individual transactions . income taxes .
| results of operations . during 2003 , we experienced a decline in operating earnings primarily attributable to pricing pressures driven by the continued economic slowdown . we believe that reduced volume growth industry-wide , since the start of the economic downturn in 2001 , has caused pressure on our average per unit price . competition , driven to some extent by excess capacity , has moved prices for services lower . economic pressures have made it difficult over the past couple of years , including 2003 , to recover with pricing , the increases in costs caused by normal inflation and increases in medical , property and casualty insurance and financial assurance costs in excess of inflation . this has caused a decrease in operating margin . recent economic data has indicated upward trends and recovery in the economy . historically , we believe the waste industry has lagged in seeing the improvement in operating results from an economic recovery . during 2003 , we began to see improvement in both pricing and volume growth . however , consistent with our industry , we have not seen significant improvements and have not fully regained the ability to recover increases in operating costs to improve operating margins . we believe that a sustained economic recovery could drive greater volume growth , increase capacity utilization and therefore positively effect average per unit pricing . we anticipate that costs will continue to increase from normal inflation . in addition , we currently expect our insurance and financial assurance costs to continue to increase at a rate in excess of inflation . over the next several years , we will continue to look internally for cost reduction opportunities to offset these cost increases . financing activities . we are committed to reducing debt .
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the company determined the useful life of its asset resulting from r & d activities to be approximately 10 years , which is based on the remaining patent life , and is story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated and combined financial statements and the related notes appearing elsewhere in this annual report on form 10-k. in addition to historical information , this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions and other factors that could cause actual results to differ materially from those made , projected or implied in the forward-looking statements . our actual results may differ materially from those discussed below . please see “ forward-looking statements ” and “ risk factors ” included in part i , item 1a of this annual report on form 10-k for factors that could cause or contribute to such differences . overview we are a pharmaceutical company primarily focused on developing and commercializing innovative products for hospital and related acute care settings . we believe that we can bring valuable therapeutic options for patients , prescribers and payers to the hospital and related acute care markets . our first commercial product , anjeso , had its nda approved by the fda on february 20 , 2020 for the management of moderate to severe pain , alone or in combination with other non-nsaid analgesics . anjeso is a once daily iv , nsaid with preferential cox-2 activity , which has successfully completed three phase iii studies , including two pivotal efficacy trials , a large double-blind phase iii safety trial and other safety studies for the management of moderate to severe pain . overall , the total nda program included over 1,400 patients . we have established sales management , marketing and reimbursement functions in connection with the commercialization of anjeso in the united states . we commenced our commercial launch of anjeso in june of 2020. we utilize an internal sales team and collaborate with third parties who market anjeso to health care professionals at our called-on institutions . we continue to evaluate strategic partnerships to commercialize anjeso outside of the united states . in august 2020 , the cms established a new permanent j-code for anjeso , which became effective on october 1 , 2020 , facilitating reimbursement of anjeso in the hospital outpatient , ambulatory surgery center and physician office settings of care . we have also entered into agreements with leading group purchasing organizations in the u.s. , including vizient inc. , and premier inc. , as well as one of the top 3 integrated delivery networks for terms for availability of anjeso to their member institutions . over 65 institutions added anjeso to their formulary . the number of vials sold to end-customers has increased 58 % in the fourth quarter of 2020 versus the third quarter of 2020. the number of vials sold to hospitals and ambulatory surgical centers increased over 80 % during the same time period . the average quarterly orders per account increased over 60 % in the fourth quarter of 2020 versus the third quarter of 2020 and the re-order rate is approximately 55 % with a deepening usage pattern . our costs consist primarily of expenses incurred in conducting our manufacturing scale-up , commercialization of anjeso , clinical trials and preclinical studies , regulatory activities , and public company and personnel costs . we expect to incur operating losses for at least the next few years . we expect substantially all of our operating losses to result from costs incurred in connection with our commercialization activities , including manufacturing costs , and development programs , including our clinical , non-clinical and formulation development activities . our expenses over the next several years are expected to primarily relate to the commercialization of anjeso and continuing to develop our other current and future product candidates . in addition , we may incur costs associated with the acquisition or in-license of products and successful commercialization of the acquired or in-licensed products . our pipeline also includes other early-stage product candidates , including two novel nmbas and a related proprietary chemical reversal agent and dex-in , a proprietary intranasal formulation of dexmedetomidine , or dex , an alpha-2 adrenergic agonist that we are evaluating for possible partnering . covid-19 impact our efforts to commercialize anjeso have been impacted and may continue to be impacted by the covid-19 pandemic . hospitals have reduced elective surgeries , and many have not yet returned to their prior number of surgeries even where the pandemic has , for a time , abated . in addition , covid-19 has , in many cases , impacted revenue for hospitals , caused a reduction in hospital staffing , lead to a diversion in resources from other normal activities to patients suffering from covid-19 and caused a limitation in hospital access for nonpatients , including our sales professionals , which we believe is impacting our marketing and commercialization efforts . we believe a reduction in elective surgeries during the covid-19 pandemic has caused and may continue to result in decreased demand for anjeso . we anticipate that many hospitals and health care providers will continue to suffer negative financial consequences due to an increase in unexpected costs , personal protective equipment and ventilators , along with a dramatic reduction in revenue due to fewer elective procedures being performed , which may result in a decreased demand for anjeso . while access restrictions have eased in some locations , cycling spikes of covid-19 cases in certain states or regions may further impact our sales force as access to hospitals may be restricted and elective surgeries may be limited in those areas . in addition , the absence of hospital formulary meetings where new drugs can be adopted has impacted our efforts to commercialize anjeso . many hospital formularies recently resumed meetings after a 6-month absence . story_separator_special_tag subsequent to regulatory approval of anjeso , we allocated or recategorized certain personnel and overhead expenses related to medical affairs , supply chain , quality and regulatory support functions that had previously been recorded within research and development to cost of sales or selling , general and administrative expenses in support of the commercialization of anjeso . pre-commercial activities directly utilizing personnel and overhead expenses from the medical affairs , supply chain , quality and regulatory support function continue to be recorded within research and development . the development of our other product candidates is highly uncertain and subject to a number of risks , including , but not limited to : the costs , timing and outcome of regulatory review of a product candidate ; the duration of clinical trials , which varies substantially according to the type , complexity and novelty of the product candidate ; substantial requirements on the introduction of pharmaceutical products imposed by the fda and comparable agencies in foreign countries , which require lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures ; the possibility that data obtained from pre-clinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity or may be susceptible to varying interpretations , which could delay , limit or prevent regulatory approval ; risk involved with development of manufacturing processes , fda pre-approval inspection practices and successful completion of manufacturing batches for clinical development and other regulatory purposes ; the emergence of competing technologies and products , including obtaining and maintaining patent protections , and other adverse market developments , which could impede our commercial efforts ; and the other risks disclosed in the section titled “ risk factors ” of this annual report on form 10-k. development timelines , probability of success and development costs vary widely . as a result of the uncertainties discussed above , we will assess our product candidate 's commercial potential and our available capital resources . as a result of these uncertainties surrounding the timing and outcome of any approval , we are currently unable to estimate precisely when , if ever , any of our product candidates will generate revenues and cash flows . we expect our research and development costs to relate to anjeso , including required pediatric post-marketing studies , as well as development and commercialization scale-up of our other product candidates . we may elect to seek collaborative relationships in order to provide us with a diversified revenue stream and to help facilitate the development and commercialization of our product candidate pipeline . selling , general and administrative expenses selling , general and administrative expenses consist of sales and marketing expenses and general and administrative expenses . sales and marketing expenses primarily consist of compensation and benefits for our sales force and personnel that support our sales and marketing efforts as well as third party consulting costs for the promotion and sale of anjeso . in addition , sales and marketing expenses include expenses related to communicating the clinical and economic benefits of anjeso and educational programs for our indirect customers . general and administrative expenses consist principally of salaries and related costs for personnel in executive , medical affairs , regulatory , finance and information technology functions . general and administrative expenses also include public company costs , directors and officer 's insurance , professional fees for legal , including patent-related expenses , consulting , auditing , and tax services . we expect our selling , general and administrative expenses to increase in the future as a result of our commercial launch of anjeso . 2020 reduction in force due to the impacts of covid-19 and the resultant slower than expected commercial ramp of anjeso , in november of 2020 , we implemented a reduction in workforce by approximately 40 employees . we expect that the reorganization will result in annualized 57 savings of an estimated $ 10.6 million in personnel and other related costs . there were also significant cost reductions made for 2021 manufacturing and launch related activities . t he reorganization was completed in november 2020 and we incur red approximately $ 1 . 7 million of charges for severance and other costs relating to such reorganization activities , primarily during the fourth quarter of 2020 . 2019 reduction in force following the receipt of a second complete response letter from the fda with regard to injectable meloxicam in march of 2019 , we implemented a restructuring initiative , and corresponding reduction in workforce , aimed at reducing operating expenses , while maintaining key personnel needed to obtain fda approval of injectable meloxicam . the restructuring initiative included a reduction of approximately 50 positions . in connection with the restructuring plan , we incurred approximately $ 7.2 million of costs , all of which were incurred in the first half of 2019. these costs included severance and related termination benefits and canceled marketing and production costs . change in fair value of contingent consideration in connection with the separation , we entered into an assignment and a partial assignment , assumption and bifurcation agreement , or the alkermes agreements , relating to the purchase and sale agreement for the acquisition of certain assets , including the worldwide rights to injectable meloxicam and recro 's development , formulation and manufacturing business from alkermes , or the alkermes transaction , as amended in december 2018 and august 2020. pursuant to the alkermes agreements , we are required to pay up to $ 140.0 million in milestone payments , including $ 10.0 million that was paid during 2019 , another $ 3.6 million paid in 2020 , $ 1.4 million which becomes due june 20 , 2021 , and $ 45.0 million over seven years beginning one year after approval , as well as net sales milestones and a royalty percentage of future product net sales related to injectable meloxicam between 10 % and 12 % ( subject to a 30 % reduction when no longer
| results of operations comparison of the years ended december 31 , 2020 and 2019 replace_table_token_3_th 58 revenue , net . for the year ended december 31 , 2020 , net product revenue was $ 0.5 million , related to sales of anjeso in the u.s. while utilizing the title model of distribution , product revenue represents shipments to our 3pl provider . for the year ended december 31 , 2019 , we did not recognize any product revenue . cost of sales . our cost of sales was $ 1.7 million for the year ended december 31 , 2020 and consisted of product costs , royalty expense and certain fixed costs associated with the manufacturing of anjeso , including supply chain and quality costs . we expensed costs associated with the manufacturing of our products as research and development prior to regulatory approval . certain product costs of anjeso units recognized as revenue during the year ended december 31 , 2020 were incurred prior to fda approval of anjeso in february 2020 , and therefore are not included in cost of sales during the period . we expect that over time , our cost of sales will increase as sales increase and as inventory values change to include all direct and indirect costs and expenses post fda approval . no cost of sales was recorded for the year ended december 31 , 2019. research and development . our research and development expenses were $ 9.1 million and $ 20.1 million for the years ended december 31 , 2020 and 2019 , respectively . excluding $ 0.9 million and $ 2.8 million of costs associated with restructuring initiatives recorded for the years ended december 31 , 2020 and 2019 , respectively , research and development expenses decreased $ 9.1 million .
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the provision for depreciation of certain equipment is allocated between operating expenses and construction projects based on the use of the equipment . average straight-line rates used were as follows : replace_table_token_55_th b - 30 pnm resources , inc. and subsidiaries public service story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations for pnmr is presented on a combined basis , including certain information applicable to pnm and tnmp . the md & a for pnm and tnmp is presented as permitted by form 10-k general instruction i ( 2 ) . a reference to a “ note ” in this item 7 refers to the accompanying notes to consolidated financial statements included in part ii , item 8 , unless otherwise specified . certain of the tables below may not appear visually accurate due to rounding . md & a for pnmr executive summary overview and strategy pnmr is a holding company with two regulated utilities serving approximately 773,000 residential , commercial , and industrial customers and end-users of electricity in new mexico and texas . pnmr 's electric utilities are pnm and tnmp . strategic goals pnmr is focused on achieving three key strategic goals : earning authorized returns on regulated businesses delivering above industry-average earnings and dividend growth maintaining solid investment grade credit ratings in conjunction with these goals , pnm and tnmp are dedicated to : maintaining strong employee safety , plant performance , and system reliability delivering a superior customer experience demonstrating environmental stewardship in their business operations supporting the communities in their service territories earning authorized returns on regulated businesses pnmr 's success in accomplishing its strategic goals is highly dependent on two key factors : fair and timely regulatory treatment for its utilities and the utilities ' strong operating performance . the company has multiple strategies to achieve favorable regulatory treatment , all of which have as their foundation a focus on the basics : safety , operational excellence , and customer satisfaction , while engaging stakeholders to build productive relationships . both pnm and tnmp seek cost recovery for their investments through general rate cases and various rate riders . fair and timely rate treatment from regulators is crucial to pnm and tnmp in earning their allowed returns and critical for pnmr to achieve its strategic goals . pnmr believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in the company 's ratings could lower costs to utility customers . also , earning allowed returns should result in increased earnings for pnmr . additional information about rate filings is provided in note 17. state regulation new mexico 2015 rate case – on september 28 , 2016 , the nmprc issued an order that authorized pnm to implement an increase in base non-fuel rates of $ 61.2 million for new mexico retail customers , effective for bills sent after september 30 , 2016. this order was on pnm 's application for a general increase in retail electric rates ( the “ nm 2015 rate case ” ) filed in august 2015. pnm 's application requested an increase in base non-fuel revenues of $ 121.5 million based on a future test year ( “ fty ” ) beginning october 1 , 2015. the primary drivers of the revenue deficiency were infrastructure investments and declines in forecasted energy sales due to successful energy efficiency programs and other economic factors . pnm also proposed changes to rate design to provide fairer pricing across rate classes and better align cost recovery with cost causation . following public hearings , the hearing examiner in the case issued a recommended decision in august 2016 proposing an increase in non-fuel revenues of $ 41.3 million ( the “ august 2016 rd ” ) . the nmprc 's september 26 , 2016 order approved many aspects of the august 2016 rd , including the determination that pnm was imprudent in purchasing 64.1 mw of previously leased capacity in pvngs unit 2 , extending the leases for 114.6 mw of capacity of pvngs units 1 and 2 , and installing bdt a - 30 equipment on sjgs units 1 and 4. however , the order also made certain significant modifications to the august 2016 rd . major components of the difference between the increase in non-fuel revenues approved in the order and pnm 's request , include : a roe of 9.575 % , compared to the 10.5 % requested by pnm inclusion of the january 2016 purchase of the assets underlying three leases of capacity , totaling 64.1 mw , of pvngs unit 2 ( note 7 ) at an initial rate base value of $ 83.7 million , compared to pnm 's request for recovery of the fair market value purchase price of $ 163.3 million ; and disallowance of the recovery of the undepreciated costs of capitalized improvements made during the period the 64.1 mw was being leased by pnm , which costs totaled $ 43.8 million when the order was issued disallowance of the recovery of any future contributions for pvngs decommissioning costs related to the 64.1 mw of capacity in pvngs unit 2 purchased in january 2016 and the 114.6 mw of the leased capacity in pvngs units 1 and 2 that were extended for eight years beginning january 15 , 2015 and 2016 ( note 7 ) disallowance of recovery of the costs associated with converting sjgs units 1 and 4 to bdt , which is required by the nsr permit for sjgs ( note 16 ) , but allows recovery of avoided operating and maintenance expenses of $ 0.3 million annually related to bdt ; pnm 's share of the costs of installing the bdt equipment was $ 52.3 million , $ 40.0 million of which pnm requested be included in rate base in the nm 2015 rate case disallowance of recovery of $ 4.5 million of amounts recorded as regulatory assets and deferred charges the order continued the renewable energy rider and approved certain aspects of pnm 's proposals regarding rate design story_separator_special_tag if pnm 's appeal is unsuccessful , pnm would record additional pre-tax losses related to any unsuccessful issues . the december 31 , 2017 book values of pnm 's investments that the order disallowed , after considering the losses recorded through december 31 , 2017 , were $ 75.3 million for the 64.1 mw of purchased capacity in pvngs unit 2 , $ 39.1 million for the pvngs unit 2 disallowed capital improvements , and $ 49.4 million for the bdt equipment . pnm does not believe that the likelihood of the cross-appeals being successful is probable . however , if the nm supreme court were to overturn all of the issues subject to the cross-appeals and , upon remand , the nmprc did not provide any cost recovery of those items , pnm would write-off all of the costs to acquire the assets previously leased under three leases aggregating 64.1 mw of pvngs unit 2 capacity , totaling $ 151.1 million at december 31 , 2017 ( which amount includes $ 75.3 million that is the subject of pnm 's appeal discussed above ) after considering the losses recorded through december 31 , 2017. the impacts of not recovering costs for the lease extensions , new coal supply contract for four corners , and “ prepaid pension asset ” in rate base would be recognized in future periods reflecting that rates charged to customers would not recover those costs as they are incurred . the outcomes of the cross-appeals regarding the fppac and rate design should not have a financial impact to pnm . new mexico 2016 rate case – on december 7 , 2016 , pnm filed an application with the nmprc for a general increase in retail electric rates ( the “ nm 2016 rate case ” ) . pnm did not include any of the costs disallowed in the nm 2015 rate case that are at issue in its pending appeal to the nm supreme court . key aspects of pnm 's request in the nm 2016 rate case were : an increase in base non-fuel revenues of $ 99.2 million based on a fty beginning january 1 , 2018 ( the nmprc 's rules specify that a fty is a 12 month period beginning up to 13 months after the filing of a rate case application ) a roe of 10.125 % drivers of revenue deficiency ◦ implementation of the modifications in pnm 's resource portfolio , which were previously approved by the nmprc as part of the sjgs regional haze compliance plan ( see below and note 16 ) ◦ infrastructure investments , including environmental upgrades at four corners ◦ declines in forecasted energy sales due to successful energy efficiency programs and other economic factors ◦ updates in the ferc/retail jurisdictional allocations proposed changes to rate design to establish fair and equitable pricing across rate classes and to better align cost recovery with cost causation ◦ increased customer and demand charges ◦ a “ lost contribution to fixed cost ” mechanism applicable to residential and small commercial customers to address the regulatory disincentive associated with pnm 's energy efficiency programs after nmprc ordered settlement discussions were held , pnm and representatives of several intervenors reached an agreement on the parameters for a settlement in this proceeding . in may 2017 , pnm and thirteen intervenors ( the “ signatories ” ) entered into a comprehensive stipulation . on may 12 , 2017 , the hearing examiners issued an order rejecting the stipulation in its then current form and allowing the signatories to revise the stipulation . on may 23 , 2017 , the signatories filed a revised a - 32 stipulation that addressed the issues raised by the hearing examiners in their order . nee was the sole party opposing the revised stipulation . the terms of the revised stipulation included : a revenue increase totaling $ 62.3 million , with an initial increase of $ 32.3 million beginning january 1 , 2018 and the remaining increase beginning january 1 , 2019 a roe of 9.575 % full recovery of pnm 's investment in scrs at four corners with a debt-only return an agreement not to seek to adjust non-fuel base rate changes to be effective prior to january 1 , 2020 an agreement to adjust the january 2019 increase for certain changes in federal corporate tax laws and to true-up pnm 's cost of debt returning to customers over a three-year period the benefit of the reduction in the new mexico corporate income tax rate to the extent attributable to pnm 's retail operations pnm would withdraw its proposal for a “ lost contribution to fixed cost ” mechanism with the issue to be addressed in a future docket pnm would perform a cost benefit analysis in its 2020 irp of the impact of a possible early exit from four corners in 2024 and 2028 a public hearing on the revised stipulation was held in august 2017. on october 31 , 2017 , the hearing examiners issued a certification of stipulation recommending modifications to the revised stipulation that would identify pnm 's decision to continue its participation in four corners as imprudent , not allow pnm to collect a debt or equity return on $ 148.1 million of investments in scrs and other projects at four corners , and to temporarily disallow recovery of $ 36.8 of pnm 's projected capital improvements at sjgs . on december 20 , 2017 , the nmprc issued an order approving the certification of stipulation with certain changes , which included requiring the impacts of changes related to the reduction in the federal corporate income tax rate and pnm 's cost of debt be implemented effective january 1 , 2018 rather than january 1 , 2019 and deferring further consideration regarding the prudency of pnm 's decision to continue its participation in four corners to a future proceeding . on december 28 , 2017 , pnm filed a motion requesting rehearing and asking the nmprc to vacate their december 20 , 2017 order .
| results of operations ability to obtain required regulatory approvals conditions in the financial markets credit ratings each of the company 's revolving credit facilities and term loans contains a single financial covenant , which requires the maintenance of debt-to-capital ratios of less than or equal to 65 % , and generally include customary covenants , events of default , cross default provisions , and change of control provisions . the company is in compliance with its debt covenants . as discussed in note 16 , nm capital , a wholly-owned subsidiary of pnmr , entered into the $ 125.0 million btmu term loan agreement with the bank of tokyo-mitsubishi ufj , ltd. ( “ btmu ” ) , as lender and administrative agent . the btmu term loan agreement has a maturity of february 1 , 2021 and bears interest at a rate based on libor plus a customary spread , which aggregated 4.13 % at december 31 , 2017. the principal balance outstanding under the btmu term loan agreement was $ 50.1 million at december 31 , 2017 and $ 45.1 million at february 20 , 2018. pnmr , as parent company of nm capital , has guaranteed nm capital 's obligations to btmu . nm capital utilized the proceeds of the btmu term loan agreement to provide funding for the $ 125.0 million westmoreland loan ( note 16 ) to a ring-fenced , bankruptcy-remote , special-purpose entity , which is a subsidiary of westmoreland , to finance westmoreland 's purchase of sjcc . on october 21 , 2016 , pnmr entered into letter of credit arrangements with jpmorgan chase bank , n.a . ( the “ jpm loc facility ” ) under which letters of credit aggregating $ 30.3 million were issued to facilitate the posting of reclamation bonds , which sjcc is required to post in connection with permits relating to the operation of the san juan mine ( note 16 ) .
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unless noted otherwise , all references to fbl financial group , inc. ( we or the company ) include all of its direct and indirect subsidiaries , including its life insurance subsidiary farm bureau life insurance company ( farm bureau life ) . in this discussion and analysis , we explain our consolidated results of operations , financial condition and where appropriate , factors that management believes may affect future performance , including : factors which affect our business , our revenues and expenses in the periods presented , changes in revenues and expenses between periods , sources of earnings and changes in stockholders ' equity , impact of these items on our overall financial condition and expected sources and uses of cash . we have organized our discussion and analysis as follows : first , we discuss our business and drivers of profitability . we then describe the business environment in which we operate including factors that affect operating results . we highlight significant events that are important to understanding our results of operations and financial condition . we then review the results of operations beginning with an overview of the total company results , followed by a more detailed review of those results by operating segment . we review our financial condition by summarizing our investment portfolio , market risks , sources and uses of cash , capital resources and requirements and commitments . finally , we discuss critical accounting policies and recently issued accounting standards . the critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management 's most difficult or complex judgment . story_separator_special_tag of business in force on our continuing operations . the increase in volume of business in force is quantified in the detailed discussion that follows by summarizing the face amount of insurance in force for life products or account values of contracts in force for interest sensitive products . the face amount of life insurance in force represents the gross death benefit payable to policyholders and account value represents the value of the contract to the contract holder before application of surrender charges or reduction for any policy loans outstanding . the following discussion provides additional details on the items impacting fbl net income . sale of equitrust life insurance company and notes redemptions we sold our wholly-owned subsidiary equitrust life for $ 465.3 million in an all cash transaction that closed on december 30 , 2011. the sales price reflects adjustments to the initial closing price determined on the closing date and is potentially subject to further post closing adjustments based on a final statutory net worth reconciliation . the transaction resulted in an after-tax loss on the sale of $ 68.5 million , or $ 2.23 per basic and $ 2.19 per diluted common share . the loss consists of the sales price less the net book value of the entity and one-time transaction costs and termination benefits totaling $ 12.5 million , before tax . the sale allows us to exit the annuity business sold through the independent distribution channel , which represents a majority of equitrust life 's operations , focus on our core farm bureau life operations and undertake certain capital management initiatives . while equitrust life was sold in its entirety , farm bureau life is assuming a limited portion of the equitrust life business related to variable universal life and variable annuity products distributed through various unaffiliated third parties , as well as a small amount of fixed life and annuity products . the business component sold ( herein described as “ the equitrust life business ” ) encompassed our former traditional annuity - independent segment and a smaller portion of our remaining life insurance and corporate and other segments . as a result of the sale , the operations of the component sold and the related loss on sale are reflected as discontinued operations for all periods presented , with financial information removed from the discussion that follows unless otherwise noted . income generated from discontinued operations increased 22.7 % in 2011 to $ 44.5 million and 87.4 % in 2010 to $ 36.2 million . the increase in 2011 was primarily due to the impact of realized gains on investments and changes in assumptions used in the calculation of deferred acquisition costs ( unlocking ) . the increase in 2010 was primarily due to an increase in spreads earned and the impact of unlocking . in connection with the equitrust life sale , we are undertaking certain capital management actions , including the redemption of $ 225.0 million of our long-term debt in accordance with the mandatory redemption provisions of the underlying notes . this includes $ 50.0 million senior notes with our affiliate , farm bureau property & casualty insurance company ( farm bureau property & casualty ) , which was extinguished on december 30 , 2011. the remaining $ 175.0 million of unaffiliated debt was extinguished on january 30 , 2012 , at the make-whole redemption price of $ 210.9 million . on december 30 , 2011 , we exercised the provisions of the trust indentures and deposited $ 211.6 million into two irrevocable defeasance trusts for the principal , accrued interest and estimated make-whole premium . the trust funds were not withdrawable by us , and the note holders were paid from assets in the trusts on january 30 , 2012. the make-whole redemption premium was based on u.s. treasury yields and considered an embedded derivative . this derivative liability had a fair value of $ 33.1 million at december 31 , 2011. this change in fair value is reported as loss on debt redemption in continuing operations . see the `` liquidity and capital '' section that follows and note 8 to our consolidated financial statements for additional details on our debt and capital management initiatives . story_separator_special_tag the average yields on fixed maturity securities purchased were 5.10 % for 2011 , 4.67 % for 2010 and 6.40 % for 2009. the average yields on fixed maturity securities maturing or being paid down were 5.92 % for 2011 , 5.76 % for 2010 and 5.97 % for 2009. for more discussion on fixed maturity acquisition yields see the `` financial condition '' section below . the decrease in 2011 was partially offset by an increase in fee income from bond calls , tender offers and mortgage loan prepayments . investment fee income totaled $ 4.6 million in 2011 , $ 0.8 million in 2010 and $ 1.0 million in 2009. net investment income also includes $ 0.6 million in 2011 , $ 0.4 million in 2010 and $ 0.8 million in 2009 representing the change of net discount accretion on mortgage and asset-backed securities . net investment income also includes derivative income resulting from income or loss from interest rate swaps , call options and embedded derivatives included in our modified coinsurance contracts . derivative income or loss will fluctuate based on market conditions . see note 4 to our consolidated financial statements for additional details on our derivatives . see the `` financial condition - investments '' section that follows for a description of how changes in prepayment speeds impact net investment income . replace_table_token_18_th the level of realized gains ( losses ) is subject to fluctuation from period to period depending on the prevailing interest rate and economic environment and the timing of the sale of investments . see `` financial condition - investments '' and note 3 to our consolidated financial statements for details regarding our unrealized gains and losses on available-for-sale securities at december 31 , 2011 and 2010. we monitor the financial condition and operations of the issuers of securities rated below investment grade and of the issuers of certain investment grade securities on which we have concerns regarding credit quality . if we determine that an unrealized loss is other than temporary , the security is written down to its fair value . a portion of the write down attributable to non-credit factors is recognized in accumulated other comprehensive income ( loss ) . see additional details regarding the non-credit portion of the write downs and our methodology for evaluating investments for other-than-temporary impairment in notes 1 and 3 to our consolidated financial statements . 32 replace_table_token_19_th fixed maturity other-than-temporary credit impairment losses for 2011 were incurred within several industry sectors . the energy sector loss related to an oil carrier with credit concerns , including a rating agency downgrade . the manufacturing sector and finance sector losses are related to companies restructuring their debt obligations due to financial difficulties . losses were also incurred within our residential and other asset-backed securities , generally due to concerns over potential defaults and weakness in underlying collateral values . furthermore , during 2011 we recognized an other-than-temporary impairment loss of $ 4.7 million on an equity method investment in an uncertain future financial condition due to current class action litigation . fixed maturity other-than-temporary credit impairment losses for 2010 were incurred within our other asset backed securities , generally due to concerns over potential defaults and weakness in underlying collateral values . financial sector losses were caused by deferred interest coupons on hybrid financial instruments which likely will not be recovered . fixed maturity other-than-temporary credit impairment losses for 2009 were incurred across several sectors as a result of the economic downturn which reduced the demand for consumer products , lowered collateral values and limited access to operating capital . particularly impacted during 2009 were the finance sector , other asset-backed securities and our collateralized debt obligations , which incurred losses as collateral values declined and borrower defaults increased . see note 3 to our consolidated financial statements for further discussion regarding our process for identifying other-than-temporary impairment losses . other income and other expenses other income and other expenses include revenues and expenses , respectively , relating primarily to our non-insurance operations . our non-insurance operations include management , advisory , marketing and distribution services and leasing activities . fluctuations in these financial statement line items are primarily attributable to changes in the level of these services provided during the years . in 2011 , other income includes $ 1.5 million in proceeds received from the merger of the equitrust mutual funds with funds sponsored by a third party . merger-related expenses included in other expenses , totaled $ 1.2 million in 2011. other income in 2011 also includes a $ 1.0 million cash settlement for our share of damages awarded upon settlement of litigation involving an agency matter . 33 replace_table_token_20_th interest sensitive product benefits increased 8.8 % in 2011 to $ 192.1 million and 8.6 % in 2010 to $ 176.6 million . the increase in 2011 is primarily due to an increase in death benefits and the volume of business in force , partially offset by reductions in interest crediting rates in 2011 and 2010. the increase in 2010 is primary due to refinements made to certain reserve estimates in 2009 and an increase in the volume of business in force , partially offset by reductions in interest crediting rates in 2010 and 2009. the average account value of interest sensitive products in force increased in 2011 and 2010 primarily due to traditional deferred annuity sales and advances on our funding agreement with the fhlb . these average account values totaled $ 3,036.1 million in 2011 , $ 2,810.4 million in 2010 and $ 2,601.0 million in 2009. the weighted average interest crediting rate and spread are computed excluding the impact of refining certain reserve estimates in 2009. the weighted average crediting rates were 3.55 % for 2011 , 3.78 % for 2010 and 4.01 % for 2009 . see the `` segment information '' section that follows for additional details on these rates .
| overview and profitability we sell individual life insurance and annuity products through an exclusive distribution channel . our exclusive agency force consists of 1,937 farm bureau agents and managers operating in the midwestern and western sections of the united states . several subsidiaries support various functional areas of farm bureau life and other affiliates , by providing investment advisory , marketing and distribution , and leasing services . in addition , we manage two farm bureau affiliated property-casualty companies . our profitability is primarily a factor of : the volume of our life insurance and annuity business in force , which is driven by the level of our sales and the persistency of the business written . the amount of spread ( excess of net investment income earned over interest credited ) we earn on contract holders ' general account balances . our ability to price our life insurance products to earn acceptable margins over the cost of providing benefits and the expenses of acquiring and administering the products . competitive conditions , mortality experience , persistency , investment results and our ability to maintain expenses in accordance with pricing assumptions drive our margins on the life products . on many products , we have the ability to mitigate adverse experience through adjustments to credited interest rates , policyholder dividends or cost of insurance charges . our ability to manage our investment portfolio to maximize investment returns while providing adequate liquidity for obligations to policyholders and minimizing the risk of defaults or impairments of invested assets . 25 our ability to manage the level of our operating expenses . actual experience and changes in assumptions for expected surrender and withdrawal rates , mortality and spreads used in the amortization of deferred acquisition costs . our profitability is also impacted by changes in accounting guidance that impact the timing of profit recognition .
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words such as `` anticipate , '' `` believe , '' `` could , '' `` estimate , '' `` expect , '' `` goal , '' `` intend , '' `` may , '' `` plan , '' `` project , '' `` seek , '' `` should , '' `` will , '' and similar expressions are intended to further identify any of these forward-looking statements . forward-looking statements reflect management 's current expectations but they are based on judgments and are inherently uncertain . furthermore , they are subject to risks , uncertainties and other factors , that could cause our actual results , performance or achievements to differ materially from the future results , performance or achievements expressed or implied in those forward-looking statements . examples of these risks , uncertainties and other factors include , but are not limited to , the following : the impact of the worldwide economic and geopolitical environment or other conditions on the demand for cruises ; the impact of the worldwide economic environment on our ability to generate cash flows from operations , satisfy the financial covenants required by our credit facilities , or obtain new borrowings from the credit or capital markets ; the impact of disruptions in the global financial markets on the ability of our counterparties and others to perform their obligations to us including those associated with our loan agreements and derivative contracts ; negative incidents concerning the company and the cruise vacation industry , or adverse publicity , including those involving the health , safety and security of guests , accidents , unusual weather conditions or natural disasters or disruptions ; our ability to appropriately balance our cost management strategy with our goal of satisfying guest expectations ; failure to keep pace with developments in technology which could impair our operations or competitive position ; the uncertainties of conducting business globally and our ability to realize the intended benefits of our investments in new markets ; changes in operating and financing costs , including changes in foreign exchange rates , interest rates , fuel , food , payroll , airfare , insurance and security costs ; vacation industry competition and industry overcapacity in certain markets ; the cost of or changes in tax , environmental , labor , health , safety , security and other laws and regulations affecting our business ; pending or threatened litigation , enforcement actions , fines or penalties ; emergency ship repairs , including the related lost revenue ; 40 the impact of ship construction , repair or refurbishment delays , ship cancellations or ship construction price increases brought about by construction faults , mechanical problems or financial difficulties encountered by shipyards or their subcontractors ; the global political climate , fears of terrorist and pirate attacks , armed conflict , the unavailability or cost of air service and the resulting concerns over safety and security aspects of traveling ; the spread of contagious diseases ; disruptions to our shoreside business related to actual or threatened natural disasters , information systems failure or similar events ; our ability to differentiate our products ; our ability to manage our business activities that involve our co-investment with third parties ; our inability to adequately incentivize our travel agents or changes and or disruptions to the travel agency industry ; the loss of key personnel , strained employee relations and or our inability to retain or recruit qualified personnel ; changes in our principal shareholders ; uncertainties of a foreign legal system as we are not incorporated in the united states ; the unavailability of ports of call ; and weather . the above examples are not exhaustive and , in addition , new risks emerge from time to time . all forward-looking statements made in this annual report on form 10-k speak only as of the date of this document . given these risks and uncertainties , readers are cautioned not to place undue reliance on such forward-looking statements . we undertake no obligation to publicly update or revise any forward-looking statements , whether as a result of new information , future events or otherwise . you should consider the areas of risk described above , as well as those set forth under the heading `` risk factors '' in part i , item 1a . in this annual report on form 10-k , when considering any forward-looking statements that may be made by us and our business generally . overview the discussion and analysis of our financial condition and results of operations has been organized to present the following : a review of our critical accounting policies and review of our financial presentation , including discussion of certain operational and financial metrics we utilize to assist us in managing our business ; a discussion of our results of operations for the year ended december 31 , 2012 compared to the same period in 2011 and the year ended december 31 , 2011 compared to the same period in 2010 ; a discussion of our business outlook , including our expectations for selected financial items for the first quarter and full year of 2013 ; and a discussion of our liquidity and capital resources , including our future capital and contractual commitments and potential funding sources . 41 critical accounting policies our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . ( see note 1. general and note 2. summary of significant accounting policies to our consolidated financial statements under item 8. financial statements and supplementary data . ) certain of our accounting policies are deemed `` critical , '' as they require management 's highest degree of judgment , estimates and assumptions . we have discussed these accounting policies and estimates with the audit committee of our board of directors . we believe our most critical accounting policies are as follows : ship accounting our ships represent our most significant assets and are stated at cost less accumulated depreciation and amortization . story_separator_special_tag we may elect to bypass the qualitative assessment and proceed directly to step one , for any reporting unit , in any period . we can resume the qualitative assessment for any reporting unit in any subsequent period . when performing the two-step goodwill impairment test , the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit . we estimate the fair value of our reporting units using a probability-weighted discounted cash flow model . the estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require our significant judgment when making assumptions of expected revenues , operating costs , marketing , selling and administrative expenses , interest rates , ship additions and retirements as well as assumptions regarding the cruise vacation industry 's competitive environment and general economic and business conditions , among other factors . the principal assumptions used in the discounted cash flow model are projected operating results , weighted-average cost of capital , and terminal value . the discounted cash flow model uses our 2013 projected operating results as a base . to that base we add future years ' cash flows assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments beyond 2013 on the reporting unit . we discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital . if the fair value of the reporting unit exceeds its carrying value , no further analysis or write-down of goodwill is required . if the fair value of the reporting unit is less than the carrying value of its net assets , the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities , including both recognized and unrecognized tangible and intangible assets , based on their fair value . if necessary , goodwill is then written down to its implied fair value . 43 the impairment review for indefinite-life intangible assets consists of a comparison of the fair value of the asset with its carrying amount . we estimate the fair value of our indefinite-life intangible assets , which consist of trademarks and trade names related to pullmantur , using a discounted cash flow model and the relief-from-royalty method . the royalty rate used is based on comparable royalty agreements in the tourism and hospitality industry . the discount rate used is comparable to the rate used in valuing the pullmantur reporting unit in our goodwill impairment test . if the carrying amount exceeds its fair value , an impairment loss is recognized in an amount equal to that excess . if the fair value exceeds its carrying amount , the indefinite-life intangible asset is not considered impaired . other intangible assets assigned finite useful lives are amortized on a straight-line basis over their estimated useful lives . the factors influencing expected future cash flows for purposes of goodwill impairment testing discussed above also affect the assessment of recoverability of pullmantur 's deferred tax assets . pullmantur 's deferred tax assets principally result from net operating loss carryforwards . we regularly review deferred tax assets for recoverability based on our history of earnings , expectations of future earnings , and tax planning strategies . realization of deferred tax assets ultimately depends on the existence of sufficient taxable income to support the amount of deferred tax assets . a valuation allowance is recorded in those circumstances in which we conclude it is not more-likely-than-not we will recover the deferred tax assets prior to their expiration . we review our ships , aircraft and other long-lived assets for impairment whenever events or changes in circumstances indicate , based on estimated undiscounted future cash flows , that the carrying amount of these assets may not be fully recoverable . we evaluate asset impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . the lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships and at the aggregated asset group level for our aircraft . ( see note 2. summary of significant accounting policies to our consolidated financial statements under item 8. financial statements and supplementary data ) . if estimated future cash flows are less than the carrying value of an asset , an impairment charge is recognized for the difference between the asset 's estimated fair value and its carrying value . we estimate fair value based on quoted market prices in active markets , if available . if active markets are not available we base fair value on independent appraisals , sales price negotiations and projected future cash flows discounted at a rate estimated by management to be commensurate with the business risk . quoted market prices are often not available for individual reporting units and for indefinite-life intangible assets . accordingly , we estimate the fair value of a reporting unit and an indefinite-life intangible asset using an expected present value technique . impairment of pullmantur related assets during the fourth quarter of 2012 , we performed our annual impairment review of goodwill for pullmantur 's reporting unit . we did not perform a qualitative assessment but instead proceeded directly to the two-step goodwill impairment test . pullmantur is a brand targeted primarily at the spanish , portuguese and latin american markets and although pullmantur has diversified its passenger sourcing over the past few years , spain still represents pullmantur 's largest market . as previously disclosed , european economies continued to demonstrate instability in light of heightened concerns over sovereign debt issues as well as the impact of proposed austerity measures on certain markets . the spanish economy was more severely impacted than many other economies and there is significant uncertainty as to when it will recover .
| summary of significant accounting policies to our consolidated financial statements under item 8. financial statements and supplementary data for further information on recently adopted accounting standards and recent accounting pronouncements . liquidity and capital resources sources and uses of cash cash flow generated from operations provides us with a significant source of liquidity . net cash provided by operating activities decreased $ 74.0 million to $ 1.4 billion for 2012 compared to $ 1.5 billion for 2011. this decrease was primarily a result of a decrease in net income after adjusting for non-cash items and to the timing of collections on our trade accounts receivable partially offset by a higher rate of increase in customer deposits and an increase in cash received on the settlement of derivative financial instruments . net cash used in investing activities was $ 1.3 billion for 2012 compared to $ 924.6 million for 2011. the change was primarily due to $ 290.0 million of proceeds received from the sale of celebrity mercury and $ 55.0 million of proceeds received from the sale of bleu de france during 2011 which did not recur in 2012. during 2012 , our use of cash was primarily related to capital expenditures of $ 1.3 billion , up from $ 1.2 billion for 2011. the increase in capital expenditures was primarily attributable to an increase in payments related to our ship revitalization projects in 2012. we also provided $ 110.7 million under a debt facility to one of our unconsolidated affiliates during 2011 which did not recur in 2012. net cash used in financing activities was $ 179.6 million for 2012 compared to $ 676.5 million for 2011 , primarily as a result of our refinancing strategy for our upcoming 2013 and 2014 maturities .
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replace_table_token_7_th discrete tax benefits in 2013 were $ 3.9 million compared to $ 2.0 million in 2012. the increase in 2013 is due to the 2013 recognition of a 2012 u.s. research tax credit and reversal of valuation allowances for two subsidiaries originally established against net operating losses . a new law was enacted in 2013 that retroactively granted the research tax credit in 2012. tax expense for 2012 benefited from u.s. foreign tax credits that reduced tax expense by $ 9.7 million due to the repatriation of $ 70 million of cash from foreign subsidiaries . while no such benefit or repatriation occurred in 2013 , tax expense in 2013 as a percentage of pre-tax income approximated the 2012 level due primarily to certain favorable items in 2013 , which included the utilization of non-u.s. operating losses , lower state and local income taxes , and the inclusion of the u.s. research tax credit for 2013 , as well as the increase in discrete tax benefits described above . in 2010 , the internal revenue service ( irs ) commenced an examination of our u.s. federal income tax return for the 2007 and 2008 tax years . during the course of the examination , we have held discussions with the irs on certain issues and , in october 2012 , we received proposed adjustments for these tax years . in november 2012 , we deposited $ 18.8 million with the irs to stop any potential interest on these proposed adjustments . we disagree with certain of the proposed adjustments and in december 2012 , we filed a protest to initiate the irs administrative appeals process . no further significant events occurred in 2013. we believe we have established appropriate tax accruals under us gaap for these issues . in addition , see note 11 of the financial statements for a reconciliation of the u.s. federal statutory tax rate with the effective tax rate . we expect the tax rate in 2014 to increase from 2013 as a result of the discontinuation of the r & d tax credit , a tax law change in france and the expected mix of business across tax jurisdictions . in addition , we are comparing to the 2013 rate that included $ 3.9 million of discrete items . replace_table_token_8_th income from unconsolidated operations increased $ 1.7 million in 2013 compared to 2012. most of this increase is attributable to our largest joint venture , mccormick de mexico , through strong sales growth , along with improved performance by our eastern condiments joint venture in india . in 2013 , our mccormick de mexico joint venture represented 63 % of the sales and 78 % of the net income of our unconsolidated joint ventures . we own 50 % of our other unconsolidated joint ventures , except for a 26 % share in our eastern condiments joint venture . we reported diluted earnings per share of $ 2.91 in 2013 , compared to $ 3.04 in 2012. the following table outlines the major components of the change in diluted earnings per share from 2012 to 2013 : replace_table_token_9_th we measure segment performance based on operating income excluding special charges and the loss on a voluntary pension settlement as these activities are managed separately from the business segments . consumer business replace_table_token_10_th we grew sales in the consumer business 5.1 % in 2013 from 2012 , which included a 2.5 % increase due to the mid-2013 acquisition of wapc , a 1.7 % increase due to higher price , and a 1.0 % increase from higher volumes and improved product mix . the effect of foreign exchange rates in 2013 from 2012 was slightly unfavorable , reducing sales by 0.1 % . in the americas , consumer business sales rose 2.4 % , with volume and product mix adding 1.7 % , higher pricing adding 0.9 % and unfavorable foreign exchange rates lowering sales by 0.2 % . higher volume and product mix was the result of new product introductions and increased brand marketing . in 2013 , our new product launches included grilling items , premium recipe mixes , authentic hispanic rice mixes and new varieties of lawry 's , zatarain 's and simply asia brand products in the u.s. in canada , we had particular success with gluten-free gravy mixes , introduced new grilling items and imported products from our business in china and affiliate in the philippines . across the americas region , a portion of our incremental brand marketing support was in support of our new products and seasonal events . we also increased our digital marketing activity , which offers a more personalized way to interact with consumers . while we made good progress with these growth initiatives which contributed to strong consumer demand for spices and seasonings throughout 2013 , our u.s. sales slowed in the second half of the year . during this period , private label and smaller competitors gained category share . in 2014 , we have actions underway to regain momentum with this part of our business that include a significant increase in brand marketing support , accelerated innovation and improved agility in the marketplace . in emea , consumer business sales increased 3.3 % , with pricing and favorable foreign currency exchange rates each adding 1.3 % , and higher volume and product mix adding 0.7 % . while we had success with new product introductions , increased brand marketing and distribution gains , economic conditions across the region remained challenging . our innovation in 2013 included the development and introduction of recipe mixes in france and poland , the launch of grilling items in a number of markets , and new varieties of vahiné brand dessert items . as in the americas , higher brand marketing support was devoted to building awareness and trial of new products and towards digital marketing . in the asia/pacific region , sales rose 32.6 % . story_separator_special_tag the decrease in sg & a as a percentage of net sales was primarily driven by a leveraging effect of our higher sales on these costs . we had a benefit from cci cost savings that lowered sg & a $ 17 million in 2012 and a favorable comparison to 2011 when sg & a included $ 10.9 million of transaction costs related to completed acquisitions , while 2012 had only $ 1.7 million of such costs . during 2012 , we increased brand marketing support by $ 11.0 million from 2011 levels to $ 198.3 million . a large portion of this increase was in digital marketing , which is one of our highest return investments in brand marketing support . replace_table_token_15_th interest expense for 2012 was higher than the prior year . the impact of higher average debt balances in 2012 compared to 2011 was partially offset by the impact of lower interest rates for 2012 compared to 2011. the higher average debt balances in 2012 were due to the acquisitions completed late in 2011. replace_table_token_16_th in 2012 , we repatriated $ 70.0 million of cash from foreign subsidiaries . this transaction generated u.s. foreign tax credits due to the mix of foreign earnings that related to this cash . these u.s. foreign tax credits reduced 2012 tax expense by $ 9.7 million and were the major driving factor in a reduction in the tax rate for 2012 as compared to the prior year . discrete tax benefits in 2012 were $ 2.0 million compared to $ 0.8 million in 2011. the increase in 2012 is mainly due to the reversal of a portion of a valuation allowance originally established against a subsidiary 's net operating losses . this subsidiary has established a pattern of profitability which resulted in us concluding that a portion of the valuation allowance should be reversed . in addition , see note 11 of the financial statements for a reconciliation of the u.s. federal statutory tax rate with the effective tax rate . replace_table_token_17_th income from unconsolidated operations decreased $ 3.9 million in 2012 compared to 2011. most of this decrease was attributable to our largest joint venture , mccormick de mexico , which was negatively impacted by an unfavorable foreign exchange rate between the mexican peso and the u.s. dollar for most of 2012. while this business grew sales 6 % , profits were also pressured by higher soybean oil cost ( a main ingredient for mayonnaise which is the leading product for this joint venture ) . this situation began in the fourth quarter of 2011 and , by the fourth quarter of 2012 , the year-on-year impact had eased . in 2012 , our mccormick de mexico joint venture represented 59 % of the sales and 82 % of the net income of our unconsolidated joint ventures . we own a 26 % share in our eastern condiments joint venture and on average own 50 % of our other unconsolidated joint ventures . we reported diluted earnings per share of $ 3.04 in 2012 , compared to $ 2.79 in 2011. the following table outlines the major components of the change in diluted earnings per share from 2011 to 2012 : replace_table_token_18_th consumer business replace_table_token_19_th we grew consumer business sales 9.8 % in 2012 when compared to 2011 , which included a 7.2 % increase from acquisitions completed in 2011. the remaining increase was driven by higher pricing which added 3.7 % and volume and product mix which added 0.3 % . unfavorable foreign exchange rates reduced sales by 1.4 % . in the americas , consumer business sales rose 4.0 % , primarily as a result of pricing actions which added 4.5 % . these pricing actions , taken in response to an increase in material costs , went into effect late in fiscal year 2011. our 2011 acquisition of kitchen basics ® added 0.8 % to sales , volume and product mix reduced sales by 1.1 % and foreign exchange rates reduced sales by 0.2 % . while higher prices had an unfavorable impact on volume and product mix , we offset this in part with our initiatives to drive growth through new product introductions and brand marketing . in 2012 , our new product launches included a line of gourmet recipe mixes , authentic hispanic recipe mixes , zatarain 's frozen dinners for two , new varieties of grill mates ® , and in canada , club house brand grinders . a portion of our incremental brand marketing support was in support of our new products . we also increased our digital marketing activity , which offers a more personal way to interact with consumers . recipe views at www.mccormick.com rose 30 % in 2012 and our facebook fan base grew to 1.5 million . in 2011 , we reported that an estimated $ 10 million in sales shifted from the first quarter of 2011 into the fourth quarter of 2010 , as a result of customer purchases in advance of a late 2010 price increase . in emea , consumer business sales increased 15.3 % , with our 2011 acquisition of kamis adding 16.9 % to sales . unfavorable foreign currency decreased sales 5.7 % . in local currency and excluding the impact of acquisitions , we grew sales 4.1 % with 2.9 % from volume and product mix and 1.2 % from pricing actions . during 2012 , we successfully completed the integration of kamis and sales from this poland-based business benefited from particular strength in its subsidiary in russia . for the base business in emea , strong execution behind product innovation , brand marketing and new distribution enabled us to achieve growth in a difficult economic environment . we have moved to a masterbrand approach to gain synergies and efficiencies in product development and brand marketing support across our country-specific brands . new products introduced in 2012 included bag ' n season ® , grill mates , recipe inspirations ® and a number of vahiné brand dessert items .
| overview the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand mccormick & company , incorporated , our operations and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes thereto contained in item 8 of this report . the dollar and share information in the charts and tables in the md & a are in millions , except per share data . mccormick is a global leader in flavor . the company manufactures , markets and distributes spices , seasoning mixes , condiments and other flavorful products to the entire food industry–retail outlets , food manufacturers and foodservice businesses . we manage our business in two operating segments , consumer and industrial , as described in item 1 of this report . our long-term annual growth objectives are to increase sales 4 % to 6 % , increase operating income 7 % to 9 % and increase earnings per share 9 % to 11 % . over time , we expect to grow sales with similar contributions from : 1 ) our base business–driven by brand marketing support , expanded distribution and category growth ; 2 ) product innovation ; and 3 ) acquisitions . we are fueling our investment in growth with cost savings from our comprehensive continuous improvement ( cci ) program , an ongoing initiative to improve productivity and reduce costs throughout the organization . in addition to funding brand marketing support , product innovation and other growth initiatives , our cci program is contributing to higher operating income and earnings per share . our business generates strong cash flow and we have a balanced use of cash . we are using our cash to fund shareholder dividends , with annual increases in each of the past 28 years , and to fund capital expenditures , acquisitions and share repurchases .
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throughout 2012 , the company was in story_separator_special_tag management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is designed to provide information that is supplemental to , and shall be read together with , the consolidated financial statements and the accompanying notes contained in this form 10-k. information in md & a is intended to assist the reader in obtaining an understanding of ( i ) the consolidated financial statements , ( ii ) the company 's business segments and how the results of those segments impact the company 's results of operations and financial condition as a whole and ( iii ) how certain accounting principles affect the company 's consolidated financial statements . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > we increased focus on return on invested capital ( “ roic ” ) in 2014 and introduced an roic metric into our long-term incentive compensation programs . this increased focus contributed to a significant year-over-year improvement in roic , which we define as net operating profit after taxes divided by average invested capital . diversifying customer base historically , 60 % or more of our domestic net sales were derived from municipal and other government markets . while municipalities will continue to be important customers , our organic and acquisition growth initiatives generally will focus on expanding our industrial customer base . industrial markets offer more promise to further improve our operating margins while reducing earnings volatility over the longer term . in 2014 , u.s. commercial and industrial orders grew by $ 42.4 million , or 18 % , compared with their respective prior year levels . during 2014 , we formed a number of strategic partnerships aimed at diversifying into new or growth markets , including expanding an existing dealer relationship to pursue industrial growth opportunities for our fire rescue group in the united states . we have also continued to focus on new product development in 2014 and are encouraged that these efforts will provide additional opportunities to further diversify our customer base . 17 results of operations the following table summarizes our consolidated statements of operations and illustrates the key financial indicators used to assess our consolidated financial results : replace_table_token_5_th year ended december 31 , 2014 vs. year ended december 31 , 2013 net sales net sales increased by $ 67.2 million , or 8 % , for the year ended december 31 , 2014 compared to the prior year , primarily driven by our environmental solutions group , which reported a net sales improvement of $ 62.6 million , or 13 % , which primarily resulted from a $ 41.1 million increase in sales volumes , improved pricing strategies and favorable product mix linked to higher sales to industrial customers . vacuum truck sales increased by $ 22.6 million , largely resulting from increased production throughput and productivity gains within our manufacturing facilities that have resulted in improved sales volumes of hydro-excavation products . street sweeper sales were also $ 21.5 million higher than prior year , and are reflective of improved municipal demand . there was also improvement in both the safety and security systems and fire rescue groups , where net sales increased by $ 3.6 million , or 2 % , and $ 1.0 million , or 1 % , respectively . cost of sales for the year ended december 31 , 2014 , cost of sales increased by $ 39.0 million , or 6 % , compared to the prior year , largely driven by an increase of $ 33.8 million , or 9 % , within the environmental solutions group associated with higher unit volumes . cost of sales were also up year over year within our fire rescue group , which reported an increase of $ 5.5 million , or 5 % . these increases were partially offset by a $ 0.3 million reduction within our safety and security group . gross profit for the year ended december 31 , 2014 , gross profit increased by $ 28.2 million compared to the prior year . gross margin for the year ended december 31 , 2014 was 25.4 % , up from 24.1 % in the prior year . the improvement in gross margin was primarily the result of increased volumes that leveraged production capacity , favorable product mix associated with higher sales to industrial customers and productivity and facilities utilization improvements within our environmental solutions group . gross 18 margin within our safety and security systems group improved by 110 basis points in comparison to the prior year , which included inefficiencies associated with an erp implementation . partially offsetting these improvements was a deterioration in gross margin within our fire rescue group , which resulted from unfavorable product mix , including a higher concentration of sales to lower-margin geographic regions , and manufacturing inefficiencies . selling , engineering , general and administrative expenses selling , engineering , general and administrative ( “ seg & a ” ) expenses increased by $ 6.9 million for the year ended december 31 , 2014 compared to the prior year , primarily due to a $ 5.1 million increase within the environmental solutions group , resulting from higher employee incentive and stock-compensation expense , product liability costs and consulting expenses . in addition , seg & a expenses at corporate were $ 2.3 million higher than prior year , largely due to increased employee incentive and stock-compensation expense . these increases were partially offset by lower expenses of $ 1.1 million within the safety and security systems group , primarily due to lower pension expense and staffing costs . restructuring there were no restructuring charges in 2014 . in 2013 , the company recorded restructuring charges of $ 1.2 million and $ 0.3 million related to severance costs in the safety and security systems group and corporate , respectively . story_separator_special_tag the loss includes a charge related to special termination benefits provided to certain employees of the legacy fstech group businesses that were retained by the company in order to assist with transitional operations through the end of the third quarter of 2013 as well as certain adjustments relating to assets of other previously discontinued operations . for further discussion of the loss from discontinued operations and disposals , see note 15 – discontinued operations to the accompanying consolidated financial statements . year ended december 31 , 2013 vs. year ended december 31 , 2012 net sales net sales increased by $ 48.1 million for the year ended december 31 , 2013. in our environmental solutions group , higher vacuum truck and sewer cleaner shipments of $ 5.9 million and $ 30.4 million , respectively , contributed to a $ 46.2 million net sales increase . the net sales improvement also included the effects of higher shipments of other product lines and improved pricing . our vacuum truck and municipal sewer cleaner sales continue to exceed prior-year levels largely due to increased production capacity . net sales in our fire rescue group improved by $ 3.3 million , or 2 % , benefiting from the effects of favorable foreign currency impacts and favorable product mix , offset by a reduction in unit volumes . net sales within our safety and security systems group were down $ 1.4 million compared to the prior year . cost of sales cost of sales increased by $ 32.8 million for the year ended december 31 , 2013. the increase was predominantly attributable to environmental solutions group , where cost of sales increased by $ 28.6 million , largely due to increased unit volumes of $ 31.1 million , and $ 0.8 million of additional warranty expense , partially offset by favorable pricing and product mix impacts of $ 3.4 million . cost of sales in our safety and security systems group increased by $ 1.6 million , despite slightly lower sales , primarily due to costs associated with implementation of new erp software within the u.s. operations , including inefficiencies experienced during the implementation . in our fire rescue group , cost of sales were up $ 2.6 million , primarily due to 20 unfavorable foreign currency impacts of $ 3.5 million and product mix of $ 0.4 million , offset by a $ 1.3 million reduction in cost of sales due to lower unit volumes . gross profit gross profit increased by $ 15.3 million , or 8 % , for the year ended december 31 , 2013 and was positively impacted by increased volumes and improved pricing within our environmental solutions group . the increase in gross profit was partially offset by higher information technology costs , as well as lower fixed overhead absorption , at our safety and security systems group . gross profit margin in 2013 increased by 0.5 % to 24.1 % largely due to the factors noted above . selling , engineering , general and administrative expenses seg & a expenses decreased by $ 3.1 million for the year ended december 31 , 2013. the overall decrease is primarily due to a $ 3.7 million reduction in corporate expenses , largely due to reduced employee incentive compensation expense and lower medical expenses , and a $ 1.3 million decline in seg & a expenses in our safety and security systems group , offset by increases of $ 1.3 million and $ 0.6 million at our environmental solutions group and fire rescue group , respectively . restructuring charges in 2013 , the company recorded expenses of $ 1.2 million and $ 0.3 million related to severance costs in the safety and security systems group and corporate , respectively . in 2012 , the company recorded expenses of $ 0.9 million and $ 0.6 million related to severance costs in the safety and security systems group and corporate , respectively . based upon further developments in 2013 , it was determined that the $ 0.6 million of corporate restructuring costs were not required and this charge was reversed in the year ended december 31 , 2013. operating income operating income increased by $ 19.1 million , or 37 % , for the year ended december 31 , 2013. the increase was largely a result of improved gross profit within our environmental solutions group driven by improved product pricing and increased volumes , partially offset by unfavorable gross profit impacts at our safety and security systems group discussed above , including the effects of an erp system implementation in the second quarter of 2013. interest expense interest expense decreased by $ 12.6 million , or 59 % , for the year ended december 31 , 2013. the decrease was primarily due to a significant reduction in total debt , coupled with a reduction in interest rates resulting from the company 's march 2013 debt refinancing . debt settlement charges in the first quarter of 2013 , the company recorded $ 8.7 million of charges related to the termination of our prior debt facilities . the expenses included the write-off of deferred financing fees of $ 4.5 million and a prepayment penalty of $ 4.2 million . in the first quarter of 2012 , the company recorded $ 1.6 million of charges related to the termination of its prior debt agreements . the expenses included $ 1.0 million of make-whole interest payments and a write-off of deferred financing fees of $ 0.6 million . in the third quarter of 2012 , the company expensed an additional $ 1.9 million of deferred financing fees relating to the $ 75.0 million reduction of our then existing debt facilities . other expense , net other expense , net totaled $ 0.1 million for the year ended december 31 , 2013 as compared to $ 0.7 million in the prior year , and includes realized losses from foreign currency transactions and derivative contracts .
| executive summary the company is a leading global manufacturer and supplier of ( i ) sewer cleaners , vacuum trucks , street sweepers and other environmental vehicles and equipment , ( ii ) safety , security and communication equipment and ( iii ) vehicle-mounted , aerial platforms for fire fighting , rescue , electric utility and industrial applications . we also are a designer and supplier of technology-based products and services for the public safety market . in addition , we sell parts and provide service , repair , equipment rentals and training as part of a comprehensive offering to our customer base . we operate twelve manufacturing facilities in six countries around the world and provide products and integrated solutions to municipal , governmental , industrial and commercial customers in all regions of the world . as described in item 1 of part i of this form 10-k , the company 's business units are organized and managed in three operating segments : the environmental solutions group , the safety and security systems group and the fire rescue group . in 2014 , the company continued to focus on executing against its business strategy , which resulted in strong improvement in operating earnings . the company identified a number of key objectives in 2014 , including the following : creating disciplined growth ; improving manufacturing efficiencies and costs ; leveraging invested capital ; and diversifying our customer base .
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4. stock awards , warrants and options warrants the following table summarizes all warrant activity for the years ended december 31 , 2016 and 2015 : replace_table_token_9_th f- 15 capricor therapeutics , inc. notes to consolidated financial statements december 31 , 2016 and 2015 4. stock awards , warrants and options ( continued ) the following table summarizes all outstanding warrants to purchase shares of the company 's common stock : replace_table_token_10_th stock options the company 's board of directors ( the “ board ” ) has approved four stock option plans : ( i ) the amended and restated 2005 stock option plan ( which has story_separator_special_tag the following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the audited consolidated notes to those statements included elsewhere in this annual report on form 10-k. this discussion includes forward-looking statements that involve risks and uncertainties . as a result of many factors , our actual results may differ materially from those anticipated in these forward-looking statements . overview our mission is to improve the treatment of diseases by discovering , developing and commercializing innovative therapies , focusing on cardiovascular disease as well as exploring other indications . our executive offices are located at 8840 wilshire blvd. , 2 nd floor , beverly hills , california 90211. our telephone number is ( 310 ) 358-3200 and our internet address is www.capricor.com . consummation of the merger on november 20 , 2013 , pursuant to that certain agreement and plan of merger and reorganization dated as of july 7 , 2013 , as amended by that certain first amendment to agreement and plan of merger and reorganization dated as of september 27 , 2013 , or as amended , the merger agreement , by and among nile therapeutics , inc. , a delaware corporation , or nile , bovet merger corp. , a delaware corporation and a wholly-owned subsidiary of nile , or merger sub , and capricor , inc. , or capricor , merger sub merged with and into capricor and capricor became a wholly-owned subsidiary of nile . immediately prior to the effective time of the merger , and in connection therewith , nile filed certain amendments to its certificate of incorporation which , among other things ( i ) effected a 1-for-50 reverse split of its common stock , ( ii ) changed its corporate name from “ nile therapeutics , inc. ” to “ capricor therapeutics , inc. , ” and ( iii ) effected a reduction in the total number of authorized shares of common stock from 100,000,000 to 50,000,000 , and a reduction in the total number of authorized shares of preferred stock from 10,000,000 to 5,000,000. capricor , our wholly-owned subsidiary , was founded in 2005 as a delaware corporation based on the innovative work of its founder , eduardo marbán , m.d. , ph.d. , and his collaborators . first located in baltimore , maryland , adjacent to the johns hopkins university , or jhu , where dr. marbán was chief of cardiology , capricor moved to los angeles , california in 2007 when dr. marbán became director of the heart institute at cedars-sinai medical center , or csmc . capricor 's laboratories are located in space that capricor leases from csmc . capricor manufactures its cap-1002 and exosomes product candidates in manufacturing facilities provided by csmc . drug candidates we have four drug candidates , two of which are in various stages of active development . our current research and development efforts are focused on cap-1002 and cap-2003 . cap-1002 is the subject of two ongoing clinical trials , and we expect to enter cap-2003 into clinical development in the second half of 2017. cap-1001 ( autologous cdcs ) was the subject of the csmc and jhu-sponsored phase i caduceus trial and is not in active development . both cap-1002 and cap-1001 are derived cardiospheres , or csps , and we do not plan to develop csps as a therapeutic . cap-1002 : our core therapeutic technology is based on the cardiosphere-derived cell , or cdc , a type of cardiac progenitor cell that composes a minor fraction of the cardiac muscle cell population and was first identified in the academic laboratory of capricor 's scientific founder , dr. eduardo marbán . since their initial report in 2007 , cdcs have been the subject of over 100 peer-reviewed scientific publications and have been administered to approximately 140 human subjects across several clinical trials . we are currently developing allogeneic cdcs ( cap-1002 ) as a product candidate for the treatment of cardiac disorders . we are currently conducting two clinical trials of our lead product candidate , cap-1002 : the phase ii portion of the phase i/ii allstar trial in patients who have had a myocardial infarction , or mi , and the phase i/ii hope-duchenne trial in patients with duchenne muscular dystrophy-associated cardiomyopathy . we have completed the phase i portion of the phase i/ii dynamic trial in patients with advanced heart failure . 46 phase i/ii allstar clinical trial the phase i portion of the allstar trial was a 14-patient , open-label , dose-escalation study that was conducted to evaluate the clinical safety of cap-1002 . each patient received a single infusion of cap-1002 into the coronary artery most closely associated with the location of their mi , at a dose level of either 12.5 million or 25 million cells . the primary safety endpoints focused on the potential adverse effects of cap-1002 delivery , including potential immunologic consequences of infusing cells that had originated from an unrelated donor . enrollment was completed in october 2013. event rates observed for each of the four pre-specified safety endpoints ( acute myocarditis possibly attributable to cap-1002 ; death due to ventricular tachycardia or ventricular fibrillation ; sudden death ; and major adverse cardiac events ) were 0 % over one and 12 months following cap-1002 infusion . story_separator_special_tag we announced the completion of enrollment of 25 patients in the hope-duchenne trial in september 2016. to date , the data safety monitoring board has completed four safety reviews , and following each review , recommended that the trial continue . we expect to report top-line six-month results early in the second quarter of 2017 and report top-line 12-month results in the fourth quarter of 2017. additionally , depending upon trial results and available resources , we are planning to expand our cap-1002 clinical development program in dmd beyond cardiac aspects of the disease . this expansion includes the conduct of a clinical trial which we plan to commence in the second half of 2017 , subject to regulatory approval . phase i/ii dynamic clinical trial the phase i/ii dynamic trial , of which the phase i portion has concluded , was designed to evaluate the safety and efficacy of cap-1002 in the treatment of patients with advanced heart failure resulting from dilated cardiomyopathy of either ischemic or non-ischemic origin . this condition is characterized by chronic structural and functional abnormalities present throughout the heart 's contractile tissue . in the dynamic trial , cap-1002 was infused into all three main coronary arteries to obtain broad exposure . following infusion , patients were followed for one year . the trial was funded in part through a grant award from the nih . we initiated the open-label , dose-escalating phase i portion of the dynamic trial in december 2014 at a single center , csmc , and in april 2015 , completed enrollment with 14 patients with new york heart association , or nyha , class iii heart failure . each patient was administered cap-1002 via a one-time , triple coronary infusion at one of several evenly-divided dose levels ( 37.5 million , 50 million , 62.5 million , or 75 million cells total ) . initial top-line six-month results were presented at the american heart association 's annual scientific sessions in november 2015. multi-vessel intracoronary infusion of cap-1002 in subjects with dilated cardiomyopathy was shown to be safe in this study with no major adverse cardiac events reported at one month or at six months post-infusion . although this trial was intended as a safety study , the six-month data demonstrated encouraging and congruent preliminary efficacy signals in multiple parameters , including ejection fraction , ventricular volumes , exercise capacity and subjective well-being . in june 2016 , capricor reported positive 12-month data from the dynamic study . for the 12 patients available for follow-up at one year , improvements from baseline in key cardiac function and dimensional indices that had been observed at six months were directionally maintained . importantly , the change in median left ventricular ejection fraction from baseline to 12 months maintained its level of statistical significance that was shown at six months ( p=0.02 at both time points ) and , on an absolute basis , continued to improve from six to 12 months . of the five nyha class iii subjects who received the highest dose of cap-1002 ( 75 million cells ) , two subjects improved by two classes ( to class i ) and three improved by one class ( to class ii ) at six months . at 12 months , three of these five subjects were assessed as class i and two as class ii , demonstrating further improvement and indicating durability of the benefit of cap-1002 on heart failure status for as long as one year following administration . cap-1002 infusion was well-tolerated in dynamic . two of the 14 patients , who were in the lower two of the four dose cohorts , died from progressive heart failure approximately one and three months prior to study conclusion . although we have designed a phase ii study to evaluate cap-1002 in the heart failure population , at this time we have not made a determination with respect to conducting the phase ii portion of the dynamic trial . 48 cap-2003 : exosomes are nano-sized , membrane-enclosed vesicles , or “ bubbles ” that are secreted by cells and contain bioactive molecules , including proteins , rnas and micrornas . they act as messengers to regulate the functions of neighboring cells , and pre-clinical research has shown that exogenously-administered exosomes can direct or , in some cases , re-direct cellular activity , supporting their therapeutic potential . their size , ease of crossing cell membranes , and ability to communicate in native cellular language makes them an exciting class of potential therapeutic agents . we are currently developing exosomes produced by cdcs ( cap-2003 ) as a product candidate for the treatment of certain cardiac and other inflammatory conditions . cap-2003 comprises of exosomes secreted by cdcs , and is believed to mediate many of the effects that are observed with these cells , including anti-inflammatory , anti-angiogenic , anti-apoptotic , and anti-fibrotic effects . we are currently conducting studies in pre-clinical models of cardiac , inflammatory and various other conditions to explore the possible therapeutic benefits that cap-2003 may possess . we are planning to evaluate cap-2003 in preclinical studies for the treatment of hlhs . we hope to submit an ind for cap-2003 to enable clinical development in the second half of 2017. cap-1001 : cap-1001 consists of autologous cdcs . this product candidate was evaluated in the randomized , double-blind , placebo-controlled phase i caduceus clinical trial in patients who had recently experienced an mi . the study was sponsored and conducted by csmc in collaboration with jhu . of the 25 patients enrolled , 17 received an intracoronary infusion of cap-1001 and eight received standard of care . 16 of the 17 patients treated with cap-1001 showed a mean reduction of approximately 45 % in scar mass and an increase in viable heart muscle at one-year following mi . the eight patients in the control group had no significant change in scar size .
| general and administrative expenses . g & a expenses for the years ended december 31 , 2016 and 2015 were approximately $ 4.9 million and $ 4.4 million , respectively . the increase of approximately $ 0.5 million in g & a expenses in the year ended december 31 , 2016 compared to the year ended december 31 , 2015 is primarily attributable to an increase of approximately $ 0.4 million related to compensation and recruiting costs related to increased headcount and payroll increases . furthermore , there was an increase of approximately $ 0.1 million in stock-based compensation expense . research and development expenses . r & d expenses for the years ended december 31 , 2016 and 2015 were approximately $ 16.0 million and $ 13.8 million , respectively . the increase of approximately $ 2.2 million in r & d expenses in the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 is primarily due to clinical development activities of cap-1002 ( allstar and hope-duchenne ) and other continued research and development efforts . these activities resulted in an increase of approximately $ 2.1 million in clinical costs primarily related to contract research organizations and manufacturing for cap-1002 , as well as patient costs and expenses for the operational team that supports our clinical trials . additionally , for the year ended december 31 , 2016 , there was an increase of approximately $ 1.1 million in r & d expenses related to our product candidates , including exosomes .
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for awards with a performance condition vesting feature , compensation cost is recorded if it is probable that the performance condition will story_separator_special_tag this report contains forward-looking statements that involve risks and uncertainties . the statements contained in this report that are not purely historical are forward-looking statements within the meaning of section 27a of the securities act of 1933 and section 21e of the securities exchange act of 1934 , including but not limited to our statements about anticipated income and revenue growth rates , future profitability and market share , new and expanded products and services , geographic expansion and planned capital expenditures . without limiting the foregoing , the words “ may , ” “ should , ” “ could , ” “ expect , ” “ plan , ” “ intend , ” “ anticipate , ” “ believe , ” “ estimate , ” “ predict , ” “ designed , ” “ potential , ” “ continue , ” “ target , ” “ seek ” and similar expressions are intended to identify forward-looking statements . all forward-looking statements included in this report are based on information available to us up to , and including the date of this document , and we disclaim any obligation to update any such forward-looking statements . our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain important factors , including those set forth in this “ management 's discussion and analysis of financial condition and results of operations ” and “ risk factors ” and elsewhere in this report . you should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the united states securities and exchange commission . executive overview we are a technology driven company that aggregates , largely via the internet , large volumes of small , individually customized orders for a broad spectrum of print , signage , apparel and similar products . we operate in a largely decentralized manner . our businesses , discussed in more detail below , fulfill orders with manufacturing capabilities that include cimpress owned and operated manufacturing facilities and a network of third-party fulfillers to create customized products on-demand . those businesses bring their products to market through a portfolio of customer-focused brands serving the needs of micro , small and medium sized businesses , resellers and consumers . these brands include vistaprint , our global brand for micro business marketing products and services , as well as brands that we have acquired that serve the needs of various market segments , including resellers , micro , small and medium sized businesses with differentiated service needs , and consumers purchasing products for themselves and their families . as of june 30 , 2017 , we have numerous operating segments under our management reporting structure which are reported in the following four reportable segments : vistaprint , upload and print , national pen , and all other businesses . vistaprint represents our vistaprint websites focused on the north america , europe , australia and new zealand markets , and our webs business , which is managed with the vistaprint- digital business . upload and print includes the druck.at , easyflyer , exagroup , pixartprinting , printdeal , tradeprint , and wirmachendruck businesses . national pen includes the global operations of our national pen business , which manufactures and markets custom writing instruments and promotional products , apparel and gifts for small- and medium-sized businesses . all other businesses segment includes the operations of our albumprinter , most of world and corporate solutions businesses . story_separator_special_tag cost of revenue for the year ended june 30 , 2016 increased due to $ 157.5 million of higher costs in our upload and print businesses , largely due to incremental manufacturing costs of $ 143.8 million from our fiscal 2016 acquisitions of wirmachendruck and tradeprint and increased manufacturing volume from our pixartprinting and printdeal businesses . in addition , the vistaprint cost of revenue increased by $ 44.5 million , due to increased costs associated with production volume and product mix of $ 38.6 million and an $ 11.0 million loss for the abandonment of various proprietary production technologies , partially offset by aggregate benefits of currency , productivity and efficiency gains of $ 5.1 million . consolidated operating expenses the following table summarizes our comparative operating expenses for the periods : in thousands replace_table_token_10_th technology and development expense technology and development expense consists primarily of payroll and related expenses for our employees engaged in software and manufacturing engineering , information technology operations and content development , as well as amortization of capitalized software and website development costs , including hosting of our websites , asset depreciation , patent amortization , legal settlements in connection with patent-related claims , and other technology infrastructure-related costs . depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue . the growth in our technology and development expenses of $ 33.2 million for the year ended june 30 , 2017 as compared to the prior comparative period was primarily due to increased headcount-related expenses in our technology development and information technology support organizations of $ 15.8 million . the increase in headcount supports the continued development of our software-based mass customization platform as well as investments to enhance existing capabilities and address each of our businesses ' specific needs . this increase is partially offset by headcount reductions as a result of the third quarter fiscal 2017 restructuring initiative . all employee severance related charges are reflected separately in restructuring expense . additionally , our recent 35 acquisition of national pen has resulted in increased technology and development expenses of $ 5.9 million for the year ended june 30 , 2017 , without costs in the prior comparable period . story_separator_special_tag the increase was partially offset by the recognition of $ 14.9 million of expense during the year ended june 30 , 2015 , to remeasure the contingent consideration liabilities related to the printdeal and pixartprinting acquisitions which did not recur in fiscal 2016. amortization of acquired intangible assets amortization of acquired intangible assets consists of amortization expense associated with separately identifiable intangible assets capitalized as part of our acquisitions , including customer relationships , trade names , developed technologies , print networks , and customer and referral networks . amortization of acquired intangible assets increased by $ 5.6 million during the year ended june 30 , 2017 , as compared to the year ended june 30 , 2016 , primarily due to amortization for our fiscal 2017 acquisition of national pen and fiscal 2016 acquisition of wirmachendruck . amortization of acquired intangible assets increased $ 16.3 million during the year ended june 30 , 2016 as compared to the year ended june 30 , 2015 , primarily due to our fiscal 2016 acquisitions of wirmachendruck and tradeprint , as well as a full year of amortization related to our fiscal 2015 acquisitions . restructuring expense restructuring expense consists of costs directly incurred as a result of a restructuring initiative , inclusive of employee-related termination costs , third party professional fees , facility exit costs and write-off of abandoned assets . the restructuring expense of $ 26.7 million that was recognized during the year ended june 30 , 2017 consists of costs directly incurred as a result of our january 2017 restructuring initiative , inclusive of employee-related termination costs , third-party professional fees and our write-off of abandoned assets . refer to note 18 for additional details regarding the restructuring plan . impairment of goodwill and acquired intangible assets for the years ended june 30 , 2017 and 2016 , we recognized impairment charges of $ 9.6 million and $ 30.8 million for our tradeprint and exagroup reporting units , respectively . these impairments were a result of their under performance during the impairment period , combined with lower profit outlooks when compared to the initial deal model upon which we based our purchase accounting . there were no impairment charges related to goodwill or acquired intangible assets during the year ended june 30 , 2015. refer to note 8 for additional information relating to the impairments . other consolidated results other income , net other income , net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries , as well as the realized and unrealized gains and losses on some of our derivative instruments . in evaluating our currency hedging program and ability to achieve hedge accounting in light of our legal entity cash flows , we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden . based on this analysis , we decided to execute certain currency derivative contracts that do not qualify for hedge accounting . the following table summarizes the components of other income : 37 replace_table_token_11_th the decrease in net gains during the year ended june 30 , 2017 , when compared to the prior comparative periods , is primarily due to the currency exchange rate volatility impacting our derivatives that are not designated as hedging instruments . we expect this volatility to continue in future periods as we do not currently apply hedge accounting for most of our derivative currency contracts . we also experienced lower currency-related gains due to currency exchange rate volatility on our non-functional currency intercompany relationships . these lower net gains are partially offset by the impact of certain cross-currency swap contracts designated as cash flow hedges . in addition , during the year ended june 30 , 2017 , we recognized other gains of $ 3.8 million , which consist primarily of gains related to the sale of marketable securities . during fiscal year 2016 , we recognized other gains of $ 5.2 million , primarily related to insurance recoveries . interest expense , net interest expense , net was $ 44.0 million , $ 38.2 million , and $ 16.7 million for the years ended june 30 , 2017 , 2016 and 2015 , respectively . interest expense , net primarily consists of interest paid on outstanding debt balances , amortization of debt issuance costs , interest related to capital lease obligations and realized gains ( losses ) on effective interest rate swap contracts and certain cross-currency swap contracts . we expect interest expense to be higher relative to historical trends as a result of increased borrowing levels on our senior secured credit facility which was expanded in july 2017 , increased capital lease obligations for machinery and equipment , and if interest rates increase . refer to note 10 for additional details . income tax ( benefit ) provision replace_table_token_12_th the increase in income tax benefit for the year ended june 30 , 2017 from income tax expense in prior periods is primarily attributable to pre-tax losses for the year ended june 30 , 2017 as compared to pre-tax earnings for the fiscal years ended june 30 , 2016 and 2015. this , combined with a more favorable geographical mix of earnings in fiscal year 2017 , has resulted in a lower effective tax rate for the year . in addition , we recorded a larger goodwill impairment charge in fiscal year 2016 as compared to fiscal year 2017 ( discussed in note 8 ) which is non-deductible for tax purposes .
| financial summary in evaluating the financial condition and operating performance of our business , management focuses on revenue growth , constant-currency revenue growth , operating income and adjusted net operating profit after tax ( nopat ) . a summary of these key financial metrics for the year ended june 30 , 2017 as compared to the year ended june 30 , 2016 follows : fiscal year 2017 reported revenue increased by 19 % to $ 2,135.4 million . 32 consolidated constant-currency revenue increased by 21 % and excluding acquisitions completed in the last four quarters increased by 8 % . operating income decreased $ 123.9 million to an operating loss of $ 45.7 million . adjusted nopat decreased $ 75.2 million to $ 64.6 million . for our fiscal year 2017 , the increase in reported revenue growth was primarily due to the addition of the revenue of our wirmachendruck business , which we acquired in fiscal 2016 and therefore only partially contributed to the prior comparative period , and our recently acquired national pen business , as well as continued growth in the vistaprint business and upload and print businesses acquired more than twelve months prior . the following items negatively impacted our operating income for the year ended june 30 , 2017 , leading to the decrease in operating income as compared to the prior period : increased organic investments in fiscal year 2017 compared to fiscal year 2016 , which materially weighed on profitability . these investments include costs that impact our gross profit such as shipping price reductions , expanded design services , and new product introduction . significant acquisition-related expense associated with our wirmachendruck contingent earn-out arrangement , due to its continued strong performance , as well as $ 7.1 million of amortization expense for acquired intangible assets of our newly acquired national pen business .
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story_separator_special_tag the following discussion and analysis of the results of operations and financial condition for the years ended december 31 , 2020 and december 31 , 2019 and financial condition as of december 31 , 2020 and december 31 , 2019 and should be read in conjunction with the “ cautionary note regarding forward-looking statements ” contained in part 1 of this report on form 10-k ( this `` report '' ) , the “ risk factors ” contained in item 1a of this report , our consolidated financial statements and the notes thereto contained in item 8 of this report , and the other information appearing elsewhere in , or incorporated by reference into this report . overview we are a specialty pharmaceutical company developing medicines for addictions and drug overdose . we developed narcan® ( naloxone hydrochloride ) nasal spray ( `` narcan® '' ) , a treatment to reverse opioid overdose . this product was conceived and developed by us , licensed to adapt , now a wholly owned subsidiary of ebs , in december 2014 and approved by the fda in november 2015. we have not consistently attained profitable operations and have historically depended upon obtaining sufficient financing to fund our operations . we anticipate if revenues are not sufficient then additional funding will be required in the form of debt financing and or equity financing from the sale of our common stock and or financings from the sale of interests in our prospective products and or royalty transactions . however , we may not be able to generate sufficient revenues or raise sufficient funding to fund our operations . we have not had a bankruptcy , receivership or similar proceeding . we are required to comply with all regulations , rules and directives of governmental authorities and agencies applicable to the clinical testing and manufacturing and sale of pharmaceutical products . on october 2 , 2017 , we changed our state of incorporation from the state of nevada to the state of delaware pursuant to an agreement and plan of merger , dated october 2 , 2017 , whereby we merged with and into our recently formed , wholly-owned delaware subsidiary , opiant pharmaceuticals , inc. pursuant to the agreement and plan of merger , ( i ) we merged with and into our delaware subsidiary , ( ii ) our separate corporate existence in nevada ceased to exist , ( iii ) our delaware subsidiary became the surviving corporation , ( iv ) each share of our common stock outstanding immediately prior to the effective time was converted into one fully-paid and non-assessable share of common stock of opiant pharmaceuticals , inc. , a delaware corporation , $ 0.001 par value per share , and ( v ) the certificate of incorporation and bylaws of our delaware subsidiary were adopted as our certificate of incorporation and bylaws at the effective time of the merger . the merger and the agreement and plan of merger were approved by our board and stockholders representing a majority of outstanding common stock . we developed narcan® , a treatment to reverse opioid overdoses , which was conceived , licensed , developed , approved by the fda and commercialized in less than three years . we plan to replicate this relatively low cost , successful business strategy in the field of addiction and overdose . our current pipeline includes medicines in development for opioid overdose reversal ( “ oor ” ) , alcohol use disorder ( “ aud ” ) , opioid use disorder ( “ oud ” ) and acute cannabinoid overdose ( “ aco ” ) . we are also pursuing other treatment opportunities within the addiction and drug overdose field . employees and culture our employees . we have 30 employees as of december 31 , 2020 , who were employed in the u.s. and u.k. our highly qualified and experienced team includes research and development personnel , and professionals across product development , quality , marketing , regulatory , investor relations , finance and legal , and other important functions critical to our success . we expect to add additional employees in 2021 with a focus on expanding our expertise primarily in clinical research and development , quality , and commercial sales and marketing . 56 diversity & inclusion . much of our success is rooted in the diversity of our teams and our commitment to inclusion . we value diversity at all levels and continue to focus on extending our diversity and inclusion initiatives across our entire workforce . we create a positive work environment by maintaining a strong culture of diversity and inclusion , supported by our code of business conduct and employment practices . we believe that our business benefits from the different perspectives a diverse workforce brings , and we pride ourselves on having a strong , inclusive and positive culture based on our shared mission and values . employee engagement , & benefits . we believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees . we provide our employees with competitive salaries and bonuses , opportunities for equity ownership , development programs that enable continued learning and growth and employment packages that promotes well-being across all aspects of their lives , including health care , retirement planning and paid time off . training and team development . we provide formal and informal training opportunities for our employees covering a variety of professional , technical and leadership topics . our training opportunities are designed to promote learning across all levels of our organization . our training includes courses in leadership , project management and technical communications . we conduct formal evaluations with each of our employees on an bi-annual basis , and managers provide feedback directly to employees through informal review sessions periodically throughout the year . our formal evaluation process requires employees to track whether they met certain development goals that are set at the beginning of the review period . story_separator_special_tag 60 based on feedback from the fda in connection with this meeting , we intend to pursue a 505 ( b ) ( 2 ) development path , with a potential to submit a nda for the drug and nasal delivery device combination in 2020. nalmefene as an injection was previously approved by the fda for treating suspected or confirmed opioid overdose . the 505 ( b ) ( 2 ) pathway allows companies to rely in part on the fda 's findings of safety and efficacy for a previously approved product and to supplement these findings with a more limited set of their own studies to satisfy fda requirements , as opposed to conducting the full array of preclinical and clinical studies that would typically be required . on january 27 , 2020 , the company received a letter from the fda formalizing a `` clinical hold '' , that was discussed during a telephone conversation on january 16 , 2020 , on the pharmacokinetic study for opnt003 ( nasal nalmefene ) as a potent long-acting opioid antagonist for the treatment of opioid overdose . the fda requested additional information be provided to evaluate the sensitization and irritation endpoints of the final finished device . on may 8 , 2020 , the company received a letter from the fda lifting the clinical hold . we have full commercial rights to opnt003 and we were awarded a grant of approximately $ 7.4 million from the national institutes of health 's national institute on drug abuse ( `` nida '' ) . the grant provides us with additional resources for the ongoing development of opnt003 . we have been awarded approximately $ 5.6 million funded through the period ended march 31 , 2021 , with the balance of $ 1.8 million expected to be funded , subject to available funds and satisfactory progress on the development of opnt003 . we have also received a contract for approximately $ 8.1 million from the biological advance research and development agency ( “ barda ” ) to fund development of opnt003 through nda submission . barda has awarded approximat ely $ 7.2 millio n of the contract through december 20 , 2021 , with the balance expected to be funded , subject to satisfactory project progress , availability of funds and certain other conditions . in 2017 , nih leadership called for the development of a stronger , longer-acting formulations of antagonists to counteract the very high potency synthetic opioids that are now claiming thousands of lives each year . in january 2020 , we signed a letter of intent with the national center for advancing translational sciences ( `` ncats '' ) to collaborate on the development of opnt004 . ncats is one of 27 divisions and centers of the national institutes of health ( `` nih '' ) . ncats will provide development resources around certain pre-clinical activities and studies to support our planned filing of an investigational new drug application for opnt004 . this collaboration will be carried out under a cooperative research and development agreement with us and the nih . during the year ended december 31 , 2020 , we earned $ 27.4 million in royalties under the adapt agreement . in addition , during the year ended december 31 , 2020 , we received $ 0.7 million from the exercise of stock options and warrants . on november 14 , 2019 , we entered into an open market sale agreement sm ( the `` sales agreement '' ) with jefferies llc , as agent , pursuant to which we may offer and sell , from time to time through jefferies llc , shares of our common stock . during the year ended december 31 , 2020 , we did not sell any shares under the sales agreement . as a result of the expiration of the registration statement on form s-3 on november 7 , 2020 , the sales agreement also expired in accordance with its terms . after considering the proceeds received during the year ended december 31 , 2020 , we believe that we have sufficient capital resources to sustain operations through at least the next 12 months from the date of the filing of this report . net profit interests we have entered into agreements with certain investors whereby , in exchange for funding for the research , development , marketing and commercialization of a product relating to our treatment to reverse opioid overdoses ( the “ opioid overdose reversal treatment product ” ) , we provided such investors with an interest in any pre-tax profits received by us that were derived from the sale of the opioid overdose reversal treatment product less any and all expenses incurred by and payments made by us in connection with the opioid overdose reversal treatment product , including but not limited to an allocation of our overhead devoted by us to product-related activities , which allocation shall be determined in good faith by us ( the “ oort net profit ” ) . 61 a summary of the investor agreements is below , and categorized by investor : potomac construction limited ( “ potomac ” ) on april 16 , 2013 , we entered into an agreement with potomac ( as clarified by the letter agreement dated october 15 , 2014 ( “ potomac agreement no . 1 ” ) ) for funding from potomac for the research , development , marketing and commercialization of the opioid overdose reversal treatment product in the amount of $ 600 thousand , in exchange for a 6.0 % interest in the oort net profit in perpetuity . on may 30 , 2013 , we entered into a new agreement with potomac ( as clarified by that certain letter agreement dated october 15 , 2014 ( “ potomac agreement no . 2 ” ) ) for additional funding from potomac in the amount of $ 150 thousand for the research , development , marketing and commercialization of the opioid overdose reversal treatment product , in exchange for an additional 1.5 % interest in the oort net profit in perpetuity .
| results of operations comparison of the years ended december 31 , 2020 and december 31 , 2019. replace_table_token_1_th net revenue during the year ended december 31 , 2020 , we recorded net revenue of $ 29.6 million , which represents a decrease of approximately $ 10.9 million from the $ 40.5 million of net revenue recorded during the year ended december 31 , 2019. the $ 10.9 million year-over-year decrease in net revenue was primarily due to a $ 10.2 million decrease in revenue related to narcan® sales and related milestone payments for the comparable periods . the remaining $ 0.7 million decrease is primarily related to the decrease in investment treatment revenue of $ 0.6 million for the comparable periods . general and administrative for the year ended december 31 , 2020 general and administrative expenses totaled $ 11.7 million , which represents a decrease of approximately $ 0.5 million compared to $ 12.2 million of general and administrative expenses incurred during the year ended december 31 , 2019. estimated administrative expense associated with our opioid overdose reversal program increased by $ 1.2 million , offset by a decrease in legal , investor relations and professional fees of $ 1.1 million , and a decrease in personnel and related expenses including stock based compensation of $ 0.6 million for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. research and development during the year ended december 31 , 2020 we recorded research and development expenses totaling $ 9.2 million , which represents an increase of $ 0.2 million as compared to the $ 9.0 million of research and development expenses incurred during the year ended december 31 , 2019. the increase in research and development expenses is attributed to a $ 0.2 million increase for third party expenses associated with our research and development programs for the comparable periods .
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from time to time , the company also provides forward-looking statements in other publicly-released materials , both written and oral . forward-looking statements provide current expectations and forecasts of future events such as new products , revenues and financial performance , and are not limited to describing historical or current facts . they can be identified by the use of words such as “ believes , ” “ expects , ” “ plans , ” “ intends , ” “ anticipates , ” and other words and phrases of similar meaning . forward-looking statements are necessarily based on assumptions , estimates and limited information available at the time they are made . a broad variety of risks and uncertainties , both known and unknown , as well as the inaccuracy of assumptions and estimates , can affect the realization of the expectations or forecasts in these statements . many of these risks and uncertainties are difficult to predict or are beyond the company 's control . consequently , no forward-looking statements can be guaranteed . actual future results may vary materially . significant factors affecting the expectations and forecasts are set forth under “ item 1a — risk factors ” in this annual report on form 10-k. the company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof . investors should refer to the company 's subsequent filings under the securities exchange act of 1934 for further disclosures . executive summary on may 9 , 2014 , pursuant to the merger agreement dated march 10 , 2014 , the company acquired amcol international corporation ( “ amcol ” ) . with the acquisition of amcol , the company has strengthened its position as a leading international producer of specialty materials and related products and services for industrial and consumer markets . the company and amcol have both been world-renowned innovators in mineralogy , fine particle technology and polymer chemistry . this transaction brought together the global leaders in precipitated calcium carbonate and bentonite , creating an even more robust us-based international minerals supplier . the acquisition of amcol continues to be highly accretive . all of our minerals based business segments recorded double-digit operating margins in 2015. consolidated sales in 2015 increased 4 % from the prior year to $ 1,797.6 million from $ 1,725.0 million . foreign exchange had an unfavorable impact on sales of $ 95.3 million , or 6 % . income from operations was $ 200.3 million as compared with $ 168.8 million in the prior year , an increase of 19 % . net income was $ 107.9 million as compared to $ 92.4 million in the prior year . during 2015 , the company exited its coiled tubing service line and restructured its other on-shore service lines within the energy services segment due to continued losses and indications that there will not be any significant improvement in the market in the near to medium term . included in pre-tax income and earnings per share for 2015 were certain non-routine items which , when combined , reduced earnings by $ 69.1 million , or $ 1.23 per share . these were as follows : acquisition transaction and integration costs $ 11.8 million restructuring and other charges $ 45.2 million premium on early extinguishment of debt $ 4.5 million write-down in investment of development stage enterprise $ 7.6 million total $ 69.1million the company continued to execute on its growth strategies of geographic expansion and new product innovation and development . we are currently commissioning two new satellite pcc plants in china and have three additional satellites under construction . the total capacity being installed with these three new satellite plants is approximately 215,000 tons . the company continued to see progress in its major growth strategy of developing and commercializing new products in advancing the fulfill® platform of technologies of higher filler loading . since the end of 2014 , we have signed 6 commercial agreements for fulfill® with two north american paper companies , two with european paper companies , and two companies in asia . we presently have twenty four commercial contracts for fulfill® . our three-year term refractory maintenance agreement with united steel company b.s.c . ( sulb ) , in bahrain expired in the fourth quarter . we recorded sales to sulb of $ 6.3 million in 2015. our refractories segment entered into two multi-year agreements in 2014 to provide cost-per-ton ( cpt ) steel refractory maintenance in europe and in india . we recorded sales of approximately $ 2.0 million during 2015. these agreements are due to expire in 2016 . 29 long term debt as of december 31 , 2015 was $ 1,255.3 million . during 2015 , we repaid $ 190.2 million of our term loan debt . since the acquisition of amcol , we have repaid over $ 290 million of our long-term debt . cash , cash equivalents and short-term investments were $ 232 million as of december 31 , 2015. our intention continues to be to use excess cash flow to repay debt and to de-lever as quickly as possible . outlook looking forward , we remain cautious about the state of the global economy and the impact it will have on our product lines . in addition to the integration of amcol and realization of the potential synergies from the acquired businesses , the company will also continue to focus on innovation and new product development and other opportunities for sales growth in 2016 , as follows : · develop multiple high-filler technologies under the fulfill® platform of products , to increase the fill rate in freesheet paper and continue to progress with commercial discussions and full-scale paper machine trials . · develop products and processes for waste management and recycling opportunities to reduce the environmental impact of the paper mill , reduce energy consumption and improve the sustainability of the papermaking process , including our new yield tm products . · further penetration into the packaging segment of the paper industry . story_separator_special_tag income ( loss ) from discontinued operations , net of tax the company recognized an income from discontinued operations , net of tax , of $ 2.1 million during 2014 , and a loss of $ 5.8 million in 2013 relating its discontinued operations at its merchant pcc facility at walsum , germany . segment review the following discussions highlight the operating results for each of our five segments . specialty minerals segment replace_table_token_8_th 2015 v 2014 net sales in the specialty minerals segment decreased 4 % to $ 624.6 million from $ 650.1 million . foreign exchange had an unfavorable impact on sales of $ 33.5 million , or 5 percent . excluding the effects of foreign exchange , higher sales in ground calcium carbonate were partially offset by declines in paper pcc . net sales of pcc products , which are primarily used in the manufacturing process of the paper industry , decreased $ 32.5 million , or 6 % . foreign exchange had an unfavorable impact on pcc products sales $ 30.9 million , or 7 % . talc and ground calcium carbonate sales increased primarily due to increased volumes . 33 income from operations increased $ 5.0 million and represented 16.1 % of net sales compared to $ 95.8 million and 14.7 % of sales in prior year . 2014 v 2013 net sales in the specialty minerals segment decreased $ 19.7 million due to lower paper pcc sales , partially offset by higher talc and ground calcium carbonate sales . net sales of pcc products , which are primarily used in the manufacturing process of the paper industry , decreased $ 26.6 million mainly due to paper capacity realignments in north america . foreign exchange had an unfavorable impact on pcc products sales in 2014 of approximately $ 6.7 million . talc and ground calcium carbonate sales increased primarily due to increased volumes . income from operations decreased $ 2.6 million and represented 14.7 % of net sales compared to $ 98.4 million and 14.7 % of sales in prior year . income from operations in 2014 included restructuring charges of $ 3.0 million . refractories segment replace_table_token_9_th 2015 v 2014 net sales in the refractories segment declined $ 63.8 million in 2015. foreign exchange had an unfavorable impact on refractories segment sales of approximately $ 23.7 million , or 7 percent . the remaining sales decrease was primarily due to lower volumes stemming from continued weak global steel demand . income from operations decreased $ 15.4 million and represented 9.4 % of net sales compared to 12.0 % in 2014. income from operations includes restructuring charges of $ 2.0 million and $ 0.7 million , in 2015 and 2014 , respectively . the declines relate primarily to the aforementioned weakness in global steel demand . 2014 v 2013 net sales in the refractories segment increased $ 11.3 million in 2014. foreign exchange had an unfavorable impact on refractories segment sales in 2014 of approximately $ 3.2 million . the increase in net sales resulted from stronger sales of refractory products and systems to steel and other industrial applications in europe . sales of metallurgical products increased $ 1.4 million due to higher volumes in europe . income from operations increased $ 7.3 million and represented 12.0 % of net sales compared to 10.3 % in 2013. income from operations in 2014 includes a $ 2.3 million benefit from a litigation settlement , partially offset by a restructuring charge of $ 0.7 million . income from operations in 2013 included an insurance settlement gain of $ 2.5 million . apart from these items , the growth in income from operations in 2014 was primarily driven by improved performance in europe refractory products and improved productivity , and was partially offset by a $ 0.8 million bad debt provision recorded in 2014 relating to a customer 's bankruptcy in north america . 34 performance materials segment replace_table_token_10_th this segment 's operating results for the year ended december 31 , 2014 includes 237 days of results commencing on may 9 , 2014. net sales in the performance materials segment in 2015 were $ 514.8 million . foreign exchange had an unfavorable impact on segment sales of approximately $ 13.7 million , or 7 % . income from operations was $ 95.9 million and represented 18.6 % of net sales compared to 11.6 % in 2014. included in income from operations in 2014 were $ 6.7 million in restructuring and other charges and a one-time non-cash inventory step charge of $ 3.6 million . the strong margin improvement in this segment was attributable to increased sales in consumer products , the realization of acquisition synergies and improved productivity . construction technologies segment replace_table_token_11_th this segment 's operating results for the year ended december 31 , 2014 includes 237 days of results commencing on may 9 , 2014 net sales in the construction technologies segment in 2015 were $ 180.1 million . foreign exchange had an unfavorable impact on segment sales of approximately $ 9.9 million , or 9 % . income from operations was $ 22.5 million and represented 12.5 % of net sales compared to a loss in 2014. included in income from operations in the prior year were restructuring charges of $ 5.8 million , an impairment of assets charge of $ 11.7 and a one-time non-cash inventory step up charge of $ 2.0 million . sales and operating income in this business segment were affected by fewer large projects in 2015 as compared with the prior year . energy services segment replace_table_token_12_th this segment 's operating results for the year ended december 31 , 2014 includes 237 days of results commencing on may 9 , 2014 35 net sales in the energy services segment in 2015 were $ 182.2 million . foreign exchange had an unfavorable impact on segment sales of approximately $ 8.4 million , or 6 % .
| consolidated income statement review replace_table_token_6_th * not meaningful net sales replace_table_token_7_th * not meaningful 31 worldwide net sales in 2015 increased 4.2 % from the previous year to $ 1,797.6 million . foreign exchange had an unfavorable impact on sales of $ 95.3 million or 6 percentage point of growth . net sales in the united states grew slightly to $ 1,049.6 million in 2015 and represented 58.4 % of consolidated net sales . international sales increased 3.8 % to $ 748.0 million from $ 720.6 million . worldwide net sales in 2014 increased 69.4 % from the previous year to $ 1,725.0 million . the increase was primarily from the performance materials , construction technologies , and energy services businesses acquired in the amcol acquisition . sales from operations owned for more than one year decreased $ 8.4 million due to lower sales in specialty minerals segment resulting from paper grade realignment in north america affecting the paper pcc product line . approximately $ 452.4 million of sales within united states and $ 262.8 million of sales within international regions relate to the acquisition of amcol businesses . operating costs and expenses the cost of sales was $ 1,326.6 million , $ 1,289.6 million and $ 784.5 million in 2015 , 2014 and 2013 , respectively . production margin as a percentage of net sales was 26.2 % in 2015 , 25.2 % in 2014 and 23.0 % in 2013 . production margins improved due to the achievement of acquisition synergies and the company 's ongoing operational excellence initiatives and productivity improvements . marketing and administrative costs were $ 182.3 million , $ 177.4 million and $ 89.2 million in 2015 , 2014 and 2013 , respectively .
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level 3 assets and liabilities include those whose fair value measurements are determined using pricing models , discounted cash flow methodologies or similar valuation techniques , as well as significant management judgment or estimation . the company 's financial assets at june 30 , 2012 and 2011 included money market funds which were valued based on quoted prices in active markets for substantially similar assets and , therefore , were level 1 instruments . story_separator_special_tag overview we are a product driven company that leverages innovative proprietary technologies to deliver networking solutions with compelling price-performance characteristics to both start-up and established network operators and service providers . our products bridge the digital divide by fundamentally changing the economics of deploying high performance networking solutions in underserved and underpenetrated wireless broadband access markets globally . these markets include emerging markets and other areas where individual users and small and medium sized enterprises do not have access to the benefits of carrier class broadband networking . our business model has enabled us to break down traditional barriers , such as high product and network deployment costs , which are driven by business model inefficiencies and achieve rapid market adoption of our products and solutions in previously underserved and underpenetrated markets . our business model and proprietary technologies provide us with a significant and sustainable competitive advantage over incumbents , who we believe are unable to respond effectively due to their higher cost business models . we offer a broad and expanding portfolio of networking products and solutions and we recently introduced products in the enterprise wlan , video surveillance , wireless backhaul and machine-to-machine communications markets . our solutions include systems , high performance radios , antennas and management tools that have been designed to deliver carrier class performance for networking and other applications in the unlicensed rf spectrum . we began shipping embedded radios in fiscal 2006. in fiscal 2008 we introduced a line of products based on 802.11 standard protocols and in early fiscal 2010 , we introduced a number of new products based on our proprietary airtechnologies , including our high-performance airmax platform , which have been rapidly adopted by network operators and high-performance proprietary airmax service providers . in fiscal 2012 and fiscal 2011 , our systems revenue , which primarily consists of our airmax platform , and to a lesser extent 802.11 standard based systems , accounted for 86 % and 81 % of our revenues , respectively . although our airmax platform has supplanted the demand for some of our 802.11 standard products , we have not experienced a decline in gross margin as we transition from 802.11 standard products to our airmax platform as they have similar margin profiles . in the future , we expect sales of our airmax platform products based on our other airtechnologies to continue to represent a growing portion of our revenues and the portion of our revenues derived from our 802.11 standard products to decline as a percentage of total revenues . our embedded radios bear higher margins than our systems , but we believe that systems present a larger market opportunity . building on our leadership in the underserved and underpenetrated segments of the wireless broadband access market , we intend to expand our product offerings in our existing market and enter adjacent markets by relying on the combination of our efficient business model and proprietary technologies . for example , we have introduced products and solutions for the enterprise wlan , video surveillance , and since late fiscal 2011 licensed microwave wireless backhaul and machine-to-machine communication markets . as we enter such new markets , we plan to leverage existing distributor relationships and establish engaged communities similar to that of the ubiquiti community to keep our operating expenses in line with our current model and enable us to offer products in these new markets with compelling price-performance characteristics . our revenues increased 79 % to $ 353.5 million in fiscal 2012 from $ 197.9 million in fiscal 2011. our revenues increased 44 % to $ 197.9 million in fiscal 2011 from $ 137.0 million in fiscal 2010. we had net income ( loss ) of $ 102.6 million , $ 49.7 million and $ ( 5.5 ) million in fiscal 2012 , fiscal 2011 and fiscal 2010 , respectively . our net loss in fiscal 2010 reflected a one-time stock-based compensation charge of $ 35.9 million related to a repurchase of our common stock and options in connection with the sale of our series a preferred stock and a $ 1.6 million charge related to a regulatory export compliance issue . the summit transaction in march 2010 , we sold 33,898,990 shares of our series a preferred stock and also issued warrants to purchase 2,135,640 shares of our series a preferred stock to funds affiliated with summit partners , l.p. for net proceeds 43 of $ 99.5 million . simultaneously with the issuance of preferred stock and warrants , we repurchased 33,104,320 shares of common stock and canceled and repurchased 794,660 options to purchase common stock from our employees and consultants for aggregate consideration of $ 100.0 million . in june 2010 , the funds affiliated with summit partners , l.p. , exercised their warrants in full for consideration of $ 6.3 million . for a more complete description of these transactions see repurchase of common stock and sale of series a preferred stock. we determined that the per share repurchase price of the common stock and options in march 2010 was above the fair value for shares of our common stock at the time of the repurchase . story_separator_special_tag sales , general and administrative expenses include salary and benefit expenses , including stock-based compensation , for employees and costs for contractors engaged in sales , marketing and general and administrative activities , as well as the costs of trade shows , marketing programs , promotional materials , bad debt expense , professional services , facilities , general liability insurance and travel . as our product portfolio and targeted markets expand , we may need to employ different sales models , such as building a direct sales force . these sales models would likely increase our costs . over time , we expect our sales , general and administrative expenses to increase in absolute dollars due to continued growth in headcount , expansion of our registration and defense of trademarks , patents and shareholder litigation efforts and increased support for our business and operations as a public company . 45 deferred revenues and costs in the event that collectability of a receivable from products we have shipped is not reasonably assured , we classify those amounts as deferred revenues on our balance sheet until such time as we receive payment of the accounts receivable . we classify the cost of products associated with these deferred revenues as deferred costs of revenues . at june 30 , 2012 , we did not have any revenue deferred for transactions where we lacked evidence that collectability of the receivables recorded was reasonably assured . at june 30 , 2011 , $ 1.2 million of revenue was deferred with a related deferred cost of revenues balance of $ 881,000. also included in our deferred revenues is a portion related to pcs obligations that we estimate we will perform in the future . as of june 30 , 2012 and 2011 , we had deferred revenues of $ 805,000 and $ 497,000 respectively , related to these obligations . prepayments we have historical agreements with certain contract manufacturers whereby we prepay for a portion of the product costs to assure the manufacture and timely delivery of our products . as of june 30 , 2012 and 2011 , we had prepayment balances of $ 129,000 and $ 5.3 million , respectively . critical accounting policies we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . in other cases , management 's judgment is required in selecting among available alternative accounting standards that provide for different accounting treatment for similar transactions . the preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the amounts we report as assets , liabilities , revenues , costs and expenses and affect the related disclosures . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . in many instances , we could reasonably use different accounting estimates , and in some instances changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , our actual results could differ significantly from the estimates made by our management . to the extent that there are differences between our estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . 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 . recognition of revenues revenues consist primarily of revenues from the sale of hardware and management tools , as well as the related implied pcs . we recognize revenues when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable and the collectability of the resulting receivable is reasonably assured . in cases where we lack evidence that collectability of the resulting receivable is reasonably assured , we defer recognition of revenue until the receipt of cash . for our sales , evidence of the arrangement consists of an order from a customer . we consider delivery to have occurred once our products have been shipped and title and risk of loss have been transferred . for our sales , these criteria are met at the time the products are transferred to the customer . our arrangements with customers do not include provisions for cancellation , returns , inventory swaps or refunds that would significantly impact recognized revenues . we record amounts billed to distributors for shipping and handling costs as revenues . we classify shipping and handling costs incurred by us as cost of revenues . 46 deposit payments received from distributors in advance of recognition of revenues are included in current liabilities on our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met . our multi-element arrangements generally include two deliverables . the first deliverable is the hardware and software essential to the functionality of the hardware device delivered at the time of sale . the second deliverable is the implied right to pcs included with the purchase of certain products . pcs is the right to receive , on a when and if available basis , future unspecified software upgrades and features relating to the product 's essential software as well as bug fixes , email and telephone support . we use a hierarchy to determine the allocation of revenues to the deliverables . the hierarchy is as follows : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) , and ( iii ) best estimate of the selling price ( besp ) . ( i ) vsoe generally exists only when a company sells the deliverable separately and is the price actually charged by the company for that deliverable .
| results of operations comparison of years ended june 30 , 2012 and 2011 replace_table_token_5_th revenues revenues increased $ 155.6 million , or 79 % , from $ 197.9 million in fiscal 2011 to $ 353.5 million in fiscal 2012. during fiscal 2012 , the increase in revenues was due to higher unit volumes shipped , primarily attributable to the success of our systems products , most notably our airmax platform . although we can not quantify the impact with any certainty , during fiscal 2012 we believe we experienced lost sales due to counterfeit goods . although we have taken comprehensive legal actions to stop counterfeiters and minimize the impact of their activities , we believe that the amount of counterfeited goods , combined with the impact it has on our distributor 's inventory and the purchasing patterns of our customers , will negatively impact our revenues during fiscal 2013. should we be unsuccessful in stopping the counterfeiting efforts or if new counterfeited products are introduced , our sales in the longer term will also be negatively impacted . in fiscal 2012 , revenues from flytec and streakwave represented 16 % and 10 % , respectively , of our revenues . in fiscal 2011 , flytec and streakwave represented 20 % and 15 % of our revenues , respectively . no other distributor or customer represented more than 10 % of our revenues in fiscal 2012 or fiscal 2011 . 50 revenues by product type replace_table_token_6_th systems revenues increased $ 144.9 million , or 90 % , from $ 160.4 million fiscal 2011 to $ 305.3 million in fiscal 2012. the increase in systems revenues was primarily driven by rapid adoption of our airmax platform , which we introduced in early fiscal 2010. our new platforms category , which includes significant platforms introduced in late fiscal 2011 and during 2012 , contributed $ 29.5 million and $ 2.5 million of revenue in fiscal 2012 and 2011 , respectively .
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the member designee manages all business of the fund/master fund . the member designee has delegated its responsibility for the investment of the fund 's assets to the advisor . the fund has invested these assets in the master fund . the member designee has a team of approximately 25 professionals whose primary emphasis is on attempting to maintain quality control among the advisors to the funds operated or managed by the member designee . the member designee 's due diligence professionals use proprietary technology and on-site evaluations to identify , select and monitor new and existing futures money managers . the accounting and operations staff provide processing of subscriptions and redemptions and reporting to members and regulatory authorities . the member designee also includes staff involved in marketing and sales support . in selecting the advisor for the fund/master fund , the member designee considered past performance , trading style , volatility of markets traded and fee requirements . responsibilities of the member designee include : · due diligence examinations of the advisor ; · selection , appointment and termination of the advisor ; · negotiation of the trading advisory agreement ; and · monitoring the activity of the advisor . in addition , the member designee relies on the fund 's administrator to prepare and maintain the fund 's books and records and along with the fund 's administrator provides the administrative and compliance services that are required by law or regulation from time to time in connection with operation of the fund/master fund . these services include the preparation of reports to members , government agencies and regulators ; computation of net asset value ; calculation of fees ; assistance in connection with subscriptions , redemptions and member communications ; and preparation of offering documents and sales literature . the member designee seeks the best prices and services available in its commodity futures brokerage transactions . 9 winton capital management limited the fund 's assets allocated to the advisor for trading are not invested in commodity interests directly . the advisor 's allocation of the fund 's assets is currently invested in the master fund . the advisor trades the master fund 's , and thereby the fund 's , assets in accordance with the program . the investment objective of the program is to achieve long-term investment growth . the program 's investment strategy follows a disciplined investment process that is based on statistical analysis of historical data . the initial stage of the process involves collecting , cleaning and organizing large amounts of data . the advisor uses a wide variety of data inputs including factors that are intrinsic to markets , such as price , volume and open interest ; and those that are external to markets , such as economic statistics , industrial and commodity data and public company financial data . the advisor conducts statistical research into the data in an attempt to quantify the probability of particular markets rising or falling , conditional on a variety of quantifiable factors . the advisor 's research is used to develop mathematical models that attempt to forecast market returns , the variability or volatility associated with such returns ( often described as “ risk ” ) , and the correlation between markets and transaction costs . these forecasts are used in investment strategies that determine what positions should be held to maximize profit within a certain range of risk . as a result of the advisor 's research , the advisor expects that the investments made in accordance with this process will have an improved chance of being successful which is expected to lead to profits over the long-term . the advisor 's investment strategy is operated as an automated , computer-based investment system . the program is modified over time as the advisor monitors its operation and undertakes further research . changes to the program occur as a result of , amongst other things , the discovery of new relationships , changes in market liquidity , the availability of new data or the reinterpretation of existing data . most of the advisor 's investment decisions are made strictly in accordance with the output of the program . however , the advisor may , in exceptional circumstances ( such as the occurrence of events that fall outside the input parameters of the program ) , make investment decisions based on other factors and take action to override the output of the program to seek to protect the interests of investors . the advisor does not take any responsibility for the accuracy or completeness of the contents of this document , any representations made herein , or the performance of the fund/master fund . the advisor disclaims any liability for any direct , indirect , consequential or other losses or damages , including loss of profits incurred by members or by any third party that may arise from any reliance on this document . the advisor is neither responsible for , nor involved in , the marketing , distribution or sales of shares or interests in the fund and is not responsible for compliance with any marketing or promotion laws , rules or regulations ; and no third party other than the advisor is authorized to make any statement about any of the advisor 's products or services in connection with any such marketing , distribution or sales . past performance by any other fund advised by the advisor is not indicative of any future performance by the fund/master fund . ( a ) liquidity . the fund does not engage in sales of goods or services . its only assets are its investment in the master fund and cash . the master fund does not engage in the sale of goods or services . the master fund 's only assets are the equity in its trading accounts , consisting of cash and cash equivalents , net unrealized appreciation of open futures contracts , net unrealized appreciation on forward contracts and options , if applicable . story_separator_special_tag credit risk with respect to exchange-traded instruments is reduced to the extent that through ubs , the master fund 's counterparty is an exchange or clearing organization . there is no collateral posted by ubs securities and as such , in the event of default by ubs , the master fund is exposed to the amount shown in the statements of financial condition . futures contracts are conducted through regulated exchanges which have margin requirements , and are settled in cash on a daily basis , thereby minimizing credit risk . 11 the member designee monitors and attempts to control the fund's/master fund 's risk exposure on a daily basis through financial , credit and risk management monitoring systems , and accordingly , believes that it has effective procedures for evaluating and limiting the credit and market risks to which the fund/master fund may be subject . these monitoring systems generally allow the member designee to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics . in addition , online monitoring systems provide account analysis of futures , exchange-cleared swaps , forwards and options positions by sector , margin requirements , gain and loss transactions and collateral positions . ( see also “ item 8. financial statements and supplementary data ” for further information on financial instrument risk included in the notes to financial statements . ) other than the risks inherent in commodity futures , options and swaps trading , the master fund knows of no trends , demands , commitments , events or uncertainties which will result in or which are reasonably likely to result in the master fund 's liquidity increasing or decreasing in any material way . the llc agreement provides that the member designee may , in its discretion , cause the fund to cease trading operations and liquidate all open positions under certain circumstances including a decrease in net asset value per redeemable unit to less than $ 400 as of the close of business on any business day or the fund 's aggregate net assets decline to less than $ 1,000,000 . ( b ) capital resources . ( i ) the fund has made no material commitments for capital expenditures . ( ii ) the fund 's capital consists of the capital contributions of the members as increased or decreased by gains or losses on trading and by expenses , interest income , redemptions of redeemable units and distributions of profits , if any . gains or losses on trading can not be predicted . market movements in commodities are dependent upon fundamental and technical factors which the advisor may or may not be able to identify , such as changing supply and demand relationships , weather , public health epidemics , government agricultural , commercial and trade programs and policies , national and international political and economic events and changes in interest rates . fund expenses consist of , among other things , selling agent fees , advisory fees and administrative fees . the level of these expenses is dependent upon the level of trading and the ability of the advisor to identify and take advantage of price movements in the commodity markets , in addition to the level of net assets maintained . in addition , the amount of interest income payable by ubs securities is dependent upon interest rates over which the fund has no control . for the year ended december 31 , 2020 , there were additional subscriptions of 992.720 redeemable units totaling $ 1,026,430. for the year ended december 31 , 2019 , there were additional subscriptions of 4,666.710 redeemable units totaling $ 5,263.000. for the year ended december 31 , 2018 , there were additional subscriptions of 10,901.036 redeemable units totaling $ 12,779,900. no forecast can be made as to the level of redemptions in any given period . a member may require the fund to redeem its redeemable units at their net asset value as of the last day of a month on five business days ' notice to the member designee ( provided redeemable units have been held for three months ) . there is no fee charged to members in connection with redemptions . redemptions generally are funded out of the fund 's cash holdings . for the year ended december 31 , 2020 , 49,806.205 redeemable units were redeemed totaling $ 42,557,443. for the year ended december 31 , 2019 , 58,058.108 redeemable units were redeemed totaling $ 64,728,088. for the year ended december 31 , 2018 , 21,512.536 redeemable units were redeemed totaling $ 25,064,841. redeemable units were sold to persons and entities who are accredited investors as that term is defined in rule 501 ( a ) of regulation d under the securities act of 1933 , as amended ( the “ securities act ” ) . ( c ) story_separator_special_tag contributor for 2020. they generated modest losses in the first three quarters of 2020 but recovered from them in the fourth quarter of 2020 , ending the year with gains . ongoing strong demand from chinese consumers along with hotter-than-expected weather in south america caused soybean , soybean meal and corn prices to continue to rise in the second half of 2020. as their prices rose and trends strengthened , the fund was positioned long those commodities and generated profits in the fourth quarter of 2020. the fund , through its investment in the master fund , experienced a net trading gain of $ 1,563,461 , before selling agent fees and related fees for the year ended december 31 , 2019. gains were primarily attributable to the trading of commodity futures in stock indices , u.s and non-u.s. interest rates and were partially offset by losses in energy , metals , livestock , currencies , softs and grains . long positions in u.s. treasury bonds , ultra-long bonds , german bunds , euribor and italian bond futures ranked among the top contributors within the fixed income sector .
| results of operations . for the year ended december 31 , 2020 , the net asset value per redeemable unit decreased ( 26.28 ) % from $ 1,100.03 to $ 810.98. for the year ended december 31 , 2019 , the net asset value per redeemable unit decreased ( 2.36 ) % from $ 1,126.62 to $ 1,100.03. for the year ended december 31 , 2018 , the net asset value per redeemable unit decreased ( 4.96 ) % from $ 1,185.36 to $ 1,126.62 . 12 the fund , through its investment in the master fund , experienced a net trading loss of $ 20,941,340 , before selling agent fees and related fees for the year ended december 31 , 2020. losses were primarily attributable to the trading of commodity futures in stock indices , energy , metals , currencies , and softs and were partially offset by gains in grains , u.s and non-u.s. interest rates and livestock . the net trading gain ( or loss ) realized from the fund 's investment in the master fund is disclosed on page 24 under “ item 8. financial statements and supplementary data . ” the market environment was challenging for the fund in 2020 as several factors , through the course of the year , led to instability in trends across several asset classes . covid-19 spread globally in the first quarter of 2020 , prompting global lockdowns and putting global economies in recession with no visible end in sight of the pandemic . in the second and third quarters of 2020 , covid-19 concerns ebbed and flowed . additionally , concerns surrounding u.s.-china trade wars , stimulus packages in the u.s. and europe to jumpstart the economies continued to weigh in on various asset classes . this resulted in markets generally becoming more sensitive to covid-19 related news and translated to sharp reversals in trends at times .
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we also provide trademark and licensing services to the hotels , three hotels owned by affiliates of mr. wirth and one unrelated hotel property . in addition , we provide reservations services for 3,100 unrelated hotel properties . our results are significantly affected by occupancy and room rates at the hotels , our ability to manage costs , and changes in the number of available suites caused by acquisition and disposition activities . results are also significantly impacted by overall economic conditions and conditions in the travel industry . unfavorable changes in these factors could negatively impact hotel room demand and pricing , which would reduce our profit margins on rented suites . additionally , our ability to manage costs could be adversely impacted by significant increases in operating expenses , resulting in lower operating margins . management expects greater demand and steady supply to continue . however , either a further increase in supply or a further decline in demand could result in increased competition , which could have an adverse effect on the revenue of the hotels in their respective markets . weak economic conditions , both generally and specifically in the travel industry , had a negative impact on our operations in fiscal years 2014 and 2013. we anticipate moderate improvement in these conditions during fiscal year 2015. we expect moderate improvements in the overall economic conditions to result in improved business and leisure travel and relatively steady room rates . we expect the major challenge for fiscal year 2015 to be the continuation of strong competition for corporate leisure group and government business in the markets in which we operate , which may affect our ability to increase room rates while maintaining market share . we believe that we have positioned the hotels to remain competitive through selective refurbishment , by carrying a relatively large number of two-room suites at each location and by maintaining a robust guest internet access system . to combat the weak economic conditions during fiscal years 2014 and 2013 , we have significantly expanded inndependent boutique collection ( ibc hotels ) , a wholly owned subsidiary of innsuites hospitality trust , which has approximately 3 ,100 properties . during the fiscal year ended january 31 , 2014 , ibc hotels formed a marketing alliance with the independent lodging industry association ( ilia ) . we believe this new hotel network provides independent hotel owners a competitive advantage against traditional franchised brands in their markets . the network provides a booking system and loyalty program , ibc hotels charges a 10 % booking fee which increases the independent hotel profits . inndependent inncentives , ibc 's loyalty program , allows hoteliers to benefit from guests who frequently stay at ibc independent hotels . revenue and expenses of ibc hotels are not significant and not separately recorded to date . general the following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this form 10-k. at january 31 , 2014 , through our sole general partner 's interest in the partnership , we owned a 72.04 % interest in the tucson , arizona hotel , direct 50.85 % interest in the albuquerque , new mexico hotel , and a 99.9 % direct interest in the yuma , arizona hotel . additionally , at january 31 , 2014 , we , together with the partnership , owned a 51.00 % interest in another hotel located in tucson , arizona and a 61.60 % interest in a hotel located in ontario , california . at january 31 , 2013 , through our sole general partner 's interest in the partnership , we owned a 72.04 % interest in the tucson , arizona hotel , direct 50.13 % interest in the albuquerque , new mexico hotel , and a 99.9 % direct interest in the yuma , arizona hotel . additionally , at january 31 , 2013 , we together with the partnership owned a 55.72 % interest in another hotel located in tucson , arizona and a 61.84 % interest in a hotel located in ontario , california . we purchased 0 and 7,631 partnership class a units during the years ended january 31 , 2014 and 2013 , respectively . 8 our expenses consist primarily of property taxes , insurance , corporate overhead , interest on mortgage debt , professional fees , depreciation of the hotels and hotel operating expenses . hotel operating expenses consist primarily of payroll , guest and maintenance supplies , marketing and utilities expenses . under the terms of its partnership agreement , the partnership is required to reimburse us for all such expenses . accordingly , management believes that a review of the historical performance of the operations of the hotels , particularly with respect to occupancy , which is calculated as rooms sold divided by total rooms available , average daily rate ( “ adr ” ) , calculated as total room revenue divided by number of rooms sold , and revenue per available room ( “ revpar ” ) , calculated as total room revenue divided by number of rooms available , is appropriate for understanding revenue from the hotels . in fiscal year 2014 , occupancy increased 1.06 % to 65.65 % from 64.59 % in the prior year . adr decreased by $ 0.88 or 1.31 % to $ 66.55 in fiscal year 2014 from $ 67.43 in fiscal year 2013. the increased occupancy resulted in an increase in revpar of $ 0.14 or 0.32 % to $ 43.69 in fiscal year 2014 from $ 43.55 in fiscal year 2013. the increased occupancy and continued pressure on rates reflect the slowly improving economy and travel industry during fiscal year 2014. we have accepted slightlyreduced rates to increase our occupancy . story_separator_special_tag challenges in fiscal year 2015 are expected to include continued competition for all types of business in the markets in which we operate and our ability to maintain room rates while maintaining market share . net cash provided by operating activities totaled approximately $ 720,000 and $ 868,000 for the years ended january 31 , 2014 and 2013 , respectively . the decrease in net cash provided by operating activities was due in part to an approximate $ 96,000 increase in accounts receivable and an approximate $ 77,000 decrease in accounts payable . net cash used by investing activities totaled approximately $ 862,000 and $ 1,142,000 for the years ended january 31 , 2014 and 2013 , respectively . the decrease in net cash used in investing activities during fiscal year 2014 was due to our decreased spending for capital expenditures beyond our 4 % reserve for refurbishments and replacements that is set aside annually as described below offset by the increase of restricted cash from january 31 , 2013 to january 31 , 2014. net cash provided by financing activities totaled approximately $ 44,000 for the year ended january 31 , 2014 , compared to cash used in financing activities of approximately $ 216,000 for the year ended january 31 , 2013. the increase of approximately $ 260,000 was primarily due to a decrease of approximately $ 849,000 of principal payments on mortgage notes payable , approximately $ 500,000 of proceeds from refinancing of mortgage notes payable in fiscal year 2013 that did not occur in fiscal year 2014 , a decrease of approximately $ 1,102,000 of proceeds from the sale of non-controlling ownership interest in a subsidiary partially offset by a net increase in borrowings on notes with related parties of approximately $ 361,000 , comprised of approximately $ 3,035,000 of borrowing and approximately $ 2,674,000 of repayments , an increase of borrowings of notes payable to banks of approximately $ 112,000 , an increase of approximately $ 315,000 of repurchase of subsidiary equity from a related party , a decrease of approximately $ 133,000 to repurchase treasury stock and approximately $ 27,000 of deferred loan fees that occurred in fiscal year 2013 but did not occur in fiscal year 2014 . 11 we continue to contribute to a capital expenditures fund ( the “ fund ” ) an amount equal to 4 % of the innsuites hotels ' revenues from operation of the hotels . the fund is restricted by the mortgage lender for four of our properties . as of january 31 , 2014 , $ 114,337 was held in these accounts and is reported on our consolidated balance sheet as “ restricted cash. ” the fund is intended to be used for capital improvements to the hotels and refurbishment and replacement of furniture , fixtures and equipment . during the twelve months ended january 31 , 2014 and 2013 , the hotels spent approximately $ 761,000 and $ 1,265,000 , respectively , for capital expenditures . we consider the majority of these improvements to be revenue producing . therefore , these amounts are capitalized and depreciated over their estimated useful lives . for fiscal year 2015 capital expenditures , we plan on spending approximately the same amount as we did during fiscal year 2014. repairs and maintenance were charged to expense as incurred and approximated $ 1,226,000 and $ 1,431,000 for fiscal years 2014 and 2013 , respectively . we have minimum debt payments of approximately $ 13,192,000 and approximately $ 854,000 due during fiscal years 2015 and 2016 , respectively . minimum debt payments due during fiscal year 2015 include approximately $ 11,756,000 of mortgage notes payable and $ 583,000 drawn on our line of credit due during fiscal year 2015. management is actively working with our lenders and expects that we will be able to either extend or refinance our mortgage note payables and extend our line of credit . we have a $ 600,000 line of credit that bears interest at the prime rate plus 1.0 % per annum with a 6.0 % rate floor , has no financial covenants and matures on june 23 , 2014. the line is secured by a junior security interest in the yuma , arizona property and our trade receivables . mr. wirth is a guarantor on the line of credit . on january 31 , 2014 , the trust had drawn $ 583,000 under the line of credit . the largest outstanding balance on the line of credit during fiscal year 2014 was $ 600,000. in addition to our line of credit as of january 31 , 2014 , we had mortgage notes payable of approximately $ 18,747,000 outstanding with respect to the hotels , approximately $ 436,000 in short term secured promissory notes with a credit card merchant processor , approximately $ 331,000 in an unsecured demand/revolving line of credit/promissory note and approximately $ 188,000 of secured promissory notes outstanding to unrelated third parties arising from the shares of beneficial interest and partnership unit repurchases . we may seek to negotiate additional credit facilities or issue debt instruments . any debt incurred or issued by us may be secured or unsecured , long-term , medium-term or short-term , bear interest at a fixed or variable rate and be subject to such other terms as we consider prudent . sale of ownership interests in albuquerque subsidiary on july 22 , 2010 , the board of trustees unanimously approved , with mr. wirth abstaining , for the partnership to enter into an agreement with rare earth financial , llc ( “ rare earth ” ) , an affiliate of mr. wirth , to sell units in albuquerque suite hospitality , llc ( the “ albuquerque entity ” ) , which owns and operatesthe albuquerque , new mexico hotel property .
| overview a summary of operating results for the fiscal years ended january 31 , 2014 and 2013 is : replace_table_token_4_th 9 our overall results in fiscal year 2014 were positively affected by our ability to control operating and interest expenses . revenue : for the twelve months ended january 31 , 2014 , we had total revenue of approximately $ 14,885,000 compared to $ 14,978,000 for the twelve months ended january 31 , 2013 , a small decrease of approximately $ 93,000. the combination of room revenue , other and management and trademark fees were relatively flat for the twelve months ended january 31 , 2014 compared to the twelve months ended january 31 , 2013. with continued pressure on the economy , we realized a 7.1 % decrease in food and beverage revenues during fiscal year 2014 as food and beverage revenues were approximately $ 992,000 for fiscal year 2014 as compared to approximately $ 1,068,000 during fiscal year 2013. during fiscal year 2015 , we expect improvements in occupancy , modest improvements in rates and steady food and beverage revenues . expenses : total expenses , including interest and taxes , of approximately $ 15,731,000 for the twelve months ended january 31 , 2014 reflects a decrease of $ 331,000 compared to total expenses of approximately $ 16,062,000 for the twelve months ended january 31 , 2013. the decrease was primarily due to a decrease in operating expenses and interest expense . room expense consisting of salaries and related taxes for property management , front office , housekeeping personnel , reservation fees and room supplies decreased slightly to approximately $ 3,667,000 for the fiscal year ended january 31 , 2014 compared to approximately $ 3,760,000 in the prior year period for approximately a $ 93,000 , or 2.5 % , decrease in costs . the decrease directly corresponded to continued operational efficiencies gained .
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upon transition , entities should apply the guidance on a modified retrospective basis , with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle . the company does not expect the adoption of asu 2017-08 to have a material impact on its consolidated financial statements . in august 2017 , the fasb issued asu 2017-12 story_separator_special_tag the following presents management 's discussion and analysis of our consolidated financial condition at december 31 , 2018 and 2017 and the results of our operations for the years ended december 31 , 2018 and 2017. this discussion should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report . in addition to historical information , this discussion contains forward-looking statements that involve risks , uncertainties and assumptions that could cause results to differ materially from management 's expectations . in this discussion , all references to per share data of fvcb for periods ending on or before december 31 , 2017 have been adjusted to reflect a 5 for 4 stock split in the form of a 25 % stock dividend paid on september 25 , 2017. cautionary note about forward-looking statements we make certain forward-looking statements in this form 10-k that are subject to risks and uncertainties . these forward-looking statements represent plans , estimates , objectives , goals , guidelines , expectations , intentions , projections and statements of our beliefs concerning future events , business plans , objectives , expected operating results and the assumptions upon which those statements are based . forward-looking statements include without limitation , any statement that may predict , forecast , indicate or imply future results , performance or achievements , and are typically identified with words such as `` may , '' `` could , '' `` should , '' `` will , '' `` would , '' `` believe , '' `` anticipate , '' `` estimate , '' `` expect , '' `` aim , '' `` intend , '' `` plan , '' or words or phases of similar meaning . we caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are , in many instances , beyond our control . actual results , performance or achievements could differ materially from those contemplated , expressed or implied by the forward-looking statements . the following factors , among others , could cause our financial performance to differ materially from that expressed in such forward-looking statements : the strength of the united states economy in general and the strength of the local economies in which we conduct operations ; geopolitical conditions , including acts or threats of terrorism , or actions taken by the united states or other governments in response to acts or threats of terrorism and or military conflicts , which could impact business and economic conditions in the united states and abroad ; the occurrence of significant natural disasters ; our management of risks inherent in our real estate loan portfolio , and the risk of a prolonged downturn in the real estate market , which could impair the value of our collateral and our ability to sell collateral upon any foreclosure ; changes in consumer spending and savings habits ; technological and social media changes ; the effects of , and changes in , trade , monetary and fiscal policies and laws , including interest rate policies of the federal reserve , inflation , interest rate , market and monetary fluctuations ; changing bank regulatory conditions , policies or programs , whether arising as new legislation or regulatory initiatives , that could lead to restrictions on activities of banks generally , or our subsidiary bank in particular , more restrictive regulatory capital requirements , increased costs , including deposit insurance premiums , regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products ; 45 the impact of changes in financial services policies , laws and regulations , including laws , regulations and policies concerning taxes , banking , securities and insurance , and the application thereof by regulatory bodies ; the impact of changes in laws , regulations and policies affecting the real estate industry ; the effect of changes in accounting policies and practices , as may be adopted from time to time by bank regulatory agencies , the sec , the public company accounting oversight board , or pcaob , the financial accounting standards board or other accounting standards setting bodies ; the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers ; the willingness of users to substitute competitors ' products and services for our products and services ; the effect of acquisitions we may make , including , without limitation , the failure to achieve the expected revenue growth and or expense savings from such acquisitions ; changes in the level of our nonperforming assets and charge-offs ; our involvement , from time to time , in legal proceedings and examination and remedial actions by regulators ; potential exposure to fraud , negligence , computer theft and cyber-crime ; the expected growth opportunities or cost savings from the merger may not be fully realized or may take longer to realize than expected ; deposit attrition , operating costs , customer losses , and business disruption following the merger , including adverse effects on relationships with employees , may be greater than expected . the foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in this form 10-k , including those discussed in the section entitled `` risk factors '' in item 1a above . story_separator_special_tag the allowance for loan losses is based first on a segmentation of the loan portfolio by general loan type , or portfolio segments . for originated loans , certain portfolio segments are further disaggregated and evaluated collectively for impairment based on loan segments , which are largely based on the type of collateral underlying each loan . for purposes of this analysis , we categorize loans into one of five categories : commercial and industrial , commercial real estate , commercial construction , consumer residential , and consumer nonresidential loans . typically , financial institutions use their historical loss experience and trends in losses for each loan category which are then adjusted for portfolio trends and economic and environmental factors in determining their allowance for loan losses . since the bank 's inception in 2007 , we have experienced minimal loss history within our loan portfolio . because of this , our allowance model uses the average loss rates of similar institutions ( our custom peer group ) as a baseline which is then adjusted based on our particular qualitative loan portfolio characteristics and environmental factors . the indicated loss factors resulting from this analysis are applied for each of the five categories of loans . our peer group is defined by selecting commercial banking institutions of similar size within virginia , maryland and the district of columbia . this is known as our custom peer group . the commercial banking institutions comprising the custom peer group can change based on certain factors including but not limited to the characteristics , size , and geographic footprint of the institution . we have identified 28 banks for our custom peer group which are within $ 200 million to $ 3 billion in total assets , the majority of whom are geographically concentrated in the washington , d.c. metropolitan area in which we operate , as this area has experienced more stable economic conditions than many other areas of the country . these baseline peer group loss rates are then adjusted based on an analysis of our loan portfolio characteristics , trends , economic considerations and other conditions that should be considered in assessing our credit risk . our peer loss rates are updated on a quarterly basis . the allowance for loan losses consists of specific and general components . the specific component relates to loans that are determined to be impaired and , therefore , individually evaluated for impairment . we individually assign loss factors to all loans that have been identified as having loss attributes , as indicated by deterioration in the financial condition of the borrower or a decline in underlying collateral value if the loan is collateral dependent . we evaluate the impairment of certain loans on a loan by loan basis for those loans that are adversely risk rated . measurement of impairment is based on the expected future cash flows of an impaired loan , which are discounted at the loan 's effective interest rate , or measured on an observable market value , if one exists , or the fair value of the collateral underlying the loan , discounted to consider estimated costs to sell the collateral for collateral-dependent loans . if the net collateral value is less than the loan balance ( including accrued interest and any unamortized premium or discount associated with the loan ) we recognize an impairment and establish a specific reserve for the impaired loan . credit losses are an inherent part of our business and , although we believe the methodologies for determining the allowance for loan losses and the current level of the allowance are appropriate , it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment . additional provisions for such losses , if necessary , would be recorded , and would negatively impact earnings . 48 allowance for loan lossesacquired loans acquired loans accounted for under asc 310-30 for our acquired loans , to the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans , an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans . acquired loans accounted for under asc 310-20 subsequent to the acquisition date , we establish our allowance for loan losses through a provision for loan losses based upon an evaluation process that is similar to our evaluation process used for originated loans . this evaluation , which includes a review of loans on which full collectability may not be reasonably assured , considers , among other factors , the estimated fair value of the underlying collateral , economic conditions , historical net loan loss experience , carrying value of the loans , which includes the remaining net purchase discount or premium , and other factors that warrant recognition in determining our allowance for loan losses . purchased credit-impaired loans purchased credit-impaired ( pci ) loans , which are the loans acquired in our acquisition of colombo , are loans acquired at a discount ( that is due , in part , to credit quality ) . these loans are initially recorded at fair value ( as determined by the present value of expected future cash flows ) with no allowance for loan losses . we account for interest income on all loans acquired at a discount ( that is due , in part , to credit quality ) based on the acquired loans ' expected cash flows . the acquired loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics . a pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flow .
| financial overview for the years ended december 31 , 2018 and 2017 , we experienced record growth as we continue to expand our market area through organic growth and acquisition , capitalizing on market disruption as a result of recent merger activity . total assets increased to $ 1.35 billion compared to $ 1.05 billion as of december 31 , 2018 and 2017 , respectively , an increase of $ 298.4 million , or 28.3 % . total loans , net of deferred fees , increased $ 248.1 million , or 27.9 % , from december 31 , 2017 to december 31 , 2018. asset quality remains strong with nonaccrual loans and loans past due 90 days or more still accruing interest as a percentage of total assets being 0.24 % at december 31 , 2018 , compared to 0.07 % at december 31 , 2017. total deposits increased $ 234.3 million , or 25.2 % , from december 31 , 2017 to december 31 , 2018. tangible book value per share at december 31 , 2018 was $ 10.93 , an increase from $ 9.03 at december 31 , 2017. net income was $ 10.9 million for the year ended december 31 , 2018 compared to $ 7.7 million for the same period of 2017. our 2018 results were impacted by additional expenses related to our acquisition of colombo totaling $ 2.6 million , net of tax , in 2018. excluding these merger-related expenses , we would have recorded income of $ 13.4 million for the year ended december 31 , 2018 or $ 1.05 per diluted common share . our 2017 results were impacted by the revaluation of our net deferred tax assets as a result of the enactment of the 2017 tax act .
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in 2015 , cci cost savings , as well as savings from the organization and streamlining actions described in note 3 to our financial statements , totaled $ 98 million , of which $ 66 million lowered cost of goods sold . lower gross profit from our kohinoor business in india also impacted gross profit margin in 2015 , and , as a result , toward the end of 2015 we decided to discontinue the lower margin bulk-packaged and broken rice product lines of our kohinoor business . in 2016 , we expect our pricing actions and cost savings to more than offset an estimated low single-digit increase in raw material and packaging costs . replace_table_token_4_th selling , general and administrative expenses were $ 1,127.4 million in 2015 compared to $ 1,122.0 million in 2014 , an increase of $ 5.4 million . sg & a as a percentage of net sales was 26.2 % , a 30 basis point reduction from 2014. driving this reduction in sg & a as a percentage of net sales were cost savings from cci and from the organization and streamlining actions described in note 3 to our financial statements , as well as the benefit of higher sales , partly offset by higher benefits expense and a $ 14 million increase in our brand marketing from the 2014 level to $ 240.6 million in 2015. in connection with our acquisitions of brand aromatics , d & a and stubb 's , we incurred $ 3.6 million of transaction costs , which were included in sg & a . replace_table_token_5_th we are evaluating and implementing changes to our organization structure to reduce fixed costs , simplify or improve processes , and improve our competitiveness . special charges of $ 65.5 million were recorded in 2015 and $ 5.2 million in 2014 to enable us to implement these changes . of the $ 65.5 million of special charges recorded in 2015 , $ 4.0 million were recorded in cost of goods sold . of the $ 65.5 million , $ 29.2 million related to employee severance and related costs associated with our north american effectiveness initiative , and $ 24.4 million related to our emea reorganization initiated earlier in 2015. an additional $ 14.2 million related to our kohinoor consumer business in india . partially offsetting these charges was a credit of $ 2.3 million for the 2015 reversal of reserves previously accrued as part of special charges in 2014 and 2013. see note 3 of the financial statements for more details on these charges and our basis for classifying amounts as special charges . in 2014 , we recorded special charges of $ 2.1 million related to actions undertaken with respect to the emea reorganization announced in late 2013 , $ 1.3 million related to the realignment of certain manufacturing activities in the u.s. industrial business , $ 1.1 million related to the elimination of certain administrative positions in the u.s. consumer and industrial businesses , and $ 0.7 million related to the elimination of certain administrative and manufacturing positions in the australian consumer business . replace_table_token_6_th interest expense for 2015 was higher than the prior year , primarily due to higher average borrowings . replace_table_token_7_th the effective tax rate increased 20 basis points to 26.5 % in 2015 , from 26.3 % in 2014 , primarily as a result of the following factors . net discrete tax benefits increased by $ 8.3 million , from $ 10.8 million in 2014 to $ 19.1 million in 2015. both 2015 and 2014 included reversals of reserves for unrecognized tax benefits , net of additional taxes provided , for various income tax audit settlements and the expiration of statutes of limitation in several tax jurisdictions . in addition , 2015 included a net discrete tax benefit for ( i ) the reversal of valuation allowances on non-u.s. deferred tax assets due to a change in our assessment of the recoverability of those deferred tax assets , and ( ii ) a prior year adjustment for the 2014 research tax credit related to legislation enacted in 2015 , offset by ( iii ) a discrete tax detriment for the revaluation of deferred tax assets in the u.k. resulting from legislation enacted in 2015 which reduced the u.k. statutory tax rate in future periods . the increase in net discrete tax benefits in 2015 , as compared to 2014 , was more than offset by an unfavorable mix of earnings in 2015. that unfavorable mix of earnings in 2015 , as compared to the prior year , resulted from the higher percentage of u.s. pre-tax earnings in 2015 that are taxed at a federal statutory rate of 35 % as well as an increase in non-u.s. losses in jurisdictions where income tax benefits could not be recognized as it is more likely than not that the resultant deferred tax assets will not be realized . see note 12 of the financial statements for a reconciliation of the u.s. federal tax rate with the effective tax rate . we expect an effective tax rate in 2016 of approximately 28 % . replace_table_token_8_th income from unconsolidated operations rose $ 7.3 million in 2015 from the prior year , which was a 24.8 % increase , despite the impact of unfavorable currency exchange rates . this increase is attributable to our largest joint venture , mccormick de mexico , which achieved higher sales and an increase in gross margin percentage . in 2015 , our 50 % interest in the mccormick de mexico joint venture represented 60 % of the sales and 89 % of the income of our unconsolidated operations . we own 50 % of most of our other unconsolidated joint ventures . in 2016 , we expect income from unconsolidated operations to be comparable to 2015 , mainly due to the unfavorable impact of foreign currency rates and material costs on mccormick de mexico . story_separator_special_tag in 2015 , we increased sales to quick service restaurant customers in china and other markets across this region . operating income , excluding special charges , for our industrial segment increased $ 23.9 million , or 17.8 % , compared to 2014. on a constant currency basis , operating income for 2015 , excluding special charges , increased 24.5 % above 2014 , with the favorable impact of sales growth and cost savings more than offsetting the unfavorable impact of higher material costs and increased employee benefit expense . the significant increase in operating income led to higher operating income margin . excluding the impact of special charges , the industrial segment operating income margin was 9.5 % in 2015 and 8.3 % in 2014. this also reflects a shift in the business mix to more value-added products , including the acquisition of brand aromatics . results of operations—2014 compared to 2013 replace_table_token_12_th sales for the fiscal year 2014 increased by 2.9 % from 2013 and included a 0.6 % unfavorable impact from foreign currency exchange rates . on a constant currency basis , our sales increased 3.5 % over 2013 , with growth in both the consumer and industrial segments . pricing actions , taken in response to increased raw material and packaging costs , added 1.9 % to sales . the incremental impact of the wuhan asia pacific condiments ( wapc ) acquisition , completed in mid-2013 , accounted for a 1.8 % increase to sales , while volume and product mix in the base business reduced sales 0.2 % . replace_table_token_13_th in 2014 , gross profit increased 3.9 % while gross profit margin rose 40 basis points over the 2013 level to 40.8 % . we offset a low single-digit increase in raw material and packaging costs with our pricing actions and cci cost savings . in 2014 , cci cost savings totaled $ 65 million , of which $ 54 million lowered cost of goods sold . replace_table_token_14_th selling , general and administrative expenses were $ 1,122.0 million in 2014 compared to $ 1,075.0 million in 2013 , an increase of $ 47.0 million or 40 basis points as a percentage of net sales . that 40 basis point increase was driven by an $ 18.8 million increase in our brand marketing support from the 2013 level to $ 226.6 million in 2014 , with 40 % of that increase related to digital marketing , which is one of our highest return investments in brand marketing support . in addition , compared to 2013 , lower pension and other postretirement benefit expenses in 2014 were partially offset by increased employee incentive compensation expenses in 2014. replace_table_token_15_th beginning in 2013 , we evaluated and implemented changes to our organization structure to reduce fixed costs , simplify or improve processes , and improve our competitiveness . special charges of $ 5.2 million , principally related to employee severance and related benefits , were recorded in 2014 to enable us to implement these changes . for 2013 , we recorded $ 25.0 million of special charges , with $ 15.9 million related to employee severance , $ 6.4 million for asset write-downs and $ 2.7 million for other exit costs . see note 3 of the financial statements for additional information . in addition to the special charges outlined above , we recorded a loss on voluntary pension settlement of $ 15.3 million in 2013 for the settlement of a portion of our u.s. defined benefit obligation , which reduced the size of our pension obligation and should reduce potential pension volatility in the future . the settlement charge relates to a lump sum distribution elected by certain former u.s. employees in exchange for their deferred vested pension plan benefits . this lump sum payout program was completed in 2013. see note 10 of the financial statements for additional information . replace_table_token_16_th interest expense for 2014 was lower than the prior year , primarily due to the refinancing of long-term debt in the second half of 2013. in august 2013 , we issued $ 250 million of 3.50 % notes ( at an effective interest rate of 3.30 % ) , the net cash proceeds of which , plus cash on hand , were used to pay off $ 250 million of 5.25 % notes ( at an effective interest rate of 5.54 % ) that matured in september 2013. replace_table_token_17_th the effective tax rate declined 50 basis points to 26.3 % in 2014 from 26.8 % in 2013 , primarily as a result of the following factors : discrete tax benefits were $ 10.8 million in 2014 compared to $ 3.9 million in 2013. that increase in 2014 is primarily due to the reversal of previously established reserves for unrecognized tax benefits , net of additional taxes provided , upon the following tax settlements reached during 2014 : ( 1 ) a settlement with respect to the french taxing authority 's audits of the 2007-2013 tax years ; and ( 2 ) a settlement with respect to the internal revenue service ( irs ) examination of our u.s. federal income tax return for the 2007 and 2008 tax years . discrete tax benefits in 2013 of $ 3.9 million resulted from the 2013 recognition of a 2012 u.s. research tax credit and reversal of valuation allowances for two subsidiaries originally established against net operating losses . during 2013 , a new law was enacted that retroactively granted the research tax credit in 2012 and allowed for a research tax credit in 2013. no research tax credit was recognized in 2014 as the tax law which retroactively granted the research tax credit for 2014 was not enacted until after the company 's 2014 fiscal year end . see note 12 of the financial statements for a reconciliation of the u.s. federal tax rate with the effective tax rate . replace_table_token_18_th income from unconsolidated operations rose $ 6.2 million in 2014 compared to 2013 , which was a 26.7 % increase .
| overview the following management 's discussion and analysis of financial condition and results of operations ( md & a ) is intended to help the reader understand mccormick & company , incorporated , our operations and our present business environment . md & a is provided as a supplement to , and should be read in conjunction with , our consolidated financial statements and the accompanying notes thereto contained in item 8 of this report . we use certain non-gaap information that we believe is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects . this information is also used by management to measure the profitability of our ongoing operations and analyze our business performance and trends . the dollar and share information in the charts and tables in the md & a are in millions , except per share data . mccormick is a global leader in flavor . the company manufactures , markets and distributes spices , seasoning mixes , condiments and other flavorful products to the entire food industry–retailers , food manufacturers and foodservice businesses . we manage our business in two operating segments , consumer and industrial , as described in item 1 of this report . our long-term annual growth objectives are to increase sales 4 % to 6 % , increase operating income 7 % to 9 % and increase earnings per share 9 % to 11 % . over time , we expect to grow sales with similar contributions from : 1 ) our base business–driven by brand marketing support , customer intimacy and category growth ; 2 ) product innovation ; and 3 ) acquisitions . we are fueling our investment in growth with cost savings from our comprehensive continuous improvement ( cci ) program , an ongoing initiative to improve productivity and reduce costs throughout the organization as well as savings from the organization and streamlining actions described in note 3 to our financial statements .
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under these agreements , the company agrees to indemnify , defend and hold harmless the customer in connection with death , personal injury and property damage claims made by third parties with respect to actions of the company 's personnel or contractors . the indemnity provisions generally provide for the company 's control of story_separator_special_tag the following discussion and analysis should be read in conjunction with item 6. selected financial data and item 8. financial statements and supplementary data . this discussion contains forward-looking statements relating to our future financial performance , business strategy , financing plans and other future events that involve uncertainties and risks . you can identify these statements by forward-looking words such as anticipate , intend , plan , continue , could , grow , may , potential , predict , strive , estimate , believe , expect and similar expressions that convey uncertainty of future events or outcomes . any forward-looking statements herein are made pursuant to the safe harbor provision of the private securities litigation reform act of 1995. our actual results could differ materially from the results anticipated by these forward-looking statements as a result of many known and unknown factors that are beyond our ability to control or predict , including but not limited to those discussed above in risk factors and elsewhere in this report . see also special cautionary notice regarding forward-looking statements at the beginning of item 1. business. 44 index to financial statements critical accounting policies and estimates we have based the following discussion and analysis of financial condition and results of operations on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . note 1 to the consolidated financial statements for the fiscal year ended april 30 , 2017 , describes the significant accounting policies that we have used in preparing our financial statements . on an ongoing basis , we evaluate our estimates , including , but not limited to , those related to revenue/collectability , bad debts , capitalized software costs , goodwill , intangible assets measurement and impairment , stock-based compensation , income taxes and contingencies . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . our actual results could differ materially from these estimates under different assumptions or conditions . we believe the critical accounting policies listed below affect significant judgments and estimates used in the preparation of the financial statements . revenue recognition . we recognize revenue predominantly in accordance with the software revenue recognition topic of the financial accounting standards board 's ( fasb ) accounting standards codification . we recognize license revenues in connection with license agreements for standard proprietary software upon delivery of the software , provided we deem collection to be probable , the fee is fixed or determinable , there is persuasive evidence of an arrangement , and vsoe exists with respect to any undelivered elements of the arrangement . we generally bill maintenance fees annually in advance and recognize the resulting revenues ratably over the term of the maintenance agreement . we derive revenues from services which primarily include consulting , implementation , training , saas , hosting and managed services . we bill for these services primarily under time and materials arrangements and recognize fees as we perform the services . deferred revenues represent advance payments or billings for software licenses , services , and maintenance billed in advance of the time we recognize revenues . we record revenues from sales of third-party products in accordance with principal agent considerations within the revenue recognition topic of the fasb accounting standards codification . furthermore , we evaluate sales through our indirect channel on a case-by-case basis to determine whether the transaction should be recorded gross or net , including but not limited to assessing whether or not we ( 1 ) act as principal in the transaction , ( 2 ) take title to the products , ( 3 ) have risks and rewards of ownership , such as the risk of loss for collection , delivery , or returns , and ( 4 ) act as an agent or broker with compensation on a commission or fee basis . accordingly , our sales through the dmi channel are typically recorded on a gross basis . generally , our software products do not require significant modification or customization . installation of the products is routine and is not essential to their functionality . our sales frequently include maintenance contracts and professional services with the sale of our software licenses . we have established vsoe for our maintenance contracts and professional services . we determine fair value based upon the prices we charge to customers when we sell these elements separately . we defer maintenance revenues , including those sold with the initial license fee , based on vsoe , and recognize the revenue ratably over the maintenance contract period . we recognize consulting and training service revenues , including those sold with license fees , as we perform the services based on their established vsoe . we determine the amount of revenue we allocate to the licenses sold with services or maintenance using the residual method of accounting . under the residual method , we allocate the total value of the arrangement first to the undelivered elements based on their vsoe and allocate the remainder to license fees . story_separator_special_tag we estimate the value of options granted on the date of grant using the black-scholes option pricing model . management judgments and assumptions related to volatility , the expected term and the forfeiture rate are made in connection with the calculation of stock compensation expense . we periodically review all assumptions used in our stock option pricing model . changes in these assumptions could have a significant impact on the amount of stock compensation expense . income taxes . we provide for the effect of income taxes on our financial position and results of operations in accordance with the income tax topic of the fasb accounting standards codification . under this accounting guidance , income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return . management must make significant assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , allowable deductions , tax planning strategies , projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities . changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations . our assumptions , judgments and estimates relative to the value of our deferred tax asset take into account our expectations of the amount and category of future taxable income . actual operating results and the underlying amount and category of income in future years , which could significantly increase tax expense , could render inaccurate our current assumptions , judgments and estimates of recoverable net deferred taxes . 46 index to financial statements business combinations and intangible assets including goodwill . we account for business combinations using the acquisition method of accounting and accordingly , the identifiable assets acquired and liabilities assumed are recorded based upon management 's estimates of current fair values as of the acquisition date . the estimation process includes analyses based on income and market approaches . goodwill represents the excess purchase price over the fair value of net assets , including the amount assigned to identifiable intangible assets . the goodwill generated is due in part to the synergies that are not included in the fair value of identifiable intangible assets . goodwill recorded in an acquisition is assigned to applicable reporting units based on expected revenues . identifiable intangible assets with finite lives are amortized over there useful lives . amortization of current technology is recorded in cost of revenues-license and amortization of all other intangible assets is recorded in amortization of acquisition-related intangibles . acquisition-related costs , including advisory , legal , accounting , valuation and other costs , are expensed in general and administrative expenses in the periods in which the costs are incurred . the results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date . story_separator_special_tag reporting periods beginning after december 15 , 2017 , including interim reporting periods within that reporting period . earlier application is permitted only as of reporting periods beginning after december 16 , 2016 , including interim reporting periods within that reporting period . the company has performed a review of the requirements of the new revenue standard and is monitoring the activity of the fasb as it relates to specific interpretive guidance . the company is reviewing customer contracts and is in the process of applying the five-step model of the new standard to each contract category it has identified and will compare the results to its current accounting practices . the company plans to adopt asu 2014-09 , as well as other clarifications and technical guidance issued by the 48 index to financial statements fasb related to this new revenue standard , on may 1 , 2018. the company will likely apply the modified retrospective transition method , which would result in an adjustment to retained earnings for the cumulative effect , if any , of applying the standard to contracts in process as of the adoption date . under this method , the company would not restate the prior financial statements presented . therefore , the new standard would require additional disclosures of the amount by which each financial statement line item is affected in the fiscal year 2019 reporting period . in november 2015 , the fasb issued asu no . 2015-17 , balance sheet classification of deferred taxes , to simplify the presentation of the deferred income taxes . the asu requires that all deferred tax assets and liabilities , along with any related valuation allowance , be classified as noncurrent on the balance sheet . the guidance does not change the existing requirement that only permits offsetting within a tax-paying component of an entity . this guidance is effective for annual periods beginning after december 15 , 2016 , and interim periods within those annual periods , but may be adopted earlier , and applied either prospectively or retrospectively . the company adopted this guidance in the fourth quarter of fiscal 2016 , reporting on a prospective basis for the annual period ended april 30 , 2016. in february 2016 , the fasb issued asu no . 2016-02 , leases ( topic 842 ) , to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements . the asu is effective for annual periods beginning after december 15 , 2018 , including interim periods within those fiscal years .
| results of operations the following table sets forth certain revenue and expense items as a percentage of total revenues for the three years ended april 30 , 2017 , 2016 , and 2015 and the percentage increases and decreases in those items for the years ended april 30 , 2017 and 2016 : replace_table_token_4_th nmnot meaningful economic overview and significant trends in our business corporate capital spending trends and commitments are the primary determinants of the size of the market for business software . corporate capital spending is , in turn , a function of general economic conditions in the u.s. and abroad and in particular may be affected by conditions in u.s. and global credit markets . in recent years , the weakness in the overall global economy and the u.s. economy in particular has resulted in reduced expenditures in the business software market . 47 index to financial statements in april 2017 , the international monetary fund ( imf ) provided an update to the world economic outlook ( weo ) for the 2017 and 2018 world economic growth forecast . the update noted that , with buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade under way , world growth is projected to rise from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018 , slightly above the october 2016 world economic outlook ( weo ) forecast . but binding structural impediments continue to hold back a stronger recovery , and the balance of risks remains tilted to the downside , especially over the medium term . with persistent structural problemssuch as low productivity growth and high income inequalitypressures for inward-looking policies are increasing in advanced economies .
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for more than 25 years , j. alexander 's guests have enjoyed a contemporary american menu , polished service and an attractive ambiance . in february 2013 , our team brought our quality and professionalism to the steakhouse category with the addition of the stoney river concept . stoney river provides “ white tablecloth ” service and food quality in a casual atmosphere at a competitive price . our redlands grill concept offers guests a different version of our contemporary american menu and a distinct architectural design and feel . in 2017 , we successfully converted one of our previous j. alexander 's locations in ohio to the lyndhurst grill , which will continue to offer a contemporary american menu . our business plan has evolved over time to include a collection of restaurant concepts dedicated to providing guests with what we believe to be the highest quality food , high levels of professional service and a comfortable ambiance . by offering multiple restaurant concepts and utilizing unique non-standardized architecture and specialized menus , we believe we are positioned to continue to scale and grow our overall restaurant business in an efficient manner in urban and affluent suburban areas . we want each of our restaurants to be perceived by our guests as a locally managed , stand-alone dining experience . this differentiation permits us to successfully operate each of our concepts in the same geographic market . if this strategy continues to prove successful , we may expand beyond our current four concept model in the future . while each concept operates under a unique trade name , each of our restaurants is identified as a “ j . alexander 's holdings restaurant. ” as of december 31 , 2017 , we operated a total of 44 locations across 15 states . during 2017 , we closed one j. alexander 's location , opened one j. alexander 's location and opened one stoney river location . additionally , as discussed above , during 2017 , we converted one j. alexander 's location to lyndhurst grill . we believe our concepts deliver on our guests ' desire for freshly-prepared , high quality food and high quality service in a restaurant with architecture and design that varies from location to location . through our combination with stoney river , we have grown from 33 restaurants across 13 states in 2009 to 44 restaurants across 15 states as of march 14 , 2018. our net sales growth since 2009 has allowed us to invest significant amounts of capital to drive growth through the continuous improvement of existing locations , the development of plans to open new restaurants , and the hiring of personnel to support our growth plans . we plan to execute the following strategies to continue to enhance the awareness of our concepts , grow our revenue and improve our profitability by : pursuing new restaurant development ; expanding beyond our current existing restaurant concepts ; increasing our same store sales through providing high quality food and service ; and improving our margins and leveraging infrastructure . we believe there are opportunities to open up to four new restaurants annually . we are actively pursuing development opportunities within certain of our concepts , and we are currently evaluating approximately 20 locations in approximately 15 separate markets in order to meet our stated growth objectives . the most recent restaurant openings include a j. alexander 's restaurant in lexington , kentucky in march 2017 and a stoney river restaurant in chapel hill , north carolina in february 2017. in addition , the company has announced the signing of leases for its next j. alexander 's restaurant in king of prussia , pennsylvania currently expected to open during the second quarter of 2018 and its next stoney river restaurant in troy , michigan currently expected to open during the fourth quarter of 2018. the locations that have been transitioned from a j. alexander 's restaurant to a redlands grill restaurant and the location which converted to lyndhurst grill during 2017 have been included in the j. alexander 's results of operations , average weekly same store sales calculations and all other applicable disclosures . performance indicators we use the following key metrics in evaluating our performance : 39 same store sales . we include a restaurant in the same store restaurant group starting in the first full accounting period following the eighteenth month of operations . our same store restaurant base consisted of 41 restaurants at each of december 31 , 2017 and january 1 , 20 17. changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time . this measure highlights the performance of existing restaurants , as the impact of new restaurant openings is exclud ed . measuring our same store restaurant sales allows us to evaluate the performance of our existing restaurant base . various factors impact same store sales including : consumer recognition of our concepts and our ability to respond to changing consumer preferences ; overall economic trends , particularly those related to consumer spending ; our ability to operate restaurants effectively and efficiently to meet guest expectations ; pricing ; guest traffic ; spending per guest and average check amounts ; local competition ; trade area dynamics ; and introduction of new menu items . average weekly sales . average weekly sales per restaurant is computed by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average . the daily sales average is then multiplied by seven to arrive at average weekly sales per restaurant . days on which restaurants are closed for business for any reason other than scheduled closures on thanksgiving and christmas are excluded from this calculation . story_separator_special_tag these expenses have increased as a result of costs associated with being a public company , and we believe such expenses will continue to increase related to our anticipated growth . however , as we are able to leverage these investments made in our people and systems , we expect these expenses to decrease as a percentage of net sales over time . interest expense . interest expense consists primarily of interest on our outstanding indebtedness . our debt issuance costs are recorded at cost and are amortized over the lives of the related debt under the effective interest method . income tax ( expense ) benefit . this represents expense or benefit related to the taxable income allocated to the company from j. alexander 's holdings , llc at the federal , state and local level . as a partnership , j. alexander 's holdings , llc generally pays no tax on its income , and each of its members is required to report such member 's allocable share of the partnership 's income on such member 's income tax returns . discontinued operations . in 2013 , we closed two locations , and we determined that these closures met the criteria for classification as discontinued operations . refer to item 8. financial statements and supplementary data - notes to consolidated financial statements - note 2 ( c ) summary of significant accounting policies—discontinued operations and restaurant closing costs for more information . 41 story_separator_special_tag market conditions or if attractive opportunities to contract at fixed prices arise , we will consider entering into a fixed price purchasing agreement . restaurant labor and related costs totaled 30.7 % and 30.6 % of net sales in 2017 and 2016 , respectively , with the increase in 2017 due primarily to the impact of higher labor costs as a percentage of net sales incurred in the one new j. alexander 's restaurant opened during the latter part of the fourth quarter of 2016 and the one new j. alexander 's restaurant and the one new stoney river restaurant which opened during the first quarter of 2017. labor costs in our new restaurants generally run higher in the early months of operations while experience is gained by newer restaurant employees and efficiencies are established in both the front and back-of-house operations . there was only one new stoney river restaurant and , to a lesser extent , one new j. alexander 's restaurant opened in december 2016 that impacted fiscal year 2016 labor in a similar fashion . depreciation and amortization of restaurant property and equipment increased by $ 1,165 , or 13.2 % , in 2017 compared to 2016 primarily due to the impact of the three new restaurants which opened in the fourth quarter of 2016 and the first quarter of 2017. further , we recorded additional depreciation expense in fiscal year 2017 associated with restaurant remodels which occurred during the latter part of 2016 and during 2017. other operating expenses , which include restaurant level expenses such as china and supplies , laundry and linen costs , repairs and maintenance , utilities , credit card fees , rent , property taxes and insurance , remained consistent as a percentage of net sales in fiscal year 2017 relative to fiscal year 2016 at 20.0 % . while the company recorded increased expense in 2017 with respect to contracted 44 services , rent and various other operating costs as well as additional expenses incurred for labor and clean up at our florida locations due to the impact of hurricane irma , these increases were offset by decreased expense for insurance , menu , laundry and linen and repairs and maintenance costs , as well as the effect of higher same store sales at each concept for the year . general and administrative expenses total general and administrative expenses , which include all supervisory costs and expenses , management training and relocation costs , and other costs incurred above the restaurant level , increased by $ 34 , or 0.2 % , in 2017 compared to 2016. the more significant increases in fiscal year 2017 included non-cash share-based compensation related to stock option grants made in november 2016 , salaries , including those for restaurant management trainees , incentive compensation , deferred compensation , travel , legal fees , franchise taxes , payroll processing fees , public relations , employee relocation costs and less significant expense categories , which partially offset the favorable impact of lower expense associated with accounting and auditing services , workers ' compensation insurance , employee education and training , market research , temporary services and other less significant expense categories . further , non-cash share-based compensation expense associated with the black knight profits interest grant totaled $ 942 during fiscal year 2017 compared to $ 2,039 recorded during fiscal year 2016 , while consulting fees earned by black knight during fiscal year 2017 , totaled $ 809 compared to $ 700 during fiscal year 2016. finally , we recorded $ 125 in restaurant closing costs associated with the j. alexander 's restaurant in houston , texas which closed during the first quarter of 2017 as a component of “ general and administrative expenses ” in the consolidated statements of income and comprehensive income . expenses associated with the closure of the houston , texas restaurant have not been included in discontinued operations as its closure does not represent a strategic shift that will have a major effect on our operations and financial results . transaction costs we incurred non-recurring transaction and integration expenses totaling $ 3,529 and $ 64 during fiscal years 2017 and 2016 , respectively . transaction costs consist primarily of legal and consulting costs , accounting fees , and , to a lesser extent , other professional fees and miscellaneous costs . integration costs consist primarily of consulting and legal costs .
| results of operations year ended december 31 , 2017 ( 52 weeks ) compared to year ended january 1 , 2017 ( 52 weeks ) the following tables set forth , for the periods indicated , ( i ) the items in the company 's consolidated statements of income and comprehensive income , including our results expressed as a percentage of net sales , and ( ii ) other selected operating data : replace_table_token_4_th note : ncm means not considered meaningful . 42 replace_table_token_5_th net sales net sales increased by $ 13,673 , or 6.2 % , in fiscal year 2017 compared to fiscal year 2016 due , in part , to an increase in same store sales at the j. alexander 's / grills restaurants of $ 4,714 and at stoney river restaurants of $ 1,619. further , sales in fiscal year 2017 attributable to the three restaurant locations opening within the last 18 months , and , therefore , excluded from the same store sales base , totaled $ 7,947 and $ 2,613 for the j. alexander 's / grills and stoney river concepts , respectively . these sales increases were partially offset by the impact of the closure of the j. alexander 's restaurant in houston , texas in the first quarter of 2017 which resulted in a sales decrease of $ 3,220 relative to fiscal year 2016. during fiscal year 2017 , six of the company 's restaurants in florida were closed for a total of 36 days due to the impact of hurricane irma . management estimates the impact of such closures was approximately $ 650 in lost revenue , and a decrease to income from continuing operations before income taxes of approximately $ 400 , consisting of approximately $ 300 of lost restaurant operating income and approximately $ 100 of food spoilage losses , cleanup costs and expenses associated with reopening the restaurants .
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under step two , the impairment loss is measured by comparing the implied fair value of the reporting unit goodwill with the carrying amount of goodwill . the company also has the option to bypass the qualitative assessment and proceed directly to performing the first step of the two-step goodwill impairment test . the annual impairment test is performed during the fourth fiscal quarter . the company reviews identifiable intangible and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an story_separator_special_tag you should read this discussion together with the financial statements , related notes and other financial information included in this annual report on form 10-k. the following discussion may contain predictions , estimates and other forward-looking statements that involve a number of risks and uncertainties , including those discussed under item 1a— “ risk factors ” and elsewhere in this annual report on form 10-k. these risks could cause our actual results to differ materially from any future performance suggested below . executive overview we are a global medical technology company that develops , manufactures and markets a variety of noninvasive monitoring technologies . our mission is to improve patient outcomes and reduce cost of care by taking noninvasive monitoring to new sites and applications . we invented masimo set ® , which provides the capabilities of measure-through-motion and low-perfusion pulse oximetry to address the primary limitations of conventional pulse oximetry . pulse oximetry is the noninvasive measurement of the oxygen saturation level of arterial blood , or the blood that delivers oxygen to the body 's tissues , and pulse rate . pulse oximetry is one of the most common measurements made in and out of hospitals around the world . masimo set ® has been validated in over 100 independent clinical studies and is the only pulse oximetry technology we are aware of that has been proven to help clinicians detect critical congenital heart disease in newborns , reduce retinopathy of prematurity in neonates , and decrease intensive care unit transfers and rapid response activations on the general floor . after introducing masimo set ® , we have continued to innovate by introducing noninvasive measurements beyond arterial blood oxygen saturation level and pulse rate , which create new market opportunities in both the hospital and non-hospital care settings . we believe our masimo rainbow set platform , which utilizes both masimo set ® and licensed rainbow ® technology , includes the first devices cleared by the u.s. food and drug administration ( the fda ) to noninvasively and continuously monitor multiple measurements that previously required invasive or complicated procedures . spco ® , our noninvasive carboxyhemoglobin parameter , allows measurement of carbon monoxide levels in the blood . carbon monoxide is the most common cause of poisoning in the world . spmet ® , our noninvasive methemoglobin sensor , allows for the measurement of methemoglobin levels in the blood . methemoglobin in the blood leads to a dangerous condition known as methemoglobinemia , which occurs as a reaction to some common drugs used in hospitals and outpatient procedures . our pvi ® parameter measures dynamic changes in perfusion index ( pi ) during the respiratory cycle and can assist clinicians with fluid administration . our noninvasive hemoglobin sensor , sphb ® , monitors hemoglobin , the oxygen-carrying component of red blood cells . hemoglobin measurement is one of the most frequent invasive laboratory measurements in the world , often measured as part of a complete blood count . a low hemoglobin status is called anemia , which is generally caused by bleeding or the inability of the body to produce red blood cells . rra ® allows for the continuous and noninvasive monitoring of respiration rate , via rainbow acoustic monitoring ® . respiration rate is the number of breaths per minute . a low respiration rate is indicative of respiratory depression and a high respiration rate is indicative of patient distress . traditional methods used to measure respiration rate are often considered inaccurate or are not tolerated well by patients . rrp allows clinicians to noninvasively and continuously measure and monitor respiration rate using a standard masimo set ® pulse oximetry or rainbow ® pulse co-oximeter ® sensor . the rrp measurement is determined by the variations in the plethysmograph waveform due to respiration . spfo 2 , or fractional oxygen saturation , allows more precise arterial oxygenation assessment in patients with elevated dyshemoglobins , common throughout the hospital and pre-hospital setting , compared to functional oxygen saturation , and may also allow earlier interventions and more timely therapeutic decisions . ori provides real-time visibility to oxygenation status in moderate hyperoxic range , which we define as a patient 's oxygen “ reserve ” . ori can be trended and has optional alarms to notify clinicians of changes in a patient 's oxygen reserve . our products consist of a monitor or circuit board , and a “ board-in-cable ” solution , for use with our proprietary single-patient-use and reusable sensors and cables . we sell our products to end-users through our direct sales force and certain distributors , and also sell some of our products to our oem partners , for incorporation into their equipment . as of january 2 , 2016 we estimate that the worldwide installed base of our pulse oximeters and oem monitors that incorporate masimo set ® and rainbow set was more than 1,414,000 units . our installed base is the primary driver for the recurring sales of our sensors , most notably single-patient adhesive sensors . we offer masimo set ® and rainbow set through our oems and our own end-user products , including the radical-7 ® , rad-57 ® , pronto ® , rad-8 ® , rad-5 ® and rad-5v ® . our solutions and related products are based upon our proprietary masimo set ® and rainbow ® algorithms . this software-based technology is incorporated into a variety of product platforms depending on our customers ' specifications . story_separator_special_tag accordingly , we reversed the previous $ 8.0 million charge in the fiscal quarter ended march 29 , 2014. the former sales representatives appealed the u.s. district court 's ruling , and the appeal argument was held in the ninth circuit court of appeals on february 1 , 2016. on february 19 , 61 2016 , the ninth circuit court of appeals reversed the decision of the district court vacating the award , and remanded the case to the district court with instructions to confirm the arbitration award . as a result , we reinstated the $ 5.4 million charge for the arbitration award that was previously reversed , plus approximately $ 0.7 million of estimated non-operating interest expense , as of january 2 , 2016. however , we have not reinstated the $ 2.6 million charge for defense-related costs previously reimbursed by the insurance company based upon our current assessment of this matter . in july 2014 , an arbitration panel issued a final award of $ 4.0 million to cercacor , our vie , in connection with the breach by a third party of a supply agreement , payment for which was received by cercacor in august 2014. cercacor recorded this award in the quarter ended september 27 , 2014 as a reduction to operating expenses , net of approximately $ 1.6 million in related legal costs . the net recovery of $ 2.4 million was entirely attributable to noncontrolling interests and , therefore , was not included in “ net income attributable to masimo corporation stockholders ” within our results of operations for the year ended january 3 , 2015 . non-operating expense . non-operating expense consists primarily of interest income , interest expense and foreign exchange losses . non-operating expense for fiscal years 2015 and 2014 was as follows ( dollars in thousands ) : replace_table_token_12_th non-operating expense was $ 3.9 million for the year ended january 2 , 2016 , as compared to $ 1.5 million for the year ended january 3 , 2015 . this net change of $ 2.4 million was primarily due to higher interest expense of approximately $ 1.8 million during the year ended january 2 , 2016 , related to increased borrowings under our revolving credit agreement as compared to the year ended january 3 , 2015 , as well as the accrual of approximately $ 0.7 million of estimated interest related to the arbitration award . in addition , we recognized approximately $ 0.5 million of net realized and unrealized losses on foreign currency denominated transactions during the year ended january 2 , 2016 , as compared to $ 1.0 million of net realized and unrealized losses on foreign currency denominated transaction during the year ended january 3 , 2015. the net realized and unrealized losses recognized during the year ended january 2 , 2016 resulted primarily from the strengthening of the u.s. dollar against the euro , british pound , canadian dollar and australian dollar partially offset by the strengthening of the u.s. dollar against the swedish krona . the net realized and unrealized losses recognized during the year ended january 3 , 2015 resulted primarily from the strengthening of the u.s. dollar against the japanese yen and the euro , partially offset by the strengthening of the u.s. dollar against the swedish krona . provision for income taxes . our provision for income taxes for fiscal years 2015 and 2014 were as follows ( dollars in thousands ) : replace_table_token_13_th our provision for income taxes was $ 34.8 million for the year ended january 2 , 2016 compared to $ 27.7 million for the year ended january 3 , 2015 . our effective tax rate was 30.0 % for the year ended january 2 , 2016 compared to 27.1 % for the year ended january 3 , 2015 . this increase in our effective tax rate during the year ended january 2 , 2016 was primarily due to an unfavorable shift in the geographic composition of our pre-tax earnings between higher tax and lower tax jurisdictions during the year ended january 2 , 2016 . we have made no provision for u.s. income taxes or foreign withholding taxes on the earnings of our foreign subsidiaries as these amounts are intended to be indefinitely reinvested in operations outside the u.s. our effective tax rate was lower than the u.s. federal statutory rate primarily due to research and development tax credits and a portion of our earnings being generated from countries other than the u.s. , where such earnings are generally subject to lower tax rates than the u.s. while we expect our effective tax rate will continue to be lower than the u.s. federal statutory rate , our actual future effective income tax rate will depend on various factors , including changes in tax laws , changes in deferred tax asset valuation allowances , the recognition and derecognition of tax benefits associated with uncertain tax positions and the geographic composition of our pre-tax income . 62 comparison of the year ended january 3 , 2015 to the year ended december 28 , 2013 revenue . total revenue increased $ 39.4 million , or 7.2 % , to $ 586.6 million for the year ended january 3 , 2015 , from $ 547.2 million for the year ended december 28 , 2013 . the following chart details our total product revenues by the geographic area to which the products were shipped for fiscal years 2014 and 2013 ( dollars in thousands ) : replace_table_token_14_th product revenues increased $ 39.3 million , or 7.6 % , to $ 556.8 million in the year ended january 3 , 2015 from $ 517.4 million in the year ended december 28 , 2013 .
| results of operations the following table sets forth , for the periods indicated , our results of operations expressed as u.s. dollar amounts and as a percentage of revenue . replace_table_token_5_th comparison of the year ended january 2 , 2016 to the year ended january 3 , 2015 revenue . total revenue increased $ 43.5 million , or 7.4 % , to $ 630.1 million for the year ended january 2 , 2016 , from $ 586.6 million for the year ended january 3 , 2015 . the following chart details our total product revenues by the geographic area to which the products were shipped for fiscal years 2015 and 2014 ( dollars in thousands ) : replace_table_token_6_th product revenues increased $ 42.6 million , or 7.6 % , to $ 599.3 million in the year ended january 2 , 2016 from $ 556.8 million in the year ended january 3 , 2015 . this increase was primarily due to higher sales of our consumable and reusable sensor products resulting from an increase in our installed base of circuit boards and pulse oximeters , as well as higher sales of rainbow ® instruments and parameters . total rainbow ® product revenue increased $ 10.1 million , or 19.5 % , to $ 61.8 million in the year ended january 2 , 2016 from $ 51.8 million in the year ended january 3 , 2015 . partially offsetting our increase in product revenue was approximately $ 18.6 million from unfavorable movements in foreign exchange rates from the prior year period that reduced the u.s. dollar translation of foreign sales that were denominated in various foreign currencies , primarily in europe and asia , $ 1.4 million of which unfavorably impacted our rainbow ® product revenue .
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” in addition , because the following discussion includes numerous forward-looking statements relating to us , our results of operations , financial condition and business , reference is made to the information set forth in the section of part i immediately preceding item 1 above under the caption “ forward-looking statements. ” overview cal-maine foods , inc. ( “ we , ” “ us , ” “ our , ” or the “ company ” ) is primarily engaged in the production , grading , packaging , marketing and distribution of fresh shell eggs . our fiscal year end is the saturday nearest to may 31 which was june 3 , 2017 ( 53 weeks ) , may 28 , 2016 ( 52 weeks ) , and may 30 , 2015 ( 52 weeks ) for the most recent three fiscal years . our operations are fully integrated . we hatch chicks , grow and maintain flocks of pullets ( female chickens , under 18 weeks of age ) , layers ( mature female chickens ) and breeders ( male and female birds used to produce fertile eggs to be hatched for egg production flocks ) , manufacture feed , and produce , process and distribute shell eggs . we are the largest producer and marketer of shell eggs in the u.s. we market the majority of our shell eggs in the southwestern , southeastern , mid-western , and mid-atlantic regions of the u.s. we market 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 consumers . our operating results are directly tied to egg prices , which are highly volatile and subject to wide fluctuations , and are outside of our control . for example , the annual average urner-barry southeastern regional large egg market price per dozen eggs , for our fiscal 2005-2017 ranged from a low of $ 0.72 during fiscal 2005 to a high of $ 2.97 during fiscal 2016. 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 tended to increase the number of layers in production with a resulting increase in the supply of shell eggs , which generally caused a drop in shell egg prices until supply and demand returned 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 in 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 the seasonal and quarterly fluctuations , comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons . from april through june 2015 , our industry experienced a significant avian influenza ( “ ai ” ) outbreak , primarily in the upper midwestern u.s. there were no positive tests for ai at any of our locations . based on several published industry estimates , we believe approximately 12 % of the national flock of laying hens was affected . during april through june 2015 , the affected laying hens were either destroyed by the disease or euthanized . the usda data showed the supply of laying hens decreased substantially . since that time , it began to recover and eventually exceed pre-ai levels by late 2016. in february 2017 , the usda issued revised data that showed the size of the laying hen flock for calendar years 2015 and 2016 was meaningfully higher in both years than previously reported . 23 egg prices increased significantly during the summer and fall of 2015. the average urner-barry thursday prices for the large market ( i.e . generic shell eggs ) in the southeastern region for the months of june through november 2015 was $ 2.32 per dozen , with a peak of $ 2.97 in august . subsequent to november 2015 , shell egg prices declined . the urner barry price index ( `` ub index '' ) hit a decade-low level in our fiscal 2016 fourth quarter . during our first quarter of fiscal 2017 it increased slightly , but remained at significantly lower levels than the corresponding period of last year . during our fiscal 2017 second quarter , the ub index returned to and dropped below the low levels seen during the fiscal 2016 fourth quarter . early in our fiscal 2017 third quarter we saw a significant increase , but prices dropped after christmas . during our fiscal 2017 fourth quarter , the ub index dropped again and approached the record low levels of the fiscal 2017 second quarter . according to nielsen data , retail customer demand for shell eggs has remained strong . the usda reports that egg export demand has improved since the beginning of fiscal 2017 ; however , it has still not fully recovered from levels prior to the ai outbreak . additionally , the industry experienced reduced demand for egg products , as many commercial customers reformulated their products to use fewer eggs when prices spiked and have been slow to resume previous egg usage . story_separator_special_tag 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 thursday price for the large market ( i.e . generic shell eggs ) 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 have often reflected increased consumer demand relative to supply while the periods of significant loss have often reflected excess supply for the then prevailing consumer demand . historically , 25 demand for shell eggs increases in line with overall population growth . as reflected above , our operating results fluctuate with changes in the spot egg market quote and feed costs . 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 2015 and 2016 , our net average net selling price increased , reflecting strong demand for shell eggs across our markets as well as supply constraints resulting from the outbreak of avian influenza ( `` ai '' ) , and feed costs decreased over the previous year . in fiscal 2017 , our net average selling price and dozens sold decreased over the previous year primarily due to oversupply of eggs resulting from the repopulation of the national flock of laying hens to levels exceeding the pre-ai flock and a reduced demand for egg products . in fiscal 2017 , feed costs continued to decrease over prior years . gross profit and net income for fiscal 2017 decreased significantly compared to the prior year , primarily due to decreased selling prices . fiscal year ended june 3 , 2017 compared to fiscal year ended may 28 , 2016 net sales in fiscal 2017 , approximately 98 % of our net sales consisted of shell eggs and approximately 2 % was egg products . net sales for the fiscal year ended june 3 , 2017 were $ 1,074.5 million , a decrease of $ 834.2 million , or 43.7 % , from net sales of $ 1,908.7 million for fiscal 2016 . in fiscal 2017 total dozens of eggs sold decreased and egg selling prices decreased as compared to fiscal 2016 . in fiscal 2017 total dozens of shell eggs sold were 1,031.1 million , a decrease of 22.5 million dozen , or 2.1 % , compared to 1,053.6 million sold in fiscal 2016 story_separator_special_tag pt ; '' > for fiscal 2016 , a decrease of 68.5 % . the decrease in market prices for egg products in the current fiscal year is due to reduced demand for egg products and extraordinarily high prices for the prior fiscal year which reflected the shortage of supply caused by ai . 28 cost of sales cost of sales consists of costs directly related to producing , processing and packing shell eggs , purchases of shell eggs from outside producers , processing and packing of liquid and frozen egg products and other non-egg costs . farm production costs are those costs incurred at the egg production facility , including feed , facility , hen amortization , and other related farm production costs . the following table presents the key variables affecting our cost of sales : replace_table_token_6_th cost of sales for the fiscal year ended june 3 , 2017 was $ 1,029.0 million , a decrease of $ 231.6 million , or 18.4 % , compared to 1,260.6 million for fiscal 2016 . comparing fiscal 2017 to fiscal 2016 , average cost per dozen purchased from outside shell egg producers and cost of feed ingredients decreased while dozens produced increased . for the 2017 fiscal year we produced 84.4 % of the eggs sold by us , as compared to 77.8 % for the previous year . the increase is the result of our acquisitions and expansion projects completed at our existing facilties . feed cost for fiscal 2017 was $ 0.399 per dozen , compared to 0.414 per dozen for the prior fiscal year , a decrease of 3.6 % . the decrease in feed cost per dozen resulted in a decrease in cost of sales of $ 13.1 million for fiscal 2017 compared with fiscal 2016 . for the fourteen weeks ended june 3 , 2017 , compared to the thirteen weeks ended may 28 , 2016 , cost of sales increased $ 238,000 , or 0.1 % , from $ 262.3 million in the fourth quarter of fiscal 2016 , to $ 262.6 million in the current period . feed cost per dozen for the fourth quarter of fiscal 2017 was $ 0.381 , compared to $ 0.396 for the same quarter of fiscal 2016 , a decrease of 3.8 % . gross profit , as a percentage of net sales , was 4.2 % for fiscal 2017 , compared to 34.0 % for fiscal 2016 . the decline resulted primarily from lower selling prices . 29 selling , general , and administrative expenses replace_table_token_7_th selling , general and administrative expenses ( `` sg & a '' ) , which include costs of marketing , distribution , accounting and corporate overhead , were $ 174.0 million in fiscal 2017 , a decrease of $ 3.8 million , or 2.1 % , compared to $ 177.8 million for fiscal 2016 .
| resulting in a decrease in net sales of $ 22.6 million for fiscal 2017 compared with the prior year . we believe the decrease was primarily due to an oversupply of eggs in fiscal 2017 contrasted with fiscal 2016 in which we experienced supply constraints resulting from the ai outbreak . our average selling price of shell eggs decreased from $ 1.735 per dozen for fiscal 2016 to $ 1.007 per dozen for fiscal 2017 , a decrease of $ 0.728 per dozen , or 42.0 % , primarily reflecting pressure on market prices induced by the oversupply of eggs compared with the prior year in which we experienced higher egg prices resulting from the ai outbreak . the decrease in sales price in fiscal 2017 from fiscal 2016 resulted in a corresponding decrease in net sales of approximately $ 750.7 million . the remainder of our decrease in net sales was the result of decreased sales of egg products which is discussed later in this section . our operating results are significantly affected by wholesale shell egg market prices , which are outside of our control . small changes in production or demand levels can have a large effect on shell egg prices . 26 the table below represents an analysis of our non-specialty and specialty , as well as co-pack specialty , shell egg sales . following the table is a discussion of the information presented in the table . replace_table_token_5_th non-specialty shell eggs include all shell egg sales not specifically identified as specialty or co-pack specialty shell egg sales . this market is characterized generally by an inelasticity of demand , and small increases in production or decreases in demand can have a large adverse effect on prices and vice-versa .
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we also lease space in various facilities in 100 zofingen , switzerland that can be terminated with 12 months written notice under an agreement that expires in 2032. the swiss agreement stipulates that the annual rental payments are indexed to the swiss consumer price index . in accordance with the lease terms for certain of our us properties , we are required to maintain deposits for the benefit of the landlord throughout the term of the leases . a total of $ 1.5 million and $ 1.4 story_separator_special_tag you should read the following discussion and analysis in conjunction with item 8. financial statements and supplementary data included below in this annual report on form 10-k , or annual report . operating results are not necessarily indicative of results that may occur in future periods . this discussion and analysis contains forward-looking statements that involve a number of risks , uncertainties and assumptions . actual events or results may differ materially from our expectations . important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include , but are not limited to , those set forth in item 1a . risk factors in this annual report . all forward-looking statements included in this annual report are based on information available to us as of the time we file this annual report and , except as required by law , we undertake no obligation to update publicly or revise any forward-looking statements . belviq ® is the trade name for lorcaserin hydrochloride in the united states . while belviq ( lorcaserin hci ) may in the future be marketed outside of the united states as belviq or under a different trade name , we use belviq in this annual report to refer to the finished drug product for lorcaserin hydrochloride or , depending on the context , lorcaserin hydrochloride or other solid state forms of lorcaserin . overview and recent developments we have incurred net losses of $ 1.2 billion from our inception in april 1997 through december 31 , 2012 , and may incur substantial net losses in the future as we manufacture and commercialize our internally discovered drug , belviq ( pronounced bel-veek ) , and continue our efforts to discover additional drug candidates and advance our research and development programs . in june 2012 , the us food and drug administration , or fda , approved belviq for chronic weight management in adults who are overweight with a comorbidity or obese . the us drug enforcement administration , or dea , has proposed that belviq be classified as a schedule iv drug under the controlled substances act , or csa . belviq will be marketed in the united states by eisai inc. , or eisai , under the amended and restated marketing and supply agreement , or eisai agreement , between eisai and our wholly owned subsidiary , arena pharmaceuticals gmbh , or arena gmbh . once the dea finalizes the scheduling designation , eisai will launch belviq , which will be available to eligible patients by prescription , in the united states . we provided eisai with the marketing and distribution rights for belviq in most of north and south america , including the united states , mexico , canada and brazil . in addition , under the marketing and supply agreement between arena gmbh and ildong pharmaceutical co. , ltd. , or ildong , herein referred to as the ildong belviq agreement , we provided ildong with the marketing and distribution rights for belviq in south korea for weight loss or weight management in obese and overweight patients , subject to regulatory approval of belviq by the korea food and drug administration , or kfda . we continue to own rights to market and distribute belviq outside of these territories . outside of our collaborations , we have filed marketing authorization applications , or maas , for the regulatory approval of belviq in the european union and switzerland . with respect to the european union , in january 2013 we received the day 180 list of outstanding issues from the european medicines agency 's , or ema 's , committee for medicinal products for human use , or chmp . the major objections in the day 180 list of outstanding issues relate to non-clinical and clinical issues , including tumors in rats , valvulopathy and psychiatric events , and the chmp requested that we further justify belviq 's overall benefit-risk balance taking these issues into consideration . the issues will need to be addressed before the chmp can recommend belviq for marketing approval in the european union . we responded to the day 180 list of outstanding issues in writing . as part of this process , the chmp will consult with groups of independent experts who will provide 63 recommendations on the outstanding issues . in addition , we have been invited by the chmp to provide an oral explanation , and we expect to have other discussions with the chmp and their experts . the chmp is expected to reach its final opinion on the belviq maa by nominal day 210 , which , accounting for expected clock stoppages during the regulatory process , we expect to occur in the first half of 2013. in late february 2013 , swissmedic provided feedback to our maa for switzerland in the form of a list of questions with major objections , which include objections that are similar to those identified with respect to our maa for the european union . we are in the process of preparing our response . we also intend to seek regulatory approval of belviq in additional territories that are not currently under collaboration . eisai is responsible for filing applications for regulatory approval of belviq under our collaboration that includes most of north and south america , and ildong is responsible for filing an application for regulatory approval of belviq under our collaboration for south korea . story_separator_special_tag while expenditures on current and future clinical development programs are expected to be substantial , they are subject to many uncertainties , including whether we have adequate funds and develop our drug candidates with one or more collaborators or independently . as a result of such uncertainties , we can not predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of belviq or any of our drug candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of factors , including : the nature and number of trials and studies in a clinical program ; the number of patients who participate in the trials ; the number and location of sites included in the trials ; the rates of patient recruitment and enrollment ; the duration of patient treatment and follow-up ; the costs of manufacturing drug candidates ; and the costs , requirements , timing of , and the ability to secure regulatory approvals . general and administrative expenses . general and administrative expenses increased by $ 2.0 million to $ 26.2 million for the year ended december 31 , 2012 , from $ 24.2 million for the year ended december 31 , 2011. this was primarily due to increases of ( i ) $ 1.5 million in non-cash share-based compensation and ( ii ) $ 0.7 million in salary and other personnel costs . these increases were partially offset by a $ 1.1 million decrease in patent fees . we expect that our 2013 general and administrative expenses will be higher than in 2012. amortization of acquired technology and other intangibles . we recognized $ 0.7 million for amortization of acquired technology and other intangibles for the year ended december 31 , 2012 , compared to $ 1.0 million for the year ended december 31 , 2011. this decrease was primarily due to reaching the end of the 10-year estimated useful life of our melanophore screening technology in the first quarter of 2011. the remaining amortization expense relates to the manufacturing facility production licenses we acquired in connection with our swiss manufacturing facility , which are being amortized over their estimated useful life of 20 years . using the exchange rate in effect on december 31 , 2012 , we expect to record amortization expense of $ 0.7 million per year through 2027 for the manufacturing facility production licenses . interest and other expense , net . interest and other expense , net , increased by $ 2.0 million to $ 28.4 million for the year ended december 31 , 2012 , from $ 26.4 million for the year ended december 31 , 2011. this was primarily due to a $ 13.4 million non-cash loss from revaluation of our derivative liabilities , primarily resulting from the increase in the price of our common stock in 2012 , which is an input into our black-scholes option pricing model . this increased expense was partially offset by ( i ) a $ 5.2 million decrease in interest expense primarily related to the may 2012 payoff of our former loan from certain deerfield entities and ( ii ) a $ 4.2 million decrease in the non-cash loss on extinguishment of debt . although our total interest expense will decrease due to the payoff of the deerfield loan , we expect that it will continue to be substantial due to payments on our lease financing obligations . 68 deemed dividend related to beneficial conversion feature of convertible preferred stock . we recorded a deemed dividend of $ 2.8 million in the year ended december 31 , 2012 , upon the issuance of our formerly outstanding series d convertible preferred stock and , in the year ended december 31 , 2011 , we recorded a deemed dividend of $ 2.3 million upon the issuance of our formerly outstanding series c convertible preferred stock . the fair value of the common stock into which both series of preferred stock was convertible on the respective dates of issuance of the preferred stock exceeded the allocated proceeds on a relative fair value basis , resulting in the beneficial conversion feature . year ended december 31 , 2011 , compared to year ended december 31 , 2010 revenues . we recognized revenues of $ 12.7 million for the year ended december 31 , 2011 , compared to $ 16.6 million for the year ended december 31 , 2010. this was primarily due to decreases of ( i ) $ 4.0 million from deferred non-cash revenues recognized in 2010 under our license agreement with taigen biotechnology co. , ltd. , or taigen , ( ii ) $ 3.2 million for patent activities reimbursed under our former collaboration with ortho-mcneil-janssen pharmaceuticals , inc. , or ortho-mcneil-janssen , in 2010 and ( iii ) $ 1.8 million under our manufacturing services agreement with siegfried . these decreases were partially offset by ( i ) a $ 3.3 million increase in reimbursements we received from eisai related to additional belviq development work and ( ii ) a $ 1.5 million increase resulting from a full year 's amortization of the $ 50.0 million non-refundable , upfront payment we received in july 2010 in connection with entering into the original marketing and supply agreement with eisai . cost of manufacturing services . we recognized cost of manufacturing services of $ 8.1 million and $ 7.4 million for the years ended december 31 , 2011 , and 2010 , respectively . the amount recognized in 2011 included $ 1.2 million representing the estimated contract loss provision for services expected to be rendered in 2012 under the amended manufacturing services agreement with siegfried in place at that time . research and development expenses .
| summary of revenues and expenses we are providing the following summary of our revenues , research and development expenses and general and administrative expenses to supplement the more detailed discussion below . the dollar values in the following tables are in millions . revenues replace_table_token_7_th 65 research and development expenses replace_table_token_8_th general and administrative expenses replace_table_token_9_th year ended december 31 , 2012 , compared to year ended december 31 , 2011 revenues . we recognized revenues of $ 27.6 million for the year ended december 31 , 2012 , compared to $ 12.7 million for the year ended december 31 , 2011. this increase was primarily due to the $ 20.0 million non-refundable milestone payment we earned in connection with the fda approval of belviq , which was partially offset by ( i ) a $ 3.3 million decrease in reimbursements we received from eisai related to additional belviq development work and ( ii ) a $ 1.5 million decrease in manufacturing services revenue under our manufacturing services agreement with siegfried ltd ( now siegfried ag , and referred to collectively in this annual report as siegfried ) . the decrease in manufacturing services revenues is primarily the result of decreased volume and , to a lesser extent , decreases in certain sales prices under our manufacturing services agreement with siegfried . when collaborators pay us before revenues are earned , we record such payments as deferred revenues until earned . as of december 31 , 2012 , we had a total of $ 62.7 million in deferred revenues . of such amount , $ 46.1 million is attributable to upfront payments we received under the eisai agreement , $ 11.6 million is attributable to the belviq product supply delivered to eisai in october 2012 and $ 4.9 million is attributable to the upfront payment under the ildong belviq agreement .
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these risks and uncertainties include international , national and local general economic and market conditions ; demographic changes ; our ability to sustain , manage , or forecast growth ; our ability to successfully make and integrate acquisitions ; raw material costs and availability ; new product development and introduction ; existing government regulations and changes in , or the failure to comply with , government regulations ; adverse publicity ; competition ; the loss of significant customers or suppliers ; fluctuations and difficulty in forecasting operating results ; changes in business strategy or development plans ; business disruptions ; the ability to attract and retain qualified personnel ; the ability to protect technology ; and other risks that might be detailed from time to time in our filings with the sec . because forward-looking statements are inherently subject to risks and uncertainties , the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements . the following discussion and analysis of financial condition and results of operations of the company is based upon , and should be read in conjunction with , the audited financial statements and related notes elsewhere in this annual report on form 10-k. we opened our upt headquarters in largo , florida in may 2014. we use the facility to perform research and development for our mobile generator business and it will serve as a sales showroom in the future . plan of operation we have not generated any revenues to date . we generated our first mobile generation order during the quarter ended june 30 , 2014 , and received a partial deposit in advance of completing the sale . on june 9 , 2017 , the company received a purchase order for 10 mg systems from craftsmen industries . there is no set timetable associated with the order . a 50 % down payment will be received from craftsmen at the time of customer acceptance . we generated our third and fourth purchase commitments on november 7 and 27 , 2017 from jatropha , inc and veracruz inc , respectively . jatropha committed to purchase a total of 234 vehicles and veracruz committed to purchase a minimum of 25 vehicles ( maximum of 50 vehicles ) . an inspection and performance demonstration is set for late april in fort collins , colorado . 36 there can be no assurances that we will be able to fulfill the orders , however , craftsmen industries has been selected to produce the first systems due to its engineering capabilities and extensive facilities . in the meantime , we primarily incur expenses to commercialize our products , which include costs for research and development , professional fees and general operations . we have developed and intend to commercialize thermal dispersion technologies in various product platforms , a parallel power input gearbox around which we have designed a mobile generator system and an electric load assist technology around which we have designed a vehicle retrofit system . as part of the commercialization efforts , we have applied for and received a trademark for our totally enclosed heat pipe cooled technology or 'tehpc ' . management is currently negotiating additional non-dilutive funding arrangements to support completion of the initial phases of our business plan , which is to license our thermal technologies and applications ; to license or sell a mobile electric power system powered by the company 's proprietary gearing system ; and to license it submersible motor dry pit technologies and or to bring to market its technologies and applications through key distribution partners . recent developments pgc investments on july 1 , 2014 , we entered into a 36-month independent contractor agreement ( `` pgc agreement '' ) , with pgc investments llc , a florida limited liability company ( `` pgc '' ) to provide the full-time services of dennis campbell to manage the day-to-day operations of upt . under the pgc agreement , pgc and mr. campbell may not solicit or hire any of the company 's current or former ( within one year ) employees , consultants or contractors for six months following the termination of the pgc agreement . either party to the pgc agreement may terminate the pgc agreement upon 30 days ' notice to the other party . the company may immediately terminate the pgc agreement for `` cause '' ( as defined in the pgc agreement ) , subject to a 10-day cure period . until the sign-on warrants become exercisable , upon termination , pgc shall be entitled to a severance payment equal to three months of consulting fees and any earned bonuses , warrants and shares . as consideration for such consulting services , pgc will be paid monthly consulting fees ( payable at the end of each month ) of $ 10,000 during the first year , with a $ 10,000 bonus to be paid upon the opening of the tampa bay store ; $ 12,000 in the second year with a $ 10,000 bonus payable in the last month of the second year upon satisfactory performance ; and $ 13,500 in the third year with a $ 10,000 bonus payable in the last month of the third year upon satisfactory performance . pgc will be entitled to ( i ) a three-year ( commencing upon vesting ) cashless warrant to purchase an aggregate of 1,530,000 shares of common stock exercisable at $ 1.00 per share that vests ratably upon reaching incremental revenues of $ 3,000,000 ( from mg product sales which result from the efforts of dennis campbell and pgc ) with a total target revenue of $ 100,000,000 and ( ii ) a three-year cashless warrant to purchase an aggregate of 720,000 shares of common stock at an exercise price of $ 1.00 that vests ratably on a quarterly basis ; and ( iii ) 500,000 shares of our common stock that vest upon reaching revenues of $ 100,000,000 or upon sale of the company . story_separator_special_tag on october 24 , 2017 , the company filed an amendment to a form s-1 registration statement with the securities and exchange commission to register 50,000,000 shares of common stock which may be issued pursuant to purchases of shares made under the equity purchase agreement . 38 amended articles of incorporation we filed an amendment to our articles of incorporation with the secretary of state of the state of nevada increasing our authorized shares of common stock , from 140,000,000 shares to 350,000,000 shares , effective march 22 , 2017. we currently believe that the increase in authorized share capital eliminates the need for any other type of corporate action such as a reverse stock split . craftsmen industries , inc. as a consequence of the first public demonstration of the mg 30 kilovolt amp ( “ kva ” ) system at the north america international auto show in detroit in january 2017 , the company entered into an agreement in principle , dated february 21 , 2017 , with craftsmen industries , inc. ( “ craftsmen ' ) , a company engaged in the design , engineering and production of mobile marketing vehicles , experiential marketing platforms and industrial mobile solutions . on april 25 , 2017 , we delivered to craftsmen industries , a class iii vehicle ( ford f-350 dually ) up-fitted with a production-ready mg 30 kva ( single phase/three phase ) system . subsequently , craftsmen invited the company to demonstrate its mobile generation technology and the potential benefits for craftsmen products at craftsmen 's 35 th anniversary party on april 27 , 2017. over 100 current and prospective craftsmen customers were in the audience for the demonstrations . on june 9 , 2017 , the company received a purchase order for 10 mg systems from craftsmen , each in the amount of $ 29,500 with 50 % paid as a down payment at the time of customer acceptance . furthermore , craftsmen has been chosen to produce the mg systems for the company 's initial orders from jatropha and veracruz ( see below ) . veteran technology group on may 26 , 2017 , the company entered into a five-year strategic alliance agreement with veteran technology group llc ( “ vet tech ” ) , a developer of artificial intelligence ( “ ai ” ) software for advanced troubleshooting of complex systems . the agreement automatically renews for successive one-year terms unless terminated by either party 30 days prior to its expiration . the agreement may be earlier terminated by either party upon 60 days prior notice . the parties agreed not to solicit the other parties ' employees or contractors for six months after the expiration or termination of the agreement . the agreement provides that the company market and provide its mg product and services to customers referred by vet tech and vet tech will market and provide gait software and other ai services for clients referred by the company . cornerstone growth partners on june 5 , 2017 , the company entered into a master retainer agreement ( “ cornerstone retainer agreement ” ) with cornerstone growth advisors ( “ cornerstone ” ) to retain the advisory and business development services in the commercial vehicle industry of its managing partner , david gerrard . the term of the agreement is until april 20 , 2019 and may be terminated by either party upon three months prior notice . the company will pay cornerstone $ 4,000 per month for its services . in addition , cornerstone is entitled to a commission of 5 % of gross revenues on all new business generated by it for the company , payable monthly and continuing for five years . under the cornerstone retainer agreement , cornerstone is also entitled to the award of from 5,000 to 20,000 warrants upon the acquisition of certain customers . on july 3 , 2017 , the company issued cornerstone , a three-year warrant to purchase 100,000 shares of common stock at an exercise price of $ 0.07 , in lieu of cash payments due under the agreement for the months of may and june 2017. the warrant includes a provision for cashless exercise . we believe that mr. gerrard will help position the company , and nurture client relationships to help secure new customers and manage sales with fortune 500 companies for class 3 to 7 work trucks with applications ranging from disaster relief units , mobile kitchens and command centers , utility and telecom vehicles , digger derricks , crane trucks , bucket trucks , refrigerated trucks , electric vehicle chargers and mobile power platforms . 39 national union of jatropha producers in november 2017 , the company received a purchase commitment for 234 mg systems from the national union of producers of jatropha in mexico ( jatropha ) . jatropha has established a center for processing oil from jatropha seeds for biofuel production . through their union of producers , jatropha plans to introduce the mg and promote the product to their supplier network . the purchase commitment stipulates that cooltech will furnish jatropha with an mg80 retro-fitted onto a ford f-350 truck within 60 business days . to ensure the system is optimized to meet jatropha 's needs , cooltech set the terms of the agreement to allow both teams to gather data and provide performance feedback another 30 to 60 days . upon completion of this period , jatropha will release the balance of the order for 233 units and production should start no later than the second quarter of 2018. payment terms require 50 % down and 50 % at time of shipment , fob ( freight on board ) from cool technologies ' dock . on february 6 th , jatropha signed an agreement to amend their previous purchase agreement . it eliminates the 60 business day deadline for the truck to be shipped to mexico . under the new agreement , representatives from jatropha will come to colorado for an inspection and live performance demonstration .
| results of operations the following table sets forth , for the periods indicated , consolidated statements of operations data . the table and the discussion below should be read in conjunction with the accompanying consolidated financial statements and the notes thereto , appearing elsewhere in this report . replace_table_token_3_th 41 revenues during the years ended december 31 , 2017 and 2016 , and since inception , we have not generated any revenues . we generated our first mobile generation order during the quarter ended june 30 , 2014 , and received a partial deposit in advance of completing the sale with companies controlled by the individual who is a 5 % owner of upt and a shareholder of our company . operating expenses operating expenses decreased during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , due primarily to a reduction in consulting costs which accounts for $ 1,270,790 of the decrease . during the year ended december 31 , 2017 , payroll and related expenses increased by $ 112,608 primarily due to the issuance of $ 50,000 bonuses to the ceo and cto for each new patent granted . the remaining decrease was due primarily to a decrease in general and administrative costs of $ 413,839 and decrease in professional fees of $ 103,938 , necessitated by limited funds . other income and expense interest expenses during the years ended december 31 , 2017 and 2016 related primarily to our debt . the change in fair value of derivative liability reflects the change in fair value of the conversion features embedded in the convertible debt agreements entered into in may 2016 , december 2016 and march 2017 as well as warrants issued with the december 2015 convertible note , and also includes the change in fair value of common share equivalents that were previously reclassified to derivative liability as a result of insufficient authorized but unissued shares .
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some of the amendments contained in asu 2011-04 clarify fasb 's intent about the application of existing fair value measurement requirements , and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements . this asu is effective for the company 's financial statements for annual and interim periods beginning on or after december 15 , 2011 , and must be applied prospectively . the adoption of this standard is not expected to have a material impact on the company 's consolidated financial position or results of operations . in june 2011 , the fasb issued asu 2011-05 , presentation of comprehensive income ( asu 2011-05 ) . asu 2011-05 amends topic 220 , story_separator_special_tag this discussion highlights key information as determined by management but may not contain all of the information that is important to you . for a more complete understanding , the following should be read in conjunction with the company 's audited consolidated financial statements and the notes thereto as of december 31 , 2011 , 2010 , and 2009 included elsewhere in this report . executive overview the company 's net income increased 26 % to $ 11.4 million , or $ 1.74 per diluted share , for the year ended december 31 , 2011 from $ 9.1 million , or $ 1.40 per diluted share , for the year ended december 31 , 2010 , reflecting continuing improvement in credit quality , increased other operating income , and lower other operating expenses . our provision for loan losses in 2011 decreased by $ 3.6 million , or 64 % , to $ 2 million from $ 5.6 million in 2010 as we experienced net recoveries of $ 98,000 in 2011 as compared to net charge-offs of $ 4.3 million in 2010. in addition , our nonperforming loans at december 31 , 2011 decreased by $ 4 million , or 36 % , from $ 11.4 million at december 31 , 2010 to $ 7.4 million at december 31 , 2011 . other operating income , which includes revenues from financial services affiliates , service charges , and electronic banking contributed 23.6 % to annual 2011 revenues , compared to contributions of 21.9 % to annual 2010 revenues . other operating expenses decreased $ 869,000 , or 2 % in 2011 to $ 36.8 million from $ 37.6 million in 2010 primarily due to decreased salaries and benefits costs and decreased fdic insurance expense . these decreases were partially offset by decreased gains on sale and rental income from oreo . the gains on sale and rental income generated from oreo are included as negative expense items in the other operating expense section of the consolidated statement of income . the company 's total assets grew 3 % to $ 1.085 billion at december 31 , 2011 as compared to $ 1.055 billion at december 31 , 2010 , with increases in cash and investments , loans held for sale and purchased receivables offsetting reductions in oreo and portfolio loans . while loans decreased 4 % at december 31 , 2011 as compared to the prior year , year-to-date average loans were up 1 % year over year at $ 653.8 million for 2011 as compared to $ 646.7 million in 2010 . the allowance for loan losses ( allowance ) totaled 2.56 % of total portfolio loans at december 31 , 2011 , compared to 2.14 % at december 31 , 2010. the allowance to nonperforming loans also increased to 224 % at december 31 , 2011 from 126 % at december 31 , 2010 . nonperforming assets were reduced 43 % year-over-year to $ 12.5 million at december 31 , 2011 or 1.16 % of total assets , compared to $ 21.8 million or 2.07 % of total assets at december 31 , 2010 . the company continued to maintain strong capital ratios with tier 1 capital/risk adjusted assets of 15.20 % at december 31 , 2011 as compared to 14.08 % a year ago . the company 's tangible common equity to tangible assets at year end 2011 was 10.86 % , up from 10.36 % at year-end 2010. tangible common equity to tangible assets is a non-gaap ratio that represents total equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets . the gaap measure of equity to assets is total equity divided by total assets . total equity to total assets was 11.56 % at december 31 , 2011 as compared to 11.11 % at december 31 , 2010 . the cash dividend paid on december 16 , 2011 , rose 8 % to $ 0.13 per diluted share from $ 0.12 per diluted share paid in the fourth quarter of 2010. critical accounting estimates the preparation of the 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 other factors and circumstances . we believe that our estimates and assumptions are reasonable ; however , actual results may differ significantly from these estimates and assumptions which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods . the accounting policies that involve significant estimates and assumptions by management , which have a material impact on the carrying value of certain assets and liabilities , are considered critical accounting policies . we believe that our most 18 critical accounting policies upon which our financial condition depends , and which involve the most complex or subjective decisions or assessments are as follows : allowance for loan losses : the company maintains an allowance to reflect inherent losses in its loan portfolio as of the balance sheet date . story_separator_special_tag goodwill impairment testing is performed at the reporting unit level . in 2011 , the company early implemented accounting standards update 2011-08 , testing for goodwill impairment ( asu 2011-08 ) . under this new guidance , the company implemented the option to first assess qualitative factors to determine whether the existence of certain events or circumstances leads to a determination that it is more likely than not that the fair value of each reporting unit of the company is less than the carrying amount . we have determined that the company has only one reporting unit . if it is determined that it is more likely than not that the fair value of the company exceeds the carrying amount , the company need not move on to step one of the impairment test , and goodwill is not impaired . if , using the qualitative assessment described above , it is determined that it is more likely than not that the carrying value exceeds the fair value of the company , then we must move on to a more comprehensive goodwill impairment analysis . the first step , used to identify potential impairment , involves comparing each reporting unit 's fair value to its carrying value including goodwill . if the fair value of a reporting unit exceeds its carrying value , applicable goodwill is considered not to be impaired . if the carrying value exceeds fair value , there is an indication of impairment and the second step is performed to measure the amount of impairment . the second step involves calculating an implied fair value of goodwill for each reporting unit when the first step indicated impairment . the implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination , which is the excess of the fair value of the reporting unit , as determined in the first step , over the aggregate fair values of the individual assets , liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination . if the implied fair value of goodwill in the pro forma business combination accounting as described above exceeds the goodwill assigned to the reporting unit , there is no impairment . if the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill , an impairment charge is recorded for the excess . an impairment loss recognized can not exceed the amount of goodwill , and the loss establishes a new basis in the goodwill . subsequent reversal of goodwill impairment losses is not permitted under applicable accounting standards . the company performed its annual goodwill impairment testing at december 31 , 2011 and 2010 in accordance with the policy described in note 1. at december 31 , 2011 , the company performed its annual impairment test by applying the qualitative assessment described in asu 2011-08. significant positive inputs to the qualitative assessment included the company 's capital position ; the company 's increasing historical trends and budget-to-actual results of operations ; the company 's decreasing trends in , and current level of nonperforming assets ; results of regulatory examinations ; trends and peer comparisons of net interest margin ; and trends in the company 's cash flows . significant negative inputs to the qualitative assessment included general local , national , and international economic conditions and how they may negatively affect our business as well as the current volatility and uncertainty related to market capitalization of financial institutions in general . we believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs , and we therefore concluded that it is more likely than not that the fair value of the company exceeds the carry value at december 31 , 2011 and that no potential impairment existed at that time . the company continues to monitor the company 's goodwill for potential impairment on an ongoing basis . no assurance can be given that we will not charge earnings during 2012 for goodwill impairment , if , for example , our stock price declines significantly , although there are many factors that we analyze in determining the impairment of goodwill . valuation of oreo : oreo represents properties acquired through foreclosure or its equivalent . prior to foreclosure , the carrying value is adjusted to the fair value , less cost to sell , of the real estate to be acquired by an adjustment to the allowance for loan loss . the amount by which the fair value less cost to sell is greater than the carrying amount of the loan plus amounts previously charged off is recognized in earnings . any subsequent reduction in the carrying value is charged against earnings . reductions in the carrying value of other real estate owned subsequent to acquisition are determined based on management 's estimate of the fair value of individual properties . significant inputs into this estimate include estimated costs to complete projects as well as our assessment of current market conditions . story_separator_special_tag loans losses by an increase in gross loans , which grew to $ 671.8 million at december 31 , 2010 from $ 655 million at december 31 , 2009. see the allowance for loan loss section under financial condition for further discussion of these decreases . net loan recoveries were 0.01 % in 2011 and net loan charge-offs were 0.66 % and 1 % of average loans in 2011 , 2010 , and 2009 , respectively . see note 6 of the notes to consolidated financial statements included in item 8 of this report for further discussion of the change in the allowance .
| results of operations net income our results of operations are dependent to a large degree on our net interest income . we also generate other income primarily through purchased receivables products , service charges and fees , sales of employee benefit plans , electronic banking income , earnings from our mortgage affiliate , and rental income . our operating expenses consist in large part of compensation , employee benefits expense , occupancy , marketing , professional and outside services , insurance expense , and expenses related to oreo . interest income and cost of funds are affected significantly by general economic conditions , particularly changes in market interest rates , and by government policies and the actions of regulatory authorities . 20 we earned net income of $ 11.4 million in 2011 , compared to net income of $ 9.1 million in 2010 , and $ 7.7 million in 2009. during these periods , net income per diluted share was $ 1.74 , $ 1.40 , and $ 1.20 , respectively . the increase in 2011 was due to decreases in the provision for loan losses and other operating expenses of $ 3.6 million and 869,000 , respectively and an increase in other operating income of $ 713,000. these changes were partially offset by a decrease in net interest income of $ 1.8 million in 2011 as compared to 2010 , as well as an increase in the provision for income taxes of $ 955,000 over the same period . net interest income net interest income is the difference between interest income from loan and investment securities portfolios and interest expense on customer deposits and borrowings .
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you should be aware that the forward-looking statements included herein represent management 's current judgment and expectations , but our actual results , events and performance could differ materially from those expressed or implied by forward-looking statements . we do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements , other than as is required under u.s. federal securities laws . our business is subject to numerous risks and uncertainties , including those relating to variability in our operating results , the inability of certain of our customers or suppliers to access their traditional sources of credit , our industry 's rapidly changing technology , our dependence on a few large customers for a substantial portion of our revenue , a loss of revenue if contracts with the u.s. government or defense and aerospace contractors are canceled or delayed , our ability to implement innovative technologies , our ability to bring new products to market and achieve design wins , the efficient and successful operation of our wafer fabrication facilities , assembly facilities and test and tape and reel facilities , our ability to adjust production capacity in a timely fashion in response to changes in demand for our products , variability in manufacturing yields , industry overcapacity and current macroeconomic conditions , inaccurate product forecasts and corresponding inventory and manufacturing costs , dependence on third parties and our ability to manage platform providers and customer relationships , our dependence on international sales and operations , our ability to attract and retain skilled personnel and develop leaders , the possibility that future acquisitions may dilute our stockholders ' ownership and cause us to incur debt and assume contingent liabilities , fluctuations in the price of our common stock , additional claims of infringement on our intellectual property portfolio , lawsuits and claims relating to our products , security breaches and other similar disruptions compromising our information and exposing us to liability , and the impact of stringent environmental regulations . these and other risks and uncertainties , which are described in more detail under item 1a , “ risk factors ” in this annual report on form 10-k and in other reports and statements that we file with the sec , could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements . the following discussion should be read in conjunction with , and is qualified in its entirety by reference to , our audited consolidated financial statements , including the notes thereto . overview company on february 22 , 2014 , rf micro devices , inc. ( “ rfmd ” ) entered into an agreement and plan of merger and reorganization as subsequently amended on july 15 , 2014 ( the `` merger agreement '' ) , with triquint semiconductor , inc. ( `` triquint '' ) providing for the combination of rfmd and triquint in a merger of equals ( `` business combination '' ) under a new holding company named qorvo , inc. ( the “ company ” or “ qorvo ” ) . the transactions contemplated by the merger agreement were consummated on january 1 , 2015 , and as a result , triquint 's results of operations are included in qorvo 's fiscal 2015 consolidated statements of operations for the period of january 1 , 2015 through march 28 , 2015 ( the `` post-combination period '' ) and for the full fiscal year of 2016. for financial reporting and accounting purposes , rfmd was the acquirer of triquint in the business combination . unless otherwise noted , “ we , ” “ our ” or `` us ” in this report refers to rfmd and its subsidiaries prior to the closing of the business combination and to qorvo and its subsidiaries after the closing of the business combination . qorvo® is a leading provider of technologies and solutions that address the growing demand for always-on , high reliability , broadband data connectivity . we combine one of the industry 's broadest portfolios of radio frequency ( “ rf ” ) solutions and semiconductor technologies with deep systems-level expertise and scale manufacturing capabilities to enable a diverse set of cutting-edge customer products , including smartphones , tablets , wearables , 34 broadband customer premise equipment , home automation , in-vehicle infotainment , data center and military radar and communications . our products are helping to drive the ongoing , rapid transformation of how people around the world interact with their communities , access and use data , and transact commerce . we have more than 7,300 global employees dedicated to delivering solutions for everything that connects the world . we have world-class iso-certified manufacturing facilities , and our richardson , texas facility is a u.s. department of defense ( “ dod ” ) -accredited ‘ trusted source ' ( category 1a ) for gallium arsenide ( “ gaas ” ) , gallium nitride ( “ gan ” ) and bulk acoustic wave ( “ baw ” ) technologies , products and services . our design and manufacturing expertise encompasses many semiconductor process technologies , which we source both internally and through external suppliers . we operate worldwide with design , sales and manufacturing facilities located throughout asia , europe and north america . our primary manufacturing facilities are located in north carolina , oregon , texas and florida , and our primary assembly and test facilities are located in china , costa rica and texas . business segments we design , develop , manufacture and market our products to leading u.s. and international original equipment manufacturers ( “ oems ” ) and original design manufacturers ( “ odms ” ) in the following operating segments : mobile products ( mp ) - mp is a leading global supplier of rf solutions that perform various functions in the increasingly complex cellular radio front end section of smartphones and other cellular devices . story_separator_special_tag 37 general and administrative in fiscal 2016 , general and administrative expenses increased $ 28.4 million , or 33.3 % , compared to fiscal 2015 , due to the inclusion of triquint general and administrative expenses for a full fiscal year ( fiscal 2015 included only three months of triquint expenses ) . in fiscal 2015 , general and administrative expenses increased $ 8.5 million , or 11.1 % , compared to fiscal 2014 . this increase was due to the inclusion of triquint general and administrative expenses for the post-combination period and was partially offset by decreased consulting expenses and ip-related legal expenses as compared to fiscal 2014. other operating expense in fiscal 2016 , other operating expenses were $ 54.7 million , as compared to $ 59.5 million for fiscal 2015 . in fiscal 2016 , we recorded integration costs of $ 26.5 million and restructuring costs of $ 10.1 million ( including stock-based compensation ) associated with the business combination , as well as $ 14.1 million of start-up costs related to new processes and operations in both existing and new facilities . in fiscal 2015 , other operating expenses included acquisition costs of $ 12.2 million , integration costs of $ 31.3 million , and restructuring costs of $ 10.9 million associated with the business combination . operating income our overall operating income was $ 12.0 million for fiscal 2016 as compared to $ 122.5 million for fiscal 2015 . this decrease was primarily due to costs related to the business combination ( including intangible amortization and stock-based compensation ) and average selling price erosion and was partially offset by increased revenue and profitability resulting from the addition of triquint 's operations as well as the synergies created from the business combination , a favorable change in product mix towards higher margin products and manufacturing- and sourcing-related cost reductions . our overall operating income was $ 122.5 million for fiscal 2015 as compared to $ 27.3 million for fiscal 2014 . this increase in operating income was primarily due to higher revenue and improved gross margin , which were partially offset by costs related to the business combination ( including intangible amortization expense of the acquired intangible assets , inventory step-up , stock-based compensation related to the business combination , integration , acquisition and restructuring expenses ) . segment product revenue , operating income and operating income as a percentage of revenue mobile products replace_table_token_6_th mp revenue increased $ 688.3 million , or 49.3 % , in fiscal 2016 as compared to fiscal 2015 ( fiscal 2015 included only three months of triquint revenue ) . the decrease in mp operating income as a percentage of revenue in fiscal 2016 as compared to fiscal 2015 was primarily due to increased expenses related to the development of new mobile products , partially offset by higher gross margins ( resulting from a favorable change in product mix towards higher margin products and manufacturing- and sourcing-related cost reductions , which were partially offset by average selling price erosion ) . mp revenue increased $ 459.7 million , or 49.2 % , in fiscal 2015 as compared to fiscal 2014 . the increase in revenue is primarily due to the inclusion of triquint revenue for the post-combination period and increased demand for our cellular rf solutions for smartphones . 38 mp operating income increased $ 294.5 million , or 268.1 % , in fiscal 2015 as compared to fiscal 2014 , primarily due to higher revenue and improved gross margin resulting from a favorable change in product mix towards higher margin products and manufacturing- and sourcing-related cost reductions , which were partially offset by average selling price erosion . infrastructure and defense products replace_table_token_7_th idp revenue increased $ 210.2 million , or 67.1 % , in fiscal 2016 as compared to fiscal 2015 ( fiscal 2015 included only three months of triquint revenue ) . the decrease in idp operating income as a percentage of revenue in fiscal 2016 as compared to fiscal 2015 was primarily due to lower gross margins resulting from decreased demand for wireless infrastructure products during the first half of fiscal 2016. the demand for wireless infrastructure products began to show signs of recovery in the third quarter of fiscal 2016 and continued to improve in the fourth quarter of fiscal 2016. idp revenue increased $ 100.4 million , or 47.1 % , in fiscal 2015 as compared to fiscal 2014 . the increase in revenue was primarily due to the inclusion of triquint revenue for the post-combination period and increased demand for our wireless infrastructure products . idp operating income increased $ 39.9 million , or 123.6 % , in fiscal 2015 as compared to fiscal 2014 , primarily due to improved gross margin resulting from manufacturing- and sourcing-related cost reductions and a favorable shift in product mix towards higher margin wireless infrastructure products , which was partially offset by average selling price erosion . see note 15 of the notes to the consolidated financial statements in part ii , item 8 of this report for a reconciliation of segment operating income to the consolidated operating income for fiscal years 2016 , 2015 and 2014 . other ( expense ) income and income taxes replace_table_token_8_th interest expense during the third quarter of fiscal 2016 , we issued $ 1.0 billion of notes and recognized $ 25.8 million of related interest expense . interest expense in the preceding table for fiscal 2016 is net of capitalized interest of $ 5.2 million . in fiscal 2017 , we will record a full year of interest expense related to the notes of approximately $ 69.9 million , which will be partially offset by interest capitalized to property and equipment .
| management summary our revenue increased 52.6 % in fiscal 2016 to $ 2,610.7 million as compared to $ 1,711.0 million in fiscal 2015 , primarily because fiscal 2015 included only three months of triquint revenue . 35 our gross margin for fiscal 2016 was 40.2 % compared to 40.3 % for fiscal 2015 . this slight decrease was primarily due to cash and non-cash expenses related to the business combination ( including intangible amortization and stock-based compensation ) and average selling price erosion . this decrease was offset by increased revenue and profitability resulting from the addition of triquint 's operations as well as the synergies created from the business combination , a favorable change in product mix towards higher margin products and manufacturing- and sourcing-related cost reductions . our operating income was $ 12.0 million in fiscal 2016 as compared to $ 122.5 million in fiscal 2015 . this decrease was primarily due to cash and non-cash expenses related to the business combination ( including intangible amortization and stock-based compensation ) and average selling price erosion and was partially offset by increased revenue and profitability resulting from the addition of triquint 's operations and by a favorable change in product mix towards higher margin products . our net loss per diluted share was $ 0.20 for fiscal 2016 compared to net income per diluted share of $ 2.11 for fiscal 2015 . we generated positive cash flow from operations of $ 687.9 million for fiscal 2016 as compared to $ 305.6 million for fiscal 2015 . this year-over-year increase was primarily attributable to improved profitability resulting from the addition of triquint 's operations exclusive of non-cash business combination expenses . capital expenditures totaled $ 315.6 million in fiscal 2016 as compared to $ 169.9 million in fiscal 2015 , with the increase primarily related to projects for increasing premium filter capacity as well as for manufacturing cost savings initiatives .
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our fiscal year ends december 31 and , unless otherwise noted , references to years or fiscal are for fiscal years ended december 31. see results of operations. company overview gogo ( we , us , our ) is the global leader in providing broadband connectivity solutions and wireless in-flight entertainment to the aviation industry . we operate through the following three segments : commercial aviation north america , or ca-na , commercial aviation rest of world , or ca-row , and business aviation , or ba. services provided by our ca-na and ca-row businesses include passenger connectivity , which allows passengers to connect to the internet from their personal wi-fi-enabled devices ; passenger entertainment , which offers passengers the opportunity to enjoy a broad selection of in-flight entertainment options on their personal wi-fi enabled devices ; and connected aircraft services ( cas ) including among other things real-time credit card transaction processing , electronic flight bags and real-time weather information . services are provided by the ca-na business on commercial aircraft flying routes that generally begin and end within north america , which for this purpose includes the united states , canada and mexico . our ca-row business , which is still in the start-up phase as we launched commercial international service in march 2014 , provides service on commercial aircraft operated by foreign-based commercial airlines and flights outside of north america for north american based commercial airlines . the routes included in our ca-row segment are those that begin and or end outside of north america ( as defined above ) for which our international service is provided . our ba business provides in-flight internet connectivity and other voice and data communications products and services and sells equipment for in-flight telecommunications to the business aviation market . ba services include gogo biz , our in-flight broadband service , gogo vision , our in-flight entertainment service , and satellite-based voice and data services through our strategic alliances with satellite companies . recent developments we signed a landmark multi-ghz capacity deal with ses that will provide capacity over north america , central america and the caribbean on ses ' high throughput satellites ( hts ) , with such satellites expected to be launched in 2017. this is one of the largest aviation-dedicated satellite capacity deals ever and will significantly increase our network capacity . on february 4 , 2016 , we received a notification from american airlines that it considers a competitor 's connectivity service to offer a material improvement over our atg/atg-4 service with respect to a portion of its fleet that we serve , representing approximately 200 of the 963 american airlines aircraft that we served as of december 31 , 2015. in accordance with our contractual rights and in an effort to secure the continued availability of our service on the portion of the american airlines fleet to which the notice refers , we plan to submit a competing proposal to install our 2ku service on such aircraft . see risk factorsrisks related to our ca businesswe are dependent on agreements with our airline partners to be able to access the passengers . 59 payments by these passengers for our services have provided , and we expect will continue to provide , a significant portion of our revenue . our failure to realize the anticipated benefits from these agreements on a timely basis or to renew any existing agreements upon expiration or termination could have a material adverse effect on our financial condition and results of operations. japan transocean air , a member of japan airlines group , selected us to provide 2ku in-flight connectivity and in-flight entertainment services for its new boeing 737-800 aircraft . we are currently negotiating a definitive agreement with japan transocean air . factors and trends affecting our results of operations we believe that our operating and business performance is driven by various factors that affect the commercial airline and business aviation industries , including trends affecting the travel industry and trends affecting the customer bases that we target , as well as factors that affect wireless internet service providers and general macroeconomic factors . key factors that may affect our future performance include : costs associated with implementing , and our ability to implement on a timely basis , our technology roadmap , upgrades and installation of our atg-4 and ku technologies , the roll-out of our satellite services , the potential licensing of additional spectrum , the implementation of 2ku and other new technologies including failures or delays on the part of antenna and other single source providers , and the implementation of improvements to our network and operations as technology changes and we experience increased network capacity constraints ; costs associated with and our ability to execute our international expansion , including modification to our network to accommodate satellite technology , development and implementation of new satellite-based technologies , the availability of satellite capacity , costs of satellite capacity to which we may have to commit well in advance , and compliance with applicable foreign regulations and expanded operations outside of the u.s. ; costs associated with managing a rapidly growing company ; the pace and extent of adoption of the gogo service for use on international commercial aircraft by our current north american airline partners and new international airline partners ; the number of aircraft in service in our markets , including consolidation of the airline industry or changes in fleet size by one or more of our commercial airline partners or ba fractional ownership customers ; the economic environment and other trends that affect both business and leisure travel ; the extent of passengers ' , airline partners ' and other aircraft owners ' and operators ' adoption of our products and services , which is affected by , among other things , willingness to pay for the services that we provide , changes in technology and competition from current competitors and new market entrants ; our ability to enter into and maintain long-term connectivity arrangements with airline partners , which depends on numerous factors story_separator_special_tag we define average monthly service revenue per atg aircraft online as the aggregate atg service revenue for the period divided by the number of months in the period , divided by the number of atg aircraft online during the period ( expressed as an average of the month end figures for each month in such period ) . units shipped . we define units shipped as the number of satellite or atg network equipment units shipped during the period . average equipment revenue per satellite unit shipped . we define average equipment revenue per satellite unit shipped as the aggregate equipment revenue earned from all satellite shipments during the period , divided by the number of satellite units shipped . average equipment revenue per atg unit shipped . we define average equipment revenue per atg unit shipped as the aggregate equipment revenue from all atg shipments during the period , divided by the number of atg units shipped . 62 key components of consolidated statements of operations the following briefly describes certain key components of revenue and expenses for the ca-na , ba and ca-row segments , as presented in our consolidated statements of operations . revenue : we generate two types of revenue through each of our operating segments : service revenue and equipment revenue . commercial aviation north america : service revenue . service revenue for the ca-na segment , which currently represents substantially all of the ca-na segment revenue , is derived from passenger connectivity , passenger entertainment and connected aircraft services ( cas ) related revenue . during the fourth quarter of 2015 we realigned and renamed our revenue categories . passenger connectivity was previously referred to as gogo connectivity revenue , passenger entertainment was previously referred to as gogo vision , and cas was previously referred to as operations oriented communication services . passenger connectivity revenue includes connectivity services paid for by passengers , airlines and third parties . passenger paid revenue , previously referred to as retail revenue , represents purchases of individual sessions ( which may be flight or time-based and include multiple individual session packages ) and monthly and annual subscriptions . airline paid and third party paid revenue , previously combined and referred to as non-retail revenue , includes sponsorship revenue ( passenger connectivity sold to third parties and airlines who sponsor free or discounted access to passengers ) and our wholesale channel ( passenger connectivity sold to third parties and airlines who in turn make passenger connectivity available through customer loyalty programs or as incentives directly to their customers ) . airline paid revenue also includes passenger connectivity purchased for the use of airline flight crews ( which was previously included in other service revenue ) and connectivity sold directly to the airlines ' for their passengers use . third party paid revenue also includes revenue generated through our enterprise channel ( such as passenger connectivity sold through travel management companies ) , our roaming channel ( passenger connectivity sold to ground based wi-fi internet providers or gateways who resell to their customers ) , advertising fees and e-commerce revenue share arrangements . passenger entertainment offerings include business-to-customer and business-to-business models . under the business-to-customer model , we provide our entertainment service directly to airline passengers . we determine pricing , charge the passenger directly and remit a share of the revenue to the airline . in august 2014 , we began providing our entertainment service through a business-to-business arrangement with one of our airline partners . under this arrangement , our airline partner determines the pricing and pays us directly for passenger access to our service . there is no revenue share to the airline in this model . in august 2013 , we began offering cas to certain airline partners , including real-time credit card transaction processing , electronic flight bags and real-time weather information . although we expect to continue to derive a substantial majority of ca-na service revenue from passenger connectivity , we expect revenue from passenger entertainment and cas to increase in future periods . equipment revenue . we currently have three types of connectivity agreements with our airline partners . equipment transactions under one form of agreement , which we have used on a limited basis , qualify for sale treatment due to the specific provisions of the agreement . the remaining two types of connectivity agreements 63 are treated as operating leases of space for our equipment on the aircraft . under these two types of agreements , the equipment is included in property and equipment on our consolidated balance sheets . the upfront payments made by the airlines for such equipment are not included in equipment revenue in our consolidated statements of operations but are instead recorded on the balance sheet as deferred airborne lease incentives . see cost of service revenue below for further information regarding these two forms of connectivity agreements . business aviation : service revenue . service revenue for the ba segment is primarily from subscription fees paid by aircraft owners and operators for telecommunication and data services that include gogo biz in-flight broadband internet access using our atg network and satellite-based services that we resell . additionally , the ba segment generates in-flight entertainment revenue through gogo vision . equipment revenue . equipment revenue for the ba segment represents the sale of atg and satellite-based telecommunication equipment to oems of aircraft and a network of aftermarket dealers who are certified by the faa to install avionics on business aircraft , including aircraft used in the fractional jet market . equipment revenue also include ucs related revenue , which is a single system that orchestrates , manages and delivers connectivity , entertainment and information services , while managing multiple networks . additionally in 2013 , we began selling the gogo text & talk product which is used with our atg telecommunication equipment . commercial aviation rest of world : service revenue .
| results of operations the following table sets forth , for the periods presented , certain data from our consolidated statements of operations . the information contained in the table below should be read in conjunction with our consolidated financial statements and related notes . consolidated statements of operations data ( in thousands ) replace_table_token_6_th revisions during the three months ended december 31 , 2015 , we determined that it was more appropriate to record incentive compensation expense and stock-based compensation expense in the same operating expense line items in the consolidated statements of operations as the base cash compensation paid to the underlying employees rather than within general and administrative expenses , where such costs had been reported . we assessed the materiality of these classification changes , taking into account quantitative and qualitative factors , and determined them to be immaterial to the consolidated statements of operations for the years ended december 31 , 2014 and 2013. there is no impact to total operating expenses , net loss or net loss per share , or the consolidated balance sheets or statements of comprehensive loss , cash flows or stockholders ' equity ( deficit ) . while these immaterial classification changes could have been reflected prospectively , we elected to revise our consolidated statements of operations in order to provide greater comparability of operating expense line items across 69 each year presented . therefore , we have revised the previously reported operating expense line items within the consolidated statements of operations for the years ended december 31 , 2014 and 2013 to reflect the classification of incentive compensation expense and stock-based compensation expense in the consolidated statements of operations in the same operating expense line items as the base cash compensation paid to the underlying employees .
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u se of estimates and critical accounting policies the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( gaap ) requires management 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 amounts of revenues and expenses during the reporting period . although the company makes every effort to ensure the accuracy of the estimates and assumptions used in the preparation of its condensed consolidated financial statements or in the application of accounting story_separator_special_tag the following discussion of our financial condition and results of operations should be read together with the financial statements and the related notes set forth in item 8 . “ financial statements and supplementary data. ” the following discussion also contains forward-looking statements that involve a number of risks and uncertainties . see part i , “ forward-looking statements ” for a discussion of the forward-looking statements contained below and part i , item 1a . “ risk factors ” for a discussion of certain risks that could cause our actual results to differ materially from the results anticipated in such forward-looking statements . overview company overview we are a global supplier of high-value , critical components and engineered systems used in process industries worldwide . in addition , we manufacture granules made from papermaking by-products . we have a diverse and large customer base , including most of the world 's major paper producers and lumber and osb manufacturers , as well as various mining and industrial processing companies that require bulk material handling solutions . our products , technologies , and services play an integral role in enhancing process efficiency , optimizing energy utilization , and maximizing productivity in resource-intensive industries . our operations are comprised of three reportable operating segments : papermaking systems , wood processing systems , and material handling systems , and a separate product line , fiber-based products , as described below . through our papermaking systems segment , we develop , manufacture , and market a range of equipment and products for the global papermaking , paper recycling , recycling and waste management , and other process industries . our principal products include custom-engineered stock-preparation systems and equipment for the preparation of wastepaper for conversion into recycled paper and balers and related equipment used in the processing of recyclable and waste materials ; fluid-handling systems and equipment used in industrial piping systems to compensate for movement and to efficiently transfer fluid , power , and data ; doctoring systems and equipment and related consumables important to the efficient operation of paper machines and other industrial processes ; and filtration and cleaning systems essential for draining , purifying , and recycling process water and cleaning fabrics , belts , and rolls in various process industries . through our wood processing systems segment , we develop , manufacture , and market debarkers , stranders , chippers , logging machinery and related equipment used in the harvesting and production of lumber and osb . through our material handling systems segment , we develop , manufacture , and market material handling equipment and systems to various process industries , including mining , aggregates , food processing , packaging , and pulp and paper . our material handling and processing equipment , which includes idler rolls , conveyors , vibratory screens , and flow aids , allows for the transportation of bulk materials from source to point of processing . through our fiber-based products business , we manufacture and sell biodegradable , absorbent granules derived from papermaking by-products . these materials are primarily used as carriers in agricultural , home lawn and garden , professional lawn , turf and ornamental applications , and for oil and grease absorption . acquisitions we expect that a significant driver of our growth over the next several years will be the acquisition of businesses and technologies that complement or augment our existing products and services or may involve entry into a new process industry . we continue to actively pursue additional acquisition opportunities . our significant acquisition in 2019 is described below . o n january 2 , 2019 , we acquired , directly and indirectly , all the outstanding equity interests of smh , for $ 176.9 million , net of cash acquired . this acquisition extended our current product portfolio , and we expect it will strengthen smh 's relationships in the pulp and paper markets . see note 2 , acquisitions , in the accompanying consolidated financial statements for further details . international sales our sales to customers outside the united states , mainly in europe , asia and canada , were approximately 56 % of total revenue in 2019 and 63 % of total revenue in 2018 . the decrease in the percentage of international sales in 2019 was primarily due to the acquisition of smh , which predominantly sells to customers in the united states . we generally seek to charge our customers in the same currency in which our operating costs are incurred . however , our financial performance and competitive position can be affected by currency exchange rate fluctuations primarily affecting the relationship between the u.s. dollar and foreign currencies . we seek to reduce our exposure to currency fluctuations through the use of forward currency exchange contracts . we may enter into forward contracts to hedge certain firm purchase and sale commitments denominated in currencies other than our subsidiaries ' functional currencies . we currently do not use derivative instruments to hedge our exposure to exchange rate fluctuations created by the translation into the u.s. dollar of our foreign subsidiaries ' results that are in functional currencies other than the u.s. dollar . 25 kadant inc. application of critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( gaap ) . story_separator_special_tag we estimate the degree to which our deferred tax assets on deductible temporary differences and tax loss or credit carryforwards will result in an income tax benefit based on the expected profitability by tax jurisdiction , and we provide a valuation allowance for these deferred tax assets if it is more likely than not that they will not be realized in the future . if it were to become more likely than not that these deferred tax assets would be realized , we would reverse the related valuation allowance . our tax valuation allowance was $ 8.5 million at year-end 2019 . should our actual future taxable income by tax jurisdiction vary from our estimates , additional valuation allowances or reversals thereof may be necessary . when assessing the 26 kadant inc. need for a valuation allowance in a tax jurisdiction , we evaluate the weight of all available evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized . as part of this evaluation , we consider our cumulative three-year history of earnings before income taxes , taxable income in prior carryback years , future reversals of existing taxable temporary differences , prudent and feasible tax planning strategies , and expected future results of operations . at year-end 2019 , we continued to maintain a valuation allowance in the united states against certain of our state operating loss carryforwards due to the uncertainty of future profitability in these state jurisdictions in the united states . at year-end 2019 , we maintained valuation allowances in certain foreign jurisdictions because of the uncertainty of future profitability . in the ordinary course of business there is inherent uncertainty in quantifying our income tax positions . it is our policy to provide for uncertain tax positions and the related interest and penalties based upon our assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities . at year-end 2019 , we believe that we have appropriately accounted for any liability for unrecognized tax benefits . to the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or are required to pay amounts in excess of the liability , our effective tax rate in a given financial statement period may be affected . we intend to repatriate the distributable reserves of select foreign subsidiaries back to the united states , and during 2019 , we recorded $ 0.8 million of net tax expense associated with these foreign earnings that we plan to repatriate in 2020. except for these select foreign subsidiaries , we intend to reinvest indefinitely the earnings of our international subsidiaries in order to support the current and future capital needs of their operations , including the repayment of our foreign debt . valuation of goodwill and intangible assets . we evaluate the recoverability of goodwill and indefinite-lived intangible assets as of the end of each fiscal year , or more frequently if events or changes in circumstances , such as a significant decline in sales , earnings , or cash flows , or material adverse changes in the business climate , indicate that the carrying value of an asset might be impaired . at year-end 2019 , we performed a qualitative impairment analysis ( step zero ) on our goodwill and indefinite-lived intangible assets and determined that the assets were not impaired , except for the indefinite-lived tradename associated with our timber-harvesting product line discussed below . intangible assets subject to amortization are evaluated for impairment if events or changes in circumstances indicate that the carrying value of an asset might be impaired . no indicators of impairment were identified in 2019 , except for the definite-lived product technology associated with our timber-harvesting product line discussed below . we use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination . the determination of the fair value of intangible assets , which represent a significant portion of the purchase price in many of our acquisitions , requires the use of significant judgment regarding the fair value ; and whether such intangibles are amortizable or non-amortizable and , if amortizable , the period and the method by which the intangible asset will be amortized . we estimate the fair value of acquisition-related intangible assets principally based on projections of cash flows that will arise from identifiable intangible assets of acquired businesses . the projected cash flows are discounted to determine the present value of the assets at the date of acquisition . our judgments and assumptions regarding the determination of the fair value of an intangible asset or goodwill associated with an acquired business could change as future events impact such fair values . a prolonged economic downturn , weakness in demand for our products , especially capital equipment products , or contraction in capital spending by customers , including paper companies , lumber mills , sawmills or osb manufacturers , and mining and industrial processing companies , in our key markets could negatively affect the revenue and profitability assumptions used in our assessment of goodwill and intangible assets , which could result in impairment charges . any future impairment loss could have a material adverse effect on our long-term assets and operating expenses in the period in which an impairment is determined to exist . during 2019 , we experienced a decrease in revenue and operating results in our timber-harvesting product line included in our wood processing systems segment , which we acquired in 2017 as part of our acquisition of the forest products business of nii fpg company ( nii fpg ) ( see note 2 , acquisitions , in the accompanying consolidated financial statements for further details ) . the decrease was primarily driven by the deterioration of several market conditions in the pacific northwest , including a widespread timber shortage and high stumpage fees .
| results of operations 2019 compared to 2018 revenues the following table presents changes in revenues by segment and product line between 2019 and 2018 , and the changes in revenues by segment and product line between 2019 and 2018 excluding the effect of currency translation and acquisitions . currency translation is calculated by converting 2019 revenues in local currency into u.s. dollars at 2018 exchange rates and then comparing this result to actual revenues in 2019. the presentation of the changes in revenues excluding the effect of currency translation and acquisitions is a non-gaap measure . we believe this non-gaap measure helps investors gain an understanding of our underlying operations consistent with how management measures and forecasts its performance , especially when comparing such results to prior periods . this non-gaap measure should not be considered superior to or a substitute for the corresponding gaap measures . 30 kadant inc. replace_table_token_4_th consolidated revenues increased 11 % in 2019 largely due to an acquisition , offset in part by an unfavorable effect of currency translation . excluding the acquisition and unfavorable effect of currency translation , revenues increased 1 % in 2019 compared to 2018. papermaking systems segment revenues from our papermaking systems segment decreased 1 % in 2019 , including an unfavorable effect of foreign currency translation . excluding the unfavorable effect of foreign currency translation , revenues increased 2 % in 2019 as described in the product line discussions below . revenues from our stock-preparation product line decreased 3 % in 2019 , including an unfavorable effect of foreign currency translation . excluding the unfavorable effect of foreign currency translation , revenues were essentially flat in 2019. decreased demand for our products at our chinese operations resulted from reduced containerboard project activity due in part to china 's recovered paper import restrictions . this decline was partially offset by increased demand for our capital equipment at our european and north american operations .
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the following further describes these business segments : mobile industries serves oem customers that manufacture off-highway equipment for the agricultural , mining and construction markets ; on-highway vehicles including passenger cars , light trucks , and medium- and heavy-duty trucks ; rail cars and locomotives ; outdoor power equipment ; rotorcraft and fixed-wing aircraft ; and other mobile equipment . beyond service parts sold to oems , aftermarket sales and services to individual end users , equipment owners , operators and maintenance shops are handled directly or through the company 's extensive network of authorized distributors . process industries serves oem and end-user customers in industries that place heavy demands on the fixed operating equipment they make or use in heavy and other general industrial sectors . this includes metals , cement and aggregate production ; power generation and renewable energy sources ; oil and gas extraction and refining ; pulp and paper and food processing ; automation and robotics ; and health and critical motion control equipment . other applications include marine equipment , gear drives , cranes , hoists and conveyors . this segment also supports aftermarket sales and service needs through its global network of authorized industrial distributors and through the provision of services directly to end users . timken creates value by understanding customer needs and applying its know-how to serve a broad range of customers in attractive markets and industries across the globe . the company 's business strengths include its product technology , end-market diversity , geographic reach and aftermarket mix . timken collaborates with oems to improve equipment efficiency with its engineered products and captures subsequent equipment replacement cycles by selling largely through independent channels in the aftermarket . timken focuses its international efforts and footprint in regions of the world where strong macroeconomic factors such as urbanization , infrastructure development and sustainability create demand for its products and services . the company 's strategy has three primary elements : profitable growth . the company intends to expand into new and existing markets by leveraging its collective knowledge of metallurgy , friction management and power transmission to create value for timken customers . using a highly collaborative technical selling approach , the company places particular emphasis on creating unique solutions for challenging and or demanding applications . the company intends to grow in attractive market sectors around the world , emphasizing those spaces that are highly fragmented , demand high service and value the reliability and efficiency offered by timken products . the company also targets applications that offer significant aftermarket demand , thereby providing product and services revenue throughout the equipment 's lifetime . operational excellence . timken operates with a relentless drive for exceptional results and a passion for superior execution . the company embraces a continuous improvement culture that is charged with increasing efficiency , lowering costs , eliminating waste , encouraging organizational agility and building greater brand equity to fuel growth . this requires the company 's ongoing commitment to attract , retain and develop the best talent across the world . capital deployment to drive shareholder value . the company is intently focused on providing the highest returns for shareholders through its capital allocation framework , which includes : ( 1 ) investing in the core business through capital expenditures , research and development and other organic growth initiatives ; ( 2 ) pursuing strategic acquisitions to broaden its portfolio and capabilities across diverse markets , with a focus on bearings , adjacent power transmission products and related services ; ( 3 ) returning capital to shareholders through dividends and share repurchases ; and ( 4 ) maintaining a strong balance sheet and sufficient liquidity . as part of this framework , the company may also restructure , reposition or divest underperforming product lines or assets . 23 the following highlights some of the company 's more significant accomplishments in 2020 : sales to renewable energy customers grew by over 50 % from 2019 through strong market growth and the benefit of outgrowth initiatives . renewable energy became timken 's largest individual end-market sector in 2020 at 12 % of sales . the company also announced over $ 75 million in capital investments to be made through early 2022 to increase the company 's renewable energy capabilities across its footprint . the company reacted swiftly to the covid-19 pandemic by taking decisive actions to ( a ) protect employees and other stakeholders while continuing to serve customers in essential industries and ( b ) reduce costs to mitigate the impact from lower revenue caused by the pandemic and improve the company 's overall cost structure . timken paid its 391 st through 394 th consecutive quarterly dividends during 2020 , including a dividend of $ 0.29 per share during the fourth quarter , an increase of 4 % from the prior quarter . 2020 marked the 7 th consecutive year of annual dividend increases . the company also repurchased 1.1 million shares of common stock in 2020. the company completed the acquisition of the assets of aurora bearing company ( “ aurora ” ) in november 2020 , which will enhance the timken 's product portfolio and leadership position in engineered bearings . with annual sales of approximately $ 30 million in 2020 , aurora serves a diverse range of industrial sectors , including aerospace and defense , racing , off-highway equipment , and packing . story_separator_special_tag the following items highlight the company ' s acquisitions completed in 2020 and 2019 by segment based on the customers and underlying markets served : the company acquired aurora during the fourth quarter of 2020. results for aurora are reported in the mobile industries and process industries segments based on customers and underlying market sectors served . the company acquired beka lubrication ( `` beka '' ) during the fourth quarter of 2019. the majority of the results for beka are reported in the mobile industries segment . the company acquired the diamond chain company ( `` diamond chain '' ) during the second quarter of 2019. the majority of the results for diamond chain are reported in the process industries segment . mobile industries segment : replace_table_token_13_th the mobile industries segment 's net sales , excluding the effects of acquisitions and foreign currency exchange rate changes , decreased $ 277.3 million or 14.6 % in 2020 compared with 2019 , reflecting lower shipments across most market sectors , partially offset by higher pricing . ebitda decreased in 2020 by $ 52.4 million or 18.4 % compared with 2019 , p rimarily due to the impact of lower volume and related manufacturing utilization , as well as the unfavorable impact of foreign currency exchange rate changes . these decreases were partially offset by the favorable impact of cost reduction initiatives and price/mix , lower material and logistics costs , and the favorable impact of acquisitions . 28 process industries segment : replace_table_token_14_th the process industries segment 's net sales , excluding the effects of acquisitions and foreign currency exchange rate changes , decreased $ 87.5 million or 4.6 % in 2020 compared with 2019. the decrease was primarily driven by lower demand across most industrial sectors , partially offset by increased demand in the renewable energy sector , as well as higher pricing . ebitda decreased $ 23.7 million or 5.1 % in 2020 compared with 2019 primarily due to the impact of lower demand , the impact of unfavorable foreign currency exchange rate changes and the unfavorable impact of price/mix , partially offset by the favorable impact of cost reduction initiatives , favorable manufacturing performance , lower material and logistics costs and the favorable impact of acquisitions . corporate : replace_table_token_15_th corporate expenses decreased in 2020 compared with 2019 primarily due to the favorable impact of cost reduction initiatives , lower performance-based compensation and lower transaction costs related to acquisitions . 29 results of operations : 2019 vs. 2018 overview : replace_table_token_16_th the increase in net sales was primarily driven by the benefit of acquisitions , the impact of higher pricing and higher demand in the process industries segment , partially offset by the unfavorable impact of foreign currency exchange rate changes and lower shipments in the mobile industries segment . the increase in net income in 2019 compared with 2018 was primarily due to the net benefit of acquisitions , favorable price/mix and the impact of a lower tax rate driven by net discrete benefits , partially offset by the impact of lower volume , unfavorable currency and higher interest expense . results for 2019 also benefited from pension and other postretirement plan remeasurement income compared to expense in 2018. the statements of income sales : replace_table_token_17_th net sales increased in 2019 compared with 2018 , primarily due to the benefit of acquisitions of $ 270 million and higher organic revenue of $ 11 million , partially offset by the unfavorable impact of foreign currency exchange rate changes of $ 72 million . the increase in organic revenue was driven primarily by improved demand in the process industries segment and the impact of positive pricing , partially offset by lower shipments in the mobile industries segment . gross profit : replace_table_token_18_th gross profit increased in 2019 compared with 2018 , primarily due to the benefit of acquisitions of $ 86 million , favorable price/mix of $ 51 million and lower material and logistics costs ( including tariffs ) of $ 5 million . these factors were partially offset by the impact of lower volume of $ 19 million , the unfavorable impact of foreign currency exchange rate changes of $ 15 million and property losses of $ 8 million . selling , general and administrative expenses : replace_table_token_19_th sg & a expenses in 2019 compared with 2018 was primarily due to sg & a expense from acquisitions of $ 45 million , partially offset by the favorable impact from changes in foreign currency exchange rates of $ 10 million . 30 interest expense and income : replace_table_token_20_th interest expense increased in 2019 compared to 2018 primarily due to higher average outstanding debt during the year , which was primarily used to fund acquisitions . other income ( expense ) : replace_table_token_21_th the increase in non-service pension and other postretirement income ( expense ) for 2019 compared with 2018 was primarily due to the recognition of mark-to-market charges of $ 4.2 million in 2019 compared to actuarial losses of $ 22.1 million in 2018. the mark-to-market charges were the result of higher than expected returns on plan assets and the impact of a reduction in contractual rates for medicare advantage plans , driven by a law change that repealed the tax on health care insurers after 2020 , partially offset by lower discount rates to measure the benefit obligations for pension and other postretirement plans . actuarial losses in 2018 were partially offset by the benefit of curtailment gains of $ 10.2 million for two of the u.s. pension plans . income tax expense : replace_table_token_22_th the effective tax rate for 2019 was 20.7 % , which was slightly favorable compared to the u.s. federal statutory rate of 21 % , primarily due to the release of a foreign valuation allowance against certain foreign deferred tax assets and the remeasurement of deferred tax balances to reflect the reduced india statutory tax rate . these impacts were partially offset by earnings in foreign jurisdictions where the effective tax rate was higher than 21 % , additional discrete accruals for uncertain tax positions , u.s.
| results of operations 2020 vs. 2019 overview : replace_table_token_6_th the decrease in net sales was primarily driven by lower organic volume revenue and the unfavorable impact of foreign currency exchange rate changes , partially offset by the benefit of acquisitions and positive pricing . the decrease in net income was primarily due to the impact of lower volume , the unfavorable impact of foreign currency exchange rate changes and higher restructuring and pension remeasurement charges . the decrease was partially offset by lower selling , general and administrative ( `` sg & a '' ) expenses , reflecting cost reduction initiatives , lower material and logistics costs , and the benefits from acquisitions and favorable price/mix . throughout the covid-19 pandemic in 2020 , timken continued to operate and fill customer orders , and adjusted production as required by local government directives and to reflect changes in global demand . for most of the second quarter , the company 's operations were adversely impacted by lower global demand caused by the ongoing spread of covid-19 around the world , which included various customer shut-downs and government imposed operating restrictions . during the second quarter , the company took steps to reduce costs by implementing temporary salary reductions , work furloughs and other actions to align its costs with near-term demand expectations . during the third and fourth quarters , timken was able to operate with no major restrictions , and production levels improved . timken continued certain temporary cost reduction actions and expanded and accelerated certain structural cost reduction initiatives to align its costs with near-term demand expectations and to improve the profitability of the company longer term . 24 outlook : the world continues to be impacted by the covid-19 pandemic . the company continues to adhere to mandates and other guidance from local governments and health authorities , including the world health organization and the centers for disease control and prevention .
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see note 9. at december 31 , 2013 , the company 's warrants to purchase preferred stock were measured using unobservable inputs that required a high level of judgment to determine fair value , and thus classified as level 3. the company 's warrants to purchase preferred stock were re-measured to fair value through closing of the ipo . see note 9. the carrying amounts of cash equivalents , accounts receivable , story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to those statements included in item 8 to this annual report on form 10-k. in addition to historical financial information , the following discussion contains forward-looking statements that reflect our plans , estimates , beliefs , and expectations and that involve risks and uncertainties . our actual results and the timing of events could differ materially from those discussed in these forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on form 10-k , particularly in `` item 1a . risk factors '' and the `` special note regarding forward-looking statements . '' overview we provide a complete technology solution to automate the purchase and sale of advertising for both buyers and sellers . our highly scalable platform reaches approximately one billion internet users globally on some of the world 's leading websites and mobile applications . we help increase the volume and effectiveness of advertising , improving revenue for sellers and return on advertising investment for buyers . we believe our integration with leading global buyers and sellers of advertising and the benefits we provide to them give us a critical position in the digital advertising ecosystem . advertising takes different forms , referred to as advertising units , and is purchased and sold through different transactional methodologies , referred to as inventory types . finally , it is presented to users through different channels . our solution enables buyers and sellers to purchase and sell : a comprehensive range of advertising units , including display and video ; utilizing various inventory types , including ( i ) direct sale of premium inventory , which we refer to as orders , on a guaranteed , or fully reserved , basis , as well as on a non-guaranteed basis ; ( ii ) real-time bidding , or rtb ; and ( iii ) static bidding ; across digital channels , including mobile web , mobile application and desktop , as well as across various out of home channels , such as digital billboards , that are in the early stages of leveraging our advertising automation platform . 65 our platform features applications for digital advertising sellers , including websites , mobile applications and other digital media properties , to sell their advertising inventory ; applications and services for buyers , including advertisers , agencies , agency trading desks , or atds , demand side platforms , or dsps , and ad networks , to buy advertising inventory ; and a marketplace over which such transactions are executed . together , these features power and optimize a comprehensive , transparent , independent advertising marketplace that brings buyers and sellers together and facilitates intelligent decision-making and automated transaction execution for the advertising inventory we manage on our platform . sellers of digital advertising use our platform to maximize revenue by accessing a global market of buyers representing top advertiser brands around the world to monetize their advertising inventory across inventory types , advertising units , and channels . we also help sellers decrease costs and protect their brands and user experience . our relationships with our sellers are built on technical integration , which differentiates us from many other participants in the advertising ecosystem . at the same time , buyers leverage our platform to manage their advertising spending across inventory types , advertising units , and channels , simplify order management and campaign tracking , obtain actionable insights into audiences for their advertising , and access impression-level purchasing from hundreds of sellers . we believe buyers need our platform because of our powerful solution and our direct relationships and integrations with some of the world 's largest sellers . our platform incorporates proprietary machine-learning algorithms , sophisticated data processing , high-volume storage , detailed analytics capabilities , and a distributed infrastructure . we analyze billions of data points in real time to enable our solution to make approximately 300 data-driven decisions per transaction in milliseconds , and to execute up to 5 million peak queries per second , and over 9 trillion bid requests per month . since 2012 , we have processed approximately 200 trillion bid requests . our solution is constantly self-optimizing based on our systems ' ability to analyze and learn from vast volumes of data . the additional data we obtain from the volume of transactions on our platform help make our machine-learning algorithms more intelligent , leading to higher quality matching between buyers and sellers , better return on investment for buyers , and higher revenue for sellers . as a result of that high quality matching , we attract even more sellers which in turn attracts more buyers and vice versa . we believe this self-reinforcing dynamic creates a strong platform for growth . during the early stages of our business following our incorporation in april 2007 , our solution helped sellers to automate their existing advertising network relationships to match the right buyer with each impression , as well as increase their revenue and decrease their costs . between 2008 and 2009 , we developed direct relationships with buyers and created applications to assist buyers to increase their return on investment . during 2010 , we added rtb capabilities , allowing sellers ' inventory to be sold in an auction to buyers , creating a real-time unified auction where buyers compete to purchase sellers ' advertising inventory . story_separator_special_tag managed revenue is an operational measure that represents this advertising spending . managed revenue would represent our revenue if we were to record our revenue on a gross basis instead of a net basis . managed revenue does not represent revenue reported on a gaap basis . we review managed revenue for internal management purposes to assess market share and scale and to compare our performance to others in our industry that report revenue on a gross basis . our managed revenue was $ 1.0 billion in 2015 , which represents a 50 % increase over managed revenue of $ 667.8 million in 2014 , and a 107 % increase over managed revenue of $ 485.1 million in 2013 . in the years ended december 31 , 2015 , 2014 , and 2013 , approximately 35 % , 42 % , and 40 % , respectively , of our managed revenue was generated from international markets based on the location of our sellers . our net income ( loss ) and adjusted ebitda will be impacted by the rate at which our revenue increases , seasonality , and the amount and timing of our investments in our operations . our managed revenue , revenue , cash flow from operations , adjusted ebitda , operating results and other key operating and financial measures may vary from quarter to quarter due to the seasonal nature of buyer spending . for example , many buyers devote a disproportionate amount of their advertising budgets to the fourth quarter of the calendar year to coincide with increased holiday purchasing . we expect our revenue , cash flow , operating results and other key operating and financial measures to fluctuate based on seasonal factors from period to period and expect these measures to be higher in the fourth quarters than in prior quarters . in addition to the united states , we have significant personnel and operations in canada , england , france , and australia , and additional personnel and operations in germany , italy , japan , singapore , and brazil . as of december 31 , 2015 , 203 of our 699 employees were based outside the united states . we operate our business on a worldwide basis , with an established operating presence in north america and europe and a developing presence in asia and latin america . in the years ended december 31 , 2015 , 2014 , and 2013 , approximately 31 % , 42 % , and 39 % , respectively , of our revenue was generated from international markets based on the location of our sellers . with the exception of approximately $ 40.9 million in intangible assets in canada , substantially all of our assets are u.s. assets . excluding canada , our non-u.s. subsidiaries and operations perform primarily sales , marketing , and service functions . 67 certain operational and financial measures we regularly review certain non-gaap operational and financial performance measures , in addition to our gaap results , to help us evaluate our business , measure our performance , identify trends affecting our business , establish budgets , measure the effectiveness of investments in our technology and development and sales and marketing , and assess our operational efficiencies . these non-gaap measures include managed revenue , take rate , non-gaap net revenue , and adjusted ebitda , which are discussed immediately following the table below . revenue and other gaap measures are discussed under the headings “ components of our results of operations ” and “ results of operations. ” we report our financial results as one operating segment . our consolidated operating results , together with the following operating and financial measures , are regularly reviewed by our chief operating decision maker , principally to make decisions about how we allocate our resources and to measure our consolidated operating performance . replace_table_token_11_th managed revenue managed revenue is an operational measure that we define as the advertising spending transacted on our platform . managed revenue does not represent revenue reported on a gaap basis . we review managed revenue for internal management purposes to assess market share and scale . tracking our managed revenue allows us to compare our results to the results of companies that report all spending transacted on their platforms as gaap revenue . our managed revenue is influenced by demand for our services , the volume and characteristics of paid impressions , and average cpm . our managed revenue has increased period over period as a result of increased use of our solution by buyers and sellers , increases in average cpm , and our buyer cloud initiatives , including the now consolidated and integrated chango operations . we expect managed revenue to continue to grow with increases in the pricing or volume of transactions on our platform , which can result from increases in the number of buyers or advertising spending , and from improvements in our auction algorithms . this increase may fluctuate due to seasonality and increases or decreases in average cpm and paid impressions . in addition , we generally experience higher managed revenue during the fourth quarter of a given year , resulting from higher advertising spending and more bidding activity , which may drive higher volumes of paid impressions or average cpm . 68 our solution enables buyers and sellers to transact through our comprehensive inventory offerings and channels . the following tables present managed revenue by inventory type and channel and managed revenue by inventory type and channel as a percentage of total managed revenue for the years ended december 31 , 2015 , 2014 , and 2013 : replace_table_token_12_th replace_table_token_13_th paid impressions paid impression is an operational measure that we define as an impression sold to an advertiser and subsequently displayed on a website or mobile application , which is transacted via our platform .
| results of operations the following tables set forth our consolidated results of operations and our consolidated results of operations as a percentage of revenue for the periods presented : replace_table_token_16_th ( 1 ) stock-based compensation expense included in our expenses was as follows : replace_table_token_17_th ( 2 ) depreciation and amortization expense included in our expenses was as follows : replace_table_token_18_th 74 the following table sets forth our consolidated results of operations for the specified periods as a percentage of our revenue for those periods presented : replace_table_token_19_th * certain figures may not sum due to rounding . comparison of the years ended december 31 , 2015 , 2014 , and 2013 revenue year ended december 31 , 2015 december 31 , 2014 december 31 , 2013 ( in thousands ) revenue $ 248,484 $ 125,295 $ 83,830 revenue increased $ 123.2 million , or 98 % , for the year ended december 31 , 2015 compared to the year ended december 31 , 2014 . the increase in revenue was primarily due to an increase in the amount of advertising spending on our platform during the year ended december 31 , 2015 compared to the year ended december 31 , 2014 . the increase in revenue was also attributable to an increase in average cpm to $ 1.09 for the year ended december 31 , 2015 from $ 0.67 for the year ended december 31 , 2014 , an increase of $ 0.42 , or 63 % . this increase in average cpm during the period was due to increased matching efficiency and a shift in mix of managed revenue , or advertising spend on our platform , from lower-priced higher-volume inventory mainly associated with static bidding to higher-priced lower-volume inventory mainly associated with rtb and orders .
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our homebuilding operations are organized into the following five operating segments based on the geographic markets in which we operate : atlanta , central texas , colorado , houston and nevada . in many of our projects , in addition to building homes , we are responsible for the entitlement and development of the underlying land . we build and sell an extensive range of home types across a variety of price points . our emphasis is on acquiring well located land positions and offering quality homes with innovative design elements . results of operations december 31 , 2015 and 2014 during the year ended december 31 , 2015 , we delivered 2,401 homes , with an average sales price of $ 302.1 thousand . during the same period , we generated approximately $ 725.4 million in home sales revenue , approximately $ 60.3 million in income before tax expense , and approximately $ 39.9 million in net income . for the year ended december 31 , 2015 , our net new home contracts totaled 2,356 homes , a 126.1 % increase over the same period in 2014 . on december 31 , 2015 , we had a backlog of 7 14 sold but unclosed homes , consisting of approximately $ 271.1 million in sales valu e , a 10.1 % increase over the same period in 2014. our results of operations are significantly impacted by our acquisitions of peachtree communities group , inc. and its affiliates and subsidiaries ( which we refer to as “ peachtree ” ) in november 2014 , grand view builders ( which we refer to as “ grand view ” ) in august 2014 , and las vegas land holdings , llc ( which we refer to as “ lvlh ” ) in april 2014. subsequent to our acquisition , these operations became our atlanta , houston and nevada operating segments , respectively . 31 the following table summarizes our results of operation for the years ended december 31 , 2015 and 2014. replace_table_token_5_th h ome sales revenue and new homes delivered the following tables summarize our home deliveries and average sales price for each of our operating segments for the years ended december 31 , 2015 and 2014 : replace_table_token_6_th 32 replace_table_token_7_th we generated $ 725.4 mil lion in home sales revenue during the year ended december 31 , 2015. this represents a 106.2 % increase as compared to the year ended december 31 , 2014 where we generated $ 351.8 million in home sales revenue . the increase in home sales revenue is a result of an increase in the number of homes delivered of 129.5 % for the year ended december 31 , 2015 as compared to the previous year , which is partially offset by a decrease in average sales price . the increase in deliveries was driven by our acquisitions of peachtree , grand view , and lvlh , which comprise our atlanta , houston , and nevada operating segments , respectively , as well as increases in our colorado and central texas operating segments which were driven by an increase in the number of open communities , as well as continued strong market fundamentals . our average sales price decreased 10.2 % to $ 302.1 thousand for the year ended december 31 , 2015 as compared to 2014. the decrease is primarily a result of the lower average sales prices in our atlanta , houston , and nevada operating segments which contributed a higher portion of overall deliveries in for the year ended december 31 , 2015 as compared to 2014. this was partially offset by price appreciation in all of our markets . cost of home sales revenues cost of home sales revenues increased $ 302.8 million , or 109.6 % , for the year ended december 31 , 2015 , as compared to 2014. the increase in cost of home sales revenues was a result of the increase in deliveries discussed above which were driven by the addition of our atlanta , houston , and nevada operating segments . homebuilding gross margin h omebuilding gross margin represents home sales revenue less cost of home sales revenues . our homebuilding gross margin percentage , which represents homebuilding gross margin divided by home sales revenues , decreased for the year ended december 31 , 2015 to 20.2 % as compared to 21.4 % for the year ended december 31 , 2014. the decrease is primarily driven by our entry into the atlanta and houston markets , which have lower average sales prices and lower average homebuilding gross margins than our existing markets , and the impact of an increase of previously capitalized interest costs in cost of sales as a result of higher outstanding debt balances . in the following table , we calculate our gross margins adjusting for interest in cost of sales , and purchase price accounting for acquired work in process inventory . see “ critical accounting policies ” below and footnote 3 – business combinations of our consolidated financial statements for additional discussion regarding our methodology for estimating the fair value of acquired work in process inventory . replace_table_token_8_th ( 1 ) this non-gaap financial measure should not be used as a substitute for the company 's operating story_separator_special_tag well as an increase in forfeited deposit income . 34 income tax expense our income tax expense for the year ended december 31 , 2015 was $ 20.4 million as compared to $ 10.9 million for the year ended december 31 , 2014. our income tax expense for the year ended december 31 , 2015 results in an effective tax rate of 33.8 % . our effective tax rate is driven by our blended federal and state statutory rate of 37.8 % . our blended federal and state statutory tax rate is reflective of the states in which we operate , including nevada and texas which generally do not have corporate income tax . story_separator_special_tag our average sales price decreased 12.0 % to $ 336.4 thousand for the year ended december 31 , 2014 as compared to 2013. the decrease is a result of the 173 , 81 and 209 deliveries in our acquired atlanta , houston and nevada operating segments , respectively , which have average sales prices in the low $ 200 thousands , low $ 200 thousands , and the low $ 300 thousands , respectively . our central texas and colorado operating segments had moderate increases in average sales price as compared to the year ended december 31 , 2013 , primarily as a result of the mix of deliveries in higher entry point communities in 2014. cost of home sales revenues cost of home sales revenues increased $ 146.7 million , or 113.2 % , for the year ended december 31 , 2014 , as compared to 2013. the increase in cost of home sales revenue was primarily attributable to the increase in deliveries discussed above which were driven by the addition of our central texas , nevada , houston , and atlanta divisions . homebuilding gross margin homebuilding gross margin represents home sales revenue less cost of home sales . our homebuilding gross margin percentage decreased during the year ended december 31 , 2014 to 21.4 % as compared to 24.2 % for the year ended december 31 , 2013. the decrease is primarily driven by the impact of purchase accounting adjustments to acquired inventory for homes under construction at the date of the acquisition for lvlh , grand view , and peachtree . in the following table , we calculate our gross margins adjusting for interest in cost of sales , and purchase price accounting for acquired work in process inventory . see “ critical accounting policies ” below and footnote 3 of our consolidated financial statements for additional discussion regarding our methodology for estimating the fair value of acquired work in process inventory . replace_table_token_18_th ( 1 ) this non-gaap financial measure should not be used as a substitute for the company 's operating results in accordance with gaap . an analysis of any non-gaap financial measure should be used in conjunction with results presented in accordance with gaap . 38 excluding interest in cost of home sales and purchase price accounting , our adjusted homebuilding gross margin percentage was 23.4 % for the year ended december 31 , 2014 compared to 25.5 % for the year ended december 31 , 2013. the decrease in adjusted gross margin is primarily from entering the atlanta and houston markets which have lower average sales prices and lower average margins than our existing markets . we believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on homebuilding gross margin and allows for comparability of our gross margins to previous periods and our competitors . gross margin on land sales during 2014 , we disposed of a parcel of land , which had a carrying basis of $ 1.8 million , for $ 4.8 million . no similar transactions occurred in 2013. gross margin on golf course and other in connection with our acquisition of lvlh , we became the operators of two golf courses within our rhodes ranch and tuscany communities . we generated approximately $ 5.8 million in revenue during the year ended december 31 , 2014 , which was offset by costs associated with the courses of $ 6.3 million . selling , general and administrative expense replace_table_token_19_th our selling , general and administrative costs increased $ 23.2 million for the year ended december 31 , 2014 as compared to the previous year . the increase was primarily attributable to the following : ( 1 ) an increase of $ 9.7 million in our compensation-related expenses , including incentive compensation , resulting largely from a 119.3 % increase in our headcount to 397 employees as of december 31 , 2014 compared to 181 as of december 31 , 2013 , one-time compensation costs associated with our initial public offering of $ 0.6 million , and an increase in stock based compensation of $ 1.4 million , ( 2 ) an increase of $ 5.8 million in commission expense to $ 11.9 million for the year ended december 31 , 2014 , resulting from a 105.6 % increase in home sales revenue , ( 3 ) an increase of $ 2.1 million related to advertising costs associated with our increased number of active communities , ( 4 ) an increase of $ 1.7 million related to depreciation and amortization as a result of amortization expense of intangible assets from our acquisitions of jimmy jacobs , lvlh , grand view , and peachtree , and ( 5 ) moderate increases in outside professional services , insurance , legal , and other miscellaneous expenses related to increased operations from our growth and overall increase in costs associated with being a public company . other income ( expense ) other income ( expense ) decreased by $ 0.4 million to an expense of $ 0.1 million for the year ended december 31 , 2014 , from income of $ 0.2 million for the year ended december 31 , 2013. the decrease was driven by an increase in acquisition related expenses of $ 0.9 million , which was partially offset by a net increase in interest income , interest expense , other income and gain on disposition of assets of $ 0.5 million . income tax expense our income tax expense for the year ended december 31 , 2014 was $ 10.9 million as compared to $ 5.6 million for the year ended december 31 , 2013. our income tax expense for the year ended december 31 , 2014 results in an effective tax rate of 35.3 % . our effective tax rate is driven by our blended federal and state statutory rate of 37.1 % . our blended federal and state statutory tax rate is reflective of the states in which we operate , including nevada and texas , which generally do not have corporate income tax .
| results in accordance with gaap . an analysis of any non-gaap financial measure should be used in conjunction with results presented in accordance with gaap . 33 excluding interest in cost of home sales and purchase price accounting , our adjusted homebuilding gross margin percentage was 21.9 % for the year ended december 31 , 2015 compared to 23.4 % for the year ended december 31 , 2014. the decrease in adjusted gross margin is primarily from entering the atlanta and houston markets which have lower average sales prices and lower average margins than our existing markets . we believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on homebuilding gross margin and allows for comparability of our gross margins to previous periods and our competitors . gross margin on land sales during the year s ended december 31 , 2015 and 2014 , we disposed of land for $ 3.4 million and $ 4.8 million , respectively , which had carrying basis of $ 3.4 million and $ 1.8 million , respectively . land sales during 2015 were primarily driven by one community in our central texas operating segment for which we are the master developer , and are developing a portion of the community 's lots for sale to third party homebuilders . gross margin on golf course and other on may 19 , 2015 , we initiated our rights under a fixed price put option to dispose of the golf course in our rhodes ranch community in our nevada operating segment for $ 5.9 million .
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the remaining other invested assets are recorded story_separator_special_tag the following discussion and analysis reflects the consolidated results of the company and its subsidiaries for the years ended december 31 , 2015 , 2014 and 2013 . executive overview the company is a leading global reinsurer and insurer , with a broadly diversified and balanced portfolio of traditional reinsurance and insurance risks and capital markets risks . successful risk management is the foundation of the company 's value proposition , with diversification of risks at the core of its risk management strategy . the company 's ability to succeed in the risk assumption and business management is dependent on its ability to accurately analyze and quantify risk , to understand volatility and how risks aggregate or correlate , and to establish the appropriate capital requirements and limits for the risks assumed . all risks , whether they are reinsurance related risks or capital market risks , are managed by the company within an integrated framework of policies and processes to ensure the intelligent and consistent evaluation and valuation of risk , and to ultimately provide an appropriate return to shareholders . for further discussion of the company 's risk management framework see risk management in item 1 of part i of this report . the company 's long-term objective is to manage a portfolio of diversified risks that will create total shareholder value . the company measures its success in achieving its long-term objective by targeting a return , which is variable and can be adjusted by management , in excess of a referenced risk-free rate over the reinsurance cycle . the return is calculated using compound annual growth in diluted tangible book value per common share and common share equivalents outstanding plus dividends per common share ( growth in diluted tangible book value per share plus dividends ) as its prime measure of long-term financial performance and believes this measure aligns the company 's stated long-term objective with the measure most investors use to evaluate total shareholder value creation . see below in key financial measures for further discussion . as described in business in item 1 of part i above , i n january 2015 , the company entered into an amalgamation agreement with axis , pursuant to which the two companies would amalgamate and continue as a single bermuda exempted company . on april 14 , 2015 , the company announced the receipt of an unsolicited written proposal from exor s.p.a. ( exor ) , a european investment company controlled by the agnelli family , to acquire 100 % of the outstanding common shares of the company for $ 130 per share in cash . on august 2 , 2015 , after subsequent negotiations with exor , the company entered into the merger agreement . pursuant to the terms of the merger agreement , each partnerre common share issued and outstanding immediately prior to the effective time of the merger shall automatically be canceled and converted into the right to receive ( i ) $ 137.50 in cash per share and ( ii ) be entitled to receive a one-time special pre-closing cash dividend in the amount of $ 3.00 per common share . in addition , under the terms of the merger agreement , exor committed to either ( i ) a 100 basis points increase in the current applicable preferred share dividend rate , such increase to be effected through an exchange offer and to be conditional and contingent upon the company obtaining a private letter ruling from the u.s. internal revenue service ( irs ) that the enhanced terms will not be treated as fast-pay stock ( within the meaning of treasury regulations section 1.7701 ( l ) -3 ( b ) ) for u.s. federal income tax purposes or ( ii ) if such private letter ruling is not obtained prior to closing of the transaction , pay a cash payment of approximately $ 42.7 million in aggregate ( equal to $ 1.25 per preferred share ) to the holders of record of the company 's preferred shares as at the effective time of the merger subject and subsequent to the closing of the transaction . on february 17 , 2016 , the company announced that the irs had indicated that it will not grant a private letter ruling clarifying the tax shelter reporting obligations applicable to the surviving company 's preferred shares . as such , following the closing , exor will pay a cash payment of approximately $ 42.7 million in aggregate to the holders of record of the company 's preferred shares as at the effective time of the merger and the company will use commercially reasonable efforts to launch an exchange offer after the closing of the merger , referred to as the alternate exchange offer in the merger agreement , whereby participating preferred shareholders would receive newly issued preferred shares reflecting , subject to certain exceptions contained in the existing preferred shares , an extended call date of the fifth anniversary of the date of issuance and a restriction on payment of dividends on common shares to an amount not exceeding 67 % of net income until december 31 , 2020. the terms of the newly issued preferred shares would be otherwise identical in all material respects to the company 's applicable existing preferred shares . in connection with the execution of the merger agreement with exor , the company and axis terminated the amalgamation agreement . on august 3 , 2015 , the company paid the axis termination fee . 58 on november 19 , 2015 , the merger with exor was approved by the company 's shareholders and the consummation of the merger is pending certain regulatory approvals and other customary closing conditions . in addition , the bod declared the special dividend , which is conditional and contingent upon the issuance of the certificate of merger by the bermuda registrar of companies . story_separator_special_tag despite these persistent challenging market conditions , the company believes that its strong global franchise and geographic footprint , broad yet highly technical capabilities over many lines of business , resulted in the renewal of a high quality portfolio , in some cases at superior market terms , and finding additional pockets of attractive new business . the company writes a large majority of its business on a treaty basis and renewed approximately 65 % of its total annual non-life treaty business on january 1 , 2016. the remainder of the non-life treaty business renews at other times during the year . in addition to treaty business , the company writes approximately $ 400 million of direct and facultative business which renews throughout the year . life and health reinsurance business , trends and 2016 outlook the company 's life and health segment derives revenues primarily from renewal premiums from existing reinsurance treaties and new premiums from existing or new reinsurance treaties . within the life and health segment , the company writes mortality ( including disability ) , longevity and , following the acquisition of partnerre health , u.s. accident and health products . management believes the existing life business and partnerre health business provide the company with diversification benefits and balance to its portfolio as they are generally not correlated to the company 's non-life business . life the long-term profitability of the life business ( including the mortality and longevity lines of business ) mainly depends on the volume and amount of death claims incurred and the ability to adequately price the risk the company assumes . the life reinsurance policies are often in force for the remaining lifetime of the underlying individuals insured , with premiums earned typically over a period of 10 to 30 years . the volume of the business may be reduced each year by terminations of the underlying treaties related to lapses , voluntary surrenders , death of insureds and recaptures by ceding companies . while death claims are reasonably predictable over a period of many years , claims become less predictable over shorter periods and can fluctuate significantly from quarter to quarter or from year to year . in terms of the company 's life portfolio , the active january 1 renewals only impact the short-term in-force premium in the mortality line , which is a relatively limited portion of the overall life portfolio . for those treaties that actively renewed , pricing conditions and terms were modestly softer from the january 1 , 2015 renewals . management expects moderate continued growth in the company 's life portfolio in 2016 from new business initiatives , assuming constant foreign exchange rates . health the long-term profitability of the accident and health business mainly depends on the volume and amount of medical claims and expenses . while the volume of medical claims can be predicted to a certain extent , the amount of claims and expenses depends on various factors , primarily health care inflation rates , driven by a shift towards the older population , reliance on expensive medical equipment and technology , and changes in demand for health care services over time . the acquisition of the partnerre health business resulted in substantial overall premium growth in the company 's accident and health line of business in 2013 , 2014 and 2015 , primarily as a result of its transition from an mga to an insurance carrier in 2013 ( see business in item 1 of part i of this report for more details ) and the opportunities arising from the implementation of the healthcare act in the u.s. at the january 1 , 2016 renewals , t he expected premium volume , at constant foreign exchange rates , decreased compared to the prior year renewal as a result of increased competition across all product lines . management expects continued market pressure and further modest decreases in the premium volume in 2016 . investment business , trends and 2016 outlook the company generates revenue from its high quality investment portfolio , as well as the investments underlying the funds held - directly managed account , through net investment income , including coupon interest on fixed maturities and dividends on equities , and realized and unrealized gains and losses on investments . for the company 's investment risks , which include both public and private market investments , diversification of risk is critical to achieving the risk and return objectives of the company . the company 's investment policy distinguishes between liquid , 60 high quality assets that support the company 's liabilities , and the more diversified , higher risk asset classes that make up the company 's capital funds . while there will be years where investment markets risks achieve less than the risk-free rate of return , or potentially even negative results , the company believes the rewards for assuming these risks in a disciplined and measured way will produce a positive excess return to the company over time . additionally , since investment risks are not fully correlated with the company 's reinsurance risks , this increases the overall diversification of the company 's total risk portfolio . the company follows prudent investment guidelines through a strategy that seeks to maximize returns while managing investment risk in line with the company 's overall objectives of earnings stability and long-term book value growth . the company allocates its invested assets into two categories : liability funds and capital funds ( see the discussion of liability funds and capital funds in financial condition , liquidity and capital resources ) . a key challenge for the company is achieving the right balance between current investment income and total returns ( that include price appreciation or depreciation ) in changing market conditions . the company regularly reviews the allocation of investments to asset classes within its investment portfolio and its funds held - directly managed account and allocates investments to those asset classes the company anticipates will outperform in the near future , subject to limits and guidelines .
| review of net income management analyzes the company 's net income or loss in three parts : underwriting result , investment result and other components of net income or loss . underwriting result consists of net premiums earned and other income or loss less losses and loss expenses and life policy benefits , acquisition costs and other expenses . investment result consists of net investment income , net realized and unrealized investment gains or losses and interest in earnings or losses of equity method investments . net investment income includes interest , dividends and amortization , net of investment expenses , generated by the company 's investment activities , as well as interest income generated on funds held assets . net realized and unrealized investment gains or losses include sales of the company 's fixed income , equity and other invested assets and investments underlying the funds held – directly managed account and changes in net unrealized gains or losses . interest in earnings or losses of equity method investments includes the company 's strategic investments . other components of net income or loss include technical result and other income or loss , other expenses , interest expense , amortization of intangible assets , net foreign exchange gains or losses and income tax expense or benefit . 85 the components of net income for the years ended december 31 , 2015 , 2014 and 2013 were as follows ( in millions of u.s. dollars , except per share data ) : replace_table_token_44_th ( 1 ) interest in earnings or losses of equity method investments represents the company 's aggregate share of earnings or losses related to several private placement investments and limited partnerships within the corporate and other segment . ( 2 ) technical result and other income primarily relate to income on insurance-linked securities and principal finance transactions within the corporate and other segment .
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gross profit for the year ended june 30 , 2016 was $ 142,785 and our gross margin was 25.6 % as compared to gross profit of $ 135,434 and gross margin of 24.8 % in the comparable prior year . our selling , general and administrative costs ( “ sg & a ” ) for the year ended june 30 , 2016 increased to $ 76,820 from $ 73,159 which we reported in the prior year . our net income increased to $ 34,766 , or $ 1.18 per diluted share , compared to net income of $ 33,483 , or $ 1.14 per diluted share for the prior year . our financial position as of june 30 , 2016 , remains strong , as we had cash , cash equivalents and short-term investments of $ 67,709 , working capital of $ 253,755 and shareholders ' equity of $ 304,442. our business is separated into three principal segments : human health , pharmaceutical ingredients and performance chemicals . products that fall within the human health segment include finished dosage form generic drugs and nutraceutical products . aceto sells niche generic prescription products and over-the-counter pharmaceutical products under the rising label to leading wholesalers , chain drug stores , distributors and mass merchandisers . as part of our asset-light model , products are developed in collaboration with selected pharmaceutical development partners and with networks of finished dosage form manufacturing partners . leveraging our extensive experience supplying active pharmaceutical ingredients and pharmaceutical intermediates , aceto entered the end-user segment of the generic pharmaceuticals industry in 2010 through the acquisition of rising , a u.s. marketer and distributor of finished dosage form generics founded in the early 1990s . to supplement our organic growth and further expand into the u.s. generic pharmaceuticals industry , rising pharmaceuticals acquired pack pharmaceuticals , a national marketer and distributor of generic prescription and over-the-counter pharmaceutical products , in april , 2014. during fiscal 2015 , pack was fully integrated with rising and is now part of rising 's operations in new jersey . rising , a wholly-owned subsidiary of aceto , is an integral component of aceto 's continued strategy to become a human health oriented company . 24 in september 2015 , we purchased three andas for the products ciprofloxacin ophthalmic solution 3 % , levofloxacin ophthalmic solution 0.5 % , and diclofenac sodium ophthalmic solution 0.1 % from nexus pharmaceuticals . also in september 2015 , we purchased three andas from a subsidiary of endo international plc for the products methimazole tablets , glycopyrrolate tablets and meclizine tablets . in addition , in september 2014 , we purchased three andas from par pharmaceuticals , from which dutasteride softgel capsules 0.5mg was launched in november 2015. aceto supplies the raw materials used in the production of nutritional and packaged dietary supplements , including vitamins , amino acids , iron compounds and biochemicals used in pharmaceutical and nutritional preparations . the pharmaceutical ingredients segment has two product groups : active pharmaceutical ingredients ( apis ) and pharmaceutical intermediates . we supply apis to many of the major generic drug companies , who we believe view aceto as a valued partner in their effort to develop and market generic drugs . the process of introducing a new api from pipeline to market spans a number of years and begins with aceto partnering with a generic pharmaceutical manufacturer and jointly selecting an api , several years before the expiration of a composition of matter patent , for future genericizing . we then identify the appropriate supplier , and concurrently utilizing our global technical network , work to ensure they meet standards of quality to comply with regulations . our client , the generic pharmaceutical company , will submit the abbreviated new drug application ( “ anda ” ) for u.s. food and drug administration ( “ fda ” ) approval or european-equivalent approval . the introduction of the api to market occurs after all the development testing has been completed and the anda or european-equivalent is approved and the patent expires or is deemed invalid . aceto , at all times , has a pipeline of apis at various stages of development both in the united states and europe . additionally , as the pressure to lower the overall cost of healthcare increases , aceto has focused on , and works very closely with our customers to develop new api opportunities to provide alternative , more economical , second-source options for existing generic drugs . by leveraging our worldwide sourcing , regulatory and quality assurance capabilities , we provide to generic drug manufacturers an alternative , economical source for existing api products . aceto has long been a supplier of pharmaceutical intermediates , the complex chemical compounds that are the building blocks used in producing apis . these are the critical components of all drugs , whether they are already on the market or currently undergoing clinical trials . faced with significant economic pressures as well as ever-increasing regulatory barriers , the innovative drug companies look to aceto as a source for high quality intermediates . aceto employs , on occasion , the same second source strategy for our pharmaceutical intermediates business that we use in our api business . historically , pharmaceutical manufacturers have had one source for the intermediates needed to produce their products . utilizing our global sourcing , regulatory support and quality assurance network , aceto works with the large , global pharmaceutical companies , sourcing lower cost , quality pharmaceutical intermediates that will meet the same high level standards that their current commercial products adhere to . the performance chemicals segment includes specialty chemicals and agricultural protection products . aceto is a major supplier to many different industrial segments providing chemicals used in the manufacture of plastics , surface coatings , cosmetics and personal care , textiles , fuels and lubricants . the paint and coatings industry produces products that bring color , texture , and protection to houses , furniture , packaging , paper , and durable goods . story_separator_special_tag upon each sale of finished dosage form generics , estimates of chargebacks , rebates , returns , government reimbursed rebates , sales discounts and other adjustments are made . these estimates are based on historical experience , future expectations , contractual arrangements with wholesalers and indirect customers , and other factors known to management at the time of accrual . these estimates are recorded as reductions to gross revenues , with corresponding adjustments either as a reduction of accounts receivable or as a liability for price concessions . 26 under certain arrangements , aceto will issue a credit ( referred to as a “ chargeback ” ) to the wholesaler for the difference between the invoice price to the wholesaler and the customer 's contract price . as sales to the large wholesale customers increase or decrease , the reserve for chargebacks will also generally increase or decrease . the provision for chargebacks varies in relation to changes in sales volume , product mix , pricing and the level of inventory at the wholesalers . the company continually monitors the reserve for chargebacks and makes adjustments when management believes that expected chargebacks may differ from the actual chargeback reserve . the company estimates its provision for returns of finished dosage generics based on historical experience , product expiration dates , changes to business practices , credit terms and any extenuating circumstances known to management . while historical experience has allowed for reasonable estimations in the past , future returns may or may not follow historical trends . the company continually monitors the reserve for returns and makes adjustments when management believes that actual product returns may differ from the established reserve . generally , the reserve for returns increases as net sales increase . government rebate accruals are based on estimated payments due to governmental agencies for purchases made by third parties under various governmental programs . other rebates are offered to the company 's key chain drug store , distributor and wholesaler customers to promote customer loyalty and increase product sales . these rebate programs provide customers with credits upon attainment of pre-established volumes or attainment of net sales milestones for a specified period . other promotional programs are incentive programs offered to the customers . the company provides a provision for government reimbursed rebates and other rebates at the time of sale based on contracted rates and historical redemption rates . assumptions used to establish the provision include level of customer inventories , contract sales mix and average contract pricing . aceto regularly reviews the information related to these estimates and adjusts the provision accordingly . sales discount accruals are based on payment terms extended to customers . credits issued during a given period represent cash payments or credit memos issued to the company 's customers as settlement for the related reserve . management has the experience and access to relevant information that it believes is necessary to reasonably estimate the amounts of such deductions from gross revenues . the company regularly reviews the information related to these estimates and adjusts its reserves accordingly , if and when actual experience differs from previous estimates . allowance for doubtful accounts we maintain allowances for doubtful accounts relating to estimated losses resulting from customers being unable to make required payments . allowances for doubtful accounts are based on historical experience and known factors regarding specific customers and the industries in which those customers operate . if the financial condition of our customers were to deteriorate , resulting in their ability to make payments being impaired , additional allowances would be required . royalty income we have royalty agreements on certain products where third party pharmaceutical and agricultural protection companies market such products . we earn and collect royalty income based on percentages of net profits as defined in those agreements . royalty income is included in net sales in our consolidated statements of income . partnered products the company has various products that are subject to one of two types of collaborative arrangements with certain pharmaceutical companies . one type of arrangement relates to the company 's rising subsidiary acting strictly as a distributor and purchasing products at arm 's length ; in that type of arrangement , there is no profit sharing element . the second type of collaborative arrangement results in a profit sharing agreement between rising and a developer and or manufacturer of a finished dosage form generic drug . both types of collaborative arrangements are conducted in the ordinary course of rising 's business . the nature and purpose of both of these arrangements is for the company to act as a distributor of finished dose products to its customers . under these arrangements , the company maintains distribution rights with respect to specific drugs within the u.s. marketplace . generally , the distribution rights are exclusive rights in the territory . in certain arrangements , rising is required to maintain service level minimums including , but not limited to , market share and purchase levels , in order to preserve the exclusive rights . the company 's accounting policy with respect to these collaborative arrangements calls for the company to present the sales and associated costs on a gross basis , with the amounts of the shared profits earned by the pharmaceutical companies on sales of these products , if applicable , included in cost of sales in the consolidated statements of income . the shared profits are settled on a quarterly basis . for each of the fiscal years 2016 , 2015 and 2014 , there was approximately $ 41,036 , $ 51,352 and $ 26,972 respectively , of shared profits included in cost of sales , related to these types of collaborative arrangements . in the case of a collaborative arrangement where rising solely acts as a distributor and purchases product at arm 's length , the costs of those purchases are included as a cost of sales similar to any other purchase arrangement .
| results of operations fiscal year ended june 30 , 2016 compared to fiscal year ended june 30 , 2015 replace_table_token_5_th replace_table_token_6_th 30 net sales net sales increased $ 11,573 or 2.1 % , to $ 558,524 for the year ended june 30 , 2016 , compared with $ 546,951 for the prior year . we reported sales increases in our human health and pharmaceutical ingredients segments and a decrease in the performance chemicals segment . human health products that fall within the human health segment include finished dosage form generic drugs and nutraceutical products . net sales for the human health segment increased by $ 2,772 for the year ended june 30 , 2016 , to $ 228,035 , which represents a 1.2 % increase over net sales of $ 225,263 for the prior year , largely due to an increase in sales of rising products of $ 2,951. the increase in rising sales was primarily driven by price increases experienced in the prior year on certain products , partially offset by increased competition on certain products in our generic drugs portfolio . pharmaceutical ingredients net sales for the pharmaceutical ingredients segment increased by $ 11,715 for the year ended june 30 , 2016 , to $ 161,011 , which represents a 7.8 % increase from net sales of $ 149,296 for the prior year . the increase in sales for this segment was due in part to a $ 14,479 rise in sales volume of apis sold abroad , specifically by our singapore and german operations . this increase was partially offset by a decline of $ 3,560 in sales of intermediates , which represent key components used in the manufacture of certain drug products . the primary reasons for the decline in intermediates was a reduction of demand and a delay in timing of orders for several products that are sold domestically , the majority of which are expected to be realized in future quarters .
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for story_separator_special_tag this section includes a discussion of our results of operations for the three years ended december 31 , 2011. this discussion may contain forward-looking statements that anticipate results based on management 's plans that are subject to uncertainty . we discuss in more detail various factors that could cause actual results to differ from expectations in item 1a , risk factors . the following discussion should be read in light of that disclosure and together with the consolidated financial statements and the notes to the consolidated financial statements . overview our company is dedicated to three transformational goals that we believe will drive continued growth and leadership in a dynamic industry : know more about our customers and how to service them than anyone else ; use conversion and processing technology to extract more value from the materials we manage ; and continuously improve our operational efficiency . our strategy supports diversion from landfills and converting waste into valuable products as customers seek more economically and environmentally sound alternatives . we intend to pursue achievement of our long-term goals in the short-term through efforts to : grow our markets by implementing customer-focused growth , through customer segmentation and through strategic acquisitions , while maintaining our pricing discipline and increasing the amount of recyclable materials we manage each year ; grow our customer loyalty ; grow into new markets by investing in greener technologies ; and pursue initiatives that improve our operations and cost structure . these efforts will be supported by ongoing improvements in information technologies . we believe that execution of our strategy will provide long-term value to our stockholders . our 2011 results of operations reflect the impact of improved recyclable commodity prices and recycling volumes , our discipline in pricing and our continued investment in our strategic initiatives , including our july 28 , 2011 acquisition of the primary operations of oakleaf global holdings ( oakleaf ) . highlights of our financial results for 2011 include : revenues of $ 13.4 billion compared with $ 12.5 billion in 2010 , an increase of $ 863 million , or 6.9 % . this increase in revenues is primarily attributable to : internal revenue growth from yield on our collection and disposal business of 1.8 % in the current period , which increased revenue by $ 193 million ; increases from recyclable commodity prices of $ 216 million ; increases primarily from our fuel surcharge program of $ 169 million ; and increases from foreign currency translation of $ 31 million ; and increases associated with acquired businesses of $ 449 million , of which $ 251 million was related to oakleaf ; internal revenue growth from volume was negative 1.5 % in 2011 , compared with negative 2.6 % in 2010. the year-over-year decline in internal revenue growth due to volume was $ 187 million , of which $ 94 million relates to the oil spill clean-up project along the gulf coast in 2010. revenue declines due to volume from our collection and waste-to-energy businesses were offset in part by revenue increases from our recycling brokerage business and our material recovery facilities ; operating expenses of $ 8.5 billion , or 63.8 % of revenues , compared with $ 7.8 billion , or 62.5 % of revenues , in 2010. this increase of $ 717 million , or 9.2 % , is due primarily to higher customer rebates related to increased recyclable commodity prices and volumes ; the impact of higher fuel prices on direct fuel costs and indirect fuel costs included in subcontractor costs ; and further increases in subcontractor costs associated in large part with our acquisition of oakleaf , all of which have related revenue increases as noted above ; 29 selling , general and administrative expenses increased $ 90 million , or 6.2 % , from $ 1,461 million in 2010 to $ 1,551 million in 2011 , primarily due to costs incurred to support our strategic growth plans and initiatives , including our acquisition of oakleaf , and cost savings programs . we began to see the associated benefits of our cost savings programs in the second half of the year and expect the benefits to increase throughout 2012 ; income from operations of $ 2.0 billion , or 15.2 % of revenues , in 2011 compared with $ 2.1 billion , or 16.9 % of revenues , in 2010 ; net income attributable to waste management , inc. of $ 961 million , or $ 2.04 per diluted share for 2011 , as compared with $ 953 million , or $ 1.98 per diluted share in 2010 . net cash provided by operating activities increased 8.5 % from $ 2.3 billion in 2010 to $ 2.5 billion in 2011. we returned $ 1.2 billion to our shareholders through dividends and share repurchases in 2011 , compared with $ 1.1 billion in 2010. the following explanation of certain notable items that impacted the comparability of our 2011 results with 2010 has been provided to support investors ' understanding of our performance . our 2011 results were affected by the following : the recognition of a pre-tax charge of $ 24 million as a result of a litigation loss , which had a negative impact of $ 0.03 on our diluted earnings per share ; the recognition of pre-tax restructuring charges , excluding charges recognized in the operating results of oakleaf , of $ 17 million related to our cost savings programs . these charges were primarily related to employee severance and benefit costs and had a negative impact of $ 0.02 on our diluted earnings per share ; the reduction in pre-tax earnings of approximately $ 11 million related to the oakleaf acquisition , which includes the operating results of oakleaf and related interest expense and integration costs . story_separator_special_tag oakleaf provides outsourced waste and recycling services through a nationwide network of third-party haulers . the operations we acquired generated approximately $ 580 million in revenues in 2010. we acquired oakleaf to advance our growth and transformation strategies and increase our national accounts customer base while enhancing our ability to provide comprehensive environmental solutions . for the year ended december 31 , 2011 , we incurred $ 1 million of acquisition-related costs , which are classified as selling , general and administrative expenses . since the acquisition date , oakleaf has recognized revenues of $ 265 million and net income of less than $ 1 million , which are included in our consolidated statement of operations . the following table shows adjustments to the preliminary allocation of the purchase price of oakleaf to tangible and intangible assets acquired and liabilities assumed based on their estimated fair value from september 30 , 2011 to december 31 , 2011 ( in millions ) : replace_table_token_11_th ( a ) the purchase price adjustments relate primarily to changes in the valuation of the customer and vendor relationships and evaluation of physical and market conditions of equipment . the following table presents the preliminary allocation of the purchase price to intangible assets ( amounts in millions , except for amortization periods ) : replace_table_token_12_th goodwill of $ 327 million was calculated as the excess of the consideration paid over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized . goodwill is a result of expected synergies from combining the company 's operations with oakleaf 's national accounts customer base and vendor network . the vendor-hauler network expands our partnership with third-party service providers . in many cases we can provide vendor-haulers with opportunities to maintain and increase their business by utilizing our extensive post-collection network . we believe this will generate significant benefits for the company and for the vendor-haulers . goodwill acquired has been allocated to our four geographic groups based on our preliminary valuations . goodwill related to this acquisition is not deductible for income tax purposes . 32 the following pro forma consolidated results of operations have been prepared as if the acquisition of oakleaf occurred at january 1 , 2010 ( in millions , except per share amounts ) : replace_table_token_13_th basis of presentation of consolidated financial information goodwill impairment testing in september 2011 , the financial accounting standards board ( fasb ) amended authoritative guidance associated with goodwill impairment testing . the amended guidance provides companies the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two-step impairment test . if , after assessing the totality of events or circumstances , an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then performing the two-step impairment test is unnecessary . the amendments are effective for goodwill impairment tests performed for fiscal years beginning after december 15 , 2011 ; however , early adoption was permitted . the company 's early adoption of this guidance in 2011 did not have an impact on our consolidated financial statements . additional information on impairment testing can be found in note 3 to the consolidated financial statements . multiple-deliverable revenue arrangements in october 2009 , the fasb amended authoritative guidance associated with multiple-deliverable revenue arrangements . this amended guidance addresses the determination of when individual deliverables within an arrangement are required to be treated as separate units of accounting and modifies the manner in which consideration is allocated across the separately identifiable deliverables . the amendments to authoritative guidance associated with multiple-deliverable revenue arrangements became effective for the company on january 1 , 2011. the new accounting standard has been applied prospectively to arrangements entered into or materially modified after the date of adoption . the adoption of this guidance has not had a material impact on our consolidated financial statements . consolidation of variable interest entities in june 2009 , the fasb issued revised authoritative guidance associated with the consolidation of variable interest entities . the new guidance primarily uses a qualitative approach for determining whether an enterprise is the primary beneficiary of a variable interest entity and , is therefore , required to consolidate the entity . this new guidance generally defines the primary beneficiary as the entity that has ( i ) the power to direct the activities of the variable interest entity that can most significantly impact the entity 's performance and ( ii ) the obligation to absorb losses and the right to receive benefits from the variable interest entity that could be significant from the perspective of the entity . the new guidance also requires that we continually reassess whether we are the primary beneficiary of a variable interest entity rather than conducting a reassessment only upon the occurrence of specific events . as a result of our implementation of this guidance , effective january 1 , 2010 , we deconsolidated certain final capping , closure , post-closure and environmental remediation trusts because we share power over significant activities of these trusts with others . our financial interests in these entities are discussed in note 20. the deconsolidation of these trusts has not materially affected our financial position , results of operations or cash flows during the periods presented . critical accounting estimates and assumptions in preparing our financial statements , we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets , liabilities , equity , revenues and expenses .
| summary of contractual obligations the following table summarizes our contractual obligations as of december 31 , 2011 and the anticipated effect of these obligations on our liquidity in future years ( in millions ) : replace_table_token_37_th ( a ) environmental liabilities include final capping , closure , post-closure and environmental remediation costs . the amounts included here reflect environmental liabilities recorded in our consolidated balance sheet as of december 31 , 2011 without the impact of discounting and inflation . our recorded environmental liabilities for final capping , closure and post-closure will increase as we continue to place additional tons within the permitted airspace at our landfills . ( b ) the amounts reported here represent the scheduled principal payments related to our long-term debt , excluding related interest . refer to note 7 to the consolidated financial statements for information regarding interest rates . ( c ) our debt obligations as of december 31 , 2011 include $ 305 million of tax-exempt bonds subject to re-pricing within the next twelve months , which is prior to their scheduled maturities . if the re-offerings of the bonds are unsuccessful , then the bonds can be put to us , requiring immediate repayment . we have classified the anticipated cash flows for these contractual obligations based on the scheduled maturity of the borrowing for purposes of this disclosure . for additional information regarding the classification of these borrowings in our consolidated balance sheet as of december 31 , 2011 , refer to note 7 to the consolidated financial statements . ( d ) our recorded debt obligations include non-cash adjustments associated with discounts , premiums and fair value adjustments for interest rate hedging activities . these amounts have been excluded here because they will not result in an impact to our liquidity in future periods . ( e ) our unrecorded obligations represent operating lease obligations and purchase commitments from which we expect to realize an economic benefit in future periods .
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while we base estimates on historical experience , current information and other factors deemed to be relevant , actual results could differ from those estimates . we consider accounting estimates to be critical to reported financial results if ( i ) the accounting estimate requires management to make assumptions about matters that are highly uncertain and ( ii ) different estimates that management reasonably could have used for the accounting estimate in the current period , or changes in the accounting estimate that are reasonably likely to occur from period to period , could have a material impact on our financial statements . the accounting policies that we view as critical to us are those relating to estimates and judgments regarding ( a ) the determination of the adequacy of the allowance for loan losses , ( b ) acquisition accounting and valuation of covered loans and related indemnification asset , ( c ) the valuation of goodwill and the useful lives applied to intangible assets , ( d ) the valuation of employee benefit plans and ( e ) income taxes . allowance for loan losses on loans not covered by loss share the allowance for loan losses is management 's estimate of probable losses in the loan portfolio . loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . prior to the fourth quarter of 2012 , we measured the appropriateness of the allowance for loan losses in its entirety using ( a ) asc 450-20 which includes quantitative ( historical loss rates ) and qualitative factors ( management adjustment factors ) such as ( 1 ) lending policies and procedures , ( 2 ) economic outlook and business conditions , ( 3 ) level and trend in delinquencies , ( 4 ) concentrations of credit and ( 5 ) external factors and competition ; which are combined with the historical loss rates to create the baseline factors that are allocated to the various loan categories ; ( b ) specific allocations on impaired loans in accordance with asc 310-10 ; and ( c ) the unallocated amount . the unallocated amount was evaluated on the loan portfolio in its entirety and was based on additional factors , such as ( 1 ) trends in volume , maturity and composition , ( 2 ) national , state and local economic trends and conditions , ( 3 ) the experience , ability and depth of lending management and staff and ( 4 ) other factors and trends that will affect specific loans and categories of loans , such as a heightened risk in agriculture , credit card and commercial real estate loan portfolios . as of december 31 , 2012 , we refined our allowance calculation . as part of the refinement process , we evaluated the criteria previously applied to the entire loan portfolio , and used to calculate the unallocated portion of the allowance , and applied those criteria to each specific loan category . for example , the impact of national , state and local economic trends and conditions was evaluated by and allocated to specific loan categories . after this refinement , the allowance is calculated monthly based on management 's assessment of several factors such as ( 1 ) historical loss experience based on volumes and types , ( 2 ) volume and trends in delinquencies and nonaccruals , ( 3 ) lending policies and procedures including those for loan losses , collections and recoveries , ( 4 ) national , state and local economic trends and conditions , ( 5 ) concentrations of credit within the loan portfolio , ( 6 ) the experience , ability and depth of lending management and staff and ( 7 ) other factors and trends that will affect specific loans and categories of loans . we establish general allocations for each major loan category . this category also includes allocations to loans which are collectively evaluated for loss such as credit cards , one-to-four family owner occupied residential real estate loans and other consumer loans . general reserves have been established , based upon the aforementioned factors and allocated to the individual loan categories . allowances are accrued for probable losses on specific loans evaluated for impairment for which the basis of each loan , including accrued interest , exceeds the discounted amount of expected future collections of interest and principal or , alternatively , the fair value of loan collateral . any immaterial residual reserves are distributed among the loan portfolio categories based on their percent composition of the entire portfolio . 21 acquisition accounting , acquired loans we account for our acquisitions under asc topic 805 , business combinations , which requires the use of the purchase method of accounting . all identifiable assets acquired , including loans , are recorded at fair value . no allowance for loan losses related to the acquired loans is recorded on the acquisition date as the fair value of the loans acquired incorporates assumptions regarding credit risk . loans acquired are recorded at fair value in accordance with the fair value methodology prescribed in asc topic 820 , exclusive of the shared-loss agreements with the fdic . the fair value estimates associated with the loans include estimates related to expected prepayments and the amount and timing of undiscounted expected principal , interest and other cash flows . over the life of the acquired loans , we continue to estimate cash flows expected to be collected on pools of loans sharing common risk characteristics , which are treated in the aggregate when applying various valuation techniques . we evaluate at each balance sheet date whether the present value of our pools of loans determined using the effective interest rates has decreased significantly and if so , recognize a provision for loan loss in our consolidated statement of income . story_separator_special_tag on march 21 , 2014 we will complete the operational system conversion of metropolitan with our flagship institution , simmons first national bank ( “ sfnb ” ) , which will enable us to provide customers with innovative products , exceptional customer service and convenience throughout the combined service area . as a result of the mnb combination and in concert with the systems conversion , we will close 27 branches with footprints that overlap other branches . additionally , at the close of business november 1 , 2013 we merged simmons first bank of northwest arkansas into sfnb in anticipation of the metropolitan acquisition . as a result of the metropolitan acquisition , we recognized $ 4.0 million in after-tax merger related costs . during 2013 , we closed six underperforming branches and recorded $ 0.4 million in after-tax nonrecurring expenses related to those closures . during 2012 , we recognized after-tax bargain purchase gains of $ 2.1 million and after-tax merger related costs of $ 1.2 million related to our fdic-assisted acquisitions of excel bank of sedalia , missouri ( “ excel ” ) and truman bank of st. louis , missouri ( “ truman ” ) . for additional information on metropolitan and these fdic transactions , see note 2 , acquisitions , in the accompanying notes to consolidated financial statements included elsewhere in this report . we are pleased with the core earnings results for the year . as a result of acquisitions and efficiency initiatives in recent reporting periods , we have and will continue to recognize one-time revenue and expense items which may skew our short-term core business results but provide long-term performance benefits . our focus continues to be improvement in core operating income . we are also pleased with the positive trends in our balance sheet , as reflected in our organic loan growth of over 7 % during the past year , which enabled us to produce a net interest margin of 4.21 % . in addition , we completed the acquisition of a $ 9.8 million credit card portfolio on september 30 , 2013 and we continue to evaluate opportunities for additional credit card portfolio acquisitions . stockholders ' equity as of december 31 , 2013 was $ 403.8 million , book value per share was $ 24.89 and tangible book value per share was $ 19.10. our ratio of stockholders ' equity to total assets was 9.2 % and the ratio of tangible stockholders ' equity to tangible assets was 7.2 % at december 31 , 2013. the company 's tier i leverage ratio of 9.2 % , as well as our other regulatory capital ratios , remain significantly above the “ well capitalized ” . see table 18 – risk-based capital for regulatory capital ratios . during the first quarter we fully integrated the acquired locations , including system conversions , on our 2012 fdic-assisted acquisitions . those acquisitions were strategic in that they complement the footprint we have been building in the kansas and missouri markets . we continue to actively pursue the right opportunities to expand our presence in that geographic region through additional fdic and or traditional acquisitions going forward . we believe our stock , even after the recent market increase in our stock value , continues to be an excellent investment . we increased our quarterly dividend from $ 0.21 to $ 0.22 per share , beginning with the first quarter of 2014. on an annual basis , the $ 0.88 per share dividend results in a return in excess of 2.5 % , based on our recent stock price . we repurchased approximately 420,000 shares at an average price of $ 25.89 during 2013. during the third quarter , as a result of the metropolitan acquisition announcement , we suspended our stock repurchase program . 23 total loans , including loans acquired , were $ 2.4 billion at december 31 , 2013 , an increase of $ 483 million , or 25.1 % , from the same period in 2012. acquired loans increased by $ 369 million , net of discounts , while legacy loans ( all loans excluding acquired loans ) grew $ 114 million , or 7.0 % . we are encouraged by the continued growth in our legacy loan portfolio throughout 2013. we have had nice legacy loan growth this year , particularly from the new lenders we have attracted in our targeted growth markets . their production has exceeded our expectations for 2013. loans covered by fdic loss share agreements , which provide 80 % government guaranteed protection against credit risk on those covered assets , were $ 146.7 million at december 31 , 2013 , compared to $ 210.8 million at december 31 , 2012 due to expected paydowns . despite the continued challenges in the economy , we continue to have good asset quality . the allowance for loan losses as a percent of total loans was 1.57 % at december 31 , 2013. non-performing loans equaled 0.53 % of total loans . non-performing assets were 1.69 % of total assets . the allowance for loan losses was 298 % of non-performing loans . the company 's net charge-offs for 2013 were 0.27 % of total loans . excluding credit cards , net charge-offs for 2013 were 0.15 % of total loans . total assets were $ 4.4 billion at december 31 , 2013 compared to $ 3.5 billion at december 31 , 2012 , an increase of $ 850 million primarily due to the metropolitan acquisition . the metropolitan acquisition was one of several that we anticipate making over the next few years , and enhances our coverage of central and northwest arkansas . our 2012 fdic acquisitions were strategic in that they complement the footprint we have been building in the kansas and missouri markets . we fully expect to pursue other opportunities to expand our footprint in that geographic region through additional fdic and or traditional acquisitions going forward .
| quarterly results selected unaudited quarterly financial information for the last eight quarters is shown in table 22. table 22 : quarterly results replace_table_token_28_th item
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discussion of our business and overall analysis of financial and other highlights affecting us , to provide context for the remainder of md & a . ● results of operations . an analysis of our financial results comparing the twelve months ended december 31 , 2013 to the twelve months ended december 31 , 2012 . ● liquidity and capital resources . an analysis of changes in our balance sheets and cash flows and discussion of our financial condition . ● critical accounting estimates . accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts . the following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this report . the following discussion contains forward-looking statements that reflect our plans , estimates and beliefs . the actual results could differ materially from those discussed in the forward-looking statements . factors that could cause or contribute to these differences include those discussed below and elsewhere in this report , particularly under “ part i , item 1a . risk factors , ” and in other reports we file with the sec . all references to years relate to the calendar year ended december 31 of the particular year . 18 overview aemetis is an advanced renewable fuels and biochemicals company focused on the acquisition , development and commercialization of innovative technologies that replace traditional petroleum-based products by the conversion of first generation ethanol and biodiesel plants into advanced biorefineries . we own and operate a manufacturing and refining facility in kakinada , india where we manufacture and produce fatty acid methyl ester ( biodiesel ) , crude and refined glycerin and refined palm oil and a plant in keyes , california where we manufacture and produce ethanol , wet distillers ' grain ( wdg ) , condensed distillers solubles ( cds ) and corn oil . in september 2013 , we received approval by the us environmental protection agency to produce ethanol using grain sorghum and biogas as well as approval for the keyes plant to use existing combined heat and power systems to generate higher value advanced biofuel renewable identification numbers ( rin 's ) . in addition , we are continuing to research the viability of commercializing our microbial technology , which would enable us to produce renewable industrial biofuels and biochemicals and our integrated starch-cellulose technology , which would enable us to produce ethanol from non-food feedstock . the operations at our keyes plant will result in the emission of carbon dioxide into the atmosphere . in 2010 , the epa released its final regulations on the renewable fuel standard program , or rfs2 . we believe the epa 's final rfs2 regulations grandfather the keyes facility we operate at its current capacity , however , compliance with future legislation may require us to take action unknown to us at this time that could be costly , and require the use of working capital , which may or may not be available , preventing us from operating as planned , which may have a material adverse effect on our operations and cash flow . north america in the second quarter of 2012 , we acquired the keyes , ca ethanol plant which we had previously been operating since april 2011 pursuant to a 5-year lease agreement with cilion , inc. the keyes plant is a dry mill ethanol production facility currently utilizing corn and grain sorghum as feedstocks . we produce four products at the keyes plant : denatured ethanol , wdg , corn oil and cds . in 2013 , we sold 100 % of the ethanol and wdg we produced to j.d . heiskell pursuant to a purchase agreement established with j.d . heiskell . small amounts of cds were sold to various local third parties . ethanol pricing is determined pursuant to a marketing agreement between us and kinergy marketing llc , and is generally based on daily and monthly pricing for ethanol delivered to the san francisco bay area , california , as published by the oil price information service ( opis ) , as well as quarterly contracts negotiated by kinergy with local fuel blenders . the price for wdg is determined monthly pursuant to a marketing agreement between the company and a.l . gilbert co. , and is generally determined in reference to the price of dry distillers grains ( ddg ) and corn . on january 15 , 2013 , we temporarily idled the corn grinding and ethanol production activities at our keyes , california plant due to unfavorable market conditions for corn ethanol production , while we undertook efforts perform maintenance and to restart the plant as an advanced biofuel producer . this action was in keeping with the company 's plan to move to advanced biofuel feedstocks and inputs using a recently approved combined grain sorghum and biogas epa pathway for a significant portion of our operational capacity . operations at the ethanol plant were restarted in april 2013. in september 2013 , we received approval by the us environmental protection agency to produce ethanol using grain sorghum and biogas along with the keyes plant existing combined heat and power ( chp ) system to generate higher value advanced biofuel renewable identification numbers ( rin 's ) . india during the twelve months ended december 31 , 2012 and 2013 , we operated our biodiesel plant in india . however , during 2012 and 2013 our india operations were constrained by funds available from our working capital partner and by diesel price supports by the india government . in january 2013 , the india government reduced subsidies for diesel by increasing the sales price of diesel to bulk purchasers ( railways and state transportation corporations ) to the market price and by increasing the sales price of diesel to other purchasers at the rate of 45 paisa per liter per month until the price reached the market price . story_separator_special_tag factory overhead includes direct and indirect costs associated with the plant , including the cost of repairs and maintenance , consumables , maintenance , on-site security , insurance , depreciation and inbound freight . we purchase nrpo , a non-edible feedstock , for our biodiesel unit from neighboring natural oil processing plants at a discount to refined palm oil . nrpo is received by truck and title passes when the nrpo is received at our facility . credit terms vary by vendor ; however , we generally receive 15 days of credit on the purchases . we purchase crude glycerin in the international market on letters of credit or advance payment terms . sales , marketing and general administrative expenses ( sg & a ) sg & a expenses consist of employee compensation , professional services , travel , depreciation , taxes , insurance , rent and utilities , including licenses and permits , penalties , and sales and marketing fees . pursuant to an operating agreement with secunderabad oils limited , we receive operational support and working capital . we compensate secunderabad oils limited with a percentage of the profits and losses generated from operations . payments of interest are identified as interest income while payments of profit and losses are identified as compensation for the operational support component of this agreement . we therefore include the portion of profit or losses paid to secunderabad oils limited as a component of sg & a and our sg & a component will vary based on the profits earned by operations . in addition , we market our biodiesel and glycerin through our internal sales staff , commissioned agents and brokers . commissions paid to agents are included as a component of sg & a . research and development expenses ( r & d ) our india segment has no research and development activities . 20 story_separator_special_tag style= '' text-indent : 0pt ; display : block ; margin-left : 0pt ; margin-right : 0pt '' > operating expenses r & d replace_table_token_6_th the decrease in r & d expense in our north america segment in 2013 primarily came from lower legal costs compared to 2012 offset by the increase in amortization expense in 2013. legal costs in 2012 related principally to the acquisition of zymetis in 2012. sg & a replace_table_token_7_th north america . the increase in sg & a in the year ended december 31 , 2013 was primarily attributable to : ( i ) reclassification of fixed costs from cost of goods sold to sg & a in early 2013 related to idling of the plant of approximately $ 2.5 million , ( ii ) stock compensation expense of approximately $ 0.7 million , ( iii ) $ 0.2 million in payroll expense , and , ( iv ) $ 0.2 million in other miscellaneous expense . these increases for the year ended december 31 , 2013 compared with 2012 were offset by decreases in ( i ) financial advisory service fees of $ 1.9 million and ( ii ) marketing fees of $ 0.3 million . india . our single largest expense in sg & a is the operational support fees paid to secunderabad oils limited . these fees are computed as a percentage of operating profits . for the year ended december , 2013 and 2012 , we incurred approximately $ 0.9 million and $ 0.1 million in operational support fees and incurred salary and related expenses of approximately $ 0.4 million and $ 0.2million , respectively . additionally , during the year ended december 31 , 2013 , year- over-year spending increased by $ 0.5 million due to increase in commission , travelling , and selling expenses . other income/expense other income ( expense ) consisted of the following items : ● interest expense is attributable to debt facilities of the company , our subsidiaries universal biofuels pvt . ltd. , international biofuels , inc. , ae advanced fuels keyes , inc. and interest accrued on the complaint filed by cordillera fund , l.p. these debt facilities included revenue participation fees , warrants issued as fees and the payment of other fees and discount fees , which are amortized under amortization expense . the fair value of stock and warrants are amortized through amortization expense , except when the extinguishment accounting method is applied , where refinanced debt costs are recorded through the extinguishment expense account . we incurred interest , amortization and loss on debt extinguishment expense of approximately $ 28.0 million for the twelve months ended december 31 , 2013 ( $ 0.8 million from india loans and $ 27.2 million from north america loans ) compared to $ 26.7 million for the twelve months ended december 31 , 2012 ( $ 4.4 million from india loans and $ 22.3 million from north america loans ) principally due to the additional debt associated with the acquisition of the keyes , ca plant . ● on july 6 , 2012 we acquired cilion , inc. through a merger . the excess of the fair value of the assets acquired gave rise to a gain on bargain purchase accounting of $ 42.3 million for the year ended december 31 , 2012 . ● some of the equipment acquired during the cilion merger sold for a gain of $ 0.1 million and some of the equipment was classified as held for sale during 2012. the equipment held for sale was sold for a gain of $ 0.2 million during 2013 . ● during 2012 we sold our land holding in sutton , nebraska at a gain of $ 236,830 . ● during 2013 , we settled several past outstanding liabilities and accordingly recognized a gain of $ 0.6 million in other income . 22 liquidity and capital resources 2013 during the first half of 2013 , when our plant in keyes , ca was idle , we funded our operations primarily from borrowings under our credit facilities .
| results of operations year ended december 31 , 2013 compared to year ended december 31 , 2012 revenues our revenues are derived primarily from sales of ethanol and wdg in north america and biodiesel and glycerin in india . replace_table_token_4_th north america . the decrease in revenues in the north america segment for the year ended december 31 , 2013 reflects the operation of the keyes , ca plant for only 9 months in 2013 compared to full year of operation in 2012. in addition , the shorter operation cycle in 2013 reduced our gallons sold in ethanol and wdg by 20 % and 2 % respectively , however the decrease in revenues were partially offset by an increase in the average price per gallon in ethanol of 5 % but increased by a reduction in the price of wdg by 3 % . for the year ended december 31 , 2013 , we generated approximately 77 % of revenues from sales of ethanol and 21 % of revenues from sales of wdg and 2 % of revenues from corn oil and syrup sales compared to 76 % of revenues from sales of ethanol and 22 % of revenues from sales of wdg for the year ended december 31 , 2012. for the year ended december 31 , 2013 , plant operations averaged 103 % of nameplate capacity for nine months of operations compared to 96 % for the twelve months of operations in 2012 due to a decision by management to slow down production during the last quarter of 2012 in response to unfavorable market conditions . india .
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such risks and uncertainties include , but are not limited to , continued funding of defense programs , the timing and amounts of such funding , general economic and business conditions , including unforeseen weakness in the company 's markets , effects of any u.s. federal government shutdown or extended continuing resolution , effects of continued geopolitical unrest and regional conflicts , competition , changes in technology and methods of marketing , delays in completing engineering and manufacturing programs , changes in customer order patterns , changes in product mix , continued success in technological advances and delivering technological innovations , changes in , or in the u.s. government 's interpretation of , federal export control or procurement rules and regulations , market acceptance of the company 's products , shortages in components , production delays or unanticipated expenses due to performance quality issues with outsourced components , inability to fully realize the expected benefits from acquisitions and restructurings , or delays in realizing such benefits , challenges in integrating acquired businesses and achieving anticipated synergies , increases in interest rates , changes to cyber-security regulations and requirements , changes in tax rates or tax regulations , changes to generally accepted accounting principles , difficulties in retaining key employees and customers , unanticipated costs under fixed-price service and system integration engagements , and various other factors beyond our control . these risks and uncertainties also include such additional risk factors as set forth under part i-item 1a ( risk factors ) in this annual report on form 10-k. we caution readers not to place undue reliance upon any such forward-looking statements , which speak only as of the date made . we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made . overview mercury systems , inc. is a leading commercial provider of secure sensor and safety critical mission processing subsystems . optimized for customer and mission success , our solutions power a wide variety of critical defense and intelligence programs . headquartered in andover , massachusetts , we are pioneering a next-generation defense electronics business model designed to meet the industry 's current and emerging business needs . we deliver affordable innovative solutions , rapid time-to-value and service and support to our defense prime contractor customers . our products and solutions have been deployed in more than 300 programs with over 25 different defense prime contractors . key programs include aegis , patriot , surface electronic warfare improvement program ( “ sewip ” ) , gorgon stare , predator , f-35 , reaper , f-16 sabr , e2d hawkeye , paveway , filthy buzzard , precision guidance kit ( `` pgk '' ) , provision , p1 , and aidews . our organizational structure allows us to deliver capabilities that combine technology building blocks and deep domain expertise in the defense sector . our technologies and capabilities include secure embedded processing modules and subsystems , mission computers , safety-critical avionics , radio frequency ( “ rf ” ) components , multi-function assemblies and subsystems . we utilize leading edge , high performance computing technologies architected by leveraging open standards and open architectures to address highly data-intensive applications that include data signal , sensor and image processing while addressing the packaging challenges , often referred to as “ swap ” ( size , weight , and power ) , that are common in military applications . we have design , development , and manufacturing capabilities in mission computing , safety-critical avionics and platform management . in addition , we design and manufacture rf , microwave and millimeter wave components and subsystems to meet the needs of the radar , electronic warfare ( “ ew ” ) , signals intelligence ( “ sigint ” ) and other high bandwidth communications requirements and applications . we also provide significant capabilities relating to pre-integrated ew , electronic attack ( “ ea ” ) and electronic counter measure ( “ ecm ” ) subsystems , sigint and electro-optical/infrared ( “ eo/ir ” ) processing technologies , and radar environment test and simulation systems . we deploy these solutions on behalf of defense prime contractors and the department of defense ( “ dod ” ) , leveraging commercially available technologies and solutions ( or “ building blocks ” ) from our business and other commercial suppliers . we leverage this technology to design and build integrated sensor processing subsystems , often including classified application-specific software and intellectual property ( “ ip ” ) for the c4isr ( command , control , communications , computers , intelligence , surveillance and reconnaissance ) , ew , and ecm markets . we bring significant domain expertise to customers , drawing on over 25 years of experience in ew , sigint , and radar environment test and simulation . since we conduct much of our business with our defense customers via commercial items , requests by customers are a primary driver of revenue fluctuations from quarter to quarter . customers specify delivery date requirements that coincide with their need for our products . because these customers may use our products in connection with a variety of defense programs or other projects of different sizes and durations , a customer 's orders for one quarter generally do not indicate a trend for future orders by that customer . additionally , order patterns do not necessarily correlate amongst customers and , therefore , we generally can not identify sequential quarterly trends . as of june 30 , 2018 , we had 1,320 employees . during 2018 , the growth in our headcount resulted in us exceeding the threshold for qualifying as a `` small business '' for government contract purposes . the revenues received as a result of small business set aside funding are not considered material . our consolidated revenues , net income , earnings per share ( `` eps '' ) , adjusted eps and adjusted ebitda for fiscal 2018 were $ 493.2 million , $ 40.9 million . $ 0.86 , $ 1.42 and $ 115.4 million , respectively . story_separator_special_tag the increase was primarily due to added headcount from our recent acquisitions of delta , rtl and themis and higher compensation related costs . these increases were partially offset by increased customer funded development . research and development expenses accounted for 11.9 % and 13.2 % of our revenues during fiscal 2018 and fiscal 2017 , respectively . the decrease was primarily driven due to higher revenues in fiscal 2018 compared to fiscal 2017. a mortization of i ntangible a ssets amortization of intangible assets increased $ 6.3 million to $ 26.0 million during fiscal 2018 compared to $ 19.7 million for fiscal 2017 , primarily due to the full year impact of amortization from the acquisitions of ces and delta , as well as the amortization from the rtl and themis acquisitions . r estructuring and o ther c harges restructuring and other charges increased $ 1.2 million , or 62 % , to $ 3.2 million during fiscal 2018 compared to $ 2.0 million in fiscal 2017 . the increase was primarily driven by higher severance costs related to the separation of 38 employees primarily in r & d and operations functions . fiscal 2017 included severance related activities associated with the closure of our former manteca , california location and facility related charges from our former chelmsford , massachusetts headquarters facility , which was relocated to andover , massachusetts during fiscal 2017. restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities . a cquisition c osts and o ther r elated e xpenses we incurred $ 2.5 million of acquisition costs and other related expenses during fiscal 2018 , compared to $ 1.9 million during fiscal 2017 . the acquisition costs and other related expenses incurred during fiscal 2018 primarily related to the acquisitions of themis and rtl during fiscal 2018 , as well as expenses associated with the acquisition of germane systems ( `` germane '' ) in early fiscal 2019. the acquisition costs and other related expenses incurred during fiscal 2017 primarily related to the acquisitions of both ces and delta . we expect to incur acquisition costs and other related expenses periodically in the future as we continue to seek acquisition opportunities to expand our capabilities within the entire sensor processing chain . i nterest i ncome interest income decreased to less than $ 0.1 million in fiscal 2018 , compared to $ 0.5 million in fiscal 2017 due to lower average balances of cash on hand throughout the year . 36 i nterest e xpense interest expense for fiscal 2018 decreased $ 4.7 million to $ 2.9 million compared to fiscal 2017 interest expense of $ 7.6 million . fiscal 2017 included a $ 5.8 million cash interest expense and $ 1.8 million of amortization of debt issuance costs related to the full year impact of our former term loan , which was repaid in the fourth quarter . during fiscal 2018 , we incurred $ 2.9 million in cash interest expense on the revolver in order to facilitate the acquisition of themis . o ther ( e xpense ) i ncome , n et other ( expense ) income , net decreased $ 2.4 million to $ ( 1.6 ) million during fiscal 2018 compared to $ 0.8 million in fiscal 2017 . the increase in other expense , net was primarily due to $ 2.4 million in financing and registration fees incurred during fiscal 2018 compared to $ 0.6 million in fiscal 2017. other income , net in fiscal 2017 includes $ 0.9 million related to the amortization of the gain on the sale leaseback of our former corporate headquarters . the decrease in other ( expense ) income , net was offset by $ 0.6 million foreign exchange gain compared to a $ 0.3 million gain during the same period in fiscal 2017. i ncome t axes on december 22 , 2017 , the tax cuts and jobs act of 2017 ( the “ tax act ” ) was enacted by the u.s. government . the tax act has impacted the u.s. corporate tax rate that we will use going forward , which has been reduced to 21 % from 35 % . as we have a june 30 fiscal year-end , the lower u.s. corporate tax rate will be phased in , resulting in a u.s. corporate tax rate of approximately 28 % for our fiscal year ending june 30 , 2018 , and 21 % for subsequent fiscal years . in addition to the reduced u.s. corporate tax rate we also expect to benefit from the immediate deduction for certain new investments . the tax act also includes items that we expect will increase our tax expense including , but not limited to , the elimination of the domestic manufacturing deduction and increased limitations on deductions for executive compensation . to transition to the reduced u.s. corporate tax rate , adjustments were required to be made to our u.s. deferred tax assets and liabilities , as well as discrete tax items recorded prior to the tax act . for the year ended june 30 , 2018 , these adjustments resulted in a tax benefit of $ 0.9 million . the tax act also provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits ( “ e & p ” ) through december 31 , 2017. we had an estimated $ 5.6 million of undistributed foreign e & p subject to the deemed mandatory repatriation and recognized a provisional $ 0.8 million of income tax expense for the year ended june 30 , 2018. the actual effective tax rate may be materially different than the u.s. corporate tax rate ( including being higher ) based on the availability and impact of various other adjustments including but not limited to state taxes , federal research and development credits , discrete tax benefits related to stock compensation , and the inclusion or exclusion of various items in taxable income which may differ from gaap income .
| results of operations : f iscal 2018 v s . f iscal 2017 results of operations for the twelve month period ended june 30 , 2017 includes only results from the acquisition dates for ces and delta . results of operations for the twelve month period ended june 30 , 2018 includes only results from the acquisition dates for rtl and themis , which were acquired subsequent to june 30 , 2017. accordingly , the periods presented below are not directly comparable . the following tables set forth , for the periods indicated , financial data from the consolidated statements of operations : replace_table_token_6_th r evenues replace_table_token_7_th total revenues increased $ 84.6 million , or 21 % , to $ 493.2 million during fiscal 2018 compared to $ 408.6 million during fiscal 2017 including `` acquired revenue '' which represents net revenue from acquired businesses that have been part of mercury for completion of four full quarters or less ( and excludes any intercompany transactions ) . after the completion of four fiscal quarters , acquired businesses will be treated as organic for current and comparable historical periods . the increase in total revenues is primarily attributed to higher revenues associated with the f-35 , aegis , modrex , pgk , and e2d hawkeye programs and the increase of $ 55.8 million of acquired revenue . these increases were partially offset by lower revenues from a large ground based radar program . international revenues , which consist of foreign military sales through the u.s. government , sales to prime defense contractor customers where the end user is known to be outside of the u.s. , and direct sales to non-u.s. based customers , increased $ 16.2 million to $ 83.1 million during fiscal 2018 compared to $ 66.9 million during fiscal 2017 . international revenues represented 17 % and 16 % of total revenues during fiscal 2018 and 2017 , respectively .
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the financial section includes the following : “ management 's discussion and analysis ( “ md & a ” ) provides information regarding the consolidated financial condition and results of operations of bancorp . it contains management 's view about industry trends , risks , uncertainties , accounting policies that bancorp views as critical in light of its business and results of operations . the discussion includes key performance drivers , financial position , cash flows , commitments and contingencies , important events , transactions that have occurred over the last three years , and forward-looking information , as appropriate . financial statements include consolidated balance sheets as of the end of the last two years , and consolidated statements of income , comprehensive income , changes in stockholders ' equity , and cash flows , for each of the last three years . bancorp 's financial statements are prepared in accordance with us gaap . notes to the financial statements provide insight into , and are an integral part of , the financial statements . these notes contain explanations of significant accounting policies , details about certain captions on the financial statements , information about significant events or transactions that have occurred , discussions about legal proceedings , commitments and contingencies , and selected financial information relating to business segments . notes to the financial statements also are prepared in accordance with us gaap . reports related to the financial statements and internal controls over financial reporting include the following : ● a report from bkd , llp , an independent registered public accounting firm , which includes their opinion on the presentation of bancorp 's consolidated financial statements in conformity with us gaap based on their audits ; ● a report from management indicating bancorp 's responsibility for financial reporting and the financial statements ; ● a report from management indicating bancorp 's responsibility for the system of internal control over financial reporting , including an assessment of the effectiveness of those controls ; ● a report from bkd , llp , which includes their opinion on the effectiveness of bancorp 's internal control over financial reporting ; and ● a report from kpmg , llp , an independent registered public accounting firm , which includes their opinion on the presentation of bancorp 's consolidated financial statements in conformity with us gaap based on their prior period audits . our business stock yards bancorp , inc. was incorporated in 1988 , and its business is substantially the same as that of its wholly owned subsidiary , stock yards bank & trust company . the bank has operated continuously since it opened in 1904. the bank conducted business at one location for 85 years and began branching in 1989. at december 31 , 2018 , the bank had 28 full service banking locations in the louisville msa , 5 full service banking locations in the indianapolis msa , and 5 full service banking locations in the cincinnati msa . bancorp 's focus on flexible , attentive customer service has been key to its growth and profitability . the wide range of services provided by wm & t , investment product sales , and mortgage origination help support the corporate philosophy of capitalizing on full service customer relationships . 16 forward-looking statements this report contains forward-looking statements under the private securities litigation reform act that involve risks and uncertainties . these forward-looking statements may be identified by the use of words such as “ expect ” , “ anticipate ” , “ plan ” , “ foresee ” , “ believe ” or other words with similar meaning . although bancorp believes assumptions underlying forward-looking statements contained herein are reasonable , any of these assumptions could be inaccurate . factors that could cause actual results to differ from results discussed in forward-looking statements include , but are not limited to : economic conditions both generally and more specifically in markets in which bancorp and its subsidiary operate ; competition for bancorp 's customers from other providers of financial services ; government legislation and regulation which change from time to time and over which bancorp has no control ; changes in interest rates ; material unforeseen changes in liquidity , deterioration in the real estate market , results of operations or financial condition of bancorp 's customers ; or other risks detailed in bancorp 's filings with the securities and exchange commission and item 1a of this form 10-k , all of which are difficult to predict and many of which are beyond the control of bancorp . additionally , these forward-looking statements include , but are not limited to , statements relating to the expected timing and benefits of the proposed acquisition of king bancorp , inc. , including future financial and operating results , cost savings , enhanced revenues , and accretion/dilution to reported earnings that may be realized from the acquisition , as well as other statements of expectations regarding the acquisition and other statements of goals , intentions and expectations ; statements regarding its business plan and growth strategies ; statements regarding the asset quality of king bancorp 's loan and investment portfolios ; and estimates of king bancorp 's risks and future costs and benefits , whether with respect to the acquisition or otherwise . critical accounting policies bancorp has prepared consolidated financial information in this report in accordance with us gaap . in preparing the consolidated financial statements , bancorp makes estimates and assumptions that affect the reported amount of assets and liabilities , 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 . there can be no assurances that actual results will not differ from those estimates . management has identified the accounting policy related to the allowance and provision for loan and lease losses ( “ provision ” ) as critical to the understanding of bancorp 's results of operations and discussed this conclusion with the audit committee of the board of directors . story_separator_special_tag loan growth and interest rates earned on loans are critical to overall profitability . similarly , deposit growth is crucial to funding loans , and rates paid on deposits directly impact profitability . new business volume is influenced by economic factors including market interest rates , business spending , consumer confidence and competitive conditions within the marketplace . as a result of record loan production , bancorp increased the loan portfolio $ 139 million , or 6 % , to $ 2.5 billion as of december 31 , 2018. increasing average yields on interest earning assets , along with the impact of increased volumes of loans contributed to higher interest income for 2018 , as interest income increased $ 18.9 million , or 17 % , over the same period in 2017. higher funding costs on deposits and borrowings , and deposit growth during 2018 resulted in increased interest expense of $ 8.1 million or 112 % , year over year . bancorp benefited in recent years from historically low costs of funding , so that even modest increases in interest expense result in a significant percentage change over prior periods . net interest margin in 2018 increased to 3.83 % , as compared with 3.64 % in 2017 despite continuing pressure of a highly competitive lending environment and increasing rates paid on deposits . total non-interest income increased $ 847 thousand , or 2 % in 2018 , as compared with 2017 , and represented 28 % of total revenues , down slightly from 30 % in 2017. wm & t income , debit and credit card fees , treasury management fees , and investment products fees all increased in 2018 over 2017 , with the greatest dollar increase from wm & t . wm & t represents an important part of the relationship focused philosophy of the company and , accordingly , income from the department represents approximately 47 % of total non-interest income for bancorp . the magnitude of wm & t revenue distinguishes bancorp from most other community banks of similar asset size and the 2018 increase reflected a rising stock market for most of the year and a strong year in terms of new wm & t clients added . a decrease in amortization/impairment of investments in tax credit partnerships due to reduced investment opportunities resulted in lower non-interest expenses for 2018. increases in other expenses , particularly personnel and technology costs associated with growth and operational support offset much of that decrease . reflecting these variances , bancorp 's efficiency ratio for 2018 of 55.9 % was down from 60.6 % in 2017. for the year ended december 31 , 2018 , bancorp recorded a $ 2.7 million provision , compared with $ 2.6 million for the same period in 2017. the provision represents a charge to earnings necessary to maintain an allowance that , in management 's evaluation , is adequate to provide coverage for inherent losses on outstanding loans . the provision was a reflection of continued historically strong credit quality metrics . bancorp 's allowance was 1.00 % of total loans at december 31 , 2018 , compared with 1.03 % of total loans at december 31 , 2017 . 18 bancorp 's effective income tax rate decreased to 17.8 % in 2018 from 31.1 % in 2017. the decrease was largely a result of the reduction of the marginal federal tax rate from 35 % to 21 % effective january 1 , 2018 , due to the tax cuts and jobs act enacted on december 22 , 2017. the tax reform also resulted in higher taxes in 2017 from a one-time $ 5.9 million charge to remeasure bancorp 's net deferred tax asset . the 2017 effective tax rate included significantly more tax savings from stock-based compensation deductions and federal income tax credits . bancorp anticipates an overall effective tax rate of approximately 18 % in 2019. bancorp invests in certain partnerships that yield federal income tax credits . the tax benefit of these investments exceeds the impairment charge associated with them , resulting in a positive impact on net income . the timing of these transactions is not predictable , and the magnitude can vary widely . in 2017 bancorp adopted asu 2016-09 “ compensation – stock compensation improvements to employee share-based payment accounting ” . the standard requires the company to recognize all excess tax benefits and deficiencies through the income statement as income tax expense or benefit . under previous gaap , any excess tax benefits were recognized in additional paid-in capital to offset current period and subsequent period tax deficiencies . bancorp recorded benefits of $ 549 thousand and $ 1.5 million for such tax benefits against the provision for income tax expense in 2018 , and 2017 , respectively . as of december 31 , 2018 , the company 's total stockholders ' equity to total assets was 11.10 % compared with 10.30 % at december 31 , 2017. the company 's ratio of tangible common equity to total tangible assets was 11.05 % as of december 31 , 2018 , compared with 10.25 % at december 31 , 2017. tangible common equity ( tce ) , a non-gaap measure , is a measure of a company 's capital which is useful in evaluating the quality and adequacy of capital . it consists of a company 's common equity less any preferred equity , less intangible assets . tangible common equity is divided by tangible assets , which equals total assets less intangible assets . see the non-gaap financial measures section for details on reconcilement to us gaap measures . challenges for 2019 will include achieving continued loan growth , managing net interest margin , managing credit quality , integrating an acquisition into the organization , and adapting to technology changes and evolving customer behavior . ● bancorp 's goals for 2019 include net loan growth at a pace similar to that experienced in 2018. this will be impacted by competition , prevailing economic conditions , line of credit utilization and prepayments in the loan portfolio .
| results of operations net income was $ 55.5 million or $ 2.42 per share on a diluted basis for 2018 compared with $ 38.0 million or $ 1.66 per share for 2017 and $ 41.0 million or $ 1.80 per share for 2016. net income for 2018 was positively impacted by : ● a $ 10.8 million , or 10 % increase in net interest income , ● a $ 1.0 million , or 5 % increase in wm & t income , and ● a $ 5.1 million , or 30 % decrease in income tax . net income for 2018 was negatively impacted by : ● a $ 3.5 million , or 8 % increase in compensation expense , and ● a $ 940 thousand , or 12 % increase in technology and communication expense . the following paragraphs provide a more detailed analysis of significant factors affecting operating results . net interest income net interest income , the most significant component of bancorp 's earnings , represents total interest income less total interest expense . net interest spread is the difference between the taxable equivalent rate earned on average interest earning assets and the rate expensed on average interest bearing liabilities . net interest margin represents net interest income on a taxable equivalent basis as a percentage of average earning assets . net interest margin is affected by both interest rate spread and the level of non-interest bearing sources of funds . the level of net interest income is determined by mix and volume of interest earning assets , interest bearing deposits and interest bearing liabilities and by changes in interest rates . the discussion that follows is based on tax-equivalent interest data . comparative information regarding net interest income follows : replace_table_token_5_th bp = basis point = 1/100th of a percent references above to net interest margin and net interest spread exclude the sold portion of certain participation loans from calculations .
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it should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. it contains forward-looking statements including , without limitation , statements relating to the company 's plans , strategies , objectives , expectations and intentions that are made pursuant to the “ safe harbor ” provisions of the private securities litigation reform act of 1995. the words “ anticipate , ” “ estimate , ” “ believe , ” “ budget , ” “ continue , ” “ could , ” “ intend , ” “ may , ” “ plan , ” “ potential , ” “ predict , ” “ seek , ” “ should , ” “ will , ” “ would , ” “ expect , ” “ objective , ” “ projection , ” “ forecast , ” “ goal , ” “ guidance , ” “ outlook , ” “ effort , ” “ target ” and similar expressions identify forward-looking statements . the company does not undertake to update , revise or correct any of the forward-looking information unless required to do so under the federal securities laws . readers are cautioned that such forward-looking statements should be read in conjunction with the company 's disclosures under the heading : “ cautionary statement for the purposes of the ‘ safe harbor ' provisions of the private securities litigation reform act of 1995. ” the terms “ earnings ” and “ loss ” as used in management 's discussion and analysis refer to net income ( loss ) attributable to phillips 66. the terms “ pre-tax income ” or “ pre-tax loss ” as used in management 's discussion and analysis refer to income ( loss ) before income taxes . executive overview and business environment phillips 66 is an energy manufacturing and logistics company with midstream , chemicals , refining , and marketing and specialties businesses . at december 31 , 2018 , we had total assets of $ 54.3 billion . executive overview in 2018 , we reported earnings of $ 5.6 billion , generated $ 7.6 billion in cash from operating activities and raised net proceeds of $ 1.5 billion from the issuance of senior notes . we used available cash primarily for repurchases of our common stock of $ 4.6 billion , capital expenditures and investments of $ 2.6 billion , dividend payments on our common stock of $ 1.4 billion and the early repayment of $ 550 million of debt . we ended 2018 with $ 3.0 billion of cash and cash equivalents and approximately $ 5.6 billion of total committed capacity available under our credit facilities . we continue to focus on the following strategic priorities : operating excellence . our commitment to operating excellence guides everything we do . we are committed to protecting the health and safety of everyone who has a role in our operations and the communities in which we operate . continuous improvement in safety , environmental stewardship , reliability and cost efficiency is a fundamental requirement for our company and employees . we employ rigorous training and audit programs to drive ongoing improvement in both personal and process safety as we strive for zero incidents . since we can not control commodity prices , controlling operating expenses and overhead costs , within the context of our commitment to safety and environmental stewardship , is a high priority . senior management actively monitors these costs . we are committed to protecting the environment and strive to reduce our environmental footprint throughout our operations . optimizing utilization rates at our refineries through reliable and safe operations enables us to capture the value available in the market in terms of prices and margins . during 2018 , our worldwide refining crude oil capacity utilization rate was 95 percent . 32 index to financial statements growth . we have budgeted $ 3.2 billion in capital expenditures and investments in 2019 , including $ 0.9 billion for phillips 66 partners lp ( phillips 66 partners ) . the phillips 66 partners ' capital budget includes $ 0.3 billion of capital expected to be cash funded by noncontrolling interests . additionally , our share of expected self-funded capital spending by joint ventures dcp midstream , llc ( dcp midstream ) , chevron phillips chemical company llc ( cpchem ) and wrb refining lp ( wrb ) in 2019 is $ 1.2 billion . in midstream , we will continue building out our integrated logistics infrastructure network , including pipelines , storage , export and fractionation facilities . in chemicals , cpchem 's growth capital will fund continuing development of a second u.s. gulf coast petrochemicals project and debottlenecking opportunities on existing assets . growth capital in refining will be directed toward high-return projects to enhance the yield of higher-value products , as well as other low-capital , quick-payout projects , while in marketing and specialties ( m & s ) it will be to further grow and enhance retail sites in europe . returns . we plan to improve refining returns by increasing throughput of advantaged feedstocks , disciplined capital allocation and portfolio optimization . a disciplined capital allocation process ensures we focus investments in projects that generate competitive returns throughout the business cycle . in 2018 , our midstream segment benefited from higher equity earnings and cash distributions from our investments in joint venture pipelines . our refining segment maintained a strong clean product yield and a high advantaged crude oil throughput rate at our u.s. refineries . additionally , our m & s segment continued to enhance our network and brand by re-imaging sites in the united states . distributions . we believe shareholder value is enhanced through , among other things , consistent growth of regular dividends , complemented by share repurchases . story_separator_special_tag this increase was mainly due to the consolidation of a transportation joint venture in december 2016 , as well as higher refining turnaround expenses and utility costs , pension settlement expense , and costs associated with a full year of operations at the freeport lpg export terminal . these increases were partially offset by lower costs due to the sale of the whitegate refinery in 2016. depreciation and amortization increased 13 percent in 2017 due to the freeport lpg export terminal beginning operations in late 2016 , as well as other assets placed in service in 2017. interest and debt expense increased 30 percent in 2017 . this increase was primarily driven by lower capitalized interest due to the completion of major projects , including completion of the freeport lpg export terminal project in late 2016 , as well as higher average debt principal balances . income tax expense ( benefit ) was a benefit in 2017 , compared with expense in 2016 , primarily due to the $ 2,735 million provisional income tax benefit from the enactment of the tax act in december 2017. the benefit from the tax act was primarily due to the revaluation of deferred income taxes . this benefit was partially offset by higher income tax expense from increased income before income taxes . see note 21—income taxes , in the notes to consolidated financial statements , for more information regarding our income taxes . net income attributable to noncontrolling interests increased $ 53 million in 2017 , primarily due to the contributions of assets to phillips 66 partners during 2017 and late 2016. see note 27—phillips 66 partners lp , in the notes to consolidated financial statements , for more information . 38 index to financial statements segment results midstream replace_table_token_9_th replace_table_token_10_th * pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment . prior year volumes have been recast to exclude our share of equity volumes from yellowstone pipe line company and lake charles pipe line company . * * excludes dcp midstream . * * * represents 100 percent of dcp midstream 's volumes . dollars per gallon weighted-average ngl price * dcp midstream $ 0.75 0.62 0.46 * based on index prices from the mont belvieu market hub , which are weighted by ngl component . the midstream segment provides crude oil and refined petroleum product transportation , terminaling and processing services , as well as natural gas and ngl transportation , storage , processing and marketing services , mainly in the united states . this segment includes our master limited partnership ( mlp ) , phillips 66 partners , as well as our 50 percent equity investment in dcp midstream , which includes the operations of its mlp , dcp midstream , lp ( dcp partners ) . 2018 vs. 2017 pre-tax income from the midstream segment increased $ 543 million in 2018 , compared with 2017 , due to improved results across all business lines . pre-tax income from our transportation business increased $ 240 million in 2018 , compared with 2017 . the increase was mainly driven by higher volumes , tariffs and storage rates from our portfolio of consolidated and joint venture assets . these increases were partially offset by a decrease in equity earnings from rockies express pipeline llc ( rex ) due to a favorable settlement recorded in 2017. pre-tax income from our ngl and other business increased $ 273 million in 2018 , compared with 2017 . the increase was primarily due to the contribution of merey sweeny to phillips 66 partners in october 2017 , inventory impacts , improved cargo margins and volumes , and higher equity earnings from pipeline affiliates due to increased volumes . 39 index to financial statements pre-tax income from our investment in dcp midstream increased $ 30 million in 2018 , compared with 2017 . the increase was primarily due to higher equity earnings from affiliates as a result of increased volumes , timing of incentive distribution income allocations from dcp partners , and favorable hedging results . these increases were partially offset by higher asset impairments and operating costs in 2018. see the “ executive overview and business environment ” section for information on market factors impacting 2018 results . 2017 vs. 2016 pre-tax income from the midstream segment increased $ 235 million in 2017 , compared with 2016 , due to improved results across all business lines . pre-tax income from our transportation business increased $ 88 million in 2017 , compared with 2016 . the improvement was mainly driven by increased equity earnings from affiliates , including our joint ventures that own the bakken pipeline , which started commercial operations in june 2017 , as well as rex due to our share of a favorable breach of contract settlement claim . these increases were partially offset by higher operating costs . pre-tax income from our ngl and other business increased $ 37 million in 2017 , compared with 2016 . the increase reflected a full year of operations at the freeport lpg export terminal , the contribution of merey sweeny to phillips 66 partners in october 2017 , and higher equity earnings from dcp sand hills pipeline , llc ( sand hills ) , partially offset by lower realized margins . pre-tax income from our investment in dcp midstream increased $ 110 million in 2017 , compared with 2016 . the increase was primarily due to improved margins driven by higher average ngl and natural gas prices , and improved hedging results . 40 index to financial statements chemicals replace_table_token_11_th the chemicals segment consists of our 50 percent interest in cpchem , which we account for under the equity method . cpchem uses ngl and other feedstocks to produce petrochemicals . these products are then marketed and sold or used as feedstocks to produce plastics and other chemicals . we structure our reporting of cpchem 's operations around two primary business lines : olefins and polyolefins ( o & p ) and specialties , aromatics and styrenics ( sa & s ) .
| consolidated results a summary of income ( loss ) before income taxes by business segment with a reconciliation to net income attributable to phillips 66 follows : replace_table_token_8_th 2018 vs. 2017 our earnings increased $ 489 million , or 10 percent , in 2018 , mainly reflecting : higher realized refining and marketing margins . higher earnings from equity affiliates in our midstream and chemicals segments . a lower u.s. federal corporate income tax rate beginning january 1 , 2018 , as a result of the u.s. tax cuts and jobs act ( the tax act ) enacted in december 2017. these increases were partially offset by : a $ 2,735 million provisional income tax benefit from the enactment of the tax act recognized in december 2017 , primarily due to the revaluation of deferred income taxes . a $ 261 million noncash , after-tax gain from the consolidation of merey sweeny , l.p. , predecessor to merey sweeny llc ( both referred to herein as merey sweeny ) , in 2017. higher net income attributable to noncontrolling interests primarily due to the contribution of assets to phillips 66 partners in the fourth quarter of 2017. higher interest and debt expense . 35 index to financial statements 2017 vs. 2016 our earnings increased $ 3,551 million , or 228 percent , in 2017 , primarily resulting from : recognition of the $ 2,735 million provisional income tax benefit from the enactment of the tax act in december 2017. higher realized refining margins . recognition of the $ 261 million after-tax gain from the consolidation of merey sweeny . improved equity earnings from affiliates in our midstream segment . these increases were partially offset by : increased costs due to hurricane harvey , primarily impacting cpchem in our chemicals segment . lower realized marketing margins . higher interest and debt expense . see the “ segment results ” section for additional information on our segment results .
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are required to be expensed under generally accepted accounting principles ; ( 11 ) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles ; and ( 12 ) to exclude the effects story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this form 10-k. some of the information contained in this discussion and analysis or set forth elsewhere in this form 10-k , including information with respect to our plans and strategy for our business , includes forward-looking statements that involve risks and uncertainties . you should review the “ risk factors ” section of this form 10-k for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview we are a clinical-stage immunotherapy company engaged in the discovery and development of next-generation therapies with an initial focus on treatments for cancer . our immunophage platform is a powerful , self-adjuvanted and highly differentiated immunotherapy approach that is designed to utilize bacteriophage to induce a robust , focused and coordinated innate and adaptive immune response . we are engineering our immunophage product candidates to directly target apcs and modulate the tme through the targeted use of nanobodies to further enhance therapeutic activity . we believe our immunophage platform has the potential to deliver on the promise of personalized , off-the-shelf product candidates tailored to a patient 's specific tumor . the versatility of our immunophage platform allows us to design product candidates in a modular fashion , based on a cocktail of common and patient-specific antigens built from our proprietary library of immunophages , which we refer to as phortress . we are currently conducting an ongoing 30-patient phase 1/2 clinical trial of our lead product candidate , sns-301 , in combination with the pd-1 inhibitor pembrolizumab , as a potential treatment for scchn . as of march 9 , 2021 , we have enrolled 17 patients in the trial . as of december 10 , 2020 , we have evaluated ten patients for efficacy and ten for safety . we have observed disease control in seven of the patients evaluable for efficacy , including one patient with a pr , and two patients who have achieved longstanding sd for greater than 36 weeks following treatment . treatment with sns-301 has generally been well tolerated . we anticipate reporting a large additional subset of data from this trial by the end of 2021. if the results of this trial are positive , subject to feedback from the fda , we intend to initiate a randomized , registration-enabling trial for sns-301 . we are leveraging the insights from our experience with sns-301 to expand our development pipeline to include sns-401 for the treatment of mcc and a human mab program targeting the novel immune checkpoint vista . since our inception , we have devoted the majority of our efforts and financial resources to research and development activities related to our immunophage platform and our lead product candidate sns-301 , including raising capital , protecting our intellectual property portfolio and conducting preclinical studies and clinical trials . we do not have any product candidates approved for sale , have not generated any revenue from product sales , and do not expect to generate any revenue from product sales for at least the next several years . we have largely funded our operations with proceeds from the sale of convertible preferred stock , common stock and convertible debt . through the date of this report , we have raised an aggregate of $ 123.4 million of gross proceeds from private placements of our equity and convertible debt securities and net proceeds of $ 138.5 million from our initial public offering , or ipo , in february 2021. we have incurred significant operating losses over the last several years . our net loss was $ 20.1 million and $ 16.7 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 112.4 million . we expect to continue to incur significant expenses and operating losses for the foreseeable future . we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : complete our phase 1/2 clinical trial of sns-301 and continue clinical development of sns-301 ; prepare to file inds and then initiate clinical development of additional product candidates , including sns-401 and sns-vista ; continue the research and development of our other product candidates ; invest in our immunophage platform ; seek to discover and develop additional product candidates or acquire or in-license drugs , product candidates or technologies ; seek regulatory approvals for any product candidates that successfully complete clinical trials ; ultimately establish a sales , marketing and distribution infrastructure and scale up manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval ; manufacture our product candidates or otherwise secure the clinical and commercial supply of our product candidates ; hire additional research and development and selling , general and administrative personnel ; maintain , expand and protect our intellectual property portfolio ; and 76 incur additional costs associated with operating as a public company . cash used to fund operating expenses is impacted by the timing of when we pay these expenses , as reflected in the change in our accounts payable and accrued expenses . we expect to continue to incur net losses and negative cash flows for the foreseeable future , and we expect our research and development expenses , general and administrative expenses , and capital expenditures will continue to increase . story_separator_special_tag to date , there has not been a significant impact on the development of sns-301 or the rest of our pipeline ; however we can not at this time predict the specific extent , duration , or full impact that the covid-19 pandemic could potentially have on our ongoing business plan , financial condition and operations . components of our results of operations operating expenses research and development expense our research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates . these expenses include : expenses incurred under agreements with cros , as well as investigative sites and consultants that conduct our clinical trials and preclinical studies ; the cost of manufacturing our product candidates including the potential cost of cmos that manufacture product for use in our preclinical studies and clinical trials and perform analytical testing , scale-up and other services in connection with our development activities ; the cost of outsourced professional scientific development services ; employee-related expenses , including salaries , benefits and stock-based compensation for employees engaged in the research and development function ; expenses relating to regulatory activities , including filing fees paid to regulatory agencies ; fees for maintaining licenses and other amounts due under our third party licensing agreements ; laboratory materials and supplies used to support our research activities ; and allocated expenses for utilities and other facility-related costs . we expense all research and development costs in the periods in which they are incurred . costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers . we do not track our research and development expenses by program . our direct external research and development expenses consist primarily of external costs , such as fees paid to cros , cmos , research/testing laboratories and outside consultants in connection with our preclinical development , process development , manufacturing and clinical development activities . we do not allocate these costs to specific product candidates because many of them are deployed across several of our development programs and , as such , are not separately classified . we use internal resources primarily to conduct research and manage our preclinical development , outsourced clinical trials , process development , manufacturing and clinical development activities . these employees work across multiple development programs and , therefore , we do not track their costs by program and , as such , are not separately classified . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect our research and development expenses to increase significantly over the next several years as we increase personnel costs , including stock-based compensation , conduct our registration-enabling clinical trial of sns-301 in patients with scchn , conduct other clinical trials and prepare regulatory filings for our product candidates . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of , or when , if ever , material net cash inflows may commence from any of our other product candidates . this uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials , which vary significantly over the life of a project as a result of many factors , including : the scope , progress , outcome and costs of our preclinical studies and clinical trials of sns-301 , our other product candidates and any other product candidates we may acquire or develop ; 78 manufacturing of our product candidates or making arrangements with potential third-party manufacturers for both clinical and commercial supplies of these product candidates ; successful patient enrollment in , and the initiation , duration and completion of clinical trials ; the cost of gaining regulatory approvals for our product candidates , subject to the successful outcome of ongoing and future clinical trials ; and the extent of any required post-marketing approval commitments to applicable regulatory authorities . our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending and enforcing any patent claims or other intellectual property rights . we may never succeed in achieving regulatory approval for any of our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of some product candidates or focus on others . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . product commercialization will take several years and significant additional development costs . general and administrative expense general and administrative expenses consist principally of salaries and related costs for personnel in executive , administrative , finance and legal functions , including stock-based compensation , travel expenses and recruiting expenses . other general and administrative expenses include facility related costs , patent filing and prosecution costs and professional fees for legal , auditing and tax services , and insurance costs .
| results of operations comparison of years ended december 31 , 2020 and 2019 the following sets forth our results of operations for the years ended december 31 , 2020 and 2019 : replace_table_token_1_th research and development expenses research and development expenses were $ 11.2 million for the year ended december 31 , 2020 , compared to $ 8.4 million for the year ended december 31 , 2019. the increase of $ 2.8 million was primarily attributable to investments being made in early research and development activities and the clinical and preclinical development of sns-301 , sns-401 and sns-vista . general and administrative expenses general and administrative expenses were $ 7.5 million for the year ended december 31 , 2020 , compared to $ 4.1 million for the year ended december 31 , 2019. the increase of $ 3.4 million was primarily attributable to consulting fees for strategic and development-related advice , stock-based compensation expense resulting from new stock award grants during 2020 , and additional recruiting fees incurred for the hiring of additional team resources . other expense other expense was $ 0.6 million for the year ended december 31 , 2020 , compared to $ 4.3 million for the year ended december 31 , 2019. the decrease of $ 3.7 million was primarily attributable to fair value adjustments of embedded derivative liabilities associated with certain 2019 promissory notes , as well as lower interest expense on debt due to the redemption of notes in 2020. comparison of years ended december 31 , 2019 and 2018 the following sets forth our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_2_th research and development expenses research and development expenses were $ 8.4 million for the year ended december 31 , 2019 , compared to $ 8.2 million for the year ended december 31 , 2018. costs remained relatively flat between the two years , with investments being made in early research and
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our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those discussed under item 1a , “ risk factors ” and elsewhere in this annual report on form 10-k. see also “ cautionary statement regarding forward-looking statements ” at the beginning of this form 10-k. overview we provide trusted , independent data , metrics , products and services to clients in the media , advertising , and marketing industries . we deliver digital media analytics that help content owners and advertisers understand -- and thus properly value -- the composition of consumer media audiences , and we help marketers understand the performance and effectiveness of advertising targeted at these audiences . we are a technology-driven company that measures what people do as they navigate the digital world across multiple technology platforms and devices including smartphones , tablets , televisions , and desktop computers . our technology measures consumer interactions with digital media , including web sites , apps , video programming and advertising . we combine proprietary comscore data with our clients ' own data and data from partners , to provide uniquely valuable digital media analytics . we deliver on-demand and real-time products and services through a scalable software-as-service delivery model which supports both comscore branded products and also partner products integrating comscore data and services . during the year ended december 31 , 2014 , we provided service to approximately 2,550 customers worldwide with our broad geographic base of employees located in 32 locations in 24 countries . our company was founded in august 1999 , and we have been publicly traded since our initial public offering in 2007. as we have grown as a public company , we have continued to evolve . for example , from 2008 to 2011 , we completed targeted acquisitions of several businesses with complementary research and analytics capabilities and businesses with an established presence in europe and latin america to expand our global footprint . our revenues and expenses grew through this period , driven primarily by growth in our product offerings , increased sales to existing customers , and the resulting expansion of our customer base outside the united states following our acquisitions and increased international sales efforts . since 2010 , we have increasingly focused our technology , research , and data science assets and expertise on developing new products and services that report on advertising performance and effectiveness , most notably our flagship validated campaign essentials product . we have also made large investments in multi-platform and cross-media solutions measuring digital content consumption across smartphone , tablet and desktop platforms , and also linking digital video consumption with metrics measuring traditional linear television viewing . in recent years , our strategy has also involved a series of strategic partnerships along two dimensions : product development and product distribution . product development has been enhanced through partnerships which provide us with large volumes of consumer demographics and segmentation data which improves the accuracy and granularity of our products and services . product distribution has been significantly widened through partnerships which integrate our metrics and services into the third party platforms used by clients . we believe these investments in advertising measurement and multi-platform/cross-media measurement are poised to converge and offer significant revenue potential in the years ahead as we pursue our mission of making audiences and advertising more valuable . key metrics replace_table_token_6_th * adjusted ebitda is not calculated in accordance with generally accepted accounting principles , or gaap . a reconciliation of this non-gaap measure to the most directly comparable gaap-based measure along with a summary of the definition and its material limitation are included in the section titled “ -non-gaap financial measures. ” ( 1 ) we divested our non-health copy testing and configuration manager products in march 2013. amounts for the year ended december 31 , 2013 and december 31 , 2012 include adjustments to exclude non-health copy testing and configuration manager products and are based on management 's estimates of the revenue and results of 33 operations of such products . ( 2 ) comscore classified its mobile operator analytics division csws as held for sale in the fourth quarter of 2014 . 2014 , 2013 and 2012 amounts include adjustments to exclude the mobile operator analytics division and are based on management 's estimates of the revenue and results of operations of the division . we monitor the key financial and operating metrics set forth in the preceding table to help us evaluate trends and measure the effectiveness and efficiency of our operations . we discuss our revenue in the section titled “ our revenues ” and “ results of operations ” and adjusted ebitda and adjusted ebitda margin in the section titled “ non-gaap financial measures. ” non-gaap financial measures to provide investors with additional information regarding our financial results , we have disclosed adjusted ebitda and adjusted ebitda margin , which are both non-gaap financial measures . we present these non-gaap financial measures because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends . we believe that these non-gaap financial measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . we define adjusted ebitda as net income ( loss ) plus ; amortization of intangible assets , impairment of intangible assets , stock-based compensation , costs related to acquisitions , restructuring and other infrequently occurring items , settlement of litigation , gain on ars disposition , pro-forma adjustment to exclude the non-health copy-testing and configuration manager products and deferred tax provision , current cash tax provision , depreciation , and interest expense ( income ) , net . adjusted ebitda margin is the quotient of adjusted ebitda divided by total revenue . story_separator_special_tag while vce provides key analytics about advertising campaigns to ad buyers , we also offer validated media essentials ( vme ) to advertising sellers , allowing them to evaluate their advertising inventory and optimize their monetization strategy with metrics comparable to those used by ad buyers . as of december 31 , 2014 , our strategic partnerships with google and yahoo were live and generating revenues . we also generate subscription-based revenues from certain reports and analyses provided through our customer research product , if that work is procured by customers on a recurring basis . through our customer research products , we deliver digital media analytics relating to specific industries , such as automotive , consumer packaged goods , entertainment , financial services , media , pharmaceutical , retail , technology , telecommunications and travel . this marketing intelligence leverages our global consumer panel and extensive database to deliver information unique to a particular customer 's needs on a recurring schedule , as well as on a continual-access basis . our marketing solutions customer agreements typically include a fixed fee with an initial term of at least one year . we also provide these products on a non-subscription basis as described under “ project revenues ” . in addition , we generate subscription-based revenues from survey products that we sell to our customers . in conducting our surveys , we generally use our global internet user panel . after questionnaires are distributed to the panel members and completed , we compile their responses and then deliver our findings to the customer , who also has ongoing access to the survey response data as they are compiled and updated over time . this data include responses and information collected from the actual survey questionnaires and can also include behavioral information that we passively collect from our panelists . if a customer has a history of purchasing survey products in each of the last four quarters , then we believe this indicates the surveys are being conducted on a recurring basis , and we classify the revenues generated from such survey products as subscription-based revenues . our contracts for survey services typically include a fixed fee with terms that range from two months to one year . our acquisition of nedstat resulted in additional revenue sources , including software subscriptions , server calls , and professional services . our arrangements generally contain multiple elements , consisting of the various service offerings . for these revenue streams , revenue is recognized on a usage basis when the impression is delivered and reported via the adxpose service portal . project revenues we generate project revenues by providing customized reports to our customers on a nonrecurring basis through comscore marketing solutions . for example , a customer in the media industry might request a custom report that profiles the behavior of the customer 's active online users and contrasts their market share and loyalty with similar metrics for a competitor 's online user base . if this customer continues to request the report beyond an initial project term of at least nine months and enters into an agreement to purchase the report on a recurring basis , we begin to classify these future revenues as subscription-based . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . 36 while our significant accounting policies are described in more detail in the notes to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k , we believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenues when the following fundamental criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or the services have been rendered , ( iii ) the fee is fixed or determinable , and ( iv ) collection of the resulting receivable is reasonably assured . we generate revenues by providing access to our online database or delivering information obtained from our database , usually in the form of periodic reports . revenues are typically recognized on a straight-line basis over the period in which access to data or reports is provided , which generally ranges from three to twenty four months . sales taxes remitted to government authorities are recorded on a net basis . we also generate revenues through survey services under contracts ranging in term from two months to one year . our survey services consist of survey and questionnaire design with subsequent data collection , analysis and reporting . at the outset of an arrangement , we allocate total arrangement consideration between the development of the survey questionnaire and subsequent data collection , analysis and reporting services based on relative selling price . we recognize revenue allocated to the survey questionnaire when it is delivered and we recognize revenue allocated to the data collection , analysis and reporting services on a straight-line basis over the estimated data collection period once the survey or questionnaire design has been delivered . any change in the estimated data collection period results in an adjustment to revenues recognized in future periods . certain of our arrangements contain multiple elements , consisting of the various services we offer . multiple element arrangements typically consist of either subscriptions to multiple online product solutions or a subscription to our online database combined with customized services .
| results of operations the following table sets forth selected consolidated statements of operations data as a percentage of total revenues for each of the periods indicated . replace_table_token_8_th year ended december 31 , 2014 compared to year ended december 31 , 2013 revenues year ended december 31 , change 2014 2013 $ % ( in thousands ) revenues $ 329,151 $ 286,860 $ 42,291 14.7 % total revenues increased by approximately $ 42.3 million during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 . we attribute the revenue growth to increased sales to our existing customer base and continued growth of our customer base during the period . revenue from existing customers increased $ 44.4 million from $ 257.3 million for the year ended december 31 , 2013 to $ 301.7 million for the year ended december 31 , 2014 , while revenue from new customers decreased $ 2.1 million from $ 29.5 million for the year ended december 31 , 2013 to $ 27.4 million for the year ended december 31 , 2014 . revenue from existing customers increased due to an increased focus on the selling of new products , especially vce , to our existing customer base . revenue from new customers decreased due to high levels of penetration in our mature markets and lower introductory price points for new clients in less mature markets . we experienced continued revenue growth in subscription revenues , which increased by approximately $ 48.0 million during the year ended december 31 , 2014 , from $ 249.8 million in the prior year period . we experienced a decrease in revenue from our project-based revenues which decreased by approximately $ 5.6 million during the year ended december 31 , 2014 , from $ 37.0 million in the prior year period .
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the domestic segment is comprised of the operations , including our best buy health business , in all states , districts and territories of the u.s. under various brand names including best buy , best buy business , best buy express , best buy health , cst , geek squad , greatcall , lively , magnolia and pacific kitchen and home and the domain names bestbuy.com and greatcall.com . the international segment is comprised of all operations in canada and mexico under the brand names best buy , best buy express , best buy mobile and geek squad and the domain names bestbuy.ca and bestbuy.com.mx . during the third quarter of fiscal 2021 we made the decision to exit our operations in mexico . refer to note 2 , restructuring , of the notes to consolidated financial statements , included in item 8 , financial statements and supplementary data , of this annual report on form 10-k for additional information . our fiscal year ends on the saturday nearest the end of january . fiscal 2021 , fiscal 2020 and fiscal 2019 included 52 weeks . our business , like that of many retailers , is seasonal . a large proportion of our revenue and earnings is generated in the fiscal fourth quarter , which includes the majority of the holiday shopping season in the u.s. , canada and mexico . comparable sales throughout this md & a , we refer to comparable sales . comparable sales is a metric used by management to evaluate the performance of our existing stores , websites and call centers by measuring the change in net sales for a particular period over the comparable prior-period of equivalent length . comparable sales includes revenue from stores , websites and call centers operating for at least 14 full months . stores closed more than 14 days , including but not limited to relocated , remodeled , expanded and downsized stores , or stores impacted by natural disasters , are excluded from comparable sales until at least 14 full months after reopening . acquisitions are included in comparable sales beginning with the first full quarter following the first anniversary of the date of the acquisition . comparable sales also includes credit card revenue , gift card breakage , commercial sales and sales of merchandise to wholesalers and dealers , as applicable . comparable sales excludes the impact of revenue from discontinued operations and the effect of fluctuations in foreign currency exchange rates ( applicable to our international segment only ) . online sales are included in comparable sales . online sales represent those initiated on a website or app , regardless of whether customers choose to pick up product in store , curbside , at an alternative pick-up location or take delivery direct to their homes . all periods presented apply this methodology consistently . in march 2020 , the world health organization declared the outbreak of novel coronavirus disease ( “ covid-19 ” ) as a pandemic . all stores that were temporarily closed as a result of covid-19 or operating a curbside-only operating model are included in comparable sales . on november 24 , 2020 , we announced our decision to exit our operations in mexico . as a result , all revenue from mexico operations has been excluded from our comparable sales calculation beginning in december of fiscal 2021. on march 1 , 2018 , we announced our intent to close all of our 257 remaining best buy mobile stand-alone stores in the u.s. as a result , all revenue related to these stores has been excluded from our comparable sales calculation beginning in march 2018. on october 1 , 2018 , we acquired all outstanding shares of greatcall , inc. ( “ greatcall ” ) and on may 9 , 2019 , we acquired all outstanding shares of critical signal technologies , inc. ( “ cst ” ) . consistent with our comparable sales policy , the results of greatcall are included in our comparable sales calculation beginning in the fourth quarter of fiscal 2020 , and the results of cst are included in our comparable sales calculation beginning in the third quarter of fiscal 2021. we believe comparable sales is a meaningful supplemental metric for investors to evaluate revenue performance resulting from growth in existing stores , websites and call centers versus the portion resulting from opening new stores or closing existing stores . the method of calculating comparable sales varies across the retail industry . as a result , our method of calculating comparable sales may not be the same as other retailers ' methods . non-gaap financial measures this md & a includes financial information prepared in accordance with accounting principles generally accepted in the united states ( `` gaap '' ) , as well as certain adjusted or non-gaap financial measures , such as constant currency , non-gaap operating income , non-gaap effective tax rate and non-gaap diluted earnings per share ( `` eps '' ) . we believe that non-gaap financial measures , when reviewed in conjunction with gaap financial measures , can provide more information to assist investors in evaluating current period performance and in assessing future performance . for these reasons , our internal management reporting also includes non-gaap financial measures . generally , our non-gaap financial measures include adjustments for items such as restructuring charges , goodwill impairments , price-fixing settlements , gains and losses on investments , intangible asset amortization , certain acquisition-related costs and the tax effect of all such items . in addition , certain other items may be excluded from non-gaap financial measures when we believe doing so provides greater clarity to management and our investors . these non-gaap financial measures should be considered in addition to , and not superior to or as a substitute for , gaap financial measures . we strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure . story_separator_special_tag as we continue to evolve our building the new blue strategy , it is possible that we will incur material future restructuring costs , but we are unable to forecast the timing and magnitude of such costs . refer to note 2 , restructuring , of the notes to consolidated financial statements , included in item 8 , financial statements and supplementary data , of this annual report on form 10-k for additional information . 25 we believe the following will be permanent and structural implications of the pandemic relevant to best buy : customer shopping behavior will be permanently changed in a way that is even more digital and puts customers entirely in control to shop how they want . our strategy is to embrace that reality , and lead , not follow . our workforce will need to evolve in a way that meets the needs of customers while also providing more flexible opportunities for our people . technology is playing an even more crucial role in people 's lives , and , as a result , our purpose to enrich lives through technology has never been more important . said differently , people are using technology to address their needs in ways they never contemplated before , and we play a vital role in bringing technology to life for both customers and our vendor partners . these implications are extensive and interdependent , and we are , as quickly as possible , both implementing change today and assessing future changes across our entire business , including how we evolve our stores and labor model , and how we spend our investment dollars . in summary , during fiscal 2021 we managed through the challenging environment in a way that allowed us to accelerate many aspects of our strategy to deliver on our purpose . our teams showed perseverance and commitment through the year and collectively changed the way we do business at a pace we never imagined . results of operations in order to align our fiscal reporting periods and comply with statutory filing requirements , we consolidate the financial results of our mexico operations on a one-month lag . consistent with such consolidation , the financial and non-financial information presented in our md & a relative to these operations is also presented on a lag . our policy is to accelerate the recording of events occurring in the lag period that significantly affect our consolidated financial statements . other than the restructuring charges incurred related to our decision to exit our operations in mexico , no such events were identified for the periods presented . story_separator_special_tag normal ; margin : 0 ; padding : 0 ; '' > notable comparable sales changes by revenue category were as follows : computing and mobile phones : the 23.8 % comparable sales growth was driven primarily by computing , tablets and networking , partially offset by declines in mobile phones . consumer electronics : the 0.3 % comparable sales growth was driven primarily by home theater and health and fitness , partially offset by declines in smart home and digital imaging . appliances : the 20.9 % comparable sales growth was driven by both small and large appliances . entertainment : the 52.1 % comparable sales growth was driven primarily by gaming and virtual reality . services : the 11.0 % comparable sales decline was driven primarily by warranty and repair services . other : the 9.4 % comparable sales growth was driven primarily by baby products . our gross profit rate declined in fiscal 2021 primarily due to operations in canada , which was largely driven by higher supply chain costs as a result of the increased mix of online revenue and a lower mix of higher margin services revenue . gross profit also decreased $ 23 million as a result of inventory markdowns associated with our decision to exit our operations in mexico . our sg & a decreased in fiscal 2021 primarily due to operations in canada as a result of lower store payroll expense , partially offset by higher incentive compensation . restructuring charges in fiscal 2021 primarily related to asset impairments , currency translation adjustments and termination benefits associated with our decision to exit our operations in mexico . refer to note 2 , restructuring , of the notes to consolidated financial statements , included in item 8 , financial statements and supplementary data , of this annual report on form 10-k for additional information . our operating income rate decreased in fiscal 2021 primarily driven by restructuring charges and the lower gross profit rate described above , partially offset by a favorable sg & a rate driven by increased leverage from higher sales volume on our fixed expenses . additional consolidated results other income ( expense ) our investment income and other decreased in fiscal 2021 primarily due to less favorable interest rates on our investments , partially offset by an increase in the fair value of a minority equity investment . interest expense decreased in fiscal 2021 primarily due to more favorable interest rates related to our interest rate swap contracts , partially offset by an increase in interest expense as a result of our short-term draw on our $ 1.25 billion five-year senior unsecured revolving credit facility . refer to note 8 , debt , of the notes to consolidated financial statements , included in item 8 , financial statements and supplementary data , of this annual report on form 10-k for additional information regarding our revolving credit facility . income tax expense income tax expense increased in fiscal 2021 primarily due to an increase in pre-tax earnings . our effective tax rate increased in fiscal 2021 primarily due to an increase in losses for which tax benefits were not recognized , a decrease in the tax benefit from stock-based compensation and the impact of higher pre-tax earnings on discrete tax benefits , partially offset by an increase in the tax benefit from federal tax credits and the resolution of discrete tax matters .
| consolidated results selected consolidated financial data was as follows ( $ in millions , except per share amounts ) : replace_table_token_6_th ( 1 ) because retailers vary in how they record costs of operating their supply chain between cost of sales and sg & a , our gross profit rate and sg & a rate may not be comparable to other retailers ' corresponding rates . for additional information regarding costs classified in cost of sales and sg & a , refer to note 1 , summary of significant accounting policies , of the notes to consolidated financial statements , included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. in fiscal 2021 we generated $ 47.3 billion in revenue and our comparable sales increased 9.7 % . the impact of the pandemic drove strong customer demand for products to help them work , learn , cook , entertain and connect in their homes . our strong sales performance resulted in operating income rate expansion of 50 basis points compared to fiscal 2020. revenue , gross profit rate , sg & a rate and operating income rate changes in fiscal 2021 were primarily driven by our domestic segment . for further discussion of each segment 's rate changes , see segment performance summary , below . 26 segment performance summary domestic segment selected financial data for the domestic segment was as follows ( $ in millions ) : replace_table_token_7_th ( 1 ) comparable online sales are included in the comparable sales calculation . the increase in revenue in fiscal 2021 was primarily driven by the comparable sales growth across most of our product categories , partially offset by the loss of revenue from permanent store closures in the past year . online revenue of $ 18.7 billion increased 144.4 % on a comparable basis in fiscal 2021 , primarily due to higher conversion rates and increased traffic as we saw a channel shift in our customer shopping behavior as a result of covid-19 .
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our large proprietary datasets , advanced integration technologies , sophisticated predictive analytics , and deep subject matter expertise allow us to provide seamless , end-to-end platforms that bring the benefits of big data and large-scale analytics to the point of care . our data analytics platforms identify gaps in care , quality , data integrity , and financial performance in our clients ' datasets . our data-driven intervention platforms enable our clients to take the insights derived from the analytics and implement unique , patient-level solutions , drive impact and enhance patient engagement . we generate the substantial majority of our revenue through the sale or subscription licensing of our data analytics and data-driven intervention platform services . since our inception , we have experienced significant growth . for the year ended december 31 , 2014 , our revenue was $ 361.5 million , representing 22 % growth over the year ended december 31 , 2013. for the year ended december 31 , 2014 , we generated adjusted ebitda of $ 133.6 million , representing a 37 % adjusted ebitda margin and 86 % growth over the same period in the prior year . net income for the year ended december 31 , 2014 was $ 65.4 million , representing 18 % of revenue and a 100 % increase over the year ended december 31 , 2013. non-gaap net income for the year ended december 31 , 2014 was $ 70.2 million , representing 19 % of revenue and a 88 % increase over the same period in 2013. adjusted ebitda and non-gaap net income are non-gaap measures . adjusted ebitda and non-gaap net income are measures that are not presented in accordance with gaap . for a reconciliation of net income to adjusted ebitda and non-gaap net income , see `` non-gaap financial measures , '' provided in item 6selected financial data . on february 18 , 2015 , we completed our ipo of 22,222,222 shares of class a common stock and , upon the underwriters ' exercise of their option to purchase additional shares , issued an additional 3,142,581 shares of class a common stock for a total of 25,364,803 shares issued . all of the shares issued in the ipo were primary shares offered by us as none of our stockholders sold any shares in the ipo . the offering price of the shares sold in the ipo was $ 27.00 per share , resulting in net proceeds to us , after underwriters ' discounts and commissions and other expenses payable by us , of $ 639.4 million . our class a common stock is currently traded on the nasdaq global select market under the symbol `` inov . '' 62 key metrics we review a number of metrics , including the key metrics shown in the table below . we believe that these metrics are indicative of our overall level of analytical activity and the underlying growth in our business . replace_table_token_6_th ( 1 ) more 2 registry® dataset metrics , trailing 12 month patient analytics months ( pam ) , and engaged patient population statements of work , each of which is presented in the table , are key operating metrics that management uses to assess our level of operational activity . while we believe that each of these metrics is indicative of our overall level of analytical activity and the underlying growth in our business , increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue , adjusted ebitda , net income or non-gaap net income . for instance , although increased levels of analytical activity historically have corresponded to increases in revenue over the long term , differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , adjusted ebitda , net income or non-gaap net income ( and vice versa ) . accordingly , while we believe the presentation of these operating metrics is helpful to investors in understanding our business , these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under gaap . in addition , we believe that other companies , including companies in our industry , do not present similar operating metrics and that there is no commonly accepted method of calculating these metrics , which may reduce their usefulness as comparative measures . ( 2 ) unique patient count is defined as each unique , longitudinally matched , de-identified natural person represented in our more 2 registry® as of the end of the period presented . ( 3 ) medical event count is defined as the total number of discrete medical events as of the end of the period presented ( for example , a discrete medical event typically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit , the presentation of a patient to an emergency department for chest pain , etc. ) . ( 4 ) patient analytics months , or pam , is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract . as used in the metric , an `` analytical process '' is a distinct set of data calculations undertaken by us which is initiated and completed by our analytical platform to examine a specific question such as whether 63 a patient is believed to have a condition such as diabetes , or worsening of the disease , during a specific time period . ( 5 ) engaged patient population statements of work is defined as the number of discrete identified patient populations ( for example , the medicare advantage members enrolled in a client health plan within the state of florida ) engaged under a contracted statement of work , or sow , during the period presented . story_separator_special_tag 65 in addition , we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts , as totaled for the trailing 12 months . this metric is referred to as the trailing 12 month patient analytical months , or pam . we believe that pam is indicative of our overall level of analytical activity , and we expect our period-to-period comparisons of our pam to be indicative of underlying growth of our business , although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business . differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , adjusted ebitda , net income or non-gaap net income ( and vice versa ) . therefore , in situations in which a new engaged client sow is initiated for analytical processes that have a higher than average fee rate , revenue could expand disproportionately faster than the increase in pam . likewise , as was the case in the year ended december 31 , 2013 , the loss of an engaged client sow for analytical processes that have a higher than average fee rate can negatively affect revenue disproportionately more than pam . further , in 2013 , the initiation of several new engaged client sows for various analytical processes that commanded , when taken together , a lower than average fee rate offset the reduction in revenue from the aforementioned terminated client sow , while pam was more than offset , and thus increased . seasonality . we typically experience the highest level of revenue in the second quarter of each year , which coincides with specific accreditation and regulatory deadlines . in particular , as a result of certain data filing deadlines established by cms , state departments of health , and the national committee for quality assurance , or ncqa , clients typically engage us to perform higher levels of data-driven analytics and data-driven interventions during the first two quarters of each year when compared to other quarters of the year . conversely , the third quarter of the year has relatively few such deadlines and , as such , typically has lower levels of analytics engagement activity than other quarters of the year . macro-economic and macro-industry trends . our clients are affected , sometimes directly , and sometimes counter-intuitively , by macro- economic trends such as economic growth ( or economic recession ) , inflation , and unemployment . further , industry trends in federal and state laws and regulations , as well as emerging trends in private sector payment models , affect our clients ' businesses and their need for technologies and services to support these challenges . these factors have various effects on our business , and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services . on the other hand , changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time , particularly as regulators introduce complex requirements with which our clients must comply . shift to fully automated data-driven intervention platform services . we view the decreased proportion of revenue derived from partially automated data-driven intervention platform services as a positive reflection of our cloud-based interconnectivity and automation capabilities . the proportion of our revenue derived from pure data analytics and fully automated data-driven intervention platform services revenue is expected to continue to expand over time as a percentage of total revenue as a result of our continued expansion of our cloud-based interconnectivity technologies and the continued expansion of interconnectivity within the healthcare landscape . in order to drive value for our clients and serve them irrespective of their level of connectivity , we continue to provide cloud-based partially automated data-driven intervention platform services , converting the performance of such services to cloud-based fully automated data-driven intervention platform services wherever possible . as the healthcare infrastructure becomes more interconnected and our integration and interconnectivity technologies continue to expand , we believe that we will be able to achieve more rapid implementation , and greater value impact , at more efficient costs . 66 components of results of operations revenue we earn revenue through the sale or subscription licensing of our cloud-based data analytics and data-driven intervention platform services . cloud-based data analytics solution revenue accounted for approximately 57.7 % , 48.6 % , and 45.3 % , of our consolidated revenue during the years ended december 31 , 2014 , 2013 , and 2012 , respectively . these percentages include software subscription licensing revenue of approximately 3.6 % , 3.6 % , and 2.6 % of our consolidated revenue during the years ended december 31 , 2014 , 2013 , and 2012 , respectively . our cloud-based data analytics services are performed either at the beginning of a data-driven intervention process , which typically aligns with regulatory submission deadlines , or on a monthly basis , depending on the particular client 's needs . data analytics revenue is driven primarily by the number of identified gaps in care , quality , data integrity , and financial performance identified in a client 's dataset , the number of unique patients in a client 's dataset , a minimum data analytics processing fee , and a contractually negotiated transactional price for each identified gap or unique patient . subscription licensing revenue is driven primarily by the number of clients , the number of unique patients in a client 's population dataset , the number of analytical services contracted for by a client , and the contractually negotiated price of such services . cloud-based data-driven intervention platform services revenue accounted for approximately 42.3 % , 51.4 % , and 54.7 % of our consolidated revenue during the years ended december 31 , 2014 , 2013 , and 2012 , respectively .
| results of operations the following tables set forth our consolidated statement of operations data for each of the periods presented ( in thousands ) : replace_table_token_8_th the following table sets forth our consolidated statement of operations data for each of the periods presented as a percentage of revenue : replace_table_token_9_th 69 years ended december 31 , 2014 , 2013 and 2012 revenue replace_table_token_10_th 2014 compared to 2013. revenue during the year ended december 31 , 2014 increased by approximately $ 65.7 million , or 22 % , as compared to the year ended december 31 , 2013. the increase was primarily attributable to an increase in revenue from new clients of $ 50.5 million along with a net increase of $ 15.2 million from existing clients . 2013 compared to 2012. revenue during the year ended december 31 , 2013 decreased by approximately $ 4.5 million , or 1 % , as compared to the year ended december 31 , 2012. the decrease was primarily attributable to a client 's decision to discontinue several integrated solution engagements during the second quarter of 2013 subsequent to an acquisition by the client . this resulted in a year-over-year reduction of revenue of approximately $ 38.9 million . the aforementioned decrease was almost entirely offset by an increase in revenue from new clients of $ 9.1 million along with a net increase of $ 25.3 million from other existing clients . cost of revenue replace_table_token_11_th 2014 compared to 2013. in 2014 , cost of revenue decreased by approximately $ 7.3 million , or 6 % , as compared to the year ended december 31 , 2013 , despite the increase in revenue of approximately $ 65.7 million or 22 % , over the same period . the $ 7.3 million decrease in cost of revenue was primarily due to a reduction in employee related expenses .
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the company engages in a broad range of activities in the securities industry , including retail securities brokerage , institutional sales and trading , investment banking ( both corporate and public finance ) , research , market-making , trust services and investment advisory and asset management services . its principal subsidiaries are oppenheimer & co. inc. ( oppenheimer ) and oppenheimer asset management inc. ( oam ) . as of december 31 , 2013 , the company provided its services from 96 offices in 25 states located throughout the united states , offices in tel aviv , israel , hong kong and beijing , china , london , england , and st. helier , isle of jersey . client assets administered by the company as of december 31 , 2013 totaled approximately $ 84.6 billion . the company provides investment advisory services through oam and oppenheimer investment management , llc ( oim ) and oppenheimer 's fahnestock asset management , alpha and omega group divisions . the company provides trust services and products through oppenheimer trust company . the company provides discount brokerage services through freedom investments , inc. ( freedom ) and through buyandhold , a division of freedom . through opy credit corp. , the company offers syndication as well as trading of issued corporate loans . oppenheimer multifamily housing & healthcare finance , inc. ( omhhf ) is engaged in commercial mortgage origination and servicing . at december 31 , 2013 , client assets under management by the asset management groups totaled approximately $ 25.3 billion . at december 31 , 2013 , the company employed 3,517 employees ( 3,435 full-time and 82 part-time ) , of whom approximately 1,388 were financial advisers . 42 critical accounting estimates the company 's accounting policies are essential to understanding and interpreting the financial results reported in the consolidated financial statements . the significant accounting policies used in the preparation of the company 's consolidated financial statements are summarized in note 2 to those statements . certain of those policies are considered to be particularly important to the presentation of the company 's financial results because they require management to make difficult , complex or subjective judgments , often as a result of matters that are inherently uncertain . the following is a discussion of these policies . financial instruments and fair value financial instruments securities owned and securities sold , but not yet purchased , investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period . the company 's other financial instruments are generally short-term in nature or have variable interest rates and as such their carrying values approximate fair value , with the exception of notes receivable from employees which are carried at cost . financial instruments used for asset and liability management for derivative instruments that are designated and qualify as a cash flow hedge , the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings . gains or losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings . fair value measurements effective january 1 , 2008 , the company adopted the accounting guidance for the fair value measurement of financial assets , which defines fair value , establishes a framework for measuring fair value , establishes a fair value measurement hierarchy , and expands fair value measurement disclosures . fair value , as defined by the accounting guidance , is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . the fair value hierarchy established by this accounting guidance prioritizes the inputs used in valuation techniques into the following three categories ( highest to lowest priority ) : level 1 : observable inputs that reflect quoted prices ( unadjusted ) for identical assets or liabilities in active markets ; level 2 : inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly ; and level 3 : unobservable inputs . the company 's financial instruments are recorded at fair value and generally are classified within level 1 or level 2 within the fair value hierarchy using quoted market prices or quotes from market makers or broker-dealers . financial instruments classified within level 1 are valued based on quoted market prices in active markets and consist of u.s. government , federal agency , and sovereign government obligations , corporate equities , and certain money market instruments . level 2 financial instruments primarily consist of investment grade and high-yield corporate debt , convertible bonds , mortgage and asset-backed securities , municipal obligations , and certain money market instruments . financial instruments classified as level 2 are valued based on quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar assets and liabilities in markets that are 43 not active . some financial instruments are classified within level 3 within the fair value hierarchy as observable pricing inputs are not available due to limited market activity for the asset or liability . such financial instruments include investments in hedge funds and private equity funds where the company , through its subsidiaries , is general partner , less-liquid private label mortgage and asset-backed securities , certain distressed municipal securities , and auction rate securities . a description of the valuation techniques applied and inputs used in measuring the fair value of the company 's financial instruments is located in note 5 to the consolidated financial statements for the year ended december 31 , 2013. fair value option the company has the option to measure certain financial assets and financial liabilities at fair value with changes in fair value recognized in earnings each period . story_separator_special_tag the assumptions of management in determining the estimates of reserves may be incorrect and the actual disposition of a legal or regulatory proceeding could be greater or less than the reserve amount . see legal proceedings , note 15 to the consolidated financial statements appearing in item 8 and management 's discussion and analysis of financial condition and results of operations regulatory and legal environment . goodwill goodwill arose upon the acquisitions of oppenheimer , old michigan corp. , josephthal & co. inc. , grand charter group incorporated and the oppenheimer divisions , as defined below . the company defines a reporting unit as an operating segment . the company 's goodwill resides in its private client division ( pcd ) . goodwill of a reporting unit is subject to at least an annual test for impairment to determine if the fair value of goodwill of a reporting unit is less than its estimated carrying amount . goodwill of a reporting unit is required to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . the company derives the estimated carrying amount of its operating segments by estimating the amount of stockholders ' equity required to support the activities of each operating segment . due to the volatility in the financial services sector and equity markets in general , determining whether an impairment of goodwill has occurred is increasingly difficult and requires management to exercise significant judgment . goodwill recorded as at december 31 , 2013 has been tested for impairment and it has been determined that no impairment has occurred . see note 19 to the consolidated financial statements appearing in item 8 for further discussion . 45 excess of fair value of assets acquired over cost arose from the january 2008 acquisition of certain businesses from cibc world markets corp. , including five-year contingent consideration issued as a result of such acquisition . at the end of 2012 , all contingencies expired and the company recorded a reduction of excess of fair value of assets acquired over cost of $ 7.0 million and deferred tax liabilities of $ 5.0 million offset by the reversal of related customer relationship intangible assets of $ 630,000 and fixed assets of $ 65,000 on the consolidated balance sheet as of december 31 , 2012 as well as a non-cash adjustment reducing occupancy expenses in the amount of $ 11.3 million . intangible assets intangible assets arose upon the acquisition , in january 2003 , of the u.s. private client and asset management divisions of cibc world markets corp. ( the oppenheimer divisions ) and comprise trademarks and trade names . trademarks and trade names , carried at $ 31.7 million , which are not amortized , are subject to at least an annual test for impairment to determine if the fair value is less than their carrying amount . trademarks and trade names recorded as at december 31 , 2013 have been tested for impairment and it has been determined that no impairment has occurred . see note 19 to the consolidated financial statements appearing in item 8 for further discussion . intangible assets also arose from the january 2008 acquisition of the oppenheimer divisions from cibc world markets corp. and are comprised of customer relationships and a below market lease . customer relationships were being amortized on a straight-line basis over 180 months commencing in january 2008. however , due to the expiration of the five-year contingent consideration issued as part of such acquisition , remaining amounts related to the customer relationship intangible asset of $ 630,000 were written off in the fourth quarter of 2012. the customer relationship intangible asset was fully amortized as of december 31 , 2012. the below market lease was determined to amortize on a straight-line basis over 60 months commencing in january 2008. however , due to the plan to consolidate the company 's headquarters , the company terminated the lease which resulted in a reevaluation of the remaining useful life of the below market lease intangible asset and amortized $ 1.1 million in the fourth quarter of 2011 and $ 3.2 million during the first quarter of 2012. share-based compensation plans the company estimates the fair value of share-based awards using the black-scholes model and applies to it a forfeiture rate based on historical experience . key assumptions used to estimate the fair value of share-based awards include the expected term and the expected volatility of the company 's class a stock over the term of the award , the risk-free interest rate over the expected term , and the company 's expected annual dividend yield . estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive share-based awards . for further discussion , see note 16 to the consolidated financial statements appearing in item 8. income taxes the company records deferred taxes for the future consequences of events that have been recognized for financial statements or tax returns , based upon enacted tax laws and rates . in addition , the company estimates and provides for potential liabilities that may arise out of tax audits to the extent that uncertain tax positions fail to meet the recognition standard under accounting guidance . for further discussion , see note 15 to the consolidated financial statements appearing in item 8. new accounting pronouncements recently adopted and recently issued accounting pronouncements are described in note 2 to the consolidated financial statements for the year ended december 31 , 2013 appearing in item 8 .
| results of operations the company reported net income attributable to oppenheimer holdings inc. of $ 25.1 million or $ 1.85 per share compared with a net loss of $ 3.6 million or ( $ 0.27 ) per share for the year ended december 31 , 2012. revenue for the year ended december 31 , 2013 was $ 1.02 billion compared with $ 952.6 million for the year ended december 31 , 2012 , an increase of 7.0 % . the following table sets forth the amount and percentage of the company 's revenue from each principal source for each of the following years ended december 31 : ( amounts are expressed in thousands ) replace_table_token_5_th 52 the company derives most of its revenue from the operations of its principal subsidiaries , oppenheimer and oam . although maintained as separate entities , the operations of the company 's brokerage subsidiaries both in the u.s. and other countries are closely related because oppenheimer acts as clearing broker and omnibus clearing agent in transactions initiated by these subsidiaries . except as expressly otherwise stated , the discussion below pertains to the operations of oppenheimer . the following table and discussion summarizes the changes in the major revenue and expense categories for the past two years : ( expressed in thousands ) replace_table_token_6_th * not comparable fiscal 2013 compared to fiscal 2012 commission revenue was $ 486.8 million for the year ended december 31 , 2013 , an increase of 3.6 % compared with $ 469.9 million in 2012 , primarily attributable to higher institutional equities and taxable fixed income activities in the second half of 2013. the increased activities were due to the strong performance of the u.s. equity markets as the s & p 500 return for 2013 was 32.2 % .
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the ranges established by story_separator_special_tag overview the following management 's discussion and analysis of financial conditions and results of operations ( “ md & a ” ) is intended to help the reader understand the company 's operations and business environment . md & a is provided as a supplement to , and should be read in conjunction with , the consolidated financial statements and notes to consolidated financial statements contained in item 8 of this form 10-k. the following discussion includes forward-looking statements that involve certain risks and uncertainties . see “ forward-looking statements ” in the beginning of this form 10-k. the md & a includes the following sections : business - a general description of dentsply 's business and how performance is measured ; results of operations - an analysis of the company 's consolidated results of operations for the three years presented in the consolidated financial statements ; critical accounting estimates - a discussion of accounting policies that require critical judgments and estimates ; and liquidity and capital resources - an analysis of cash flows ; debt and other obligations ; and aggregate contractual obligations . 2014 operational highlights for the year ended december 31 , 2014 , sales , excluding precious metal content increased 0.8 % compared to prior year . foreign currency exchange rates had a negative impact of 1.0 % during the year , reducing the growth of the company . total sales for the year ended december 31 , 2014 , including precious metal content , decreased 1.0 % compared to 2013. a significant drop in the price of gold during the year and the negative impact of foreign currency exchange resulted in the negative sales growth for the year . full year 2014 earnings per diluted share of $ 2.24 increased from $ 2.16 in the prior year . on an adjusted basis ( a non-gaap measure ) , full year 2014 earnings per diluted share of $ 2.50 grew 6.4 % from $ 2.35 from the prior year . operating margin for the year ended december 31 , 2014 was 15.3 % , an increase of 110 basis points as compared to 14.2 % for the year ended december 31 , 2013. adjusted operating margin ( a non-us gaap measure ) for the year ended december 31 , 2014 was 18.4 % , an improvement of 80 basis points over the prior year . operating cash flow improved 34 % . for the year ended december 31 , 2014 , cash from operations was $ 560.4 million as compared to $ 417.8 million for the year ended december 31 , 2013. business dentsply international inc. is a leading manufacturer and distributor of dental and other consumable medical device products . the company believes it is the world 's largest manufacturer of consumable dental products for the professional dental market . for over 115 years , dentsply 's commitment to innovation and professional collaboration has enhanced its portfolio of branded consumables and small equipment . headquartered in the united states , the company has global operations with sales in more than 120 countries . the company also has strategically located distribution centers to enable it to better serve its customers and increase its operating efficiency . while the united states and europe are the company 's largest markets , the company serves all major markets worldwide . principal measurements the principal measurements used by the company in evaluating its business are : ( 1 ) internal sales growth by geographic region ; ( 2 ) constant currency sales growth by geographic region ; ( 3 ) adjusted operating margins of each reportable segment including product pricing and cost controls ; ( 4 ) the development , introduction and contribution of innovative new products ; and ( 5 ) sales growth through acquisition . 25 the company defines “ internal sales growth ” as the increase or decrease in net sales from period to period , excluding ( 1 ) precious metal content ; ( 2 ) the impact of changes in currency exchange rates ; and ( 3 ) net acquisition sales growth . the company also tracks internal sales growth of continuing product lines as this is more reflective of the ongoing strength of the company 's performance . the company defines “ net acquisition sales growth ” as the net sales , excluding precious metal content , for a period of twelve months following the transaction date of businesses that have been acquired , less the net sales , excluding precious metal content , for a period of twelve months prior to the transaction date of businesses that have been divested . the company defines “ constant currency sales growth ” as internal sales growth plus net acquisition sales growth . the primary drivers of internal growth includes global dental market growth , innovation and new products launched by the company , and continued investments in sales and marketing resources , including clinical education . management believes that over time , the company 's ability to execute its strategies allows it to grow at a modest premium to the growth rate of the underlying dental market . management further believes that the global dental market has generally in the past and should over time in the future grow at a premium to underlying economic growth rates . considering all of these factors , the company assumes that the long-term growth rate for the dental market will range from 3 % to 6 % on average and that the company targets a slight premium to market growth . over the past several years , growth in the global dental and other healthcare markets have been restrained by lower economic growth in western europe and certain other markets compared to historical averages and , accordingly , market growth rates , and the company 's internal growth rate remains uncertain in the near term . the company 's business is subject to quarterly fluctuations of consolidated net sales and net income . story_separator_special_tag the company 's definitions and calculations of net sales , excluding precious metal content , and other operating measures derived using net sales , excluding precious metal content , may not necessarily be the same as those used by other companies . replace_table_token_5_th during 2014 , net sales , excluding precious metal content increased $ 21.0 million from 2013. the 0.8 % increase in net sales , excluding precious metal content , included constant currency sales growth of 1.8 % . the constant currency sales growth was comprised of internal sales growth of 1.2 % and acquisition sales growth of 0.6 % . the decline of precious metal content of sales from the year ago period was primarily due to the continuing reduction in the use of precious metal alloys in dentistry . 27 constant currency sales growth the following table includes growth rates for net sales , excluding precious metal content . replace_table_token_6_th united states during 2014 , net sales , excluding precious metal content , increased by 1.0 % on a constant currency basis . internal sales growth was led by increased sales in the dental consumables product category , partially offset by lower sales in the dental laboratory product category , as well as lower sales of a consumable medical device product that was in-sourced by a customer and was discontinued late in the year as the product line was sold to this customer . europe during 2014 , net sales , excluding precious metal content , increased by 0.2 % on a constant currency basis compared to 2013. internal sales growth in europe was muted as the result of a substantial and continuing decline in sales within the cis countries , due to economic and political instability in those markets . excluding sales in the cis region , constant currency sales growth would have been 1.8 % led by increased sales in the dental specialty , dental consumables and consumable medical device product categories partially offset by the dental laboratory product category . all other regions during 2014 , net sales , excluding precious metal content , increased 6.6 % on a constant currency basis . the internal sales and acquisition sales growth was led by the dental specialty and consumable medical device product categories and was strongest in pacific rim and middle east regions . gross profit replace_table_token_7_th gross profit as a percentage of net sales , excluding precious metal content , increased 40 basis points during 2014 compared to 2013. the increase in the gross profit rate was primarily the result of net favorable pricing compared to the prior year . 28 expenses selling , general and administrative ( “ sg & a ” ) expenses replace_table_token_8_th sg & a expenses as a percentage of net sales , excluding precious metal content , improved 40 basis points as compared to 2013. the rate decline is primarily due to cost reduction initiatives and expense controls in a number of businesses , as well as higher expenses recorded in the first three months of 2013 relating to trade shows . restructuring and other costs replace_table_token_9_th the company recorded net restructuring and other costs of $ 11.1 million in 2014 compared to $ 13.4 million in 2013. in 2014 , restructuring costs of $ 9.9 million related to the closure and consolidation of facilities in an effort to streamline the company 's operations and better leverage the company 's resources . restructuring and other costs also includes expense of $ 1.2 million related to net legal settlements . in 2013 , restructuring costs of $ 12.0 million related to the closure and consolidation of facilities in an effort to streamline the company 's operations and better leverage the company 's resources . restructuring and other costs also includes net expense of $ 1.4 million related to an impairment of previously acquired technology partially offset by a net gain on legal settlements . other income and expenses replace_table_token_10_th net interest expense net interest expense for the year ended december 31 , 2014 was $ 0.2 million lower in comparison to the year ended december 31 , 2013. the net decrease is a result of a $ 4.4 million decrease in interest expense due to lower average debt levels in 2014 and higher miscellaneous investment income of $ 0.4 million compared to the prior year , largely offset by $ 4.6 million decrease in investment income recorded on net investment hedges due to lower average hedge amounts and interest rates on hedge contracts compared to 2013. other expense ( income ) , net other expense ( income ) , net for the year ended december 31 , 2014 improved $ 8.4 million compared to the year ended december 31 , 2013. other income , net for the year ended december 31 , 2014 was $ 0.1 million , comprised primarily of $ 1.1 million of interest and non-cash income relating to fair value adjustments on cross currency basis swaps not designated as hedges that offset currency risk on intercompany loans , $ 2.5 million of currency transaction losses , and $ 1.4 million of other non-operating income . other expense , net for the year ended december 31 , 2013 was $ 8.3 million , comprised primarily of $ 6.9 million of 29 interest and non-cash charges relating to fair value adjustments on cross currency basis swaps not designated as hedges that offset currency risk on intercompany loans , $ 2.1 million of currency transaction losses , and $ 0.7 million of other non-operating income . income taxes and net income replace_table_token_11_th provision for income taxes the company 's effective tax rate for 2014 and 2013 was 20.1 % and 14.1 % , respectively . the company 's effective tax rate for 2014 was unfavorably impacted by the company 's change in the mix of consolidated earnings .
| results of operations 2013 compared to 2012 net sales replace_table_token_18_th during 2013 , net sales , excluding precious metal content increased $ 57.0 million from 2012. the 2.1 % increase in net sales , excluding precious metal content , included constant currency sales growth of 2.0 % . the constant currency sales growth was comprised of internal sales growth of 1.9 % and acquisition sales growth of 0.1 % . precious metal content of sales declined compared to the same period in 2012 , primarily as a result of a decline in use of precious metal alloys in dentistry . constant currency sales growth the following table includes growth rates for net sales , excluding precious metal content . replace_table_token_19_th united states during 2013 , net sales , excluding precious metal content , increased by 3.8 % on a constant currency basis . the increase was primarily due to internal sales growth in dental specialty and dental consumables product categories . 34 europe during 2013 , net sales , excluding precious metal content , increased by 0.4 % on a constant currency basis , including 0.2 % of net acquisition sales growth . the increase in net sales , excluding precious metal content , was primarily driven by an increase in consumable medical products , partially offset by lower sales of dental specialty products when compared to the year ago period . all other regions during 2013 , net sales , excluding precious metal content , increased 2.6 % on a constant currency basis . the internal sales growth was 2.7 % , driven by increased sales across all product categories .
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total revenues from the title segment accounted for 95.3 % of the company 's revenues in 2016 . through itic and nitic , the company underwrites land title insurance for owners and mortgagees as a primary insurer . title insurance protects against loss or damage resulting from title defects that affect real property . title insurance policies for mortgage lenders and real estate owners are the two basic types of title insurance policies . a lender often requires the property owner to purchase a lender 's title insurance policy to protect its position as a holder of a mortgage loan , but the lender 's title insurance policy does not protect the property owner . the property owner has to purchase a separate owner 's title insurance policy to protect its investment . when real property is conveyed from one party to another , occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed , will or mortgage that may give a third party a legal claim against such property . if a covered claim is made against real property , title insurance provides indemnification against insured defects . the company issues title insurance policies through its home and branch offices and through a network of agents . issuing agents are typically real estate attorneys , independent agents or subsidiaries of community and regional mortgage lending institutions , depending on local customs and regulations and the company 's marketing strategy in a particular territory . the ability to attract and retain issuing agents is a key determinant of the company 's growth in title insurance premiums written . revenues for this segment primarily result from purchases of new and existing residential and commercial real estate , refinance activity and certain other types of mortgage lending such as home equity lines of credit . title insurance premiums vary from state to state and are subject to extensive regulation . statutes generally provide that rates must not be excessive , inadequate or unfairly discriminatory . the process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator . volume is a factor in the company 's profitability due to fixed operating costs which are incurred by the company regardless of title insurance premium volume . the resulting operating leverage tends to amplify the impact of changes in volume on the company 's profitability . the company 's profitability also depends , in part , upon its ability to manage its investment portfolio to maximize investment returns and minimize risks such as interest rate changes , defaults and impairments of assets . the company 's volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity , which includes sales , mortgage financing and mortgage refinancing . real estate activity , home sales and mortgage lending are cyclical in nature . in turn , real estate activity is affected by a number of factors , including the availability of mortgage credit , the cost of real estate , consumer confidence , employment and family income levels and general united states economic conditions . interest rate volatility is also an important factor in the level of residential and commercial real estate activity . the company 's title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management 's control . services other than title insurance provided by operating divisions of the company are not reported separately and are reported collectively in a category called “ all other. ” these other services include those offered by the company and by its wholly owned subsidiaries , investors title exchange corporation ( “ itec ” ) , investors title accommodation corporation ( “ itac ” ) , investors trust company ( “ investors trust ” ) and investors title management services , inc. ( “ itms ” ) . 18 the company 's exchange services division , consisting of the operations of itec and itac , provides customer services in connection with tax-deferred real property exchanges . itec serves as a qualified intermediary in like-kind exchanges of real or personal property under section 1031 of the internal revenue code of 1986 , as amended . in its role as qualified intermediary , itec coordinates the exchange aspects of the real estate transaction , and its duties include drafting standard exchange documents , holding the exchange funds between the sale of the old property and the purchase of the new property , and accepting the formal identification of the replacement property within the required identification period . itac serves as exchange accommodation titleholder in reverse exchanges . an exchange accommodation offers a vehicle for accommodating a reverse exchange when the taxpayer must acquire replacement property before selling the relinquished property . the company 's trust services division , investors trust , provides investment management and trust services to individuals , companies , banks and trusts . itms offers various consulting services to provide clients with the technical expertise to start and successfully operate a title insurance agency . business trends and recent conditions the housing market is heavily influenced by overall economic conditions and government policies . initiatives undertaken by various governmental agencies could ease barriers to home ownership and help instill consumer confidence . regulatory changes and reform of government-sponsored entities could impact lending standards or the processes and procedures used by the company . the current real estate environment , including interest rates and general economic activity , typically influence the demand for real estate . any of these factors would likely impact the company 's results of operations . current initiatives in efforts to provide transparency , the federal open market committee ( “ fomc ” ) of the federal reserve issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions . story_separator_special_tag it is projected that the fomc will raise the federal funds rate 3 times during 2017. the mba january 19 , 2017 mortgage finance forecast ( “ mba forecast ” ) projects 2017 purchase activity to increase 10.3 % to $ 1,092 billion and refinance activity to decrease 47.7 % to $ 471 billion , resulting in a decrease in total mortgage originations of 17.3 % to $ 1,563 billion , all from 2016 levels . in 2016 , purchase activity accounted for 52.4 % of all mortgage originations and is projected to represent 69.9 % of all mortgage originations in 2017. according to data published by freddie mac , the average 30-year fixed mortgage interest rate in the united states was 3.6 % , 3.8 % and 4.2 % for the years ended december 31 , 2016 , 2015 and 2014 , respectively . per the mba forecast , refinancing is expected to be lower in 2017 as mortgage interest rates continue to climb to a projected 4.7 % in the fourth quarter of 2017. historically , activity in real estate markets has varied over the course of market cycles by geographic region and in response to evolving economic factors . operating results can vary from year to year based on cyclical market conditions and do not necessarily indicate the company 's future operating results and cash flows . acquisition of university title in october 2016 , national investors holdings , llc ( `` nih '' ) , a subsidiary of the company , acquired all of the outstanding shares of university title company ( “ university ” ) , a title insurance agency doing business in the state of texas . nih paid $ 10 million plus a $ 918,000 adjustment for university 's net cash position at closing to the shareholders of university . the acquisition was partially financed with loan proceeds from a business/commercial loan agreement and related promissory note ( collectively , the “ loan agreement ” ) with a bank , pursuant to which the bank loaned the company the principal amount of $ 6 million . the company paid off all amounts due under the loan agreement in december 2016 , and therefore has no liabilities related to the loan agreement as of december 31 , 2016. critical accounting estimates and policies this discussion and analysis of the company 's financial condition and results of operations is based upon the company 's accompanying consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the company 's management makes various estimates and judgments when applying policies affecting the preparation of the consolidated financial statements . actual results could differ from those estimates . significant accounting policies of the company are discussed in note 1 to the accompanying consolidated financial statements . following are the accounting estimates and policies considered critical to the company . 20 reserve for claim losses the company 's reserve for claims is established using estimates of amounts required to settle claims for which notice has been received ( reported ) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future ( incurred but not reported , or “ ibnr ” ) . the total reserve for all losses incurred but unpaid as of december 31 , 2016 is represented by the reserve for claims totaling $ 35,305,000 in the accompanying consolidated balance sheets . of that total , approximately $ 4,405,000 was reserved for specific claims which have been reported to the company , and approximately $ 30,900,000 was reserved for ibnr claims . a provision for estimated future claims payments is recorded at the time the related policy revenue is recorded . the company records the claims provision as a percentage of net premiums written . this loss provision rate is set to provide for losses on current year policies . by their nature , title claims can often be complex , vary greatly in dollar amounts , vary in number due to economic and market conditions such as an increase in mortgage foreclosures , and involve uncertainties as to ultimate exposure . in addition , some claims may require a number of years to settle and determine the final liability for indemnity and loss adjustment expense . the payment experience may extend for more than 20 years after the issuance of a policy . events such as fraud , defalcation and multiple property defects can substantially and unexpectedly cause increases in estimates of losses . due to the length of time over which claim payments are made and regularly occurring changes in underlying economic and market conditions , these estimates are subject to variability . management considers factors such as the company 's historical claims experience , case reserve estimates on reported claims , large claims , actuarial projections and other relevant factors in determining its loss provision rates and the aggregate recorded expected liability for claims . in establishing the reserve , actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded claims reserves and any necessary adjustments are then recorded in the current period 's income statement . as the most recent claims experience develops and new information becomes available , the loss reserve estimate related to prior periods will change to more accurately reflect updated and improved emerging data . the company reflects any adjustments to the reserve in the results of operations in the period in which new information ( principally claims experience ) becomes available . the company initially reserves for each known claim based upon an assessment of specific facts and updates the reserve amount as necessary over the course of administering each claim . loss ratios for earlier years tend to be more reliable than recent policy years , as those years are more fully developed . in making loss estimates , management determines a loss provision rate , which it then applies to net premiums written .
| results of operations the following table presents certain income statement data for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_2_th 23 insurance and other services revenue insurance and other services revenues include net premiums written plus other fee income , trust income , management services income , and exchange services income . investment income and realized investment gains and losses are not included in insurance and other service revenues and are discussed separately under “ investment-related revenues ” below . the following is a summary of the company 's insurance and other services revenues with intersegment eliminations netted with each segment ; therefore , the individual segment amounts will not agree to note 12 in the accompanying consolidated financial statements . replace_table_token_3_th title insurance net premiums : net premiums written increased 8.6 % in 2016 to $ 122,095,381 compared with $ 112,475,686 in 2015 , and increased 2.3 % in 2015 compared with $ 109,963,556 in 2014 . the increase in 2016 net premiums versus the prior year is primarily attributable to growth in average real estate values , coupled with growth in transaction volumes stemming from higher levels of home sales and refinance activity . the 2015 increase in net premiums versus the prior year is primarily attributable to an increase in the level of both purchase and refinance transactions . title insurance companies typically issue title insurance policies directly through home and branch offices or through title agencies . following is a breakdown of premiums generated by branch and agency operations for the years ended december 31 : replace_table_token_4_th home and branch office net premiums : in the company 's home and branch operations , the company issues the insurance policy and retains the entire premium , as no commissions are paid in connection with these policies .
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you should carefully read “ special note regarding forward-looking statements ” and “ risk factors. ” overview we are a clinical stage immuno-oncology company pioneering the development and commercialization of genetically engineered allogeneic t cell therapies for the treatment of cancer . we are developing a pipeline of off-the-shelf t cell product candidates that are designed to target and kill cancer cells . our engineered t cells are allogeneic , meaning they are derived from healthy donors for intended use in any patient , rather than from an individual patient for that patient 's use , as in the case of autologous t cells . we believe this key difference will enable us to deliver readily available treatments faster , more reliably , at greater scale , and to more patients . we have a deep pipeline of allogeneic chimeric antigen receptor ( car ) t cell product candidates targeting multiple promising antigens in a host of hematological malignancies and solid tumors . pursuant to the exclusive collaboration and license agreement with servier ( servier agreement ) , we have exclusive rights to allo-501 and allo-501a , car t cell product candidates targeting cd19 , in the united states , while servier retains exclusive rights for these product candidates for all other countries . allo-501 and allo-501a use cellectis s.a. ( cellectis ) technologies under which servier holds an exclusive worldwide license from cellectis . 77 we are sponsoring a phase 1 clinical trial ( the alpha trial ) of allo-501 in patients with r/r non-hodgkin lymphoma ( nhl ) . we are continuing the alpha trial to further explore and optimize the lymphodepletion regimen and treatment . we are also progressing the development of the second-generation version of allo-501 , known as allo-501a . we have removed rituximab recognition domains in allo-501a , which we believe will potentially facilitate treatment of more patients , as rituximab is a typical part of a treatment regimen for a patient with nhl . we initiated a phase 1/2 clinical trial for allo-501a ( the alpha2 trial ) in the second quarter of 2020 and , subject to data , we plan to progress to the phase 2 portion of the trial in 2021. we are also progressing three programs targeting b-cell maturation antigen ( bcma ) for the treatment of multiple myeloma . we initiated a phase 1 clinical trial ( the universal trial ) of allo-715 , an allogeneic car t cell product candidate targeting bcma , in adult patients with r/r multiple myeloma in the third quarter of 2019. in january 2020 , we entered into a clinical trial collaboration agreement with springworks therapeutics , inc. ( springworks ) to evaluate allo-715 in combination with springworks ' investigational gamma secretase inhibitor , nirogacestat , in patients with r/r multiple myeloma . in december 2020 , the fda cleared our investigational new drug application ( ind ) and we recently initiated this combination trial as a cohort of the universal trial . finally , we are advancing allo-605 , an allogeneic car t cell product candidate targeting bcma and our first product candidate to incorporate our turbocar technology . we expect to submit an ind in the first half of 2021 to initiate a phase 1 clinical trial of allo-605 . we are continuing to enroll patients in the alpha trial , alpha2 trial and universal trial , however , enrollment of new patients in all three trials and the ability to conduct patient follow-up is being adversely impacted by the covid-19 pandemic . we have also limited the number of staff working at our facilities . the exact timing of delays and overall impact of the covid-19 pandemic to our business , preclinical studies and clinical trials is currently unknown , and we are monitoring the pandemic as it continues to rapidly evolve . in december 2020 , the fda cleared our ind to initiate a phase 1 clinical trial ( the traverse trial ) of allo-316 , an allogeneic car t cell product candidate targeting cd70 , in adult patients with advanced or metastatic clear cell renal cell carcinoma ( ccrcc ) . the traverse trial is expected to initiate in the first quarter of 2021. since inception , we have had significant operating losses . our net loss was $ 250.2 million for the year ended december 31 , 2020. as of december 31 , 2020 , we had an accumulated deficit of $ 646.3 million . as of december 31 , 2020 , we had $ 1.0 billion in cash and cash equivalents and investments . we expect to continue to incur net losses for the foreseeable future , and we expect our research and development expenses and general and administrative expenses will continue to increase . our research and development and license agreements asset contribution agreement with pfizer in april 2018 , we entered into an asset contribution agreement ( pfizer agreement ) with pfizer pursuant to which we acquired certain assets and assumed certain liabilities from pfizer , including agreements with cellectis and servier as described below , and other intellectual property for the development and administration of car t cells for the treatment of cancer . see notes 6 and 7 to our consolidated financial statements included elsewhere in this report for further description of the pfizer agreement . research collaboration and license agreement with cellectis in june 2014 , pfizer entered into a research collaboration and license agreement with cellectis . in april 2018 , pfizer assigned the agreement to us pursuant to the pfizer agreement . in march 2019 , we terminated the agreement with cellectis and entered into a new license agreement with cellectis . see note 7 to our consolidated financial statements included elsewhere in this report for further descriptions of the prior agreement with cellectis and the new license agreement with cellectis . story_separator_special_tag the allocation of the transaction price is performed based on standalone selling prices , which are based on estimated amounts that we would charge for a performance obligation if it were sold separately . the transaction price allocated to the license of intellectual property and delivery of know-how will be recognized upon grant of license and delivery of know-how . the transaction price allocated to ( i ) the manufacturing license , related know-how and support services , ( ii ) if and when available know-how developed in future periods , and ( iii ) participation in the joint steering committee , will be recognized over time as the services are delivered . funds received in advance are recorded as deferred revenue and will be recognized as the performance obligations are satisfied . we expect a substantial portion of the upfront payment of $ 40 million will be recognized during the quarter ending on march 31 , 2021. see note 7 to our consolidated financial statements included elsewhere in this report for further description of the license agreement and share purchase agreement with allogene overland . transition services agreement in connection with the closing of the pfizer agreement , we entered into a transition services agreement ( tsa ) with pfizer in april 2018 , pursuant to which we obtained from pfizer certain ( i ) research and development services , including services relating to testing , studies , and clinical trials , project management services , laboratory equipment and operations services , animal care services , data storage services and regulatory strategy services , and ( ii ) general and administrative services , including business technology services , compliance services , finance/accounting services , and procurement , manufacturing and supply chain services , with respect to the assets that we purchased from pfizer . under the tsa , pfizer also provided us with certain facilities and facility management services . the services were provided by certain employees of pfizer as independent contractors of allogene . we believe that it was helpful for pfizer to provide such services to us under the tsa to help facilitate the efficient operation of our business after the asset purchase . pfizer began providing the services in may 2018 and the tsa was terminated in september 2019. components of results of operations operating expenses research and development to date , our research and development expenses have related primarily to discovery efforts , preclinical and clinical development , and manufacturing of our product candidates . research and development expenses for the year ended december 31 , 2020 included costs associated with our clinical and preclinical stage pipeline candidates and research into newer technologies . the most significant research and development expenses for the year relate to costs incurred for the development of our most advanced product candidates and include : expenses incurred under agreements with our collaboration partners and third-party contract organizations , investigative clinical trial sites that conduct research and development activities on our behalf , and consultants ; costs related to the production of clinical materials , including fees paid for raw materials and to contract manufacturers ; laboratory and vendor expenses related to the execution of preclinical and clinical trials ; employee-related expenses , which include salaries , benefits and stock-based compensation ; facilities and other expenses , which include expenses for rent and maintenance of facilities , depreciation and amortization expense and other supplies ; and other significant research and development costs , which include overhead costs . we expense all research and development costs in the periods in which they are incurred . we accrue for costs incurred as the services are being provided by monitoring the status of the project and the invoices received from our external service providers . we adjust our accrual as actual costs become known . where contingent milestone payments are due to third parties under research and development arrangements or license agreements , milestone payment obligations are expensed when the milestone results are achieved . we are required to reimburse servier for 60 % of the costs associated with the prior development of ucart19 , including for the calm and pall clinical trials of ucart19 . we accrue for costs incurred by monitoring the status of 80 clinical trials and the invoices received from servier . we adjust our accrual as actual costs become known . servier is required to reimburse us for 40 % of the costs associated with the development of allo-501 and allo-501a . collaboration expenses and cost reimbursement are recorded on a net basis as a research and development expense in our consolidated statements of operations and comprehensive loss . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect our research and development expenses to increase in the future as our clinical programs progress and as we seek to initiate clinical trials of additional product candidates . the cost of advancing our manufacturing process as well as the cost of manufacturing product candidates for clinical trials are included in our research and development expense . we also expect to incur increased research and development expenses as we selectively identify and develop additional product candidates . however , it is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates .
| results of operations comparison of the years ended december 31 , 2020 , 2019 and 2018 the following sets forth our results of operations for the years ended december 31 , 2020 , 2019 , and 2018 ( in thousands ) : replace_table_token_7_th research and development expenses research and development expenses were $ 193.0 million and $ 144.5 million for the years ended december 31 , 2020 and 2019 , respectively . the net increase of $ 48.5 million was primarily due to an increase in personnel related costs of $ 28.9 82 million , of which $ 11.9 million was increased stock-based compensation expense , an increase in external costs relating to the advancement of our product candidates of $ 16.1 million , and an increase in allocated building rent and facilities costs of $ 5.3 million , offset by a decrease in tsa expenses of $ 1.2 million and a decrease in travel related costs of $ 1.0 million due to the impact of the covid-19 pandemic . research and development expenses were $ 144.5 million and $ 151.9 million for the years ended december 31 , 2019 and 2018 , respectively . the net decrease of $ 7.3 million was primarily due to $ 109.4 million in expenses related to the acquired in-process research and development assets with no alternative future use , acquired from pfizer in april 2018. this was offset by a $ 102.1 million increase , driven primarily by increased external costs related to the advancement of our pipeline candidates of $ 44.6 million , increased personnel related costs of $ 40.8 million , including an increase of $ 18.0 million in stock-based compensation expense , and increased allocated building rent and facilities costs of $ 19.2 million , offset by a decrease of $ 4.0 million in pfizer tsa costs .
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under this method , deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations with our audited consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. forward-looking statements this annual report on form 10-k contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. forward-looking statements include any statements that address future results or occurrences . in some cases you can identify forward-looking statements by terminology such as may , might , will , would , should , could or the negative thereof . generally , the words anticipate , believe , continue , expect , intend , estimate , project , plan and similar expressions identify forward-looking statements . in particular , statements about our expectations , beliefs , plans , objectives , assumptions or future events or performance contained are forward-looking statements . we have based these forward-looking statements on our current expectations , assumptions , estimates and projections . while we believe these expectations , assumptions , estimates and projections are reasonable , such forward-looking statements are only predictions and involve known and unknown risks , uncertainties and other factors , many of which are outside of our control , which could cause our actual results , performance or achievements to differ materially from any results , performance or achievements expressed or implied by such forward-looking statements . these risks , uncertainties and other factors include , but are not limited to : negative media coverage relating to patient incidents , which could adversely affect the price of our common stock and result in incremental regulatory burdens and governmental investigations ; the impact of payments received from the government and third-party payors on our revenues and results of operations ; our significant indebtedness , our ability to meet our debt obligations , and ability to incur substantially more debt ; our future cash flow and earnings ; our restrictive covenants , which may restrict our business and financing activities ; our ability to make payments on our financing arrangements ; the impact of the economic and employment conditions in the united states on our business and future results of operations ; compliance with laws and government regulations ; the impact of claims brought against our facilities ; the impact of governmental investigations , regulatory actions and whistleblower lawsuits ; the impact of recent healthcare reform ; the impact of our highly competitive industry on patient volumes ; the impact of the trend by insurance companies and managed care organizations entering into sole source contracts ; the impact of recruitment and retention of quality psychiatrists and other physicians on our performance ; the impact of competition for staffing on our labor costs and profitability ; our dependence on key management personnel , key executives and our local facility management personnel ; our acquisition strategy , which exposes us to a variety of operational and financial risk ; difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of these acquisitions ; the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations ; our potential inability to extend leases at expiration ; the impact of controls designed to reduce inpatient services on our revenues ; the impact of different interpretations of accounting principles on our results of operations or financial condition ; the impact of environmental , health and safety laws and regulations , especially in states where we have concentrated operations ; the impact of an increase in uninsured and underinsured patients or the deterioration in the collectability of the accounts of such patients on our results of operations ; the impact of legislative and regulatory initiatives relating to privacy and security of patient health information and standards for electronic transactions ; failure to achieve and maintain effective internal control over financial reporting ; the impact of fluctuations in our operating results , quarter to quarter earnings and other factors on the price of our common stock ; the cessation of our status as a controlled company ; the impact of our sponsor 's rights over certain company matters ; the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients ; and the other risks described under the heading risk factors in item 1a . given these risks and uncertainties , you are cautioned not to place undue reliance on such forward-looking statements . these risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements . these forward-looking statements are made only as of the date of this annual report on form 10-k. we do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments . 25 overview our business strategy is to acquire and develop inpatient behavioral healthcare facilities and improve our operating results within our inpatient facilities and our other behavioral healthcare operations . we strive to improve the operating results of our facilities by providing high quality services , expanding referral networks and marketing initiatives while meeting the increased demand for behavioral healthcare services through expansion of our current locations as well as developing new services within existing locations . during 2012 , we acquired 13 facilities with approximately 1,000 licensed beds in eight states . at december 31 , 2012 , we operated 42 behavioral healthcare facilities with over 3,100 licensed beds in 21 states . during the year ended december 31 , 2012 , we added 281 beds to our existing facilities , and we expect to add approximately 200 beds to existing facilities during 2013 ( exclusive of acquisitions ) . story_separator_special_tag on march 1 , 2012 , we completed the acquisition of the haven facilities with a combined 166 licensed beds at the acquisition date for $ 90.5 million of cash consideration . also on march 1 , 2012 , we amended our senior secured credit facility to provide an incremental $ 25.0 million of term loans and increase the revolving line of credit by $ 45.0 million , from $ 30.0 million to $ 75.0 million . we used the net proceeds from the december 2011 sale of our common stock , the incremental term loans of $ 25.0 million and a $ 5.0 million borrowing under the revolving line of credit to fund the acquisition of the haven facilities . revenue our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care , outpatient psychiatric care and adolescent residential treatment . we receive payments from the following sources for services rendered in our facilities : ( i ) state governments under their respective medicaid and other programs ; ( ii ) commercial insurers , including managed care plans ; ( iii ) the federal government under the medicare program administered by cms and the tricare program ; and ( iv ) individual patients and clients . revenue is recorded in the period in which services are provided at established billing rates less contractual adjustments based on amounts reimbursable by medicare or medicaid under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually determined rates . story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001520697/000119312513087740/ # toc '' > sponsor management fees . sponsor management fees were $ 1.3 million for the year ended december 31 , 2011 , which related to our professional services agreement with waud capital partners . transaction-related expenses . transaction-related expenses were $ 8.1 million for the year ended december 31 , 2012 compared to $ 41.6 million for the year ended december 31 , 2011. transaction-related expenses represented costs incurred in the respective periods primarily related to the acquisitions of yfcs on april 1 , 2011 , phc on november 1 , 2011 , the haven facilities on march 1 , 2012 , timberline knolls on august 31 , 2012 , park royal on november 11 , 2012 and amicare and bca on december 31 , 2012 and the termination of the professional services agreement with waud capital partners , as summarized below ( in thousands ) : replace_table_token_5_th year ended december 31 , 2011 compared to the year ended december 31 , 2010 revenue before provision for doubtful accounts . revenue before provision for doubtful accounts increased $ 155.4 million , or 241.5 % , to $ 219.7 million for the year ended december 31 , 2011 compared to $ 64.3 million for the year ended december 31 , 2010. the increase related primarily to the $ 147.7 million of revenue generated during 2011 from the yfcs facilities acquired on april 1 , 2011 and the phc facilities acquired on november 1 , 2011. the remainder of the increase in revenue before provision for doubtful accounts was attributable to same-facility revenue before provision for doubtful accounts growth of $ 7.7 million , or 12.0 % , on same-facility growth in patient days of 13.3 % . provision for doubtful accounts . the provision for doubtful accounts was $ 3.2 million for the year ended december 31 , 2011 , or 1.5 % of revenue before provision for doubtful accounts , compared to $ 2.2 million for the year ended december 31 , 2010 , or 3.5 % of revenue before provision for doubtful accounts . the decrease in the provision for doubtful accounts as a percentage of revenue before provision for doubtful accounts was attributable to the lower volumes of self-pay admissions and bad debts associated with the facilities acquired from yfcs on april 1 , 2011. the same-facility provision for doubtful accounts was $ 2.3 million for the year ended december 31 , 2011 , or 3.2 % of revenue before provision for doubtful accounts , compared to $ 2.2 million for the year ended december 31 , 2010 , or 3.5 % of revenue before provision for doubtful accounts . salaries , wages and benefits . swb expense was $ 152.6 million for the year ended december 31 , 2011 compared to $ 38.7 million for the year ended december 31 , 2010 , an increase of $ 113.9 million . swb expense includes $ 17.3 million of equity-based compensation expense for the year ended december 31 , 2011. this equity-based compensation primarily related to the incentive equity units issued by acadia healthcare holdings , llc , our former parent company , prior to its liquidation on november 1 , 2011. there was no equity-based compensation expense during the year ended december 31 , 2010. excluding equity-based compensation expense , swb expense was $ 135.3 million , or 62.5 % of revenue , for the year ended december 31 , 2011 , compared to 62.3 % of revenue for the year ended december 31 , 2010. the increase in swb expense , excluding equity-based compensation expense , as a percentage of revenue was attributable to the higher swb expense associated with the facilities acquired from yfcs on april 1 , 2011. same-facility swb expense was $ 39.2 million for the year ended december 31 , 2011 , or 56.2 % of revenue , compared to $ 35.7 million for the year ended december 31 , 2010 , or 57.4 % of revenue . swb expense , excluding equity-based compensation expense , for our corporate office was $ 8.8 million for the year ended december 31 , 2011 compared to $ 3.0 million for the year ended december 31 , 2010 as a result of the hiring of senior management and other personnel necessary to facilitate acquisitions and the overall growth of the company . professional fees .
| results of operations the following table illustrates our consolidated results of operations from continuing operations for the respective periods shown ( dollars in thousands ) : replace_table_token_4_th year ended december 31 , 2012 compared to the year ended december 31 , 2011 revenue before provision for doubtful accounts . revenue before provision for doubtful accounts increased $ 194.1 million , or 88.4 % , to $ 413.9 million for the year ended december 31 , 2012 from $ 219.7 million for the year ended december 31 , 2011. the increase related primarily to the revenue generated during the year ended december 31 , 2012 from the yfcs facilities acquired on april 1 , 2011 , phc facilities acquired on november 1 , 2011 , the haven facilities acquired on march 1 , 2012 , timberline knolls acquired on august 31 , 2012 and park royal acquired on november 11 , 2012 , which were not included in our results for periods prior to the acquisitions . same-facility revenue before provision for doubtful accounts for the year ended december 31 , 2012 increased by $ 20.5 million , or 9.3 % , compared to the year ended december 31 , 2011 , primarily resulting from same-facility growth in patient days of 9.3 % . 27 provision for doubtful accounts . the provision for doubtful accounts was $ 6.4 million for the year ended december 31 , 2012 , or 1.5 % of revenue before provision for doubtful accounts , compared to $ 3.2 million for the year ended december 31 , 2011 , or 1.5 % of revenue before provision for doubtful accounts . the same-facility provision for doubtful accounts was $ 3.5 million for the year ended december 31 , 2012 , or 1.4 % of revenue before provision for doubtful accounts , compared to $ 3.2 million for the year ended december 31 , 2011 , or 1.5 % of revenue before provision for doubtful accounts .
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when consolidation occurs , we account for the interests of the story_separator_special_tag you should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes to those statements included in item 8 in this annual report on form 10-k. this discussion includes forward-looking statements that are based on current expectations and are subject to uncertainties and unknown or changed circumstances . for a further discussion , please see “ forward-looking statements ” at the beginning of this annual report on form 10-k. our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including those risks inherent with our business as discussed in “ item 1a risk factors ” . the following discussion starts with an overview of our business and a discussion of trends , including seasonality , that affect our industry . that is followed by an overview of the critical accounting policies and estimates that we use to prepare our financial statements . next we discuss our results of operations and liquidity and capital resources , including our off-balance sheet arrangements and contractual obligations . we conclude with a discussion of our outlook and backlog . introduction primoris is a holding company of various subsidiaries , which form one of the larger publicly traded specialty contractors and infrastructure companies in the united states . serving diverse end-markets , we provide a wide range of construction , fabrication , maintenance , replacement , and engineering services to major public and private utilities , petrochemical companies , energy companies , municipalities , state departments of transportation and other customers . we install , replace , repair and rehabilitate natural gas , refined product , water and wastewater pipeline systems ; large diameter gas and liquid pipeline facilities ; electric utility systems ; and heavy civil projects , earthwork and site development . we also construct mechanical facilities and other structures , including power plants , petrochemical facilities , refineries , water and wastewater treatment facilities and parking structures . finally , we provide specialized process and product engineering services . we have longstanding customer relationships with major utility , refining , petrochemical , power and engineering companies . we have completed major underground and industrial projects for a number of large natural gas transmission and petrochemical companies in the united states , major electrical and gas projects for a number of large utility companies in the united states , as well as significant projects for our engineering customers . we enter into a large number of contracts each year , and the projects can vary in length from several days to as long as 60 months , or longer for completion on larger projects . although we have not been dependent upon any one customer in any year , a small number of customers tend to constitute a substantial portion of our total revenue in any given year . we generate revenue under a range of contracting options , including fixed-price , unit-price , time and material , and cost reimbursable plus fee contracts . a substantial portion of our revenue is derived from contracts that are fixed-price or unit-price and is recognized over time as work is completed because of the continuous transfer of control to the customer . for time and material and cost reimbursable plus fee contracts , revenue is recognized primarily on an input basis , based on contract costs incurred as defined within the respective contracts . our reportable segments consist of the power , industrial , and engineering ( “ power ” ) segment , the pipeline and underground ( “ pipeline ” ) segment , the utilities and distribution ( “ utilities ” ) segment , the transmission and distribution ( “ transmission ” ) segment , which is a new reportable segment created in 2018 in connection with the acquisition of willbros group , inc. ( “ willbros ” ) , and the civil segment . see note 13 – “ reportable segments ” of the notes to consolidated financial statements included in item 8 of this annual report on form 10-k for a brief description of the reportable segments and their operations . the classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management . our segments may perform services across industries or perform joint services for customers in 29 multiple industries . to determine reportable segment gross profit , certain allocations , including allocations of shared and indirect costs , such as facility costs , equipment costs and indirect operating expenses were made . on june 1 , 2018 , we acquired willbros for approximately $ 110.6 million , net of cash and restricted cash acquired . willbros is a specialty energy infrastructure contractor serving the oil and gas and power industries through its utility transmission and distribution , oil and gas , and canadian operations , which principally executes industrial and power projects . the utility transmission and distribution operations formed the transmission segment , the oil and gas operations are included in the pipeline segment , and the canadian operations are included in the power segment . willbros expands our services into electric utility-focused offerings and increases our geographic presence in the united states and canada . on may 26 , 2017 , we acquired the net assets of florida gas contractors ( “ fgc ” ) for $ 37.7 million ; on may 30 , 2017 , we acquired certain engineering assets for approximately $ 2.3 million ; and on june 16 , 2017 , we acquired the net assets of coastal field services ( “ coastal ” ) for $ 27.5 million . fgc operations are included in the utilities segment , the engineering assets are included in the operations of the power segment , and coastal operations are included in the pipeline segment . story_separator_special_tag % of our total revenue . our exposure to diverse end markets limits the potential for any one client or job to have a material adverse impact on our operations . although we do not currently expect a material impact to our financial performance as a result of this customer 's recent announcement , the failure to recover amounts due to us from this customer or any customer who enters bankruptcy could have a negative impact on our results of operations and cash flows , and the loss of a customer due to bankruptcy could have a negative impact on our financial condition , results of operations and cash flows . we do not believe a reserve for the accounts receivable and unbilled revenue is appropriate at this time . however , we will closely monitor our current and future potential exposure . seasonality , cyclicality and variability our results of operations are subject to quarterly variations . some of the variation is the result of weather , particularly rain , ice and snow , which can impact our ability to perform construction services . while the majority of our work is in the southern half of the united states , these seasonal impacts can affect revenue and profitability in all of our businesses since utilities defer routine replacement and repair during their period of peak demand . any quarter can be affected either negatively or positively by atypical weather patterns in any part of the country . in addition , demand for new projects tends to be lower during the early part of the calendar year due to clients ' internal budget cycles . as a result , we usually experience higher revenue and earnings in the third and fourth quarters of the year as compared to the first two quarters . we are also dependent on large construction projects which tend not to be seasonal , but can fluctuate from year to year based on general economic conditions . our business may be affected by declines or delays in new projects or by client project schedules . because of the cyclical nature of our business , the financial results for any period may fluctuate from prior periods , and our financial condition and operating results may vary from quarter to quarter . results from one quarter may not be indicative of financial condition or operating results for any other quarter or for an entire year . 31 critical accounting policies and estimates general —the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and also affect the amounts of revenue and expenses reported for each period . these estimates and assumptions must be made because certain information that is used in the preparation of our financial statements can not be calculated with a high degree of precision from data available , is dependent on future events , or is not capable of being readily calculated based on generally accepted methodologies . often , estimates are particularly difficult to determine , and we must exercise significant judgment . estimates may be used in our accounting for revenue recognized over time , the allowance for doubtful accounts , useful lives of property and equipment , fair value assumptions in analyzing goodwill and long-lived asset impairments , self-insured claims liabilities and deferred income taxes . actual results could differ from those that result from using the estimates under different assumptions or conditions . an accounting policy is deemed to be critical if it requires an accounting estimate to be based on assumptions about matters that are highly uncertain at the time the estimate is made , and different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact our consolidated financial statements . the following accounting policies are based on , among other things , judgments and assumptions made by management that include inherent risks and uncertainties . management 's estimates are based on the relevant information available at the end of each period . we periodically review these accounting policies with the audit committee of the board of directors . revenue recognition — we generate revenue under a range of contracting types , including fixed-price , unit-price , time and material , and cost reimbursable plus fee contracts . a substantial portion of our revenue is derived from contracts that are fixed-price or unit-price and is recognized over time as work is completed because of the continuous transfer of control to the customer ( typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress ) . for time and material and cost reimbursable plus fee contracts , revenue is recognized primarily on an input basis , based on contract costs incurred as defined within the respective contracts . costs to obtain contracts are generally not significant and are expensed in the period incurred . we evaluate whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation . asc 606 , “ revenue from contracts with customers ” defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer . a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . our evaluation requires significant judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period .
| results of operations consolidated results one event had a material impact on our results of operations in 2018 and two events had a material impact on our results of operations in 2016. in 2018 , we settled a disputed receivable for one of the construction projects that we had identified as part of our “ receivable collection actions ” , discussed below , which resulted in recognizing revenue of $ 18.1 million and gross profit of $ 17.4 million . in 2016 , we received a $ 38.0 million settlement for the other construction project that we had identified as part of our “ receivable collection actions ” , which resulted in recognizing revenue of $ 27.5 million and gross profit of $ 26.7 million . also in 2016 , we recorded a charge of $ 37.3 million primarily related to certain belton , texas area projects for the texas department of transportation ( “ dot ” ) , as a result of project delays and productivity issues . revenue 2018 and 2017 revenue for the year ended december 31 , 2018 increased by $ 559.5 million , or 23.5 % , compared to 2017. the increase was primarily due to incremental revenue in 2018 from acquisitions ( $ 444.2 million combined ) , and organic growth in our utilities , power , and pipeline segments , partially offset by lower revenue in our civil segment . 2017 and 2016 revenue for the year ended december 31 , 2017 increased by $ 383.0 million , or 19.2 % , compared to 2016. all segments reported year over year organic growth , with the most significant growth coming from the utilities and power segments . incremental revenue from acquisitions totaled $ 53.6 million .
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contingent interest income , which is only received by the partnership if the property financed by a mortgage revenue bond that contains a contingent interest provision generates excess available cash flow as set forth in each bond , is recognized when realized story_separator_special_tag general in this management 's discussion and analysis , the “ partnership ” refers to america first multifamily investors , l.p. and its consolidated subsidiaries which consist of : atax tebs i , llc , a special purpose entity owned and controlled by the partnership , created to hold mortgage revenue bonds in order to facilitate the tax exempt bond securitization ( “ tebs ” ) financing with freddie mac ( see note 10 to the consolidated financial statements ) . nine multifamily apartments ( `` mf properties '' ) which are either wholly or majority owned by subsidiaries of the partnership . the “ company ” refers to the consolidated financial statements reported in this form 10-k which include the assets , liabilities , and results of operations of the partnership , its consolidated subsidiaries and three other consolidated entities in which the partnership does not hold an ownership interest but which own multifamily apartment properties financed with mortgage revenue bonds held by the partnership and which are treated as variable interest entities ( `` vies '' ) of which the partnership has been determined to be the primary beneficiary ( the “ consolidated vies ” ) . all significant transactions and accounts between the partnership and the vies have been eliminated in consolidation . story_separator_special_tag state-issued mbs with an aggregate outstanding principal amount of approximately $ 31.6 million.the mbs segment reported revenue of approximately $ 194,000 , interest expense of approximately $ 39,000 , and income from continuing operations of $ 149,000 for the year ended december 31 , 2012. the increase in revenue , interest expense , and income from continuing operations can be attributed to only a partial year of investment ownership in 2012. mf properties . to facilitate its investment strategy of acquiring additional mortgage revenue bonds secured by multifamily apartment properties , the partnership may acquire ownership positions in mf properties , in order to ultimately restructure the property ownership through a sale of the mf properties . the partnership expects each of these mf properties to eventually be sold to a not-for-profit entity or in connection with a syndication of lihtcs under section 42 of the internal revenue code of 1986 , as amended ( the “ internal revenue code ” ) . the partnership expects to acquire mortgage revenue bonds issued to provide debt financing for these properties at the time the property ownership is restructured . the partnership expects to provide the mortgage revenue bonds to the new property owners as part of the restructuring . at december 31 , 2013 , the partnership 's wholly-owned subsidiaries held interests in three entities that own mf properties containing a total of 504 rental units . in addition , the partnership 's subsidiaries own five mf properties , arboretum , decordova , eagle village , weatherford , and woodland park containing a total of 1,078 rental units , plus the 50/50 student housing at the university of nebraska-lincoln mixed-use project in lincoln , nebraska that is currently under construction ( see note 8 to the consolidated financial statements ) . the mf properties ' operating goal is similar to that of the properties underlying the partnership 's mortgage revenue bonds . as of december 31 , 2012 , the partnership 's wholly-owned subsidiaries held interests in three entities that own mf properties containing a total of 504 rental units and the partnership 's subsidiaries owned four mf properties , arboretum , decordova , eagle village and weatherford containing a total of 842 rental units . the mf properties segment reported revenue of approximately $ 11.4 million and $ 7.8 million and a loss from continuing operations of approximately $ 1.8 million and $ 1.1 million for the years ended december 31 , 2013 and 2012 , respectively . the mf properties segment reported revenue of approximately $ 5.1 million and a loss from continuing operations of approximately $ 783,000 for the year ended december 31 , 2011. the increase in revenue and loss from continuing operations for the year ended december 31 , 2013 compared to the prior year can be attributed to the foreclosure of woodland park mortgage revenue bond during 2013 and the acquisition of maples on 97th properties which was owned an entire year in 2013. the increase in revenue for the year ended 2012 as compared to 2011 is due to having a full year 's worth of revenue from the arboretum and eagle village properties which were acquired during 2011 and the maples on 97th property which was acquired in august 2012. this increase in revenue was more than offset by an increase in real estate operating expenses and depreciation expense also attributed to these acquired properties as well as real estate operating expenses and depreciation expense from the weatherford property which finalized construction during the first half of 2012 and was in lease-up at december 31 , 2012. discontinued operations . as of december 31 , 2012 , the partnership 's wholly-owned subsidiaries held interests in three ohio properties containing 362 rental units and the greens property containing 168 rental units which are reported as discontinued operations ( see notes 2 and 10 to the consolidated financial statements ) . the income from discontinued operations was approximately $ 3.4 million in 2013 , $ 2.2 million in 2012 , and $ 752,000 in 2011. the partnership reported gains of approximately $ 3.2 million from the recognition of the sale of the ohio properties and greens property for the year ended december 31 , 2013. the increase in income between 2011 and 2012 can be attributed to the $ 1.4 million gain realized from the sales of the commons at churchland and eagle ridge properties in 2012 . 29 tender option bond ( `` tob '' ) financing . story_separator_special_tag 30 discussion of the apartment properties securing the partnership bond holdings and mf properties as of december 31 , 2013 the following discussion describes the operations and financial results of the individual apartment properties financed by the mortgage revenue bonds held by the partnership and the mf properties in which it holds an ownership . the discussion also outlines the bond holdings of the partnership , discusses the significant terms of the bonds and identifies those ownership entities which are consolidated vies of the company . replace_table_token_7_th ( 1 ) economic occupancy is presented for the twelve months ended december 31 , 2013 and 2012 , and is defined as the net rental income received divided by the maximum amount of rental income to be derived from each property . this statistic is reflective of rental concessions , delinquent rents and non-revenue units such as model units and employee units . actual occupancy is a point in time measure while economic occupancy is a measurement over the period presented , therefore , economic occupancy for a period may exceed the actual occupancy at any point in time . ( 2 ) previous period occupancy numbers are not available , as this is a new investment . ( 3 ) construction on these properties has been completed and the properties are in a lease up and stabilization period . 31 non-consolidated properties the owners of the following properties do not meet the definition of a vie and or the partnership has evaluated and determined it is not the primary beneficiary of the vie . as a result , the company does not report the assets , liabilities and results of operations of these properties on a consolidated basis . arbors of hickory ridge - arbors of hickory ridge apartments is located in memphis , tennessee and contains 348 units . the mortgage revenue bond owned by the partnership was sponsored by the 501 ( c ) 3 not-for-profit owner of arbors of hickory ridge . the mortgage revenue bond has an outstanding principal amount of $ 11.5 million and has a base interest rate of 6.25 % per annum . the bond does not provide for contingent interest . this bond was purchased at par in december 2012. arbors of hickory ridge 's operations resulted in net operating income of $ 1.18 million and $ 568,000 before payment of bond debt service on net revenue of approximately $ 2.35 million and $ 1.23 million in 2013 and 2012 , respectively . the increase in net operating income was due to 2013 being the first full year of operations for this property , 2012 effectively started in july . the property is current on the payment of principal and interest on the partnership 's bond as of december 31 , 2013. ashley square - ashley square apartments is located in des moines , iowa and contains 144 units . the mortgage revenue bond owned by the partnership is a traditional “ 80/20 ” bond issued prior to the tax reform act of 1986. this bond requires that 20 % of the rental units be set aside for tenants whose income does not exceed 80 % of the area median income , without adjustment for household size . the bond has an outstanding principal amount of $ 5.2 million and has a base interest rate of 6.25 % per annum . the bond also provides for contingent interest payable from excess cash flow generated by the underlying property through the potential payment of contingent interest . the bond accrues contingent interest at a rate of 3.0 % per annum and such contingent interest is payable only if the underlying property generates excess operating cash flows or realizes excess cash through capital appreciation and a related sale or refinancing of the property . to date , the property has not paid any contingent interest and the partnership has not recognized any contingent interest income related to this bond . ashley square 's operations resulted in net operating income of $ 605,000 and $ 644,000 before payment of bond debt service on net revenue of approximately $ 1.38 million and $ 1.36 million in 2013 and 2012 , respectively . the decrease in net operating income is the result of an increase in salary , utility and repair and maintenance expenses . the property is current on the payment of principal and base interest on the partnership 's bond as of december 31 , 2013. autumn pines - autumn pines is located in humble , texas and contains 250 units . the mortgage revenue bond owned by the partnership is a private activity housing bond issued in conjunction with the syndication of lihtcs . the bond has an outstanding principal amount of $ 13.1 million and has a base interest rate of 5.8 % per annum . the bond does not provide for contingent interest . the bond was purchased in november 2010 at a discount from par for approximately $ 12.3 million providing an approximate effective yield to maturity of 7.0 % . autumn pines ' operations resulted in net operating income of $ 1.27 million and $ 1.24 million before payment of bond debt service on net revenue of approximately $ 2.39 million in both 2013 and 2012. the improvement in net operating income from 2012 is primarily the result of a decrease in real estate taxes . the property is current on principal and interest payments on the partnership 's bond as of december 31 , 2013 . avistar at chase hill - avistar at chase hill is located in san antonio , texas and contains 232 units . the mortgage revenue bond owned by the partnership was sponsored by the 501 ( c ) 3 not-for-profit owner of avistar at chase hill . the series a bond has an outstanding principal amount of $ 9.0 million and has a base interest rate of 6.00 % per annum .
| executive summary mortgage revenue bonds . as of december 31 , 2013 , the partnership owned 42 mortgage revenue bonds with an aggregate outstanding principal amount of $ 314.7 million . these bonds were issued by various state and local housing authorities in order to provide construction and or permanent financing of 32 multifamily residential apartments containing a total of 5,409 rental units located in the states of california , florida , illinois , indiana , iowa , kansas , kentucky , minnesota , north carolina , ohio , south carolina , tennessee , and texas . in each case the partnership owns , either directly or indirectly , 100 % of the bonds issued for these properties . each bond is secured by a mortgage or deed of trust on the financed apartment property . as of december 31 , 2012 , the properties underlying the fourteen non-consolidated mortgage revenue bonds contain a total of 2,700 rental units . two bonds secured by the three ohio properties containing 362 rental units and two bonds secured by the greens property containing 168 rental units are eliminated in consolidation in the company 's financial statements ( see note 3 to the consolidated financial statements ) and the multifamily apartment properties are reported as discontinued operations in 2012. three bonds secured by three multifamily residential apartments contained 650 rental units are reported as vies and are eliminated upon consolidation in 2012 , and the property for one bond , vantage at judson , is under construction .
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the significant components of expense that have contributed to the total operating expense are discussed as follows : ( a ) general and administration expense general and administration expense represents professional , consulting , office and general and other miscellaneous costs incurred during the years covered by this report . general and administration expense for the year ended november 30 , 2012 was $ 2,056,996 , as compared with $ 624,545 for the year ended november 30 , 2011. general and administration expense increased by $ 1,432,451 in the current year , as compared to the prior year . the primary reasons for the increase in general and administrative costs are as follows : during the year ended november 30 , 2012 the company expensed a total of $ 272,400 as management fees for payment to its three directors . during the year ended november 30 , 2011 the company expensed a total of $ 79,000 as management fee for payment to its two directors . during the year ended november 30 , 2012 the company expensed a total of $ 240,000 for services provided by a company in which the chief operating officer has an interest . during the year ended november 30 , 2011 the company expensed $ 99,200 for services provided by chief operating officer of the company . the corporation expensed stock based compensation expense ( included in general and administrative expenses ) for issue of options and warrants for $ 929,365 during the year ended november 30 , 2012 ( $ nil in 2011 ) . stock based compensation expense does not require the use of cash ( non-cash expenses ) , associated with the issuance of options and warrants granted to sdi 's directors , officers and consultants . interest expenses increased by $ 87,222 in 2012 as compared to 2011 due to additional funding by convertible debentures which carry interest of 8 % per annum . in addition , the company had to increase its travel expenses by an additional $ 103,958 in 2012 as compared to 2011 primarily to move the business towards production . 5 ( b ) research and product development costs research and product development costs include research costs incurred on the corporation 's less-than-lethal defense technology and were paid to an outside company . research and product development costs for the year ended november 30 , 2011 was $ 195,949 , as compared to recovery of ( $ 215,143 ) for the year ended november 30 , 2012. research and product development costs for the year ended november 30 , 2011 were substantially lower than prior years since the development of the corporation 's products was nearing completion . there were no research and product development costs incurred in 2012. on november 30 , 2009 , the company entered into a memorandum of understanding ( mou ) with its former research and development services contractor elad engineering ltd. ( elad ' ) to settle their liability . on march 13 , 2012 , the company entered into a definitive agreement with elad to settle the accounts payable . elad had previously performed services for the development of a less-than-lethal-electric-projectile and blunt impact projectile . at the date of the settlement agreement , the company owed elad $ 315,143.the company and elad agreed to irrevocably waive and release each other from any claim , demand or action in connection with services provided , upon payment of $ 100,000 by the company to elad no later than march 20 , 2012. the $ 100,000 payment was made on march 20 , 2012. the company recorded the reduction of the payable in the amount of $ 215,143 as recovery of research and development product development cost . this was measured as the difference between the amount payable to elad and the settlement amount . v. quarterly results the net loss and comprehensive loss ( unaudited ) of the corporation for the quarter ended november 30 , 2012 as well as the seven quarterly periods completed immediately prior thereto are set out below : for the three for the for the for the for the for the for the for the months three three three three three three three ended months months months months months months months november30 ended ended ended ended ended ended ended , 2012 august may 31 , february novembe august may 31 , february ( $ ) 31 , 2012 2012 29 , 2012 r 30 , 2011 31 , 2011 2011 28 , 2011 ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) ( $ ) story_separator_special_tag issued 994,380 common shares for conversion of convertible debentures having face value of $ 146,500 ( convertible debenture 1 ) and accrued interest of $ 23,076. the total debt for $ 169,576 was converted into 994,380 common shares . during the three month period ended november 30 , 2012 , the company issued 832,501 shares of common stock to private investors at a price of $ 0.30 per share for a total consideration of $ 249,750. the shares of common stock are restricted securities , as that term is defined in rule 144 of the securities and exchange commission . the company relied upon the exemption provided by section 4 ( 2 ) of the securities act of 1933 in connection with the sale of these securities . year ended november 30 , 2011 during the year the company issued 800,000 shares of common stock to private investors at a price of $ 0.20 per share . story_separator_special_tag d ) prospectus on february 21 , 2013 the company filed a preliminary prospectus in canada ( ontario , alberta and british columbia ) to raise gross proceeds of cdn $ 3,000,000 by issue of 750,000 common shares ( the offering ) in accordance with the terms of the prospectus . macquarie private wealth inc. is acting as an agent for services rendered in connection with the offering . the company will pay the agent a cash commission ( the agent 's fee ) equal to 9.0 % of the gross proceeds of the offering , plus an option ( the agent 's option ) to acquire common shares equal to 9.0 % of the common shares placed by the agent at an exercise price equal to the offering price for a period of 24 months from the date of the offering . the corporation will pay to the agent a corporate finance fee in the amount of cdn $ 35,000 plus applicable taxes for services rendered in connection with the offering . the agent will also be reimbursed for its reasonable expenses in connection with the offering . the prospectus will also serve as a listing application for the company 's shares to be listed on the tsx venture exchange . x. critical accounting policies the preparation of financial statements in accordance with accounting principles generally accepted in the united states requires us to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements , the reported amount of revenues and expenses during the reporting period and related disclosure of contingent assets and liabilities . these estimates are based on our best knowledge of current events and actions the corporation may undertake in the future . on an ongoing basis , we evaluate our estimates and judgments . to the extent actual results differ from those estimates ; our future results of operations may be affected . 9 recent accounting pronouncements in december 2011 , the fasb issued asu 2011-11 ( asu 2011-11 ) , disclosures about offsetting assets and liabilities , which requires certain additional disclosure requirements about financial instruments and derivatives instruments that are subject to netting arrangements . the new disclosures are required for annual reporting periods beginning on or after january 1 , 2013 , and interim periods within those periods . the adoption of this update will not have an impact on the financial statements of the company . in june 2011 , the financial accounting standards board ( fasb ) issued accounting standards update 2011-05 , presentation of comprehensive income ( asu 2011-05 ) , which eliminates the option to present components of other comprehensive income ( oci ) as part of the statement of changes in stockholders ' equity . the amendments in this standard require that all non-owner changes in stockholders ' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements . subsequently , in december 2011 , the fasb issued asu 2011-12 , deferral of the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income ( asu 2011-12 ) , which indefinitely defers the requirement in asu 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from oci to net income in the statement ( s ) where the components of net income and the components of oci are presented . the adoption of this new standard did not have a material impact on the financial condition or result of operation . in july 2012 , the fasb issued asu 2012-02 , intangibles-goodwill and other ( topic 350 ) -testing indefinite-lived intangible assets for impairment ( asu 2012-02 ) , to establish an optional two-step analysis for impairment testing of indefinite-lived intangibles other than goodwill . the standard is effective for financial statements of periods beginning after september 15 , 2012 , with early adoption permitted . the adoption of this new standard is not expected to have a material impact on the financial condition or result of operation . in august 2012 , the fasb issued asu 2012-03 , technical amendments and corrections to sec sections : amendments to sec paragraphs pursuant to sec staff accounting bulletin ( sab ) no . 114 , technical amendments pursuant to sec release no . 33-9250 , and corrections related to fasb accounting standards update 2010-22 ( sec update ) in accounting standards update no . 2012-03. this update amends various sec paragraphs pursuant to the issuance of sab no . 114. the adoption of asu 2012-03 is not expected to have a material impact on our financial position or results of operations . in october 2012 , the fasb issued accounting standards update ( asu ) 2012-04 , technical corrections and improvements in accounting standards update no . 2012-04. the amendments in this update cover a wide range of topics in the accounting standards codification . these amendments include technical corrections and improvements to the accounting standards codification and conforming amendments related to fair value measurements . the amendments in this update will be effective for fiscal periods beginning after december 15 , 2012. the adoption of asu 2012-04 is not expected to have a material impact on our financial position or results of operations . risk factors additional financing the corporation has no source of operating cash flow to fund all of its operational needs and will require additional financing to continue its operations . there can be no assurance that such financing will be available at all or on favourable terms .
| revenues nil nil nil nil nil nil nil nil net loss and comprehensive loss ( 1,068,668 ) ( 350,630 ) ( 348,209 ) ( 252,431 ) ( 203,747 ) ( 205,180 ) ( 163,254 ) ( 329,377 ) loss per weighted average number of shares outstanding basic and fully diluted ( 0.04 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) ( 0.01 ) quarterly activities and financial performance are impacted by the corporation 's ability to raise capital for its development activities . the loss during the three months period ended november 30 , 2012 includes non-cash stock based compensation expense for $ 640,912 . 6 vi . liquidity and capital resources the following table summarizes the corporation 's cash flows and cash in hand : replace_table_token_2_th as of november 30 , 2012 , the corporation had working capital of $ 121,803 as compared to working capital deficit of $ 471,538 as of november 30 , 2011. working capital increased as a result of capital financing activities during the year ended november 30 , 2012 for $ 1,559,750 ( common shares for $ 649,750 and convertible debentures for $ 910,000 ) . net cash used in operations for the year ended november 30 , 2012 , was $ 1,294,895 as compared to $ 1,170,821 used for the year ended november 30 , 2011. the major components of change relate to : 1 ) items not affecting cash : stock based compensation of $ 929,365 in 2012 , as compared to $ nil in 2011. on january 4 , 2012 , the board of directors granted options to three directors to acquire a total of 775,000 common shares , one officer to acquire 20,000 common shares and two consultants to acquire a total of 110,000 common shares .
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principal and interest are paid monthly and are determined annually based on a loan amortization schedule . monthly payments of principal and interest are due on the first day of each month and will change as a result of a change in the interest rate story_separator_special_tag the following discussion is intended to assist in the understanding of the consolidated balance sheets of barnwell industries , inc. and subsidiaries ( collectively referred to herein as barnwell , we , our , us or the company ) as of september 30 , 2011 and 2010 , and the related consolidated statements of operations , comprehensive income , cash flows , and equity for the years ended september 30 , 2011 and 2010. this discussion should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in this report . use of estimates in the preparation of financial statements the preparation of the financial statements in conformity with u.s. gaap requires management of barnwell to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and the disclosure of contingent assets and liabilities . actual results could differ significantly from those estimates . critical accounting policies and estimates the company considers an accounting estimate to be critical if the accounting estimate requires the company to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made , and changes in the estimate that are reasonably likely to occur in periods subsequent to the period in which the estimate was made , or use of different estimates that the company could have used in the current period , would have a material impact on the financial condition or results of operations . the most critical accounting policies inherent in the preparation of the company 's financial statements are described below . we continue to monitor our accounting policies to ensure proper application of current rules and regulations . oil and natural gas properties - full cost ceiling calculation and depletion policy description we use the full cost method of accounting for our oil and natural gas properties under which we are required to conduct quarterly calculations of a ceiling , or limitation , on the carrying value of oil and natural gas properties . the ceiling limitation is the sum of 1 ) the discounted present value ( at 10 % ) , using average first-day-of-the-month prices during the 12-month period ending in the reporting period on a constant basis , of barnwell 's estimated future net cash flows from estimated production of proved oil and natural gas reserves , less estimated future expenditures to be incurred in developing and producing the proved reserves but excluding future cash outflows associated with settling asset retirement obligations accrued on the balance sheet ; plus 2 ) the cost of major development projects and unproven properties not subject to depletion , if any ; plus 3 ) the lower of cost or estimated fair value of unproven properties included in costs subject to depletion ; less 4 ) related income tax effects . if net capitalized costs exceed this limit , the excess is expensed . 35 judgments and assumptions the estimate of our oil and natural gas reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments . estimates of reserves are forecasts based on engineering data , historical data , projected future rates of production and the timing of future expenditures . the process of estimating oil and natural gas reserves requires substantial judgment , resulting in imprecise determinations , particularly for new discoveries . our reserve estimates are prepared annually by independent petroleum reserve engineers and quarterly by internal personnel . the passage of time provides more quantitative and qualitative information regarding estimates of reserves , and revisions are made to prior estimates to reflect updated information . in the last three fiscal years , annual revisions to our reserve volume estimates have averaged 3 % of the previous year 's estimate . however , there can be no assurance that more significant revisions will not be necessary in the future . if future significant revisions are necessary that reduce previously estimated reserve quantities , such revisions could result in a write-down of oil and natural gas properties . if reported reserve volumes were revised downward by 5 % at the end of fiscal 2011 , the ceiling limitation would have decreased approximately $ 2,492,000. this decrease would not have resulted in a write-down during the fourth quarter of fiscal 2011. in addition to the impact of the estimates of proved reserves on the calculation of the ceiling , estimated proved reserves are also a significant component of the quarterly calculation of depletion expense . the lower the estimated reserves , the higher the depletion rate per unit of production . conversely , the higher the estimated reserves , the lower the depletion rate per unit of production . if reported reserve volumes were revised downward by 5 % as of the beginning of fiscal 2011 , depletion for fiscal 2011 would have increased by approximately $ 466,000. while the quantities of proved reserves require substantial judgment , the associated prices of oil , natural gas and natural gas liquids reserves and the applicable discount rate that are used to calculate the discounted present value of the reserves do not require judgment . the ceiling calculation dictates that a 10 % discount factor be used and that average first-day-of-the-month prices during the 12-month period ending in the reporting period are held constant . costs included in future net revenues are determined in a similar manner . as such , the future net revenues associated with the estimated proved reserves are not based on our assessment of future prices or costs . story_separator_special_tag this could result in a charge to , or an increase in , income in the period such determination is made , and the impact of these changes could be material . in addition , barnwell operates within the u.s. and canada and is subject to audit by taxing authorities in these jurisdictions . barnwell records accruals for the estimated outcomes of these audits , and the accruals may change in the future due to new developments in each matter . tax benefits are recognized when we determine that it is more likely than not that such benefits will be realized . management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing authorities . these potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes , regulations and rules . management considers the possibility of alternative outcomes based upon past experience , previous actions by taxing authorities ( e.g. , actions taken in other jurisdictions ) and advice from tax experts . where uncertainty exists due to the complexity of income tax statutes and where the potential tax amounts are significant , we generally seek independent tax opinions to support our positions . if our evaluation of the likelihood of the realization of benefits is inaccurate , we could incur additional income tax and interest expense that would adversely impact earnings , or we could receive tax benefits greater than anticipated which would positively impact earnings , either of which could be material . 38 management believes that barnwell 's provision for uncertain tax positions is reasonable . however , the ultimate resolution of tax treatments disputed by governmental authorities may adversely affect barnwell 's current and deferred income tax amounts . asset retirement obligation policy description barnwell records the fair value of a liability for an asset retirement obligation in the period in which it is incurred . barnwell 's estimated site restoration and abandonment costs of its oil and natural gas properties are capitalized as part of the carrying amount of oil and natural gas properties and depleted over the life of the related reserves . the liability is accreted at the end of each period through charges to oil and natural gas operating expense . judgments and assumptions the asset retirement obligation is recorded at fair value in the period in which it is incurred along with a corresponding increase in the carrying amount of the related asset . barnwell has estimated fair value by discounting the estimated future cash outflows required to settle abandonment and restoration liabilities . the present value calculation includes numerous estimates , assumptions and judgments regarding the existence of liabilities , the amount and timing of cash outflows required to settle the liability , what constitutes adequate restoration , inflation factors , credit adjusted discount rates , and consideration of changes in legal , regulatory , environmental and political environments . abandonment and restoration cost estimates are determined in conjunction with barnwell 's reserve engineers based on historical information regarding costs incurred to abandon and restore similar well sites , information regarding current market conditions and costs , and knowledge of subject well sites and properties . the process of estimating the asset retirement obligation requires substantial judgment and use of estimates , resulting in imprecise determinations . actual asset retirement obligations through the end of fiscal 2011 have not materially differed from our estimates . however , because of the inherent imprecision of estimates as described above , there can be no assurance that material differences will not occur in the future . a 20 % increase in accretion and depletion of the asset retirement obligation would have increased barnwell 's fiscal 2011 expenses before taxes by approximately $ 172,000. contractual obligations disclosure is not required as barnwell qualifies as a smaller reporting company . overview barnwell is engaged in the following lines of business : 1 ) exploring for , developing , producing and selling oil and natural gas in canada ( oil and natural gas segment ) , 2 ) investing in land interests in hawaii ( land investment segment ) , 3 ) drilling wells and installing and repairing water pumping systems in hawaii ( contract drilling segment ) , and 4 ) developing homes for sale in hawaii ( residential real estate segment ) . 39 oil and natural gas segment barnwell is involved in the acquisition , exploration and development of oil and natural gas properties in canada where we initiate and participate in exploratory and developmental operations for oil and natural gas on properties in which we have an interest , and evaluate proposals by third parties with regard to participation in such exploratory and developmental operations elsewhere . barnwell sells substantially all of its oil and natural gas liquids production under short-term contracts with marketers of oil . natural gas sold by barnwell is generally sold under both long-term and short-term contracts with prices indexed to market prices . the price of natural gas , oil and natural gas liquids is freely negotiated between the buyers and sellers . oil and natural gas prices are determined by many factors that are outside of our control . market prices for oil and natural gas products are dependent upon factors such as , but not limited to , changes in market supply and demand , which are impacted by overall economic activity , changes in weather , pipeline capacity constraints , inventory storage levels , and output . petroleum and natural gas prices are very difficult to predict and fluctuate significantly . natural gas prices tend to be higher in the winter than in the summer due to increased demand , although this trend has become less pronounced due to the increased use of natural gas to generate electricity for air conditioning in the summer and increased natural gas storage capacity in north america .
| summary barnwell incurred a net loss for fiscal 2011 of $ 109,000 , a $ 3,949,000 decrease from net earnings of $ 3,840,000 in fiscal 2010. this decrease was largely attributable to the following : · the prior year period included a $ 1,465,000 current income tax benefit from legislation which expanded the number of years barnwell can carry back u.s. federal income tax losses ; · a $ 1,213,000 decrease in land investment segment operating profit in the current year due to decreased receipts of percentage of sales payments resulting from decreased residential lot sales by the developer of the project partially offset by a decrease in the reduction of the carrying value of our investment in residential parcels ; and · a $ 1,024,000 decrease in contract drilling operating results , before income taxes , due to fewer well drilling contracts , lower well drilling contract values and margins , and unforeseen difficulties experienced on certain contracts in the current year . 43 general barnwell conducts operations in the u.s. and canada . consequently , barnwell is subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the canadian dollar and the u.s. dollar . the impact of fluctuations of the exchange rates between the canadian dollar and the u.s. dollar may be material from period to period . barnwell can not accurately predict future fluctuations between the canadian and u.s. dollar . the average exchange rate of the canadian dollar to the u.s. dollar increased 6 % in fiscal 2011 , as compared to fiscal 2010 , and the exchange rate of the canadian dollar to the u.s. dollar decreased 1 % at september 30 , 2011 , as compared to september 30 , 2010. accordingly , the assets , liabilities , stockholders ' equity , and revenues and expenses of barnwell 's subsidiaries operating in canada have been adjusted to reflect the change in the exchange rates .
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fair value option disclosures and cross-reference to line-of-credit or revolving-debt arrangements guidance , the provisions are effective upon issuance of this guidance . for interaction of topic 842 and topic 326 and interaction of topic 326 and 860-20 , the effective dates and transition requirements story_separator_special_tag this annual report on form 10-k , including the following management 's discussion and analysis , contains forward-looking information that you should read in conjunction with the consolidated financial statements and notes to consolidated financial statements that we have included elsewhere in this annual report on form 10-k. for this purpose , any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements . words such as “ believes , ” “ plans , ” “ anticipates , ” “ expects , ” “ will ” and similar expressions are intended to identify forward-looking statements . our actual results may differ materially from the plans , intentions or expectations we disclose in the forward-looking statements we make . we have included important factors above under the heading “ risk factors ” in item 1a above that we believe could cause actual results to differ materially from the forward-looking statements we make . we are not obligated to publicly update any forward-looking statements , whether as a result of new information , future events or otherwise . accounting period our fiscal year ends on the sunday nearest december 31. we report fiscal years under a 52/53 week format and as a result , certain fiscal years will contain 53 weeks . the fiscal year ended january 3 , 2021 ( `` fiscal year 2020 '' ) included 53 weeks . the additional week in fiscal year 2021 has been reflected in our first quarter . each of the fiscal years ended december 29 , 2019 ( `` fiscal year 2019 '' ) and december 30 , 2018 ( `` fiscal year 2018 '' ) included 52 weeks . the fiscal year ending january 2 , 2022 ( `` fiscal year 2021 '' ) will include 52 weeks . overview of fiscal year 2020 during fiscal year 2020 , we continued to see strong returns from our acquisitions as well as our organic investments across technology , marketing and people . our overall revenue in fiscal year 2020 increased $ 899.1 million , or 31 % , as compared to fiscal year 2019 , reflecting an increase of $ 929.4 million , or 82 % , in our diagnostics segment revenue partially offset by a decrease of $ 30.4 million , or 2 % , in our discovery & analytical solutions segment revenue . the increase in our diagnostics segment revenue during fiscal year 2020 was primarily driven by increased demand for our covid-19 product offerings resulting in an increase of $ 547.4 million from our immunodiagnostics revenue and an increase of $ 398.3 million from our applied genomics revenue partially offset by a decrease of $ 16.2 million from our reproductive health revenue . the decrease in our discovery & analytical solutions segment during fiscal year 2020 was driven by a decrease of $ 85.4 million from our applied markets revenue partially offset by an increase of $ 55.0 million from our life sciences market revenue . in our diagnostics segment , we experienced tremendous demand for our immunodiagnostics and applied genomics covid-19 product and service offerings across all regions . in our reproductive health business , an expanded range of product offerings and increased geographic reach partially offset the impact of declining birthrates . in our discovery & analytical solutions s egment , the decrease in our applied markets revenue was driven by reduced demand as a result of the covid-19 pandemic , resulting in a decrease in revenue from our industrial , environmental and food markets . the increase in our life sciences market revenue was the result of an increase in revenue in our pharmaceutical and biotechnology markets driven by continued growth of our informatics and onesource businesses , partially offset by a decrease in revenue from our academia and governmental markets . our consolidated gross margins increased 736 basis points in fiscal year 2020 , as compared to fiscal year 2019 , primarily due to higher sales volume , favorable shift in product mix and continued productivity initiatives to improve our supply chain , partially offset by increased amortization expense . our consolidated operating margin increased 1,332 basis points in fiscal year 2020 , as compared to fiscal year 2019 , primarily due to higher sales volume , which was partially offset by increased amortization of intangible assets , investments in new product development and growth initiatives . o verall , we believe that our strategic priorities and recent portfolio transformations , coupled with our expanded range of product offerings , leading market positions , global scale and financial strength provides us with a foundation for continued growth . 29 story_separator_special_tag businesses in order to realign operations , reduce costs , achieve operational efficiencies and shift resources into geographic regions and end markets that are more consistent with our growth strategy ( the `` previous plans '' ) . the following table summarizes the number of employees reduced , the initial restructuring or contract termination charges by operating segment , and the dates by which payments were substantially completed , or the expected dates by which payments will be substantially completed , for restructuring actions implemented during fiscal years 2020 and 2019 in continuing operations : replace_table_token_4_th we expect to make payments under the previous plans for remaining residual lease obligations , with terms varying in length , through fiscal year 2022. we also have terminated various contractual commitments in connection with certain disposal activities and have recorded charges , to the extent applicable , for the costs of terminating these contracts before the end of their terms and the costs that will continue to be incurred for the remaining terms without economic benefit to us . story_separator_special_tag identifiable definite-lived intangible assets , such as core technology , trade names , customer relationships and in-process research and development ( `` ipr & d '' ) , acquired as part of these acquisitions had a weighted average amortization period of 11.0 years . acquisitions in fiscal year 2019 during the fiscal year 2019 , we completed the acquisition of five businesses for aggregate consideration of $ 433.1 million . the acquired businesses include cisbio bioassays sas , a company based in codolet , france , which was acquired for a total consideration of $ 219.9 million , shandong meizheng bio-tech co. , ltd. , a company headquartered in beijing , china , for a total consideration of $ 166.5 million , and three other businesses were acquired for a total consideration of $ 46.6 million . we have a potential obligation to pay the former shareholders of certain of these acquired businesses additional contingent consideration of up to $ 31.8 million . the excess of the purchase prices over the fair values of the acquired businesses ' net assets represents cost and revenue synergies specific to us , as well as non-capitalizable intangible assets , such as the employee workforces acquired , and has been allocated to goodwill , which is not tax deductible . we have reported the operations for these acquisitions within the results of our diagnostics and discovery & analytical solutions segments , as applicable , from the acquisition dates . identifiable definite-lived intangible assets , such as core technology , trade names and customer relationships , acquired as part of these acquisitions had a weighted average amortization period of 11.0 years . acquisitions in fiscal year 2018 for a discussion of our acquisitions for fiscal year 2018 , see item 7 , management 's discussion and analysis of financial condition and results of operations in our annual report on form 10-k for the fiscal year ended december 29 , 2019 filed with the securities and exchange commission on february 25 , 2020. as of january 3 , 2021 , the allocations of purchase prices for acquisitions completed in fiscal years 2019 and 2018 were final . the preliminary allocations of the purchase prices for acquisitions completed in fiscal year 2020 were based upon initial valuations . our estimates and assumptions underlying the initial valuations are subject to the collection of information necessary to complete our valuations within the measurement periods , which are up to one year from the respective acquisition dates . the primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain 33 tangible and intangible assets acquired and liabilities assumed , assets and liabilities related to income taxes and related valuation allowances , and residual goodwill . we expect to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods . during the measurement periods , we will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition dates that , if known , would have resulted in the recognition of those assets and liabilities as of those dates . these adjustments will be made in the periods in which the amounts are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates . all changes that do not qualify as adjustments made during the measurement periods are also included in current period earnings . during fiscal year 2020 , we obtained information relevant to determining the fair values of certain tangible and intangible assets acquired , and liabilities assumed , related to recent acquisitions and adjusted our purchase price allocations . based on this information , we recognized an increase in intangible assets of $ 1.9 million , an increase in deferred tax liabilities of $ 0.4 million , a decrease in goodwill of $ 1.8 million , and a decrease in liabilities assumed of $ 0.4 million . allocations of the purchase price for acquisitions are based on estimates of the fair value of the net assets acquired and are subject to adjustment upon finalization of the purchase price allocations . the accounting for business combinations requires estimates and judgments as to expectations for future cash flows of the acquired business , and the allocation of those cash flows to identifiable intangible assets , in determining the estimated fair values for assets acquired and liabilities assumed . the fair values assigned to tangible and intangible assets acquired and liabilities assumed , including contingent consideration , are based on management 's estimates and assumptions , as well as other information compiled by management , including valuations that utilize customary valuation procedures and techniques . contingent consideration is measured at fair value at the acquisition date , based on the probability that revenue thresholds or product development milestones will be achieved during the earnout period , with changes in the fair value after the acquisition date affecting earnings to the extent it is to be settled in cash . increases or decreases in the fair value of contingent consideration liabilities primarily result from changes in the estimated probabilities of achieving revenue thresholds or product development milestones during the earnout period . as of january 3 , 2021 , we may have to pay contingent consideration , related to acquisitions with open contingency periods , of up to $ 7.3 million . as of january 3 , 2021 , we have recorded contingent consideration obligations of $ 3.0 million , of which $ 2.9 million was recorded in accrued expenses and other current liabilities , and $ 0.1 million was recorded in long-term liabilities . as of december 29 , 2019 , we have recorded contingent consideration obligations of $ 35.5 million , of which $ 20.8 million was recorded in accrued expenses and other current liabilities , and $ 14.7 million was recorded in long-term liabilities .
| consolidated results of operations fiscal year 2020 compared to fiscal year 2019 revenue revenue for fiscal year 2020 was $ 3.8 billion , as compared to $ 2.9 billion for fiscal year 2019 , an increase of $ 899.1 million , or 31 % , w hich includes an approximate 2 % increase in revenue attributable to acquisitions and divestitures . the analysis in the remainder of this paragraph compares segment revenue for fiscal year 2020 as compared to fiscal year 2019 and includes the effect of foreign exchange rate fluctuations , and acquisitions and divestitures . the total increase in revenue reflects an increase in our diagnostics segment revenue of $ 929.4 million , or 82 % , due to increased demand for our covid-19 product offerings resulting in an increase of $ 547.4 million from our immunodiagnostics revenue and an increase of $ 398.3 million from our applied genomics revenue , partially offset by a decrease of $ 16.2 million in our reproductive health revenue . our discovery & analytical solutions segment revenue decreased by $ 30.4 million , or 2 % , due to a decrease of $ 85.4 million from our applied markets revenue , partially offset by an increase of $ 55.0 million from our life sciences market revenue . as a result of adjustments to deferred revenue related to certain acquisitions required by business combination rules , we did not recognize $ 0.8 million of revenue primarily related to our diagnostics segment for each of fiscal years 2020 and 2019 and $ 0.3 million of revenue primarily related to our discovery & analytical solutions segment in fiscal year 2020 that otherwise would have been recorded by the acquired businesses during each of the respective periods .
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on may 18 , 2010 , our shareholders approved story_separator_special_tag overview we are an innovative designer , developer and marketer of video and pixel processing semiconductors and software for high-end digital video applications and hold 115 patents related to the visual display of digital image data . our solutions enable manufacturers of digital display and projection devices , such as large-screen flat panel televisions and digital front projectors , to manufacture their products with a consistently high level of video quality , regardless of the content 's source or format . our core technology leverages unique proprietary techniques for intelligently processing video signals from a variety of sources to ensure that all resulting images are optimized . additionally , our products help our customers reduce costs and differentiate their display and projection devices , an important factor in industries that experience rapid innovation . pixelworks was founded in 1997 and is incorporated under the laws of the state of oregon . pixelworks ' flexible design architecture enables our technology to produce outstanding image quality in our customers ' products with a range of single-purpose integrated circuits ( “ ics ” ) , to system-on-chip ( “ soc ” ) ics that integrate microprocessor , memory and image processing functions . additionally , we provide full solutions , including a software development environment and operating system , which enable our customers to more quickly develop and customize their display products , thus reducing their time to market and allowing them to incorporate differentiated features and functions . our primary target markets are liquid crystal display ( “ lcd ” ) large-screen televisions and 3lcd and digital light processing ( “ dlp ” ) digital front projectors , however we also target other segments within the flat panel display market , including digital signage . we have adopted a product strategy that leverages our core competencies in video processing to address the evolving needs of the advanced flat panel display , digital projection and other markets that require superior image quality . we focus our product investments on developing video enhancement solutions for these markets , with particular focus on adding increased performance and functionality . additionally , we look for ways to leverage our research and development investment into products that address other high-value markets where our innovative proprietary technology provides differentiation for us and our customers . we continually seek to expand our technology portfolio through internal development , co-development with business partners and evaluation of acquisition opportunities . historically , significant portions of our revenue have been generated by sales to a relatively small number of end customers and distributors . we sell our products worldwide through a direct sales force , distributors and manufacturers ' representatives . we sell to distributors in japan , taiwan , china , korea , europe , southeast asia and the u.s , and our manufacturers ' representatives support some of our korean and european sales . our distributors typically provide engineering support to our end customers and often have valuable and established relationships with our end customers . in certain countries in which we operate , it is customary to sell to distributors . while distributor payment to us is not dependent upon the distributor 's ability to resell the product or to collect from the end customer , the distributors may provide longer payment terms to end customers than those we would offer . significant portions of our products are sold overseas . sales outside the u.s. accounted for approximately 96 % of revenue in 2011 and 2010 and 97 % of revenue in 2009 . our integrators , branded manufacturers and branded suppliers incorporate our products into systems that are sold worldwide . all of our revenue to date has been denominated in u.s. dollars . story_separator_special_tag improvements . 2010 v. 2009 total cost of revenue decreased to 54 % of revenue in 2010 from 55 % of revenue in 2009. the decrease was primarily attributable to the decrease in amortization expense for acquired intangible assets that were fully amortized as of the second quarter of 2010. the decrease is partially offset by an increase in inventory charges as we transitioned customers to our next generation products . direct product costs as a percentage of revenue remained flat in 2010 primarily due to favorable overhead cost absorption as a result of increased revenue without corresponding increases in our fixed costs , offset by a higher mix of our new products which have higher material costs than our legacy products . research and development research and development expense includes compensation and related costs for personnel , development-related expenses including non-recurring engineering and fees for outside services , depreciation and amortization , expensed equipment , facilities and information technology expense allocations and travel and related expenses . research and development expense was as follows ( in thousands ) : replace_table_token_6_th 2011 v. 2010 research and development expense increased $ 0.1 million from 2010 to 2011. the increase is primarily attributable to the following : compensation expense increased $ 1.1 million primarily due to annual merit salary increases ; depreciation and amortization expense increased $ 0.8 million due to intellectual property and engineering software tool additions ; and non-recurring engineering and outside services expense decreased $ 1.3 million due to the timing of development activities . 2010 v. 2009 research and development expense increased $ 2.7 million , or 14 % , from 2009 to 2010. this increase is primarily attributable to the following : compensation expense increased $ 1.2 million as a result of : the elimination of a company-wide salary reduction that was in effect during the second and third quarters of 2009 ; an increase in the number of research and development employees ; and annual merit salary increases granted during the year . story_separator_special_tag the decrease resulted primarily from $ 15.8 million used to repurchase our outstanding debentures , $ 3.0 million used to repay the outstanding balance on our line of credit , $ 2.8 million in payments on other asset financing , $ 2.7 million for purchases of property and equipment and other assets and $ 0.7 million used in operations . these decreases were partially offset by $ 8.3 million in net proceeds from our equity offering and $ 1.6 million in proceeds from the sale of patents . total cash and marketable securities decreased $ 1.0 million from 2009 to 2010. the decrease resulted primarily from $ 3.0 million in payments on property and equipment and other asset financing and $ 2.3 million for purchases of property and equipment and other assets . these decreases were partially offset by $ 0.6 million generated by operating activities , $ 0.5 million of realized and unrealized gains on marketable securities and a $ 3.0 million non-formula advance on our short-term line of credit , as discussed below under capital resources . excluding the non-formula advance , our cash and marketable securities would have decreased $ 4.0 million from 2009 to 2010. as of december 31 , 2011 , cash equivalents consisted of $ 9.1 million in u.s. denominated money market funds . although we did not hold short- or long-term investments as of december 31 , 2011 , our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months . additionally , no maturities can extend beyond 24 months and concentrations with individual securities are limited . investments must be rated at least a-1 / p-1 / f-1 by at least two nationally recognized statistical rating organizations , and our investment policy is reviewed at least annually by our audit committee . although cash balances held at our foreign subsidiaries would be subject to u.s. taxes if repatriated , we have sufficient u.s. net operating losses to eliminate the liability associated with any such repatriation and foreign taxes due upon repatriation would not be significant . accounts receivable , net accounts receivable , net increased to $ 4.6 million at december 31 , 2011 from $ 4.5 million at december 31 , 2010 . average number of days sales outstanding decreased to 24 days at december 31 , 2011 from 29 days at december 31 , 2010 . the decrease in days sales outstanding was primarily due to an increase in customer payments received in advance of payment terms . inventories inventories decreased to $ 4.1 million at december 31 , 2011 from $ 4.9 million at december 31 , 2010 . inventory turnover increased to 8.0 at december 31 , 2011 from 5.8 at december 31 , 2010 , primarily due to lower average inventory balances and increased cost of goods sold during the fourth quarter of 2011 compared to the fourth quarter of 2010. inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter . capital resources equity offering in may 2011 , we sold 4,197,500 shares of common stock in an underwritten registered offering at a price to the public of $ 2.24 per share . net proceeds to the company , after deducting underwriting discounts , commissions , and other expenses , were approximately $ 8.3 million . 33 short-term line of credit on december 21 , 2010 , we entered into a loan and security agreement ( the “ revolving loan agreement ” ) with silicon valley bank ( the “ bank ” ) . the revolving loan agreement provides a secured working capital-based revolving line of credit ( the “ revolving line ” ) in an aggregate amount of up to the lesser of ( i ) $ 10.0 million , or ( ii ) 80 % of eligible domestic accounts receivable and certain foreign accounts receivable . in addition , the revolving loan agreement provides for non-formula advances of up to $ 10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by the company on or before the fifth business day after the applicable fiscal month or quarter end . due to their repayment terms , non-formula advances do not provide the company with usable liquidity . the revolving loan agreement contains customary affirmative and negative covenants as well as customary events of default . the occurrence of an event of default could result in the acceleration of the company 's obligations under the revolving loan agreement and an increase to the applicable interest rate , and would permit the bank to exercise remedies with respect to its security interest . as of december 31 , 2011 , we were in compliance with all of the terms of the revolving loan agreement . as of december 31 , 2011 , we had no outstanding borrowings under the revolving line . as of december 31 , 2010 , short-term borrowings outstanding under the revolving line were non-formula advances in the aggregate of $ 3.0 million which were repaid within required terms . debentures in 2004 , we issued $ 150.0 million of 1.75 % convertible subordinated debentures due 2024. between 2006 and 2009 , we repurchased and retired $ 134.2 million principal amount of the debentures . on april 13 , 2011 , we announced an offer to repurchase all of the remaining outstanding debentures , as required under the terms of the indenture governing the debentures . in connection with the offer , we filed a tender offer statement on schedule to on that day , including as an exhibit , a notice to holders of the debentures specifying the terms , conditions and procedures of our offer to repurchase .
| results of operations year ended december 31 , 2011 compared with year ended december 31 , 2010 , and year ended december 31 , 2010 compared with year ended december 31 , 2009. revenue , net net revenue was as follows ( in thousands ) : replace_table_token_4_th 28 2011 v. 2010 net revenue decreased $ 4.9 million , or 7 % , from 2010 to 2011. the decrease was attributable to a 24 % decrease in average selling price ( “ asp ” ) , partially offset by a 20 % increase in units sold and $ 1.0 million in revenue recorded in 2011 from the license of intellectual property ( “ ip ” ) related to our digital projector products . the increase in units sold was primarily attributable to increased sales into the advanced television market of our motionengine® co-processor ics as sales associated with recent design wins ramped in volume at top-tier advanced television market customers . this increase was partially offset by a decrease in digital projector unit sales which was primarily due to an inventory correction during the first half of 2011. the decrease in asp was primarily due to a greater proportion of unit sales of our motionengine® co-processor ics , which have a lower price point than our other product lines . the decrease was also attributable to reduced pricing on our earlier generation digital projector products and changes in the mix of digital projector product sales . on january 30 , 2012 , we provided an outlook for the first quarter of 2012 in our earnings release conference call including anticipated revenue of between $ 12.0 million and $ 14.0 million .
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the company has u.s. net operating loss carryforwards of approximately $ 260 million which begin to expire in 2020. the company has state credits that net of federal tax expense total $ 1.9 million which can be utilized through 2027 and state net operating losses that have various expiration dates . the company also has tax credit carryforwards of approximately $ 3.8 million consisting of business tax credits which begin to expire story_separator_special_tag forward-looking statements the following discussion and analysis contains forward-looking statements about trends , uncertainties and our plans and expectations of what may happen in the future . forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements , including risks and uncertainties described above in item 1a . risk factors. readers are cautioned not to place undue reliance on forward-looking statements . the forward-looking statements are based upon information available to us on the date of this report . we undertake no obligation to publicly update or revise any forward-looking statements . overview we are a leader in providing secure email encryption in a saas model . we provide email encryption , dlp and byod solutions to meet the data protection and compliance needs of organizations primarily in the healthcare , finance , insurance , and government sectors . a core competency is our ability to deliver this complex service offering with a high level of availability , reliability , integrity and security . 17 we are encouraged by 2013 results which included record revenues and the successful introduction of two new service offerings , zixdlp and zixone . we attribute our success to continuing efforts to build a solid and predictable business based on our successful recurring revenue subscription business model . for 2013 we continued to benefit from growing concerns for data security and integrity issues which continue to make headline news as well as the growing acceptance of cloud-based offerings along with the growing need for regulatory compliance . for 2013 , we reported record revenue of $ 48.1 million driven by continued growth in our email encryption business . the company 's operating income for 2013 was $ 9.3 million , an increase of $ 0.4 million over prior year , resulting from 11 % growth in revenue that was partially offset by increases in selling and marketing expenses and additional investments in r & d . our net income in 2013 included a tax benefit of $ 1.4 million resulting from a decrease in our deferred tax valuation allowance . the overall decrease to our valuation allowance was $ 4.1 million , of which $ 2.7 million was due to operations and offset current tax expense . the remaining $ 1.4 million was due to a partial reversal of the remaining valuation allowance and recorded as tax benefit . this compares to a decrease in our deferred tax asset valuation allowance and resulting tax benefit of $ 2.3 million in 2012. net income for 2013 and 2012 excluding the impact of this tax benefit was $ 9.1 million and $ 8.7 million , respectively . our services are sold on a subscription basis with contract terms generally ranging from one to five years . we provide a financial incentive to our customers and sales force to contract for three to five years . historically , most of our customers contract for three year terms , except for our large partner orders ( i.e . oem orders ) which are one year terms . at the end of the contract term we attempt to renew the subscription , again attempting to secure a three to five year term . our customers pay us annually at the start of the subscription term and each succeeding year on the anniversary of the commencement of the service . we recognize revenue ratably on a monthly basis over the term of the subscription . we attempt to grow the business by signing new customers to subscription services and or selling new or higher volume services to existing customers ( i.e . upsell ) while retaining existing customers through renewal of their services . our total orders consist of both orders from new customers and upsell to existing customers plus renewal orders . total orders may vary from quarter to quarter due to the timing of renewal orders which will fluctuate in amount due to timing and length of expiring subscription terms . similarly , total new orders and upsell orders will fluctuate in amount due to term length . to better understand new orders , management tracks the first year value of new orders as well as the total order value for the subscription term because total order value will exceed the first year value on multi-year orders . by segregating the first year value of new orders , we eliminate the fluctuation in total order amount caused by the dollar impact of multi-year contracts . we refer to this metric as , new first year orders ( nfyo ) . our backlog consists of the order value of contracted business that has not yet been recognized into revenue . backlog is calculated by adding to existing deferred revenue the total value of all orders booked in the period ( i.e . quarterly ) less the value of revenue recognized for the period . although orders are non-cancellable , occasionally we adjust backlog for customer bankruptcy or change of term , but these instances are rare and do not materially impact the backlog amount . the backlog amount will grow if the value of total orders exceeds the value of revenue recognized in the period . conversely , the backlog amount will decline if revenue recognized exceeds the total order value for the period . although rare , a decline in backlog may result from fluctuations in total orders caused by timing of renewal orders described above . we retain approximately 90 % of our recurring revenue on an annual basis . story_separator_special_tag 22 backlog and orders backlog our backlog was $ 65.7 million at december 31 , 2013 compared to $ 57.7 million at december 31 , 2012. the backlog is comprised of contractually bound agreements that we expect to amortize into revenue . as of december 31 , 2013 , the backlog was comprised of the following elements : $ 20.3 million of deferred revenue that has been billed and paid , $ 6.0 million billed but unpaid , and approximately $ 39.4 million of unbilled contracts . the backlog is recognized into revenue ratably as the services are performed . approximately 54 % of the total backlog is expected to be recognized as revenue during the next twelve months . orders total orders in 2013 were $ 56.6 million compared with $ 48.2 million in 2012. total orders are comprised of contract renewals , nfyos , and in the case of new multi-year contracts , the years beyond the first year of service . cost of revenues the following table sets forth a year-over-year comparison of the cost of revenues . replace_table_token_5_th cost of revenues is comprised of costs related to operating and maintaining the zixdata center , a field deployment team , customer service and support and the amortization of company-owned , customer-based computer appliances . a significant portion of the total cost of revenues relates to the zixdata center , which currently has excess capacity . accordingly , cost of revenues is relatively fixed and is therefore expected to grow at a slower pace than revenue . cost of revenues for 2013 were flat compared to 2012 as increases in depreciation expense relating primarily to zixone hardware plus higher salaries and other employment related expenses for existing staff were offset by lower cost of bandwidth and lower software license fees . although we expect cost of revenue to grow at a slower pace than revenue , we do not , however , expect it to be flat going forward and consider the year over year performance in 2013 compared to 2012 an anomaly due primarily to timing of cost reductions . the 6 % increase in 2012 compared to 2011 resulted primarily from increases in average headcount . research and development expenses the following table sets forth a year-over-year comparison of our research and development expenses from continuing operations : replace_table_token_6_th research and development expenses consist primarily of salary , benefits and stock-based compensation for our development staff , and other costs associated with improving our existing products and services and developing new products and services . the 29 % increase in expenses in 2013 compared to 2012 resulted primarily from the full year cost impact in 2013 of headcount increases made primarily in the second half of 2012. similarly , the 42 % increase in expenses in 2012 compared to 2011 resulted from additional headcount added in the second half of 2012. the headcount increases described in this paragraph related primarily to new product development . 23 selling and marketing expenses the following table sets forth a year-over-year comparison of our selling and marketing expenses from continuing operations : replace_table_token_7_th selling and marketing expenses consist primarily of salary , commissions , travel , stock-based compensation and employee benefits for selling and marketing personnel as well as costs associated with promotional activities and advertising . the 22 % increase in 2013 compared to 2012 resulted primarily from increases in average headcount including salaries and benefits and travel ( $ 2.0 million ) . the remaining year over year variance ( $ 0.4 million ) resulted primarily from increases in advertising expenses . the 19 % increase in 2012 compared to 2011 resulted primarily from higher sales commissions and bonuses resulting primarily from higher nfyos and increase in average headcount ( $ 1.0 million ) . we also acquired new sales and marketing tools and invested in marketing and advertising programs ( $ 0.5 million ) . stock-based compensation expense also increased by $ 0.2 million year-over-year . the remaining variance consisted of relatively minor increases across various selling and marketing activities none of which were significant . general and administrative expenses the following table sets forth a year-over-year comparison of our general and administrative expenses from continuing operations : replace_table_token_8_th general and administrative expenses consist primarily of salary and bonuses , travel , stock-based compensation and benefits for administrative and executive personnel as well as fees for professional services and other general corporate activities and corporate governance . for the year 2013 compared to the same period in 2012 , general and administrative costs decreased by 2 % . this decrease resulted from lower outside legal counsel fees associated with litigation ( $ 0.4 million ) , lower sales tax expense ( $ 0.3 million ) , and lower utility expense resulting from lower electrical usage ( $ 0.1 million ) . these cost reductions were partially offset by higher stock based compensation expense ( $ 0.3 million ) , salary expense resulting from increased average headcount ( $ 0.2 million ) and other miscellaneous increases netting to $ 0.1 million . the increase in 2012 compared to 2011 resulted primarily from year-over-year increases in outside legal counsel fees associated with litigation ( $ 1.7 million ) , stock-based compensation expense ( $ 0.2 million ) , and salary and benefits expense resulting from increases in average headcount ( $ 0.4 million ) . the remaining variance resulted primarily from normal increases in other administrative expenses none of which were significant . income taxes our company or one of our subsidiaries files income tax returns in the u.s. federal jurisdiction and various states and in the canadian federal and provincial jurisdictions . we recognize and measure uncertain tax positions using a two-step approach . the first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes , if any .
| other financial highlights backlog was $ 65.7 million at the end of 2013 , compared with $ 57.7 million at the end of 2012 total orders for 2013 were $ 56.6 million , an increase of 17 % from the 2012 total orders of $ 48.2 million our deferred revenue at the end of 2013 was $ 20.4 million , compared with $ 18.4 million at the end of 2012 we generated cash flows from operations of $ 13.3 million during fiscal 2013. our cash and cash equivalents were $ 27.5 million at the end of 2013 , compared with $ 23.0 million at the end of 2012. our shared , cloud-based zixdirectory now has approximately 40 million members including some of the most respected institutions in the country . 19 critical accounting policies and estimates in preparing our consolidated financial statements , we make estimates , assumptions and judgments that can have a significant impact on revenue , income from operations and net income , as well as the value of certain assets and liabilities on our consolidated balance sheet . the application of our critical accounting policies requires an evaluation of a number of complex criteria and significant accounting judgments by us . 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 for making judgments about the carrying values of assets and liabilities . we evaluate our estimates on a regular basis and make changes accordingly . senior management has discussed the development , selection and disclosure of these estimates with the audit committee of our board of directors . actual results may materially differ from these estimates under different assumptions or conditions . if actual results were to differ from these estimates materially , the resulting changes could have a material adverse effect on our consolidated financial statements .
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( 1 ) 10.24† exclusive option agreement among beijing tenet jove technological development co. , ltd. , wang qiwei , wang sai , yin weixing , zhang weisheng , zhou qi , yang chunhong , and yantai story_separator_special_tag the following discussion and analysis of the results of our operations and financial condition for the fiscal years ended june 30 , 2016 and 2015 should be read in conjunction with our consolidated financial statements , and the notes to those consolidated financial statements that are included elsewhere in this report . all monetary figures are presented in u.s. dollars , unless otherwise indicated . forward-looking statements the statements in this discussion that are not historical facts are “ forward-looking statements. ” the words “ may , ” “ will , ” “ expect , ” “ believe , ” “ anticipate , ” “ intend , ” “ could , ” “ estimate , ” “ continue , ” the negative forms thereof , or similar expressions , are intended to identify forward-looking statements , although not all forward-looking statements are identified by those words or expressions . forward-looking statements by their nature involve substantial risks and uncertainties , certain of which are beyond our control . actual results , performance or achievements may differ materially from those expressed or implied by forward-looking statements depending on a variety of important factors , including , but not limited to , weather , local , regional , national and global coke and coal price fluctuations , levels of coal and coke production in the region , the demand for raw materials such as iron and steel which require coke to produce , availability of financing and interest rates , competition , changes in , or failure to comply with , government regulations , costs , uncertainties and other effects of legal and other administrative proceedings , and other risks and uncertainties . we are not undertaking to update or revise any forward-looking statement , whether as a result of new information , future events or circumstances or otherwise . 31 business overview shineco was incorporated in the state of delaware on august 20 , 1997. on december 30 , 2004 , the company acquired all of the issued and outstanding shares of tenet-jove , a prc company , in exchange for our restricted shares of common stock . consequently , tenet-jove became our 100 % owned subsidiary and its operating business became that of the company . tenet-jove was incorporated on december 16 , 2003 under the laws of china and was officially granted the status of a wholly foreign-owned entity ( “ wfoe ” ) by chinese authorities on july 14 , 2006. this transaction was accounted for as a recapitalization . tenet-jove owns a 90 % interest of tianjin tenet huatai technological development co. , ltd. ( “ tenet huatai ” ) . on june 9 , 2005 , we changed our name to shineco , inc. on december 31 , 2008 , june 11 , 2011 and may 24 , 2012 , respectively , tenet-jove entered into a series of contractual agreements with the owner of ankang longevity pharmaceutical ( group ) co. , ltd. ( “ ankang longevity group ” ) , each of yantai zhisheng international freight forwarding co. , ltd ( “ zhisheng freight ” ) , yantai zhisheng international trade co. , ltd ( “ zhisheng trade ” ) , yantai mouping district zhisheng agricultural produce cooperative ( “ zhisheng agricultural ” ) and qingdao zhihesheng agricultural produce services. , ltd ( “ qingdao zhihesheng ” ) . on february 24 , 2014 , tenet-jove also subsequently entered into the same series of contractual agreements with shinecozhisheng ( beijing ) bio-technology co. , ltd ( “ zhisheng bio-tech ” ) , which is a new company incorporated in 2014. zhisheng bio-tech , zhisheng freight , zhisheng trade , zhisheng agricultural , and qingdao zhihesheng are collectively referred to herein as “ zhisheng group. ” these agreements include an executive business cooperation agreement ; timely reporting agreement ; equity interest pledge agreement and executive option agreement . pursuant to these agreements , tenet-jove has the exclusive right to provide to zhisheng group and ankang longevity group consulting services related to business operation and management . all these contractual agreements obligate tenet-jove to absorb a majority of the risk of loss from zhisheng group and ankang longevity group 's activities and entitle tenet-jove to receive a majority of their residual returns . in essence , tenet-jove has gained effective control over zhisheng group and ankang longevity group . based on these contractual arrangements , we believe that zhisheng group and ankang longevity should be considered as variable interest entities ( “ vies ” ) under the statement of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 810 “ consolidation ” . accordingly , the accounts of these entities are consolidated with those of tenet-jove . we carry out all of our business in china through our prc subsidiaries , our vies and their subsidiaries . currently , we operate three main business segments : ( i ) tenet-jove is engaged in manufacturing and selling of luobuma and related products , also known in chinese as “ luobuma ” , including therapeutic clothing and textile products made from luobuma ; ( ii ) zhisheng group is engaged in the business of planting , processing and distributing of green agricultural produce as well as providing domestic and international logistic services for agricultural products ( “ agricultural products ” ) ; ( iii ) ankang longevity develops and manufactures traditional chinese herbal medicinal products as well as other retail pharmaceutical products . these different business activities and products can potentially be integrated and benefit from one and other . story_separator_special_tag all the costs are accumulated until the time of harvest and then allocated to harvested crops costs when they are sold . the company periodically evaluates its inventory and records inventory reserve for certain inventories that may not be saleable . revenue recognition the company recognizes revenue from sales of luobuma products , chinese medicinal herbal products and agricultural products , as well as providing logistic service and other processing service to external customers . the company recognizes revenue when all of the following have occurred : ( i ) there is persuasive evidence of an arrangement with a customer , ( ii ) delivery has occurred or services have been rendered , ( iii ) the sales price is fixed or determinable , and ( iv ) the company 's collection of such fees is reasonable assured . these criteria , as related to the company 's revenue , are considered to have been met as follows : sales of products : the company recognizes revenue on sale of products when the goods are delivered and title to the goods passes to the customer provided that there are no uncertainties regarding customer acceptance ; persuasive evidence of the an arrangement exists ; the sales price is fixed or determinable ; and collectability is deemed probable . revenue from the rendering of services : revenue from international freight forwarding , domestic air and overland freight forwarding services are recognized upon performance of services as stipulated in the underlying contract or when commodities are being released from the customer 's warehouse . fair value of financial instruments the company adopted the provisions of asc 820 , “ fair value measurements and disclosures. ” asc 820 clarifies the definition of fair value , prescribes methods for measuring fair value , and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows : level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities . 34 level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets ; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions ( less active markets ) ; or model-derived valuations in which significant inputs are observable or can be derived principally from , or corroborated by , observable market data . level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities . the carrying value of accounts receivable , other current assets and prepaid expenses , short term loans , other payables and accrued expenses approximate their fair values because of the short-term nature of these instruments . equity investment an investment in which the company has the ability to exercise significant influence , but does not have a controlling interest , is accounted for using the equity method . significant influence is generally considered to exist when the company has an ownership interest in the voting stock between 20 % and 50 % , and other factors , such as representation on the board of directors , voting rights and the impact of commercial arrangements , are considered in determining whether the equity method of accounting is appropriate . results of operations for the years ended june 30 , 2016 and 2015 overview the following table summarizes our results of operations for the years ended june 30 , 2016 and 2015 : replace_table_token_3_th revenue currently , we have three types of revenue streams deriving from our three major business segments : first , developing , manufacturing and distributing specialized fabrics , textiles and other by-products derived from an indigenous chinese plant apocynum venetum , known in chinese as “ luobuma ” or “ bluish dogbane. ” this segment is channeled through our directly owned subsidiary , tenet-jove . second , processing and distributing traditional chinese herbal medicine products as well as other pharmaceutical products . this segment is conducted by our ankang longevity group vies . and third , planting , processing and distributing green and organic agricultural produce as well as growing and cultivation of yew trees . this segment is conducted through our vies , the zhisheng group . 35 the following table sets forth the breakdown of our revenue for the years ended june 30 , 2016 and 2015 , respectively : replace_table_token_4_th for the years ended june 30 , 2016 and 2015 , revenue from sales of luobuma products was $ 4,387,060 and $ 3,530,807 , respectively , which represented an increase of $ 856,253 or 24.25 % . the increase of revenue from this segment was primarily due to increased sales volume of our health awareness related products . the sales volume increase was mainly due to the increase in our number of customers . for the years ended june 30 , 2016 and 2015 , revenue from sales of chinese medicinal herbal products was $ 14,031,955 and $ 13,858,949 , respectively , representing a slight increase of $ 173,006 or 1.25 % . the increase was primarily due to the fact that we fulfilled more sales orders from customers for the year ended june 30 , 2016 than the same period in 2015. for the years ended june 30 , 2016 and 2015 , revenue from other agricultural products was $ 16,787,837 and $ 15,240,746 , respectively , representing an increase of $ 1,547,091 or 10.15 % . the increase was mainly attributable to the increase in sales price of yew trees .
| general and administrative expenses for the year ended june 30 , 2016 , our general and administrative expenses were $ 1,988,101 , representing a decrease of $ 172,565 or 7.99 % , as compared to the same period of 2015. the decrease was primarily attributable to of the gain on disposal of the investment in ou'feng in the amount of rmb 1.5 million ( approximately $ 0.23 million ) resulting from collection of rmb 3.0 million ( approximately $ 0.45 million ) from nanjing kangtianyi and tianjin ou'feng as return of the investments during the year ended june 30 , 2016 . 37 selling and distribution expense for the year ended june 30 , 2016 , our selling and distribution expenses were $ 1,755,264 , representing an increase of $ 70,841 or 4.21 % , as compared to the same period of 2015. the increase was primarily due to increased salary expense since more staff recruited and increased sales promotion on online platforms such as alibaba and jd.com . income from equity method investments on september 27 , 2012 , ankang longevity group entered into two equity investment agreements with a third party , shaanxi pharmaceutical group pai'ang medicine co. ltd. ( “ shaanxi pharmaceutical group ” ) , a chinese state-owned pharmaceutical enterprise , to invest a total of rmb 6.8 million ( approximately $ 1.0 million ) to form a joint venture pharmacy retail company called shaanxi pharmaceutical sunsimiao drugstores ankang retail chain co. , ltd. ( “ sunsimiao drugstores ” ) , and a joint venture pharmaceutical wholesale distribution company named shaanxi pharmaceutical holding group longevity pharmacy co. , ltd. ( “ shaanxi longevity pharmacy ” ) . ankang longevity group obtained a 49 % equity interest in each of these two new joint venture companies . we recorded net income of $ 532,320 and $ 599,118 from these equity method investments for the years ended june 30 , 2016 and 2015 , respectively .
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actual results could differ materially for a variety of reasons , including , among others , fluctuations in foreign exchange rates , changes in global economic conditions and customer spending , world events , the rate of growth of the internet , online commerce , and cloud services , the amount that amazon.com invests in new business opportunities and the timing of those investments , the mix of products and services sold to customers , the mix of net sales derived from products as compared with services , the extent to which we owe income or other taxes , competition , management of growth , potential fluctuations in operating results , international growth and expansion , the outcomes of claims , litigation , government investigations , and other proceedings , fulfillment , sortation , delivery , and data center optimization , risks of inventory management , variability in demand , the degree to which we enter into , maintain , and develop commercial agreements , proposed and completed acquisitions and strategic transactions , payments risks , and risks of fulfillment throughput and productivity . in addition , the global economic climate and additional or unforeseen effects from the covid-19 pandemic amplify many of these risks . these risks and uncertainties , as well as other risks and uncertainties that could cause our actual results to differ significantly from management 's expectations , are described in greater detail in item 1a of part i , “ risk factors. ” overview our primary source of revenue is the sale of a wide range of products and services to customers . the products offered through our stores include merchandise and content we have purchased for resale and products offered by third-party sellers , and we also manufacture and sell electronic devices and produce media content . generally , we recognize gross revenue from items we sell from our inventory as product sales and recognize our net share of revenue of items sold by third-party sellers as service sales . we seek to increase unit sales across our stores , through increased product selection , across numerous product categories . we also offer other services such as compute , storage , and database offerings , fulfillment , advertising , publishing , and digital content subscriptions . our financial focus is on long-term , sustainable growth in free cash flows . free cash flows are driven primarily by increasing operating income and efficiently managing accounts receivable , inventory , accounts payable , and cash capital expenditures , including our decision to purchase or lease property and equipment . increases in operating income primarily result from increases in sales of products and services and efficiently managing our operating costs , partially offset by investments we make in longer-term strategic initiatives , including capital expenditures focused on improving the customer experience . to increase sales of products and services , we focus on improving all aspects of the customer experience , including lowering prices , improving availability , offering faster delivery and performance times , increasing selection , producing original content , increasing product categories and service offerings , expanding product information , improving ease of use , improving reliability , and earning customer trust . see “ results of operations — non-gaap financial measures ” below for additional information on our non-gaap free cash flows financial measures . we seek to reduce our variable costs per unit and work to leverage our fixed costs . our variable costs include product and content costs , payment processing and related transaction costs , picking , packaging , and preparing orders for shipment , transportation , customer service support , costs necessary to run aws , and a portion of our marketing costs . our fixed costs include the costs necessary to build and run our technology infrastructure ; to build , enhance , and add features to our online stores , web services , electronic devices , and digital offerings ; and to build and optimize our fulfillment networks and related facilities . variable costs generally change directly with sales volume , while fixed costs generally are dependent on the timing of capacity needs , geographic expansion , category expansion , and other factors . to decrease our variable costs on a per unit basis and enable us to lower prices for customers , we seek to increase our direct sourcing , increase discounts from suppliers , and reduce defects in our processes . to minimize unnecessary growth in fixed costs , we seek to improve process efficiencies and maintain a lean culture . because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle 1 . on average , our high inventory velocity means we generally collect from consumers before our payments to suppliers come due . we expect variability in inventory turnover over time since it is affected by numerous factors , including our product mix , the mix of sales 1 the operating cycle is the number of days of sales in inventory plus the number of days of sales in accounts receivable minus accounts payable days . 19 by us and by third-party sellers , our continuing focus on in-stock inventory availability and selection of product offerings , our investment in new geographies and product lines , and the extent to which we choose to utilize third-party fulfillment providers . we also expect some variability in accounts payable days over time since they are affected by several factors , including the mix of product sales , the mix of sales by third-party sellers , the mix of suppliers , seasonality , and changes in payment terms over time , including the effect of balancing pricing and timing of payment terms with suppliers . we expect spending in technology and content will increase over time as we add computer scientists , designers , software and hardware engineers , and merchandising employees . our technology and content investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations . story_separator_special_tag inventories inventories , consisting of products available for sale , are primarily accounted for using the first-in first-out method , and are valued at the lower of cost and net realizable value . this valuation requires us to make judgments , based on currently available information , about the likely method of disposition , such as through sales to individual customers , returns to product vendors , or liquidations , and expected recoverable values of each disposition category . these assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future . as a measure of sensitivity , for every 1 % of additional inventory valuation allowance as of december 31 , 2020 , we would have recorded an additional cost of sales of approximately $ 270 million . in addition , we enter into supplier commitments for certain electronic device components and certain products . these commitments are based on forecasted customer demand . if we reduce these commitments , we may incur additional costs . income taxes we are subject to income taxes in the u.s. ( federal and state ) and numerous foreign jurisdictions . tax laws , regulations , administrative practices , principles , and interpretations in various jurisdictions may be subject to significant change , with or without notice , due to economic , political , and other conditions , and significant judgment is required in evaluating and estimating our provision and accruals for these taxes . there are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain . in addition , our actual and forecasted earnings are subject to change due to economic , political , and other conditions , such as the covid-19 pandemic , and significant judgment is required in determining our ability to use our deferred tax assets . our effective tax rates could be affected by numerous factors , such as changes in our business operations , acquisitions , investments , entry into new businesses and geographies , intercompany transactions , the relative amount of our foreign earnings , including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates , losses incurred in jurisdictions for which we are not able to realize related tax benefits , the applicability of special tax regimes , changes in foreign currency exchange rates , changes in our stock price , changes to our forecasts of income and loss and the mix of jurisdictions to which they relate , changes in our deferred tax assets and liabilities and their valuation , changes in the laws , regulations , administrative practices , principles , and interpretations related to tax , including changes to the global tax framework , competition , and other laws and accounting rules in various jurisdictions . in addition , a number of countries have enacted or are actively pursuing changes to their tax laws applicable to corporate multinationals . we are also currently subject to tax controversies in various jurisdictions , and these jurisdictions may assess additional income tax liabilities against us . developments in an audit , investigation , or other tax controversy could have a material effect on our operating results or cash flows in the period or periods for which that development occurs , as well as for prior and subsequent periods . we regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals . although we believe our tax estimates are reasonable , the final outcome of audits , investigations , and any other tax controversies could be materially different from our historical income tax provisions and accruals . 21 liquidity and capital resources cash flow information is as follows ( in millions ) : replace_table_token_3_th our principal sources of liquidity are cash flows generated from operations and our cash , cash equivalents , and marketable securities balances , which , at fair value , were $ 55.0 billion and $ 84.4 billion as of december 31 , 2019 and 2020. amounts held in foreign currencies were $ 15.3 billion and $ 23.5 billion as of december 31 , 2019 and 2020 , and were primarily euros , british pounds , and japanese yen . cash provided by ( used in ) operating activities was $ 38.5 billion and $ 66.1 billion in 2019 and 2020. our operating cash flows result primarily from cash received from our consumer , seller , developer , enterprise , and content creator customers , and advertisers , offset by cash payments we make for products and services , employee compensation , payment processing and related transaction costs , operating leases , and interest payments on our long-term obligations . cash received from our customers and other activities generally corresponds to our net sales . because consumers primarily use credit cards to buy from us , our receivables from consumers settle quickly . the increase in operating cash flow in 2020 , compared to the prior year , was primarily due to the increase in net income , excluding non-cash expenses , and changes in working capital . working capital at any specific point in time is subject to many variables , including variability in demand , inventory management and category expansion , the timing of cash receipts and payments , vendor payment terms , and fluctuations in foreign exchange rates . cash provided by ( used in ) investing activities corresponds with cash capital expenditures , including leasehold improvements , incentives received from property and equipment vendors , proceeds from asset sales , cash outlays for acquisitions , investments in other companies and intellectual property rights , and purchases , sales , and maturities of marketable securities .
| results of operations we have organized our operations into three segments : north america , international , and aws . these segments reflect the way the company evaluates its business performance and manages its operations . see item 8 of part ii , “ financial statements and supplementary data — note 10 — segment information. ” effects of covid-19 as reflected in the discussion below , the impact of the covid-19 pandemic and actions taken in response to it had varying effects on our 2020 results of operations . higher net sales in the north america and international segments reflect increased demand , particularly as people are staying at home , including for household staples and other essential and home products , partially offset by fulfillment network capacity and supply chain constraints . other effects in the north america and international segments include increased fulfillment costs and cost of sales as a percentage of net sales , primarily due to the impact of lower productivity , increased employee hiring and benefits , and costs to maintain safe workplaces . we expect the effects of fulfillment network capacity and supply chain constraints , elevated collection risk in our accounts receivable , and increased fulfillment costs and cost of sales as a percentage of net sales to continue into all or portions of q1 2021. however , it is not possible to determine the duration and scope of the pandemic , including any recurrence , the actions taken in response to the pandemic , the scale and rate of economic recovery from the pandemic , any ongoing effects on consumer demand and spending patterns , or other impacts of the pandemic , and whether these or other currently unanticipated consequences of the pandemic are reasonably likely to materially affect our results of operations . 24 net sales net sales include product and service sales . product sales represent revenue from the sale of products and related shipping fees and digital media content where we record revenue gross .
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equity securities the company sold its remaining investment in equity securities 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 the related notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k , or 10-k. in addition to historical financial information , the following discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results and timing of selected events in future periods may differ materially from those anticipated or implied in these forward-looking statements as a result of many factors , including those discussed under item 1a , `` risk factors , '' and elsewhere in this 10-k. see also `` cautionary note regarding forward-looking statements `` at the beginning of this 10-k. overview we are a global information and analytics company that measures advertising , content , and the consumer audiences of each , across media platforms . we create our products using a global data platform that combines information on digital platforms ( connected ( smart ) televisions , mobile devices , tablets and computers ) , tv , ott devices , direct to consumer applications and movie screens with demographics and other descriptive information . we have developed proprietary data science that enables measurement of person-level and household-level audiences , removing duplicated viewing across devices and over time . this combination of data and methods enables a common standard for buyers and sellers to transact on advertising . this helps companies across the media ecosystem better understand and monetize their audiences and develop marketing plans and products to more efficiently and effectively reach those audiences . our ability to unify behavioral and other descriptive data enables us to provide audience ratings , advertising verification , and granular consumer segments that describe hundreds of millions of consumers . our customers include digital publishers , television networks , movie studios , content owners , brand advertisers , agencies and technology providers . the platforms we measure include televisions , mobile devices , computers , tablets , ott devices and movie theaters . the information we analyze crosses geographies , types of content and activities , including websites , mobile and ott apps , video games , television and movie programming , e-commerce , and advertising . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > 36 table of conte nt s retention of syndicated digital enterprise customers remained high in 2019 , revenue from our smaller and international syndicated digital customers declined and continued to be impacted by ongoing industry changes in ad buying and consolidation . syndicated digital revenue represented 51 % and 55 % of our ratings and planning revenue for 2019 and 2018 , respectively . revenue from vce declined due to lower volumes of measured impressions as we transitioned to premium video content through our ccr product offering . offsetting those decreases were increased revenue from our cross-platform and tv offerings . cross-platform revenue increased from higher deliveries of data in 2019 versus 2018. tv revenue increased to 36 % of ratings and planning revenue in 2019 as compared to 34 % in 2018. tv revenue grew as a result of higher local tv revenue due to new customers and expansion of existing relationships , offset in part by lower national tv revenue , due in part to political revenue recognized in 2018 that did not recur in 2019. analytics and optimization revenue decreased by $ 17.7 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the decrease was primarily driven by lower sales and deliveries of digital custom solutions , survey and lift products in 2019. the decrease was offset by increased revenue from activation products , which continued to experience year-over-year growth . movies reporting and analytics revenue increased by $ 0.6 million for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018 due to growth in new product revenue . revenues by geographic location revenue from outside of the united states was $ 45.3 million , $ 52.6 million and $ 60.1 million for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . revenue declines were due in part to our exit from certain countries as part of our restructuring activities , as well as the impact of the covid-19 pandemic in 2020. please refer to footnote 14 , organizational restructuring , of the notes to consolidated financial statements . we generate the majority of our revenues from the sale and delivery of our products within the united states . for information with respect to sales by geographic markets , refer to footnote 3 , revenue recognition , of the notes to consolidated financial statements . our chief operating decision maker ( our chief executive officer ( `` ceo '' ) ) does not evaluate the profit or loss from any separate geography . we anticipate that revenues from our u.s. sales will continue to constitute a substantial and increasing portion of our revenues in future periods . we expect our international revenues to continue to decline as a percentage of our total revenues as a result of relative growth in our domestic product offerings . wpp related party revenue we provide wpp and its affiliates , in the normal course of business , services relating to our different product lines and receive various services from wpp and its affiliates in supporting our data collection efforts . for the years ended 2020 , 2019 , and 2018 , related party revenues with wpp and its affiliates were $ 13.3 million , $ 15.9 million and $ 11.6 million , respectively . story_separator_special_tag lease expense and depreciation decreased $ 2.0 million as a result of various lease terminations and decreased depreciation expense as various assets reached the end of their depreciable lives . travel costs decreased $ 1.5 million from lower headcount while professional fees decreased $ 0.8 million from reduced use of consultants . offsetting these decreases in costs was an increase of $ 1.7 million in technology costs due certain license expenses that were previously included in research and development expense . research and development research and development expenses include product development costs , consisting primarily of employee costs including salaries , benefits , stock-based compensation and other related costs for personnel associated with research and development activities , third-party expenses to develop new products and third-party data costs and allocated overhead , which is comprised of lease expense and other facilities-related costs , and depreciation expense related to general purpose equipment and software . research and development expenses for the years ended december 31 , 2020 and 2019 are as follows : replace_table_token_10_th research and development expenses decreased by $ 23.1 million , or 37.4 % , for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. employee costs decreased $ 19.1 million primarily due to lower headcount . lease expense and 39 table of conte nt s depreciation decreased $ 2.0 million primarily as a result of various lease terminations and executed sublease agreements . professional fees decreased $ 1.6 million primarily due to a decrease in consulting services . research and development expenses for the years ended december 31 , 2019 and 2018 are as follows : replace_table_token_11_th ( 1 ) as discussed in footnote 2 , summary of significant accounting policies , in our 2019 10-k , we adopted asc 842 , leases as of january 1 , 2019. lease expense and depreciation for the year ended december 31 , 2019 is not comparable to the year ended december 31 , 2018 due to our adoption of asc 842. research and development expenses decreased by $ 15.2 million , or 19.7 % , for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. employee costs decreased $ 12.9 million due to reduced headcount and restructuring efforts as discussed in footnote 14 , organizational restructuring . lease expense and depreciation decreased $ 1.1 million as a result of various lease terminations and decreased depreciation expense as various assets reached the end of their depreciable lives . technology costs decreased $ 0.9 million due to certain license expenses that are now included in selling and marketing expense . general and administrative general and administrative expenses consist primarily of employee costs including salaries , benefits , stock-based compensation and other related costs , and related expenses for executive management , finance , human capital , legal and other administrative functions , as well as professional fees , overhead , including allocated overhead , which is comprised of lease expense and other facilities-related costs , depreciation expense related to general purpose equipment and software , and expenses incurred for other general corporate purposes . general and administrative expenses for the years ended december 31 , 2020 and 2019 are as follows : replace_table_token_12_th general and administrative expenses decreased by $ 10.6 million , or 16.0 % , for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. employee costs decreased $ 6.2 million primarily due to $ 3.3 million in severance costs for certain executives who exited in 2019 , as well as lower headcount and a decrease in stock-based compensation expense . professional fees decreased $ 5.5 million primarily due to reduced audit and legal fees in 2020 as compared to 2019 , and fees related to the issuance of common stock and warrants in 2019. these decreases were offset by an increase in bad debt expense of $ 1.0 million primarily due to increased reserves related to customers impacted by the current economic environment . general and administrative expenses for the years ended december 31 , 2019 and 2018 are as follows : replace_table_token_13_th ( 1 ) as discussed in footnote 2 , summary of significant accounting policies , in our 2019 10-k , we adopted asc 842 , leases as of january 1 , 2019. lease expense and depreciation for the year ended december 31 , 2019 is not comparable to the year ended december 31 , 2018 due to our adoption of asc 842 . 40 table of conte nt s general and administrative expenses decreased by $ 18.1 million , or 21.4 % , for the year ended december 31 , 2019 as compared to the year ended december 31 , 2018. the decrease was largely attributable to a reduction in transition services agreement costs , employee costs , professional fees and lease depreciation expense . transition services agreement costs decreased $ 8.4 million as a result of the termination of a three-year transition services agreement . employee costs decreased primarily due to reduced headcount and restructuring efforts as discussed in footnote 14 , organizational restructuring , partially offset by a $ 3.3 million increase in severance expense related to the departure of certain executives in 2019. professional fees decreased $ 3.1 million as a result of lower audit and compliance costs , offset by transaction costs associated with the sale of shares of common stock and warrants in june 2019. lease expense and depreciation decreased $ 1.2 million as a result of decreased depreciation expense as various assets reached the end of their depreciable lives and decreased lease expense from various lease terminations and executed sublease agreements . amortization of intangible assets amortization expense consists of charges related to the amortization of intangible assets associated with acquisitions , primarily our rentrak merger in which we acquired $ 170.3 million of finite-lived intangible assets .
| results of operations the following table sets forth selected consolidated statements of operations and comprehensive loss data as a percentage of revenues for each of the periods indicated . replace_table_token_3_th 35 table of conte nt s revenues our products and services are organized around solution groups that address customer needs . we evaluate revenues around three solution groups : ratings and planning provides measurement of the behavior and characteristics of audiences of content and advertising , across television and digital platforms including connected ( smart ) televisions , computers , tablets , mobile devices , and other connected devices . these products and services are designed to help customers find the most relevant viewing audience , whether that viewing is linear , non-linear , online or on-demand . analytics and optimization includes custom solutions , activation , lift and survey-based products that provide end-to-end solutions for planning , optimization and evaluation of advertising campaigns and brand protection . movies reporting and analytics measures movie viewership and box office results by capturing movie ticket sales in real time or near real time and includes box office analytics , trend analysis and insights for movie studios and movie theater operators worldwide . we categorize our revenue along these solution groups ; however , our cost structure is tracked at the corporate level and not by our solution groups . these costs include , but are not limited to employee costs , purchased data , operational overhead , data storage and technology that supports multiple solution groups . revenues for the years ended december 31 , 2020 and 2019 are as follows : replace_table_token_4_th ( 1 ) in the second quarter of 2020 , we began classifying revenue from certain new and extended custom agreements for services that utilize its syndicated data set , previously classified under analytics and optimization , as ratings and planning . the impact was not material to either solution group .
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additionally , we entered into a new lease for our office and lab space in aurora , colorado , effective may 2019 , that expires in april story_separator_special_tag you should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this annual report on form 10-k. this discussion and other parts of this annual report contain forward-looking statements that involve risk and uncertainties , such as statements of our plans , objectives , expectations and intentions . as a result of many factors , including those factors set forth in the “ risk factors ” section of this annual report , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis . overview atara biotherapeutics is a leading off-the-shelf , allogeneic t-cell immunotherapy company that is developing novel treatments for patients with cancer , autoimmune and viral diseases . we have several t-cell immunotherapies in clinical development and are progressing a next-generation allogeneic chimeric antigen receptor t-cell , or car t program . our strategic priorities are : tab-cel ® : atara 's most advanced t-cell immunotherapy , tab-cel ® ( tabelecleucel ) , currently in phase 3 development for patients with epstein-barr virus , or ebv , associated post-transplant lymphoproliferative disease , or ebv+ ptld , who have failed rituximab or rituximab plus chemotherapy , as well as other ebv-associated hematologic malignancies and solid tumors ; ata188 : t-cell immunotherapy targeting ebv antigens believed to be important for the potential treatment of multiple sclerosis ; ata2271/ata3271 : car t immunotherapy targeting mesothelin , with autologous ( ata2271 ) to allogeneic ( ata3271 ) development planned ; and ata3219 : allogeneic car t targeting cd19 as proof-of-concept for our next generation technologies and ebv t-cell car t platform . our t-cell immunotherapy platform includes the capability to progress both allogeneic and autologous programs and is potentially applicable to a broad array of targets and diseases . our off-the-shelf , allogeneic t-cell platform allows for rapid delivery of a t-cell immunotherapy product that has been manufactured in advance and stored in inventory , with each manufactured lot of cells providing therapy for numerous potential patients . this differs from autologous treatments , in which each patient 's own cells must be extracted , modified outside the body and then delivered back to the patient . for tab-cel ® , we utilize a proprietary cell selection algorithm to select the appropriate set of cells for use based on a patient 's unique immune profile . this matching process is designed to allow our cells to be administered without the pre-treatment that is required for some therapies and to reduce monitoring following administration . in addition , our manufacturing facility is capable of producing multiple types of therapies and atara matchme , our proprietary t-cell order management platform , is being developed to provide patient care teams with access to therapy . we have entered into research collaborations with leading academic institutions such as memorial sloan kettering cancer center , or msk , the council of the queensland institute of medical research , or qimr berghofer , and h. lee moffitt cancer center and research institute , or moffitt , to acquire rights to novel and proprietary technologies and programs . we recognize that our clinical studies may not be available to all patients and we have established expanded access and compassionate use programs in instances where there is a significant patient need . our manufacturing facility in thousand oaks , california has the flexibility to manufacture multiple t-cell and car t immunotherapies while integrating research and process science functions to enable increased collaboration for rapid product development . our research and development and process and analytical development labs are currently supporting preclinical development activities . our facility is designed to global regulatory standards , and the required facility commissioning and qualification activities to support clinical manufacturing are complete . commercial production qualification activities for our facility are progressing well and , together with our contracted manufacturing partner , are aligned with our planned commercial product supply strategy . 59 in december 2019 , we entered into a commercial manufacturing services agreement , or the manufacturing agreement , w ith cognate , effective as of january 2020 . the manufacturing agreement supersedes the dmsa agreement with cognate and governs similar manufacturing services provided for under the dmsa agreement with similar terms . specifically , pursuant to the manufacturing agreement , cognate provides manufacturing services for certain of our product candidates . the initial term of the manufacturing agreement runs until december 31 , 2021 and is renewable with cognate 's approval for an additional one - year period . we may terminate the manufacturing agreement for convenience on six months ' written notice to cognate , or immediately if cognate is unable to perform the services under the manufacturing agreement or fails to obtain or maintain certain necessary approvals . the manufacturing agreement includes standard mutual termination rights for uncured breach or insolvency , or a force majeure event preventing the performance of services for at least ninety days . in connection with the entry into the manufacturing agreement , we and cognate also entered into a fifth amendment to the dmsa agreement , which amended the expiration date of the dmsa agreement to december 31 , 2019. we have a limited operating history . since our inception in 2012 , we have devoted substantially all of our resources to identify , acquire and develop our product candidates , including conducting preclinical and clinical studies , acquiring or manufacturing materials for clinical studies , constructing our manufacturing facility and providing general and administrative support for these operations . our net losses were $ 291.0 million , $ 230.7 million and $ 119.5 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . story_separator_special_tag actual results may differ from these estimates under different assumptions and conditions . our significant judgments and estimates are detailed below , and our significant accounting policies are more fully described in note 2 of the accompanying consolidated financial statements . description judgments and uncertainties effect if actual results differ from assumptions accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate and accrue expenses , the largest of which is related to research and development expenses , including those related to clinical studies and drug manufacturing . this process involves reviewing contracts and purchase orders , identifying and evaluating the services that have been performed on our behalf , and estimating the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . costs for preclinical studies , clinical studies and manufacturing activities are recognized based on an evaluation of our vendors ' progress towards completion of specific tasks , using data such as patient enrollment , clinical site activations or information provided to us by our vendors regarding their actual costs incurred . payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed . we determine accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of studies , or the services completed . our estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time . costs that are paid in advance of performance are deferred as a prepaid expense and amortized over the service period as the services are provided . for the years ended december 31 , 2019 and 2018 , there were no material changes from our estimates of accrued research and development expenses . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates of accrued research and development expenses . however , if actual results are not consistent with our estimates , we may be exposed to changes in accrued research and development expenses that could be material or the accrued research and development expenses reported in our financial statements may not be representative of the actual economic cost of accrued research and development . 62 stock-based compensation we have stock-based compensation programs , which include restricted stock agreements , or rsas ; restricted stock units , or rsus ; stock options ' and an employee stock purchase plan . see note 2– “ summary of significant accounting policies ” and note 9 – “ stockholders ' equity ” in the notes to consolidated financial statements , included in item 8. financial statements and supplementary data of this report for a complete discussion of our stock-based compensation programs . we account for stock-based compensation expense , including the expense for rsas , grants of rsus and stock options that may be settled in shares of our common stock , based on the fair values of the equity instruments issued . the fair value is determined on the measurement date , which is generally the date of grant . the fair value for our rsas is their intrinsic value , which is the difference between the fair value of the underlying stock at the measurement date and the purchase price . the fair value of our rsus is the fair value of the underlying stock at the measurement date . the fair value for our stock option awards is determined at the grant date using the black-scholes valuation model . assumptions for the black-scholes valuation model used for employee stock awards include : expected term – we derived the expected term for employee stock awards using the “ simplified ” method ( the expected term is determined as the average of the time-to-vesting and the contractual life of the options ) , as we have limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior . expected term for non-employee awards is based on the remaining contractual term of an option on each measurement date . expected volatility – expected volatility is estimated using comparable public companies ' volatility for similar terms . expected dividend rate – we have not historically declared or paid dividends to our stockholders and have no plans to pay dividends ; therefore , we have assumed an expected dividend yield of 0 % . risk-free interest rate – the risk-free interest rate is based on the yields of u.s. treasury securities with expected terms similar to that of the associated award . the fair value of our common stock is based on observable market prices . we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense . however , if actual results are not consistent with our estimates or assumptions , we may be exposed to changes in stock-based compensation expense that could be material or the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation . accounting for income taxes see note 10 – “ income taxes ” in the notes to consolidated financial statements , included in item 8. financial statements and supplementary data of this report for a complete discussion of the components of atara 's income tax expense , as well as the temporary differences that exist as of december 31 , 2019 . our consolidated effective income tax rate is influenced by tax planning opportunities available to us in the various jurisdictions in which we conduct business . significant judgment is required in evaluating our tax positions , including those that may be uncertain . atara is also required to exercise judgment with respect to the realization of our net deferred tax assets .
| results of operations comparison of the years ended december 31 , 2019 , 2018 and 2017 research and development expenses research and development expenses consisted of the following costs , by program , in the periods presented : replace_table_token_3_th tab-cel ® expenses were $ 49.2 million in 2019 as compared to $ 50.8 million in 2018 and $ 33.7 million in 2017. tab-cel ® expenses decreased slightly in 2019 due to higher clinical trial and manufacturing costs in 2018 related to the ramp up of the match and allele phase 3 clinical studies for patients with ebv+ ptld . t he increase in 2018 was primarily due to clinical study , manufacturing and outside service costs related to the match and allele phase 3 clinical studies , which were initiated in december 2017. we anticipate that tab-cel ® expenses will increase in 2020 due to the addition of trial sites outside of the u.s. , as well as the initiation of our phase 2 multi-cohort study . ata188 , car t and other program expenses were $ 34.9 million in 2019 as compared to $ 30.2 million in 2018 and $ 9.2 million in 2017. the increase in 2019 was primarily related to research and manufacturing process development costs related to our car t programs ; increased clinical study , manufacturing and other outside service costs related to the phase 1 clinical study of ata188 for patients with pms ; and the ata190 program .
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the term “ our parent ” refers to bp pipelines ( north america ) , inc. ( “ bp pipelines ” ) , any entity that wholly owns bp pipelines , indirectly or directly , including bp america inc. and bp p.l.c . ( “ bp ” ) , and any entity that is wholly owned by the aforementioned entities , excluding bp midstream partners lp predecessor and the partnership . management 's discussion and analysis of financial condition and results of operations should be read in conjunction with the information included under item 1 and 2. business and properties , item 1a . risk factors , item 6. selected financial data and item 8. financial statements and supplemental data . it should also be read together with “ cautionary statement regarding forward-looking statements ” in this report . partnership overview we are a fee-based , growth-oriented master limited partnership formed by bp pipelines to own , operate , develop and acquire pipelines and other midstream assets . our assets consist of interests in entities that own crude oil , natural gas , refined products and diluent pipelines serving as key infrastructure for bp and other customers to transport onshore crude oil production to bp 's crude oil refinery in whiting , indiana ( the “ whiting refinery ” ) and offshore crude oil and natural gas production to key refining markets and trading and distribution hubs . certain of our assets deliver refined products and diluent from the whiting refinery and other u.s. supply hubs to major demand centers . our assets consist of the following : bp2 opco , which owns the bp # 2 crude oil pipeline system ( “ bp2 ” ) consisting of approximately 12 miles of pipeline and related assets that transport crude oil from griffith station , indiana , to the whiting refinery . river rouge opco , which owns the whiting to river rouge refined products pipeline system ( “ river rouge ” ) consisting of approximately 244 miles of pipeline and related assets that transport refined petroleum products from the whiting refinery to the refined products terminal at river rouge , michigan . diamondback opco , which owns the diamondback diluent pipeline system ( “ diamondback ” ) consisting of approximately 42 miles of pipeline and related assets that transport diluent from black oak junction , indiana , to a third-party owned pipeline in manhattan , illinois . bp2 , river rouge , and diamondback , together , are referred to as the `` predecessor assets '' or the `` wholly owned assets '' . a 28.5 % ownership interest in mars , which owns a major corridor crude oil pipeline system in a high-growth area of the gulf of mexico , delivering crude oil production received from the mississippi canyon area of the gulf of mexico to storage and distribution facilities at the louisiana offshore oil port , which has access to multiple downstream markets . the mars pipeline system is approximately 163 miles in length . a 65 % managing member interest in mardi gras , which holds the following investments in joint ventures : a 56 % ownership interest in caesar , which owns approximately 115 miles of pipeline connecting platforms in the southern green canyon area of the gulf of mexico with the two connecting carrier pipelines . a 53 % ownership interest in cleopatra , which owns an approximately 115 mile gas gathering pipeline system and provides gathering and transportation for multiple gas producers in the southern green canyon area of the gulf of mexico to the manta ray pipeline . a 65 % ownership interest in proteus , which owns an approximately 70 mile crude oil pipeline system and provides transportation for multiple crude oil producers in the eastern gulf of mexico into the endymion pipeline system described below . a 65 % ownership interest in endymion which owns an approximately 90 mile crude oil pipeline system that originates downstream of proteus and provides transportation for multiple oil producers in the eastern gulf of mexico . a 22.7 % ownership interest in ursa , which owns approximately 47 miles of pipeline provides gathering and transportation extending from the ursa tension leg platform at mississippi canyon block 809 to a connection with the mars oil pipeline system at west delta block 143. a 25 % ownership interest in km phoenix , which owns 13 refined products terminals located across the united states with approximately 8.9 million barrels of storage and associated infrastructure . 57 initial public offering on october 30 , 2017 , the partnership completed the ipo of 42,500,000 common units representing limited partner interests at a price to the public of $ 18.00 per unit . subsequent to the ipo , the underwriters partially exercised their over-allotment option and purchased 5,294,358 additional common units at $ 18.00 per unit . a total of 47,794,358 common units were issued to the public unitholders in the ipo . the partnership received net proceeds of $ 814.7 million from the sale of 47,794,358 common unit in the ipo , after deducting underwriting discounts and commissions , structuring fees and other offering expenses , which was used to fund a cash distribution to bp pipelines as described below . a registration statement on form s-1 , as amended through the time of its effectiveness , was filed by the partnership with the securities and exchange commission ( `` sec '' ) and was declared effective on october 25 , 2017. on october 26 , 2017 , the partnership 's common units began trading on the new york stock exchange ( `` nyse '' ) under the symbol “ bpmp ” . story_separator_special_tag two of the mars agreements also include provisions to guarantee a return to the pipeline to enable the pipeline to recover its investment , despite the uncertainty in production volumes , by providing for an annual transportation rate adjustment over a fixed period of time to achieve a fixed rate of return . the calculation for the fixed rate of return is based on actual project costs and operating costs . at the end of the fixed period , the rate will be locked in at a rate no greater than the last calculated rate and adjusted annually thereafter at a rate no less than zero percent and no greater than the ferc index . the proteus and caesar pipelines have an order from the ferc declaring them to be contract carriers with negotiated rates and services . on proteus and caesar , the fees for the anchor shippers , which account for a majority of the volumes dedicated to proteus and caesar , respectively , were set for the life of the lease over the original lease volumes dedicated to proteus and caesar , and are not subject to annual escalation under their oil transportation contracts . the shippers have firm space that varies annually corresponding to their requested maximum daily quantity forecasts . the majority of our revenues on these pipelines are generated by our anchor shippers based on the specified fee for all transported volumes covered by oil transportation contracts with each shipper . contracts entered into in connection with later connections to proteus and caesar may have different terms than the anchor shippers , including rates that vary with inflation . cleopatra is also a contract carrier . each shipper on cleopatra has a contract with negotiated rates . the rates are fixed for the anchor shippers ' dedicated leases , are not subject to annual escalation and generate the majority of cleopatra 's revenues . contracts for field connections for other shippers contain a variety of rate structures . endymion is currently a contract carrier . however , it could be subject to intrastate or ferc jurisdiction under certain circumstances in the future . endymion generates the majority of its revenues from contractual fees applied to the transportation of oil into storage and from fees applied to per barrel movements of oil out of storage ( including volume incentive discounts for larger shippers using storage ) . the rates are fixed for the anchor shippers ' agreements , are not subject to annual escalation and generate the majority of endymion 's revenues . agreements for other shippers may have different terms than the anchor shippers , including rates that may vary with inflation . ursa is a crude oil gathering pipeline system that provides gathering and transportation services extending from the ursa tension leg platform at mississippi canyon block 809 to a connection with the mars oil pipeline system at west delta block 143. from west delta block 143 oil is transported to chevron 's fourchon terminal and loop 's clovelly terminal . 59 fixed loss allowance and inventory management fees the tariffs applicable to bp2 and mars include a fixed loss allowance ( “ fla ” ) . an fla factor per barrel , a fixed percentage , is a separate fee under the crude oil tariffs to cover evaporation , crude viscosity , temperature differences and other losses in transit . as crude oil is transported , we earn additional income based on the applicable fla factor and the volume transported by the customer and the applicable prices . under the tariff applicable to bp2 and mars , allowance oil related revenue is recognized using the average market price for the relevant type of crude oil during the month the product is transported . in addition , we are entitled to inventory management fees for louisiana offshore oil port storage used by endymion and mars . how we evaluate our operations our management uses a variety of financial and operating metrics to analyze our performance . these metrics are significant factors in assessing our operating results and profitability and include : ( i ) safety and environmental metrics , ( ii ) revenue ( including fla ) from throughput and utilization ; ( iii ) operating expenses and maintenance spend ; ( iv ) adjusted ebitda ( as defined below ) ; and ( v ) cash available for distribution . preventative safety and environmental metrics we are committed to maintaining and improving the safety , reliability and efficiency of our operations . we have implemented reporting programs requiring all employees and contractors of our parent who provide services to us to record environmental and safety-related incidents . our management team uses these existing programs and data to evaluate trends and potential interventions to deliver on performance targets . we integrate health , occupational safety , process safety and environmental principles throughout our operations in order to reduce and eliminate environmental and safety-related incidents . throughput the amount of revenue our business generates primarily depends on our fee-based transportation agreements with shippers , our tariffs and the volumes of crude oil , natural gas , refined products and diluent that we handle on our pipelines . the volumes that we handle on our pipelines are primarily affected by the supply of , and demand for , crude oil , natural gas , refined products and diluent in the markets served directly or indirectly by our assets . our results of operations are impacted by our ability to : utilize any remaining unused capacity on , or add additional capacity to , our pipeline systems ; increase throughput volumes on our pipeline systems by making connections to existing or new third-party pipelines or other facilities , primarily driven by the anticipated supply of and demand for crude oil , natural gas , refined products and diluent ; identify and execute organic expansion projects ; and increase throughput volumes via acquisitions . storage utilization storage utilization is a metric that we use to evaluate the performance of our storage and terminalling assets .
| results of operations t he following tables and discussion contain a summary of our consolidated results of operations for the years ended december 31 , 2018 , 2017 and 2016. f or periods prior to the our ipo , all financial data included in this section of the report reflect the results of our predecessor for accounting purposes . for the period subsequent to the ipo ( i.e. , october 30 , 2017 through december 31 , 2017 ) , the financial data reflect the results of the partnership . replace_table_token_4_th 65 years ended december 31 , pipeline throughput ( thousands of barrels per day ) ( 1 ) ( 2 ) 2018 2017 2016 bp2 277 291 237 diamondback 62 56 82 river rouge 66 60 60 total wholly owned assets 405 407 379 mars 516 469 388 caesar 198 212 197 cleopatra ( 3 ) 23 24 24 proteus 172 161 129 endymion 172 161 129 mardi gras joint ventures 565 558 479 ursa < font
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during the fourth quarter of 2005 , given the final conclusion that the company no longer expected to have sales to vistaprint , the remaining $ 14.1 unamortized portion of the contract buy-out fee was recognized as revenue . recently issued accounting standards in june of 2006 , the fasb ratified the consensus reached by the emerging issues task force ( eitf ) on issue 06-3 , how taxes collected from customers and remitted to governmental authorities should be presented in the income statement . the scope of this consensus includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include , but is not limited to sales , use , value added and some excise taxes . additionally , this consensus seeks to address how a company should address the disclosure of such items in interim and annual financial statements , either gross or net pursuant to apb opinion no . 22 , disclosure of accounting policies . eitf issue 06-3 is effective for all financial reports for interim and annual reporting periods beginning after december 15 , 2006. the company presents sales net of sales taxes in its consolidated statement of operations . no change in presentation resulted from the adoption of eitf 06-3. in july 2006 , the financial accounting standards board issued financial interpretation no . 48 ( fin 48 ) , accounting for uncertainty in income taxes , which applies to all tax positions related to income taxes subject to sfas 109 , accounting for income taxes . fin 48 requires a new evaluation process for all tax positions taken . if the probability for sustaining said tax position is greater than 50 % , then the tax position is warranted and recognition should be at the highest amount which would be expected to be realized upon ultimate settlement . interpretation 48 requires expanded disclosure at each annual reporting period unless a significant change occurs in an interim period . differences between the amounts recognized in the statements of financial position prior to the adoption of interpretation 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings . the adoption of fin 48 did not have an impact on the company 's consolidated financial statements . in september 2006 , the fasb issued sfas no . 157 , fair value measurements. this statement establishes a framework for measuring fair value in generally accepted accounting principles ( gaap ) , clarifies the definition of fair value within that framework , and expands disclosures about the use of fair value measurement . sfas no . 157 is 15 effective for fiscal years beginning after november 15 , 2007 and interim periods within those fiscal years . the company is currently evaluating the impact of sfas no . 157 on its consolidated financial statements . in february 2007 , the fasb issued sfas no . 159 , the fair value option for financial assets and financial liabilities. this statement permits entities to choose to measure many financial instruments and certain other items at fair value . the objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedging accounting provisions . sfas no . 159 is effective for fiscal years beginning after november 15 , 2007. the company is currently evaluating the impact of adopting sfas no . 159 on its consolidated financial statements . in december 2007 , the fasb statement 141r , business combinations ( sfas 141r ) was issued . sfas 141r replaces sfas 141. sfas 141r requires the acquirer of a business to recognize and measure the identifiable assets acquired , the liabilities assumed , and any non-controlling interest in the acquiree at fair value . sfas 141r also requires transactions costs related to the business combination to be expensed as incurred . sfas 141r applies prospectively to business combinations ; the effective date for the company will be january 1 , 2009. the company has not yet determined the impact of sfas 141r related to future acquisitions , if any , on the company 's consolidated financial statements . critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of the company 's financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized on the accrual basis , which is at the time of shipment of goods or acceptance at the united states postal service . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . the company performs periodic credit evaluations of its customers ' financial condition and generally does not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . deferred tax asset and liability valuation allowances the company recognizes deferred story_separator_special_tag during the fourth quarter of 2005 , given the final conclusion that the company no longer expected to have sales to vistaprint , the remaining $ 14.1 unamortized portion of the contract buy-out fee was recognized as revenue . recently issued accounting standards in june of 2006 , the fasb ratified the consensus reached by the emerging issues task force ( eitf ) on issue 06-3 , how taxes collected from customers and remitted to governmental authorities should be presented in the income statement . the scope of this consensus includes any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include , but is not limited to sales , use , value added and some excise taxes . additionally , this consensus seeks to address how a company should address the disclosure of such items in interim and annual financial statements , either gross or net pursuant to apb opinion no . 22 , disclosure of accounting policies . eitf issue 06-3 is effective for all financial reports for interim and annual reporting periods beginning after december 15 , 2006. the company presents sales net of sales taxes in its consolidated statement of operations . no change in presentation resulted from the adoption of eitf 06-3. in july 2006 , the financial accounting standards board issued financial interpretation no . 48 ( fin 48 ) , accounting for uncertainty in income taxes , which applies to all tax positions related to income taxes subject to sfas 109 , accounting for income taxes . fin 48 requires a new evaluation process for all tax positions taken . if the probability for sustaining said tax position is greater than 50 % , then the tax position is warranted and recognition should be at the highest amount which would be expected to be realized upon ultimate settlement . interpretation 48 requires expanded disclosure at each annual reporting period unless a significant change occurs in an interim period . differences between the amounts recognized in the statements of financial position prior to the adoption of interpretation 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings . the adoption of fin 48 did not have an impact on the company 's consolidated financial statements . in september 2006 , the fasb issued sfas no . 157 , fair value measurements. this statement establishes a framework for measuring fair value in generally accepted accounting principles ( gaap ) , clarifies the definition of fair value within that framework , and expands disclosures about the use of fair value measurement . sfas no . 157 is 15 effective for fiscal years beginning after november 15 , 2007 and interim periods within those fiscal years . the company is currently evaluating the impact of sfas no . 157 on its consolidated financial statements . in february 2007 , the fasb issued sfas no . 159 , the fair value option for financial assets and financial liabilities. this statement permits entities to choose to measure many financial instruments and certain other items at fair value . the objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedging accounting provisions . sfas no . 159 is effective for fiscal years beginning after november 15 , 2007. the company is currently evaluating the impact of adopting sfas no . 159 on its consolidated financial statements . in december 2007 , the fasb statement 141r , business combinations ( sfas 141r ) was issued . sfas 141r replaces sfas 141. sfas 141r requires the acquirer of a business to recognize and measure the identifiable assets acquired , the liabilities assumed , and any non-controlling interest in the acquiree at fair value . sfas 141r also requires transactions costs related to the business combination to be expensed as incurred . sfas 141r applies prospectively to business combinations ; the effective date for the company will be january 1 , 2009. the company has not yet determined the impact of sfas 141r related to future acquisitions , if any , on the company 's consolidated financial statements . critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of the company 's financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized on the accrual basis , which is at the time of shipment of goods or acceptance at the united states postal service . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . the company performs periodic credit evaluations of its customers ' financial condition and generally does not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . deferred tax asset and liability valuation allowances the company recognizes deferred
| overview mod-pac 's plan for returning to higher growth and profitability is by continuing to gain market share in custom folding cartons , implementing reductions to our cost structure and pursuing aggressive growth in the commercial print services market . we continue to pursue growth from existing custom folding carton customer relationships and development of business through new customers in markets that have requirements characterized by high product variability , short production cycle times and variable print run quantities . we are also working on cost reductions in various areas throughout the company including tightening management of labor costs , enhancing productivity in operations , reducing paperboard waste and heightening controls on equipment and facility maintenance programs . in addition , we continue to work to grow back the business subsequent to the decision of a very large former commercial print customer to buyout their contract with mod-pac and end the business relationship in 2005. during 2007 , we purchased the assets of ddm , which resulted in additional capabilities for the company including variable print , mailing and fulfillment . we plan to grow our commercial print and print services sales through our dealer network , strategic partnerships with access to certain direct niche customers , and targeted direct customers that will benefit from our newly acquired print service capabilities . revenue 2007 compared with 2006 for fiscal 2007 , revenue was $ 48.2 million compared with $ 46.6 million in 2006 , an increase of $ 1.6 million or 3.5 % . the custom folding cartons product line had sales of $ 29 million in 2007 , relatively unchanged from 2006. the company 's ability to provide short run , highly variable print at competitive prices continues to attract new customers as well as increased sales from existing customers . during 2007 , however , we experienced significant declines in two large accounts due to various market driven factors and production slowdowns at their operations .
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stock-based compensation expense we are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards , including employee stock options . we recognize this expense over the requisite service period . in addition , we recognize stock-based compensation expense in the statements of operations based on awards expected to vest and , therefore , the amount of expense has been reduced for estimated forfeitures . we use the ratable straight-line method for expense attribution . the valuation model we used for calculating the fair value of awards for stock-based compensation expense is the black-scholes option-pricing model , or the black-scholes model . the black-scholes model requires us to make assumptions and judgments about the variables used in the calculation , including : expected term . we do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in determining the fair value-based measurement of our options . therefore , we have opted to use the “ simplified method ” for estimating the expected term of options , which is the average of the weighted-average vesting period and contractual term of the option . 75 expected volatility . due to the lack of a public market for the trading of our common stock prior to our ipo and a lack of company specific historical volatility , we have determined the share price volatility for options granted based on an analysis of th e volatility of a peer group of publicly traded companies . in evaluating similarity , we consider factors such as stage of development , risk profile , enterprise value and position within the industry . risk-free interest rate . the risk-free interest rate is based on the u.s. treasury yield in effect at the time of the grant for zero-coupon u.s. treasury notes with remaining terms similar to the expected term of the options . dividend rate . we assumed the expected dividend to be zero as we have never paid dividends and have no current plans to do so . expected forfeiture rate . we are required to estimate forfeitures at the time of grant , and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . we use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest . service period . we amortize all stock-based compensation over the requisite service period of the awards , which is generally the same as the vesting period of the awards . we amortize the stock-based compensation cost on a straight-line basis over the expected service periods . fair value of common stock . prior to the ipo , the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant , with input from management , considering our most recently available third-party valuations of common stock and our board of directors ' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant . these third-party valuations were performed in accordance with the guidance outlined in the american institute of certified public accountants ' accounting and valuation guide , valuation of privately-held-company equity securities issued as compensation . in addition to considering the results of these third-party valuations , our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date , which may be a date later than the most recent third-party valuation date , including : o the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant ; o the progress of our research and development programs , including the status of preclinical studies and planned clinical trials for our product candidates ; o our stage of development and commercialization and our business strategy ; o external market conditions affecting the pharmaceutical and biotechnology industries , and trends within the biotechnology industry ; o our financial position , including cash on hand , and our historical and forecasted performance and operating results ; o the lack of an active public market for our common stock and our preferred stock ; o the likelihood of achieving a liquidity event , such as an initial public offering , or ipo , or a sale of our company in light of prevailing market conditions ; and o the analysis of ipos and the market performance of similar companies in the biopharmaceutical industry . consequently , after the ipo , the fair value of the shares of common stock underlying the stock options is the closing price on the option grant date . research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued r & d expenses as of each balance sheet date . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or 76 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 mak e estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued r & d expenses include story_separator_special_tag stock-based compensation expense we are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards , including employee stock options . we recognize this expense over the requisite service period . in addition , we recognize stock-based compensation expense in the statements of operations based on awards expected to vest and , therefore , the amount of expense has been reduced for estimated forfeitures . we use the ratable straight-line method for expense attribution . the valuation model we used for calculating the fair value of awards for stock-based compensation expense is the black-scholes option-pricing model , or the black-scholes model . the black-scholes model requires us to make assumptions and judgments about the variables used in the calculation , including : expected term . we do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in determining the fair value-based measurement of our options . therefore , we have opted to use the “ simplified method ” for estimating the expected term of options , which is the average of the weighted-average vesting period and contractual term of the option . 75 expected volatility . due to the lack of a public market for the trading of our common stock prior to our ipo and a lack of company specific historical volatility , we have determined the share price volatility for options granted based on an analysis of th e volatility of a peer group of publicly traded companies . in evaluating similarity , we consider factors such as stage of development , risk profile , enterprise value and position within the industry . risk-free interest rate . the risk-free interest rate is based on the u.s. treasury yield in effect at the time of the grant for zero-coupon u.s. treasury notes with remaining terms similar to the expected term of the options . dividend rate . we assumed the expected dividend to be zero as we have never paid dividends and have no current plans to do so . expected forfeiture rate . we are required to estimate forfeitures at the time of grant , and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . we use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest . service period . we amortize all stock-based compensation over the requisite service period of the awards , which is generally the same as the vesting period of the awards . we amortize the stock-based compensation cost on a straight-line basis over the expected service periods . fair value of common stock . prior to the ipo , the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant , with input from management , considering our most recently available third-party valuations of common stock and our board of directors ' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant . these third-party valuations were performed in accordance with the guidance outlined in the american institute of certified public accountants ' accounting and valuation guide , valuation of privately-held-company equity securities issued as compensation . in addition to considering the results of these third-party valuations , our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date , which may be a date later than the most recent third-party valuation date , including : o the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant ; o the progress of our research and development programs , including the status of preclinical studies and planned clinical trials for our product candidates ; o our stage of development and commercialization and our business strategy ; o external market conditions affecting the pharmaceutical and biotechnology industries , and trends within the biotechnology industry ; o our financial position , including cash on hand , and our historical and forecasted performance and operating results ; o the lack of an active public market for our common stock and our preferred stock ; o the likelihood of achieving a liquidity event , such as an initial public offering , or ipo , or a sale of our company in light of prevailing market conditions ; and o the analysis of ipos and the market performance of similar companies in the biopharmaceutical industry . consequently , after the ipo , the fair value of the shares of common stock underlying the stock options is the closing price on the option grant date . research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued r & d expenses as of each balance sheet date . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or 76 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 mak e estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary . the significant estimates in our accrued r & d expenses include
| results of operations comparison of years ended december 31 , 2016 and 2017 the following table summarizes our results of operations for the years ended december 31 , 2016 and 2017 : replace_table_token_4_th research and development expenses . r & d expenses increased $ 2.5 million to $ 14.3 million during the year ended december 31 , 2017 , compared to $ 11.9 million during the year ended december 31 , 2016. this increase was primarily attributable to a $ 0.4 million increase related to contract services for device engineering , a $ 1.1 million increase in regulatory consulting costs , a $ 0.3 million increase in supplies , storage and packaging costs related to clinical trials and development and a $ 1.7 million increase in employee-related expenses associated 70 with additional headcount during the year ended december 31 , 2017. this increas e was partially offset by a $ 1.0 million decrease in outsourced clinical and medical affairs activity . general and administrative expenses . g & a expenses increased $ 3.1 million to $ 9.1 million during the year ended december 31 , 2017 , compared to $ 6.1 million during the year ended december 31 , 2016. this increase was primarily attributable to a $ 2.4 million increase in employee-related expenses associated with additional headcount and recruiting , a $ 0.7 million increase in consulting and professional services due to the expansion of our commercial organization , a $ 0.2 million increase in strategic and information technology consulting and $ 0.4 million related to costs incurred as a public company during the year ended december 31 , 2017. this increase was partially offset by a $ 0.6 million decrease in market research and tradeshows . other income .
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( the “ lender ” ) on february 16 , 2017 ( the “ credit facility ” ) , which provided for a term loan in the aggregate principal amount of $ 0.8 million ( the “ term loan ” ) and an asset based revolving loan ( the “ revolver ” ) , which is subject to a borrowing base calculation ( as defined in the credit facility ) of up to a maximum availability of $ 9.0 million ( “ revolver commitment amount ” ) . the borrowing base is calculated as 85 % of eligible accounts receivable and inventory , as defined , subject to certain caps and limits . the borrowing base is calculated on a monthly basis . the proceeds of the term loan and revolver were used to finance the acquisition of commagility . in connection with the issuance of the credit facility , the company paid lender and legal fees of $ 0.2 million which were primarily related to the revolver and are capitalized and presented as other current and non-current assets in the consolidated balance sheets . these costs are recognized as additional interest expense over the term of the story_separator_special_tag story_separator_special_tag distributors that include a limited right of return are recorded net of expected returns . sale of software licenses in the embedded solutions segment may involve multiple performance obligations including multiple software releases and consultancy services . in these cases transaction price is allocated to each distinct performance obligation on the basis of ssp and revenue is recognized when the distinct performance obligation is satisfied . the company determines performance obligations and ssp 's in arrangements with multiple performance obligations in accordance with topic 606 which requires significant judgement . services arrangements involving repairs and calibrations in the company 's test and measurement segment are generally considered a single performance obligation and revenue is recognized as the services are rendered . certain software arrangements in the embedded solutions segment may involve the transfer of software along with significant customization services . in these cases the customization services and software licenses are combined as one distinct performance obligation and revenue is recognized over time as the project is completed . the duration of these performance obligations are typically one year or less . business combinations business combinations are accounted under the acquisition method of accounting in accordance with accounting standards codification ( “ asc ” ) 805 , “ business combinations ” which requires assets acquired and liabilities assumed be recorded at their fair values on the acquisition date . goodwill represents the excess of the purchase price over the fair value of the net assets acquired . the fair values of the assets acquired and liabilities assumed are determined based upon management 's valuation and involves making significant estimates and assumptions based on facts and circumstances that existed as of the acquisition date . we use a measurement period following the acquisition date to gather information that existed as of the acquisition date that is needed to determine the fair value of the assets acquired and liabilities assumed . the measurement period ends once all information is obtained , but no later than one year from the acquisition date . valuation of goodwill goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination . goodwill is evaluated for impairment annually by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary . after assessing the totality of events or circumstances , if we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount , then we perform additional quantitative tests to determine the magnitude of any impairment . as of december 31 , 2018 the company 's consolidated goodwill balance of $ 9.8 million is comprised of $ 1.4 million related to the microlab reporting unit and $ 8.4 million related to the commagility reporting unit . as of december 31 , 2017 the company 's consolidated goodwill balance of $ 10.3 million was comprised of $ 1.4 million related to the microlab reporting unit and $ 8.9 million related to the commagility reporting unit . management 's qualitative assessment performed in the fourth quarters of 2018 and 2017 did not indicate any impairment of goodwill . intangible and long-lived assets intangible assets include patents , non-competition agreements , customer relationships and trademarks . intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets , which range from five to seven years . long-lived assets , including intangible assets with finite lives , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition . measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset . long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell . the estimated useful lives of intangible and long-lived assets are based on many factors including assumptions regarding the effects of obsolescence , demand , competition and other economic factors , expectations regarding the future use of the asset , and our historical experience with similar assets . the assumptions used to determine the estimated useful lives could change due to numerous factors including product demand , 20 market conditions , technological developments , economic conditions and competition . intangible assets determined to have indefinite useful lives are not amortized but are tested for impairment annually and more frequently if events occur or circumstances change that indicate an asset may be impaired . story_separator_special_tag allowances for doubtful accounts the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . a key consideration in estimating the allowance for doubtful accounts has been , and will continue to be , our customer 's payment history and aging of its accounts receivable balance . impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . determination of recoverability is based on an estimate of undiscounted cash flows resulting from the use of the assets and their eventual disposition . measurement of an impairment loss for long-lived assets that management expects to hold for sale is based on the fair value of the assets . long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . warranties the company generally offers standard warranties against product defects . we estimate future warranty costs to be incurred based on historical warranty claims experience including estimates of material and service costs over the warranty period . comparison of the results of operations for the year ended december 31 , 2018 with the year ended december 31 , 2017 net revenues ( in thousands ) replace_table_token_1_th net consolidated revenues for the year ended december 31 , 2018 were $ 52.8 million as compared to $ 46.1 million for the year ended december 31 , 2017 , an increase of $ 6.7 million or 14.6 % . embedded solutions segment revenue increased $ 6.7 million primarily due to increased sales of digital processing hardware that is used in wireless network test equipment . test and measurement segment revenue increased $ 0.8 million or 6.2 % due primarily to increased sales of noise generation components and modules to customers in the satellite industry and for use in optical applications offset by lower military and government orders . network solutions segment revenue decreased $ 0.8 million or 3.4 % due primarily to the use of highly competitive pricing and decreases in certain passive rf component demand , which were only slightly offset by increased sales of active components and customized integrated solutions . 22 gross profit ( in thousands ) replace_table_token_2_th gross profit increased by $ 4.9 million from 41.8 % of revenue to 45.8 % of revenue due primarily to increased volumes at the embedded solutions segment . the increase over 2017 also reflected inventory impairment charges recorded in 2017 related to the network solutions segment of $ 1.2 million and the test and measurement segment of $ 0.7 million . network solutions gross profit as a percentage of revenue in 2018 was adversely affected by lower volumes resulting from a highly competitive pricing environment and decreases in certain passive rf component demand . operating expenses ( in thousands ) replace_table_token_3_th research and development expenses increased $ 0.5 million due to the embedded solutions segment . embedded solutions segment research and development expenses increased $ 0.9 million due to investments in 5g research and development , the impact of a full 12 months of expense in 2018 versus 10.5 months expense in 2017 and the unfavorable impact of foreign exchange . the increase in the embedded solutions segment research and development expenses was offset by a $ 0.4 million decrease in research and development expenses in the network solutions and test and measurement segments due to lower third party spend . sales and marketing expenses increased $ 0.6 million primarily due to increased headcount in the network solutions segment offset by lower commission expense in the network solutions segment due to lower volumes . general and administrative expenses decreased $ 0.7 million due to lower mergers and acquisitions expenses , and lower severance charges on executive team restructuring , offset by increased stock compensation and bonus expense . the increase also reflected the impact of a full year of commagility general and administrative expenses in 2018 versus 10.5 months in 2017 as well as the unfavorable impact of foreign exchange . in 2018 the company recorded a loss on change in fair value of contingent consideration of $ 0.6 million as our estimate of the earn-out payment related to the commagility acquisition was increased from our original estimate recorded at the time of acquisition due to the improved financial results of the business . in 2017 the company recorded a gain on change in fair value of contingent consideration of $ 0.3 million . other income/expense other expenses increased $ 39 thousand due to higher foreign exchange unrealized and realized losses on transactions denominated in currencies other than our functional currencies . 23 interest expense interest expense increased $ 0.3 million due to a full year of borrowing under our credit facility versus 10.5 months in 2017 and an increase in our average borrowing rate due to an increase in libor . additionally , the company recorded higher interest expense related to the commagility contingent consideration liability in 2018 due to increases in the liability as a result of higher financial results of the business than previously estimated . tax the company recorded tax expense of $ 48,000 in 2018 due primarily to deferred federal taxes in the u.s. offset by current and deferred tax benefits related to our foreign jurisdictions due to a research and development tax deduction and the reduction of the deferred tax liability .
| overview the company is a global designer and manufacturer of advanced rf , microwave and millimeter wave components , modules , systems and instruments . serving the wireless , telecommunication , satellite , military , aerospace , semiconductor and medical industries , wireless telecom group products enable innovation across a wide range of traditional and emerging wireless technologies . with a unique set of high-performance products including peak power meters , signal analyzers , signal processing modules , lte physical layer and stack software , power splitters and combiners , gps repeaters , public safety monitors , noise sources , and programmable noise generators , wireless telecom group supports the development , testing and deployment of wireless technologies around the globe . key 2018 developments and financial results · consolidated revenue increase of 15 % led by the embedded solutions segment which had increased sales of digital signal processing hardware · consolidated gross profit of 46 % in 2018 as compared to 42 % in 2017 · cash flow from operations of $ 4.0 million in 2018 as compared to $ 1.4 million in 2017 · income before taxes of $ 83 thousand in 2018 as compared to loss before taxes of $ 3.2 million in 2017 · loss on fair value of contingent consideration of $ 0.6 million recorded in 2018 as compared to gain of $ 0.3 million recorded in 2017 . $ 1.4 million contingent consideration liability included in accrued expenses and other current liabilities as of december 31 , 2018 · backlog of $ 8.2 million as of december 31 , 2018 as compared to $ 9.9 million as of december 31 , 2017 the company presents its operations in three reportable segments : ( 1 ) network solutions , ( 2 ) test and measurement and ( 3 ) embedded solutions . the network solutions segment is comprised primarily of the operations of microlab . the test and measurement segment is comprised of the operations of boonton and noisecom .
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to maintain availability of funds under the facility , we pay a facility fee on the full facility amount , regardless of usage story_separator_special_tag overview we are a global retailer offering apparel , accessories , and personal care products for men , women , and children under the gap , banana republic , old navy , piperlime , athleta , and intermix brands . we have company-operated stores in the united states , canada , the united kingdom , france , ireland , japan , italy , china , hong kong , and beginning in march 2014 , taiwan . we also have franchise agreements with unaffiliated franchisees to operate gap , banana republic , and old navy stores in many other countries around the world . under these agreements , third parties operate , or will operate , stores that sell apparel and related products under our brand names . in addition , our products are available to customers online through company-owned websites and through the use of third parties that provide logistics and fulfillment services . most of the products sold under our brand names are designed by us and manufactured by independent sources . we also sell products that are designed and manufactured by branded third parties , especially at our piperlime and intermix brands . we identify our operating segments according to how our business activities are managed and evaluated . as of january 31 , 2015 , the company operated under a global brand structure for our major brands , gap , old navy , and banana republic . the growth , innovation , and digital ( `` gid '' ) division managed our newer brands , piperlime , athleta , and intermix . as each of our operating segments ( gap global , old navy global , banana republic global , and gid ) share similar economic and other qualitative characteristics , the results of our operating segments are aggregated into one reportable segment . in january 2015 , we announced our decision to close the piperlime brand . we expect to close the online platform and the store in new york by the end of the first half of fiscal 2015. in fiscal 2014 , we successfully grew both revenue and earnings per share , while delivering progress against our strategic objectives . we continued to execute on our key initiatives , including global growth and omni-channel innovation . while we are pleased with the performance by old navy and encouraged by the improvement at banana republic , we remain focused on improving the assortment at gap brand . in the face of challenging results at gap brand , we demonstrated strong expense and inventory discipline across the company . additionally , we generated healthy free cash flow of $ 1.4 billion and cash flow from operating activities of $ 2.1 billion and continued our commitment to returning excess cash to shareholders , distributing $ 1.6 billion through dividends and share repurchases . despite depreciating foreign currencies , which negatively impacted our operating results , our balanced approach of revenue growth combined with disciplined expense management and cash distribution drove earnings per share growth of 5 percent . free cash flow is defined as net cash provided by operating activities less purchases of property and equipment . for a reconciliation of free cash flow , a non-gaap financial measure , from a gaap financial measure , see the liquidity and capital resources section . financial results for fiscal 2014 are as follows : net sales for fiscal 2014 increased 2 percent to $ 16.4 billion compared with $ 16.1 billion for fiscal 2013 . excluding the impact of foreign exchange , our net sales increased 3 percent for fiscal 2014 compared with fiscal 2013. see net sales discussion for impact of foreign exchange . comparable sales for fiscal 2014 were flat compared with a 2 percent increase last year . gross profit was $ 6.3 billion for fiscal 2014 and fiscal 2013 . gross margin for fiscal 2014 was 38.3 percent compared with 39.0 percent for fiscal 2013 . operating margin for fiscal 2014 was 12.7 percent compared with 13.3 percent for fiscal 2013 . operating margin is defined as operating income as a percentage of net sales . net income was $ 1.3 billion for both fiscal 2014 and fiscal 2013 ; however , diluted earnings per share increased 5 percent to $ 2.87 for fiscal 2014 compared with $ 2.74 for fiscal 2013 due to share repurchase activities . 18 fiscal 2014 and 2013 consisted of 52 weeks versus 53 weeks in fiscal 2012. net sales and operating results for fiscal 2012 reflect the impact of the additional week . in addition , due to the 53rd week in fiscal 2012 , comparable ( `` comp '' ) sales for fiscal 2013 are compared to the 52-week period ended february 2 , 2013. our business priorities in 2015 include : offering product that is consistent , brand-appropriate , and on-trend ; evolving our customer experience to reflect the intersection of digital and physical ; attracting , retaining , and training great talent ; and growing globally across our brands and channels . for fiscal 2015 , we expect to continue our investment in digital capabilities and to further enhance our shopping experience for our customers . we also plan to continue our global growth , including opening additional stores in asia with a focus on gap china , old navy china , and old navy japan . in addition , we also expect to open additional athleta stores in the united states . in fiscal 2015 , we expect that foreign exchange rate fluctuations will continue to have a meaningful negative impact on our results , particularly in our largest foreign subsidiaries in canada and japan . with the continuing depreciation of the canadian dollar , japanese yen , and other foreign currencies , we expect net sales translated into u.s. dollars will decrease and negatively impact our total company net sales growth . story_separator_special_tag cash flows from operating activities net cash provided by operating activities during fiscal 2014 increased $ 424 million compared with fiscal 2013 , primarily due to the following : an increase of $ 284 million related to other current assets and other long-term assets primarily due to the change in timing of payments received related to our credit card program ; an increase of $ 132 million related to lease incentives and other long-term liabilities primarily due to the receipt of an upfront payment in fiscal 2014 related to the amendment of our credit card program agreement with the third-party financing company , which is being amortized over the term of the contract ; and an increase of $ 184 million related to merchandise inventory primarily due to timing of receipts ; partially offset by a decrease of $ 146 million related to accounts payable primarily due to timing of payments ; a decrease of $ 28 million related to accrued expenses and other current liabilities primarily due to timing of payments ; and a decrease of $ 18 million in net income . net cash provided by operating activities during fiscal 2013 decreased $ 231 million compared with fiscal 2012 , primarily due to the following : a decrease of $ 220 million related to income taxes payable , net of prepaid income taxes and other tax-related items , in fiscal 2013 compared with fiscal 2012 primarily due to the timing of tax payments ; a decrease of $ 73 million related to accrued expenses and other current liabilities primarily due to a higher bonus payout in fiscal 2013 compared with fiscal 2012 ; a decrease of $ 71 million related to non-cash and other items primarily due to the realized gain related to our derivative financial instruments in fiscal 2013 compared with a realized loss in fiscal 2012 ; a decrease of $ 67 million related to lease incentives and other long-term liabilities primarily due to the resolution of tax matters , including interest , and an increase in lease incentives in fiscal 2012 related to the relocation of our new york headquarter offices ; and a decrease of $ 50 million related to merchandise inventory primarily due to volume and timing of receipts ; partially offset by an increase in net income of $ 145 million ; and a deferred tax provision of $ 69 million in fiscal 2013 compared with a deferred tax benefit of $ 37 million in fiscal 2012 . 24 we fund inventory expenditures during normal and peak periods through cash flows from operating activities and available cash . our business follows a seasonal pattern , with sales peaking during the end-of-year holiday period . the seasonality of our operations may lead to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods . cash flows from investing activities net cash used for investing activities during fiscal 2014 decreased $ 28 million compared with fiscal 2013 , primarily due to the following : $ 121 million of proceeds from the sale of a building owned but no longer occupied by the company in fiscal 2014 ; partially offset by $ 50 million less maturities of short-term investments in fiscal 2014 ; and $ 44 million more property and equipment purchases in fiscal 2014. net cash used for investing activities during fiscal 2013 decreased $ 220 million compared with fiscal 2012 , primarily due to the following : $ 129 million used for the acquisition of intermix in fiscal 2012 ; and $ 50 million of maturities of short-term investments in fiscal 2013 compared with $ 50 million of net purchases in fiscal 2012. in fiscal 2014 , cash used for purchases of property and equipment was $ 714 million . in fiscal 2015 , we expect cash spending for purchases of property and equipment to be about $ 800 million . cash flows from financing activities net cash used for financing activities during fiscal 2014 increased $ 503 million compared with fiscal 2013 , primarily due to the following : $ 200 million more repurchases of common stock in fiscal 2014 ; $ 144 million proceeds from issuance of long-term debt in fiscal 2013 ; $ 62 million more cash dividends paid in fiscal 2014 ; and $ 59 million less net proceeds from issuances under share-based compensation plans in fiscal 2014. net cash used for financing activities during fiscal 2013 decreased $ 477 million compared with fiscal 2012 , primarily due to the following : $ 419 million of payments of debt in fiscal 2012 ; $ 144 million of proceeds from issuance of long-term debt in fiscal 2013 ; and $ 51 million less repurchases of common stock in fiscal 2013 compared with fiscal 2012 , partially offset by $ 81 million more dividends paid in fiscal 2013 compared with fiscal 2012 ; and $ 77 million less net proceeds from issuances under share-based compensation plans in fiscal 2013 compared with fiscal 2012. free cash flow free cash flow is a non-gaap financial measure . we believe free cash flow is an important metric because it represents a measure of how much cash a company has available for discretionary and non-discretionary items after the deduction of capital expenditures , as we require regular capital expenditures to build and maintain stores and purchase new equipment to improve our business . we use this metric internally , as we believe our sustained ability to generate free cash flow is an important driver of value creation . however , this non-gaap financial measure is not intended to supersede or replace our gaap result . 25 the following table reconciles free cash flow , a non-gaap financial measure , from a gaap financial measure .
| results of operations net sales see item 8 , financial statements and supplementary data , note 17 of notes to consolidated financial statements for net sales by brand and region . comparable sales the percentage change in comp sales by global brand and for total company , as compared with the preceding year , is as follows : replace_table_token_5_th the comp sales calculations include sales from stores and online . comparable online sales favorably impacted total company comp sales by 2 percent and 3 percent in fiscal 2014 and 2013 , respectively . only company-operated stores are included in the calculations of comp sales . the calculation of total company comp sales includes the results of athleta , intermix , and the piperlime store , but excludes the results of our franchise business and piperlime online . a store is included in the comp sales calculations when it has been open and operated by gap inc. for at least one year and the selling square footage has not changed by 15 percent or more within the past year . a store is included in the comp sales calculations on the first day it has comparable prior year sales . stores in which the selling square footage has changed by 15 percent or more as a result of a remodel , expansion , or reduction are excluded from the comp sales calculations until the first day they have comparable prior year sales . 19 a store is considered non-comparable ( “ non-comp ” ) when it has been open and operated by gap inc. for less than one year or has changed its selling square footage by 15 percent or more within the past year . a store is considered “ closed ” if it is temporarily closed for three or more full consecutive days or is permanently closed .
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this discussion contains forward-looking statements that reflect our plans , estimates and beliefs and involve numerous risks and uncertainties , including but not limited to those described in the risk factors section of this annual report on form 10-k. actual results may differ materially from those contained in any forward-looking statements . you should carefully read special note regarding forward-looking statements and risk factors. business overview we are a leading theme park and entertainment company delivering personal , interactive and educational experiences that blend imagination with nature and enable our customers to celebrate , connect with and care for the natural world we share . we own or license a portfolio of globally recognized brands , including seaworld , shamu and busch gardens . over our more than 50 year history , we have built a diversified portfolio of 11 destination and regional theme parks that are grouped in key markets across the united states , many of which showcase our one-of-a-kind collection of approximately 86,000 marine and terrestrial animals . our theme parks feature a diverse array of rides , shows and other attractions with broad demographic appeal which deliver memorable experiences and a strong value proposition for our guests . in addition to our theme parks , we have recently begun to leverage our brands into media , entertainment and consumer products . during the year ended december 31 , 2013 , we hosted approximately 23.4 million guests , including approximately 3.7 million international guests . in the years ended december 31 , 2013 , we had total revenues of $ 1,460.3 million and net income of $ 50.5 million . key business metrics evaluated by management attendance we define attendance as the number of guest visits to our theme parks . increased attendance drives increased admissions revenue to our theme parks as well as total in-park spending . the level of attendance at our theme parks is a function of many factors , including the opening of new attractions and shows , weather , global and regional economic conditions , competitive offerings and overall consumer confidence in the economy . total revenue per capita total revenue per capita , defined as total revenue divided by total attendance , consists of admission per capita and in-park per capita spending : admission per capita . we calculate admission per capita for any period as total admissions revenue divided by total attendance . theme park admissions accounted for approximately 63 % of our total revenue for the year ended december 31 , 2013. over the same period of time , we reported $ 39.37 in admission per capita , representing an increase of 8.6 % from $ 36.26 for the year ended december 31 , 2012. admission per capita is driven by ticket pricing , the mix of tickets purchased ( such as single day , multi-day and annual pass ) and the mix of attendance by theme parks visited . in-park per capita spending . we calculate in-park per capita spending for any period as total food , merchandise and other revenue divided by total attendance . for the year ended december 31 , 2013 , food , merchandise and other revenue accounted for approximately 37 % of our total revenue . over the same time period , we reported $ 23.05 of in-park per capita spending , representing an increase of 4.3 % from $ 22.11 for the year ended december 31 , 2012. in-park per capita spending is driven by pricing changes , penetration levels ( percentage of guests purchasing ) , new product offerings , the mix of guests and the mix of in-park spending . 39 trends affecting our results of operations our success depends to a significant extent on discretionary consumer spending , which is heavily influenced by general economic conditions and the availability of discretionary income . the recent severe economic downturn , coupled with high volatility and uncertainty as to the future global economic landscape , has had and continues to have an adverse effect on consumers ' discretionary income and consumer confidence . difficult economic conditions and recessionary periods may adversely impact attendance figures , the frequency with which guests choose to visit our theme parks and guest spending patterns at our theme parks . historically , our revenue and attendance growth have been highly correlated with domestic economic growth , as reflected in the gross domestic product ( gdp ) and the overall level of growth in domestic consumer spending . for example , in 2009 and 2010 , we experienced a decline in attendance as a result of the global economic crisis , which in turn adversely affected our revenue and profitability . we expect that forecasted moderate improvements in gdp and growth in domestic consumer spending will have a positive impact on our future performance . both attendance and total revenue per capita at our theme parks are key drivers of our revenue and profitability , and reductions in either can materially adversely affect our business , financial condition , results of operations and cash flows . seasonality the theme park industry is seasonal in nature . based upon historical results , we generate the highest revenues in the second and third quarters of each year , in part because six of our theme parks are only open for a portion of the year . approximately two-thirds of our attendance and revenues are generated in the second and third quarters of the year and we typically incur a net loss in the first and fourth quarters . the mix of revenues by quarter is relatively constant , but revenues can shift between the first and second quarters due to the timing of easter or between the first and fourth quarters due to the timing of christmas and new year 's . even for our five theme parks open year-round , attendance patterns have significant seasonality , driven by holidays , school vacations and weather conditions . one of our goals in managing our business is to continue to generate cash flow throughout the year and minimize the effects of seasonality . story_separator_special_tag depreciation and amortization expense for the year ended december 31 , 2012 decreased $ 46.6 million ( 22 % ) to $ 167.0 million as compared to $ 213.6 million for the year ended december 31 , 2011. the decrease was primarily attributable to the partial year impact of assets designated with two-year lives at the december 1 , 2009 transaction date , which are now fully depreciated , partially offset by asset additions . interest expense . interest expense for the year ended december 31 , 2012 increased $ 1.3 million ( 1 % ) to $ 111.4 million as compared to $ 110.1 million for the year ended december 31 , 2011 , primarily reflecting the effects of our march 2012 debt refinancing , which increased the amount of our outstanding principal balance of our long-term debt and reduced the interest rates on our long-term debt . see our consolidated financial statements and the notes thereto included elsewhere in this annual report on form 10-k for a further description of the terms of the refinancing . provision for income taxes . provision for income taxes for the year ended december 31 , 2012 increased $ 26.1 million ( 194 % ) to $ 39.5 million as compared to $ 13.4 million for the year ended december 31 , 2011 , which primarily reflects an increase in taxable earnings and was partially offset by a decrease in our effective income tax rate ( from 41.3 % to 33.8 % ) . our effective income tax rate decreased due to changes in our state tax planning structure along with certain non-recurring tax credits . 44 liquidity and capital resources overview our principal sources of liquidity are cash generated from operations , funds from borrowings and existing cash on hand . our principal uses of cash include the funding of working capital obligations , debt service , investments in theme parks ( including capital projects ) , and common stock dividends . as of december 31 , 2013 , we had a working capital deficit of approximately $ 9.6 million . we typically operate with a working capital deficit and we expect that we will continue to have working capital deficits in the future . the working capital deficits are due in part to a significant deferred revenue balance from revenues paid in advance for our theme park admissions products and high turnover of in-park products that results in a limited inventory balance . our cash flow from operations , along with our revolving credit facilities , have allowed us to meet our liquidity needs while maintaining a working capital deficit . as market conditions warrant and subject to our contractual restrictions and liquidity position , we , our affiliates and or our major stockholders , including blackstone and its affiliates , may from time to time repurchase our outstanding equity and or debt securities , including the senior notes and or our outstanding bank loans in privately negotiated or open market transactions , by tender offer or otherwise . any such repurchases may be funded by incurring new debt , including additional borrowings under the senior secured credit facilities . any new debt may also be secured debt . we may also use available cash on our balance sheet . the amounts involved in any such transactions , individually or in the aggregate , may be material . further , since some of our debt may trade at a discount to the face amount , any such purchases may result in our acquiring and retiring a substantial amount of any particular series , with the attendant reduction in the trading liquidity of any such series . in june 2013 , our board of directors adopted a policy to pay quarterly dividends . as a result , we declared quarterly cash dividends of $ 0.20 per share to all common stockholders of record at the close of business on june 20 , september 20 and december 20 , 2013 , which were paid on july 1 , 2013 , october 1 , 2013 and january 3 , 2014 , respectively . on march 4 , 2014 , we declared a cash dividend of $ 0.20 per share to all common stockholders of record at the close of business on march 20 , 2014 , payable on april 1 , 2014. as of december 31 , 2013 , we had $ 17.9 million of cash dividends payable , of which $ 17.7 million was paid on january 3 , 2014 , the remainder relates to unvested restricted shares which carry dividend rights and therefore the dividends are payable as the shares vest in accordance with the underlying stock compensation grants . accumulated dividends on certain performance restricted shares were approximately $ 1.8 million and will accumulate and be paid only if and to the extent the shares vest in accordance with their terms . we have not recorded a payable related to these dividends as the vesting of the performance restricted shares is not probable . see note 19-stockholders ' equity in the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. in march 2012 and september 2011 , respectively , our board of directors declared a $ 500.0 million and $ 110.1 million cash dividend to our common stockholders , which at that time consisted of entities controlled by certain affiliates of blackstone . approximately $ 503.0 million and $ 106.9 million was paid in the years ended december 31 , 2012 and 2011 , respectively , related to these dividend declarations . the amount and timing of any future dividends payable on our common stock is within the sole discretion of our board of directors . see market for the registrant 's common equity , related stockholder matters and issuer purchases of equity securities-dividends. concurrently with the closing of the secondary offering on december 17 , 2013 , we repurchased 1.5 million shares of our common stock directly from the selling stockholders in a private , non-underwritten transaction .
| results of operations the following discussion provides an analysis of our audited consolidated financial data for the years ended december 31 , 2013 , 2012 and 2011. this data should be read in conjunction with our consolidated financial statements and the notes thereto included in financial statements and supplementary data. comparison of the years ended december 31 , 2013 and 2012 the following table presents key operating and financial information for the years ended december 31 , 2013 and 2012 : replace_table_token_8_th 41 admissions revenue . admissions revenue for the year ended december 31 , 2013 increased $ 36.6 million ( 4.1 % ) to $ 921.0 million as compared to $ 884.4 million for the year ended december 31 , 2012. the increase in revenue was a result of an 8.6 % increase in admission per capita from $ 36.26 in 2012 to $ 39.37 in 2013 offset by a 4.1 % decrease in total attendance . the improvement in admission per capita was primarily a result of higher ticket pricing and yield management strategies implemented at the beginning of 2013. attendance for 2013 declined primarily due to the anticipated impact of these new pricing and yield management strategies , which increased revenue but reduced low yielding and free attendance . also contributing to the decline was unexpected adverse weather conditions , particularly during the second quarter and in july of 2013. the unfavorable timing of easter on march 31 in 2013 also contributed to the attendance decline as it caused an overlap with the spring break holiday period for schools in many of our key markets . food , merchandise and other revenue .
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we assume no obligation to provide revisions to any forward-looking statements should circumstances change , except as may be required by law . the following discussion summarizes the significant factors affecting the consolidated operating results , financial condition , liquidity and cash flows of our company as of and for the periods presented below . covid-19 pandemic during march 2020 , the world health organization declared the covid-19 outbreak to be a global pandemic and the united states declared a national public health emergency . the covid-19 pandemic has significantly impacted health and economic conditions throughout the united states . federal , state and local governments took a variety of actions to contain the spread of covid-19 . many jurisdictions where our restaurants are located required mandatory closures or imposed capacity limitations and other restrictions affecting our operations . as of december 27 , 2020 , the company had reopened dining rooms at varying degrees of operating capacity in its 92 operating restaurants . selected monthly comparable restaurant sales and average weekly sales per restaurant for the fourth quarter and first quarter of 2021 to-date are as follows : replace_table_token_2_th comparable restaurant sales were negatively impacted by closures of dining rooms in kentucky , colorado and illinois during the latter part of november and december due to the covid-19 pandemic as well as reduced traffic during the thanksgiving week and christmas day which fell on friday , a higher volume day , as compared to wednesday last year . off-premise sales remained strong at a rate more than double pre-covid-19 levels ranging from 30 % to 35 % of all revenue during the fourth quarter and the first quarter of 2021 to date . during the fiscal year ended december 27 , 2020 , the company took various steps to reduce non-essential spend , postpone restaurant development and rightsize operations in light of reduced sales volume to improve our store level profitability and increase our cash flows . the company also enhanced its liquidity position by selling shares of its common stock in an `` at-the-market '' ( `` atm '' ) offering and using a portion of the net proceeds to repay the $ 25.0 million outstanding under its revolving credit facility . as of december 27 , 2020 , the company had $ 86.8 million in cash and cash equivalents , no debt and $ 25.0 million of availability under its revolving credit facility . management believes the company 's strong financial position , combined with the measures taken during the pandemic , will allow the company to meet its financial obligations over the next twelve months . we can not predict how soon we will be able to reopen all of our restaurants at full capacity , and our ability to reopen and stay open will depend in part on the actions of a number of governmental bodies over which we have no control . moreover , once restrictions are lifted , it is unclear how quickly customers will return to our restaurants , which may be a function of continued concerns over safety and or depressed consumer sentiment due to adverse economic conditions , including job losses . overview we are a growing , full-service restaurant concept offering a distinct menu of authentic , freshly-prepared mexican and tex-mex inspired food . we were founded in austin , texas in 1982 by mike young and john zapp , and as of december 27 , 2020 , we operated 92 restaurants across 17 states . we are committed to providing value to our customers through offering generous portions of made-from-scratch , flavorful mexican and tex-mex inspired dishes . we also offer a full-service bar in all of our restaurants providing our customers a wide 31 variety of beverage offerings . we believe the chuy 's culture is one of our most valuable assets , and we are committed to preserving and continually investing in our culture and our customers ' dining experience . our restaurants have a common décor , but we believe each location is unique in format , offering an “ unchained ” look and feel , as expressed by our motto “ if you 've seen one chuy 's , you 've seen one chuy 's ! ” we believe our restaurants have an upbeat , funky , eclectic , somewhat irreverent atmosphere while still maintaining a family-friendly environment . our growth strategies and outlook our growth is based primarily on the following strategies : pursue new restaurant development in major markets ; backfill smaller existing markets to build brand awareness ; deliver consistent same store sales by providing high-quality food and service at a considerable value ; and leverage our infrastructure . we opened one restaurant in fiscal 2020 and postponed the rest of the planned restaurant development to fiscal 2021 in response to the covid-19 pandemic . during fiscal 2021 , we plan to open four to six restaurants . we have an established presence in texas , the southeast and the midwest , with restaurants in multiple large markets in these regions . our growth plan over the next five years focuses on developing additional locations in our existing core markets and major new markets while continuing to `` backfill '' our smaller existing markets in order to build our brand awareness . for additional discussion of our growth strategies and outlook , see item 1 . “ business—our business strategies. ” newly opened restaurants typically experience normal inefficiencies in the form of higher cost of sales , labor and direct operating and occupancy costs for several months after their opening in both percentage and dollar terms when compared with our more mature , established restaurants . accordingly , the number and timing of newly opened restaurants has had , and is expected to continue to have , an impact on restaurant opening expenses , cost of sales , labor and occupancy and operating expenses . story_separator_special_tag revenue in a given period is directly influenced by the number of operating weeks in such period , the number of restaurants we operate and comparable restaurant sales growth . 33 cost of sales . cost of sales consists primarily of food , beverage and merchandise related costs . the components of cost of sales are variable in nature , change with sales volume and are subject to increases or decreases based on fluctuations in commodity costs . labor costs . labor costs include restaurant management salaries , front- and back-of-house hourly wages and restaurant-level manager bonus expense and payroll taxes . operating costs . operating costs consist primarily of restaurant-related operating expenses , such as supplies , utilities , repairs and maintenance , travel cost , insurance , employee benefits , credit card fees , recruiting , delivery service and security . these costs generally increase with sales volume but may increase or decrease as a percentage of revenue . occupancy costs . occupancy costs include rent charges , both fixed and variable , as well as common area maintenance costs , property insurance and taxes , the amortization of tenant allowances and the adjustment to straight-line rent . these costs are generally fixed but a portion may vary with an increase in sales when the lease contains percentage rent . general and administrative expenses . general and administrative expenses include costs associated with corporate and administrative functions that support our operations , including senior and supervisory management and staff compensation ( including stock-based compensation ) and benefits , travel , legal and professional fees , information systems , corporate office rent and other related corporate costs . marketing . marketing costs include costs associated with our restaurant marketing programs , community service and sponsorship activities , our menus and other promotional activities . restaurant pre-opening costs . restaurant pre-opening costs consist of costs incurred before opening a restaurant , including manager salaries , relocation costs , supplies , recruiting expenses , initial new market public relations costs , pre-opening activities , employee payroll and related training costs for new employees . restaurant pre-opening costs also include rent recorded during the period between date of possession and the restaurant opening date . impairment , closed restaurant and other costs . impairment costs include impairment of long-lived assets associated with restaurants where the carrying amount of the asset is not recoverable and exceeds the fair value of the asset . closed restaurant costs consist of any costs associated with the closure of a restaurant such as lease termination costs , severance benefits , other miscellaneous closing costs as well as costs to maintain these closed restaurants through the lease termination date such as occupancy costs , including rent payments less sublease income , if any , and insurance and utility costs . other costs consist of covid-19 related charges due to idle development costs as a result of delaying restaurant openings to 2021. depreciation . depreciation principally includes depreciation on fixed assets , including equipment and leasehold improvements . interest expense , net . interest expense consists primarily of interest on our outstanding indebtedness , uncommitted credit facility fees and the amortization of our debt issuance costs reduced by interest income , if any . 34 story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > depreciation decreased $ 0.7 million to $ 20.0 million for the year ended december 27 , 2020 , as compared to $ 20.7 million during the comparable period in 2019 , primarily due to a decrease in depreciation related to closed stores . income tax benefit . income tax benefit was $ 5.5 million in fiscal 2020 and $ 2.9 million in fiscal 2019. the increase in the tax benefit was primarily driven by a net loss in fiscal 2020 as compared to net income in the same period last year . the tax benefit recorded in fiscal year 2020 related to the revaluation of deferred tax assets due to the administrative correction of the depreciation recovery period for qualified improvement property and the reinstatement of net operating loss carrybacks as a result of the cares act . the company believes that it will realize all of its deferred tax assets and , therefore , no valuation allowance is required at this time . in august 2020 , the irs issued a notice of proposed adjustment to the company asserting that the tenant allowances paid under our operating leases should be recorded as taxable income for years 2016 and prior . the company disagrees with this position based on the underlying facts and circumstances as well as standard industry practice . the company estimates if the irs 's position was upheld , the company 's tax liability could range between $ 0.5 million and $ 2.5 million . net ( loss ) income . as a result of the foregoing , net loss was $ 3.3 million in fiscal 2020 compared to net income of $ 6.2 million in fiscal 2019 . 36 year ended december 29 , 2019 compared to the year ended december 30 , 2018 the following table presents , for the periods indicated , the consolidated statement of operations ( in thousands ) : replace_table_token_5_th impairment , closed restaurant and other costs revenue . revenue increased 7.1 % to $ 426.4 million for the year ended december 29 , 2019 , as compared to $ 398.2 million for the year ended december 30 , 2018. the increase in revenue was primarily driven by $ 28.5 million in incremental revenue from an additional 359 operating weeks provided by new restaurants opened during and subsequent to the year ended december 30 , 2018 as well as an increase in our comparable restaurant sales .
| results of operations year ended december 27 , 2020 compared to the year ended december 29 , 2019 the following table presents , for the periods indicated , the consolidated statement of operations ( in thousands ) : replace_table_token_4_th revenue . revenue was $ 321.0 million for the year ended december 27 , 2020 compared to $ 426.4 million for the year ended december 29 , 2019. the decrease in revenue was primarily attributed to a decline in customer traffic as a result of covid-19 and closures of six restaurants during fiscal 2019 and nine restaurants during fiscal 2020. the company operated on an off-premise only operating model beginning in late march 2020 through may 2020. since then , the company reopened and operated dining rooms at varying degrees of operating capacity in 92 of its restaurants . the decrease in revenue was partially offset by $ 11.3 million of incremental revenue from an additional 183 operating weeks provided by new restaurants . comparable restaurant sales decreased 22.1 % for the year ended december 27 , 2020 compared to the same period in 2019 primarily driven by a 27.3 % decrease in average weekly customers , partially offset by a 5.2 % increase in average check . cost of sales . cost of sales as a percentage of revenue decreased to 24.6 % during the year ended december 27 , 2020 from 25.8 % during the same period in 2019 , primarily as a result of switching to a limited menu and eliminating the complimentary buffet style chips and salsa , or “ nacho car , ” which was partially offset by an increase of approximately 60 basis points in the cost of beef and approximately 10 basis points in the cost of dairy and cheese . labor costs .
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the company has completed its evaluation of the potential impacts of irc section 162 ( m ) as amended by the act of 2017 prior to december 22 , 2018 and there was no change to the company 's previous analysis . the company files income tax returns in the united states , california and foreign jurisdictions . due to the company 's losses incurred , the company is essentially subject to income tax examination by tax authorities from inception to date . the company 's policy is to recognize interest expense and penalties related to income tax matters as tax expense . at december 31 , 2018 , there are no unrecognized tax benefits nor any significant accruals for interest related to unrecognized tax benefits or tax penalties . 10. employee savings plan the company has an employee savings plan available to substantially all employees . under the plan , an employee may elect salary reductions which are contributed to the plan . the plan provides for discretionary contributions by the company , which totaled $ 76,903 , $ 65,995 and $ 66,289 for the years ended december 31 , 2018 , 2017 and 2016 , respectively . 11. quarterly financial data ( unaudited ) the following table presents certain quarterly financial data for eight consecutive quarters ended december 31 , 2018 and 2017. the unaudited quarterly information has been prepared on the same basis as the audited consolidated financial statements and , in the opinion of management , includes all adjustments , necessary for a fair presentation of this data ( in thousands , except per share data ) . replace_table_token_24_th replace_table_token_25_th ( 1 ) net loss per share is computed independently for each of the quarters presented . therefore , the sum of the quarterly net income and loss per share will not necessarily equal the annual per share calculation . 12. subsequent events the company has evaluated all subsequent events that have occurred after the date of the accompanying financial statements through february 13 , 2019 and determined that there were no events or transactions occurring which require recognition or disclosure in the company 's consolidated financial statements . 78 item 9. changes in and disagreements with accountants on accounting and financial disclosure none item 9a . controls and procedures evaluation of disclosure controls and procedures an evaluation was performed by our chief executive officer and chief financial officer of the effectiveness of the design and operation of our disclosure controls and procedures as defined in the rules 13 ( a ) -15 ( e ) of the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our exchange act filings is ( 1 ) recorded , processed , summarized and reported within the time periods specified in securities and exchange commission 's rules and forms , and ( 2 ) accumulated and communicated to management , including our chief executive officer and chief financial officer , as appropriate , to allow timely decisions regarding required disclosure . based on that evaluation , our chief executive officer and chief financial officer concluded that , as of december 31 , 2018 , our disclosure controls and procedures were effective . our management , including our chief executive officer and chief financial officer , does not expect that our procedures or our internal controls will prevent or detect all errors and all fraud . an internal control system , no matter how well conceived and operated , can provide only reasonable , not absolute , assurance that the objectives of the control system are met . because of the inherent limitations in all control systems , no evaluation of our controls can provide absolute assurance that all control issues and instances of fraud , if any , have been detected . changes in internal control over financial reporting there was no change in internal control over financial reporting ( as such term is defined in exchange act rules 13a-15 ( f ) and 15d-15 ( f ) ) during our fourth fiscal quarter that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . management 's report on internal control over financial reporting internal control over financial reporting refers to the process designed by , or under the supervision of , our chief executive officer and chief financial officer , and effected by our board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles , and includes those policies and procedures that : ( 1 ) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets ; ( 2 ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles , and that our receipts and expenditures are being made only in accordance with authorization of our management and directors ; and ( 3 ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or disposition of our assets that could have a material effect on the financial statements . internal control over financial reporting can not provide absolute assurance of achieving financial reporting objectives because of its inherent limitations . story_separator_special_tag internal research and development expenses include costs of compensation and other expenses for research and development personnel , supplies , facility costs and depreciation . research , development and patent costs are expensed as incurred , and we expect to increase such costs in 2019 as our development programs progress . the following table summarizes our research , development and patent expenses for the periods indicated for each of our product development programs . to the extent that costs , including personnel costs , are not tracked to a specific product development program , such costs are included in the “ other r & d expense ” category ( in thousands ) : replace_table_token_4_th our goal is to build a sustainable biopharmaceutical business through the successful development of differentiated products for the treatment of serious diseases with unmet medical needs in high-value therapeutic areas . key elements of our strategy are as follows : pursue the development of mn-166 ( ibudilast ) for multiple potential indications with the support of non-dilutive financings . we intend to advance our diverse mn-166 ( ibudilast ) program through a combination of investigator-sponsored clinical trials , trials funded through government grants or other grants , and trials funded by us . in addition to providing drug supply and regulatory support , we have funded portions of some of the consortium-sponsored trials . for example , we contributed financially to the secondary and primary progressive ibudilast neuronext trial in multiple sclerosis ( sprint-ms ) phase 2b clinical trial of mn-166 ( ibudilast ) for the treatment of progressive ms , which was primarily funded by the nih . in addition , we contributed financially to the clinical trial of mn-166 ( ibudilast ) for the treatment of als as well as the ongoing als / biomarker study . we intend to pursue additional strategic alliances to help support further clinical development of mn-166 ( ibudilast ) . pursue the development of mn-001 ( tipelukast ) for fibrotic diseases and other diseases . 54 we intend to advance development of mn-001 ( tipelukast ) through a variety of means , which may include investigato r-sponsored trials with or without grant funding as well as trials funded by us . consider strategic partnerships with one or more leading pharmaceutical companies to complete late-stage product development and successfully commercialize our products . we develop and maintain relationships with pharmaceutical companies that are therapeutic category leaders . upon completion of proof-of-concept phase 2 clinical trials , we intend to discuss strategic alliances with leading pharmaceutical companies who seek late-stage product candidates , such as mn-166 ( ibudilast ) , mn-001 ( tipelukast ) , mn-221 ( bedoradrine ) and mn-029 , which could support further clinical development and product commercialization . general and administrative our general and administrative costs primarily consist of salaries , benefits and consulting and professional fees related to our administrative , finance , human resources , business development , legal , information systems support functions , facilities and insurance costs . general and administrative costs are expensed as incurred . our general and administrative expenses may increase in future periods if we are required to expand our infrastructure based on the success of our product development programs and in raising capital to support our product development programs or otherwise in connection with increased business development activities related to partnering , out-licensing or product disposition . other expense , net other expense primarily consists of net losses from the joint venture and net foreign exchange losses related to vendor invoices denominated in foreign currencies . interest income interest income consists of interest earned on our cash and cash equivalents . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and the related disclosure of contingent liabilities . we review our estimates on an ongoing basis , including those related to our significant accruals . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . actual results may differ from these estimates . our significant accounting policies are more fully described in note 1 to our consolidated financial statements included elsewhere in this annual report on form 10-k. our most critical accounting estimates include research , development and patent expenses which impacts operating expenses and accrued liabilities , stock-based compensation which impacts operating expenses and goodwill and purchased intangibles . we review our estimates and assumptions periodically and reflect the effects of revisions in the period in which they are deemed to be necessary . we believe that the following accounting policies are critical to the judgments and estimates used in preparation of our consolidated financial statements . research , development and patent expenses research , development and patent costs are expensed as incurred based on certain contractual factors such as estimates of work performed , milestones achieved , patient enrollment and experience with similar contracts . as actual costs become known , accruals are adjusted . to date , our accrued research , development and patent expenses have not differed significantly from the actual expenses incurred . 55 stock-based compensation we grant options to purchase our common stock to our employees and directors under our 2013 stock incentive plan .
| results of operations comparison of the years ended december 31 , 2018 and 2017 revenues we did not recognize any revenue for the years ended december 31 , 2018 and 2017. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2018 increased by $ 1.4 million as compared to the same period in 2017 , primarily due to an increase in clinical trial activities related to the mn-166 ( ibudilast ) trials as well as higher stock compensation expense for performance-based stock options . general and administrative general and administrative expenses for the year ended december 31 , 2018 increased by $ 1.2 million compared to the same period in 2017 , primarily driven by higher stock compensation expense for performance-based stock options . other expense , net other expense for the years ended 2018 and 2017 was approximately $ 23,000 and $ 26,000 , respectively . other expense consisted of net losses from the joint venture accounted for under the equity method according to our percentage ownership , interest expense and net transaction losses related to vendor invoices denominated in foreign currencies . interest income interest income for the year ended december 31 , 2018 was approximately $ 940,000 , as compared to approximately $ 146,000 for the same period in 2017. interest income consists of interest earned on our cash and cash equivalents . comparison of the years ended december 31 , 2017 and 2016 revenues we did not recognize any revenue for the years ended december 31 , 2017 and 2016. research , development and patent expenses research , development and patent expenses for the year ended december 31 , 2017 increased by $ 0.7 million compared to the same period in 2016 , primarily due to an increase in clinical trial activities related to the mn-001 ( tipelukast ) and mn-166 ( ibudilast ) trials as well as higher stock compensation expense for performance-based stock options .
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the company adopted this standard in the first quarter of 2020. adoption of this asu did not have a material impact on the company 's consolidated financial statements . 70 clean energy fuels corp. and subsidiaries notes story_separator_special_tag the following management 's discussion and analysis of financial condition and results of operations ( this discussion , as well as discussions under the same heading in our other periodic reports , are referred to as the “ md & a ” ) should be read together with our audited consolidated financial statements and the related notes included in this report , and all cross references to notes included in this md & a refer to the identified note in such consolidated financial statements . this section of the form 10-k generally discusses 2020 and 2019 items and year-to-year comparisons of 2020 to 2019. discussions of 2018 items and year-to-year comparisons of 2019 and 2018 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 our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on march 10 , 2020. cautionary note regarding forward-looking statements this md & a contains forward-looking statements . see the discussion about these statements under “ cautionary note regarding forward-looking statements ” at the beginning of this report . overview we are north america 's leading provider of the cleanest fuel for the transportation market , based on the number of stations operated and the amount of gges of rng and conventional natural gas delivered . through our sales of rng , which is derived from biogenic methane produced by the breakdown of organic waste , we help thousands of vehicles , from airport shuttles to city buses to waste and heavy-duty trucks , to reduce their amount of climate-harming greenhouse gas from 60 % and to over 400 % based on carb determinations , depending on the source of the rng , while also reducing criteria pollutants such as oxides of nitrogen , or nox . rng is delivered as cng and lng . our sales of rng have 33 increased dramatically , from 13.0 million gges in 2013 ( the year we introduced our rng to the vehicle fuel market ) to 153.3 million gges in 2020. as a clean energy solutions provider , we supply rng and conventional natural gas , in the form of cng and lng , for medium and heavy-duty vehicles ; design and build , as well as operate and maintain , public and private fueling stations ; sell and service compressors and other equipment used in rng production and at fueling stations ; transport and sell rng and conventional natural gas via “ virtual ” natural gas pipelines and interconnects ; sell environmental credits we generate by selling rng as a vehicle fuel ; and obtain federal , state and local tax credits , grants and incentives . we serve fleet vehicle operators in a variety of markets , including heavy-duty trucking , airports , refuse and public transit . we believe these fleet markets will continue to present a growth opportunity for our vehicle fuels for the foreseeable future . as of december 31 , 2020 , we serve over 1,000 fleet customers operating over 48,000 vehicles , and we own , operate or supply 565 fueling stations in 39 states and the district of columbia in the united states and five provinces in canada . impact of covid-19 the covid-19 pandemic has resulted , and is likely to continue to result , in significant economic disruption and has adversely affected and will likely continue to adversely affect our business . our operations have been designated “ essential critical infrastructure work ” in the energy sector by the u.s. department of homeland security , meaning that we have been able to continue operating to the fullest extent possible . while continuing our business operations , we are focused on protecting the health and wellbeing of our employees , customers and the communities in which we operate . except as described herein , the covid-19 pandemic has not resulted in any adverse effects to our operations , including financial reporting systems , internal control over financial reporting and disclosure controls and procedures . additionally , our technicians and o & m services continued to operate effectively , and we believe our supply chain has not been disrupted . all of our natural gas fueling stations have remained fully operational during the covid-19 pandemic and continue to provide access to customers -- many that are supplying essential services . further , we have not experienced any challenges implementing business continuity plans and have not incurred , and do not expect to incur , material expenditures related to the same . we have adopted and applied protocols and procedures in accordance with federal , state and local government policies and mandates and centers for disease control ( cdc ) guidelines for our offices . specifically , we have implemented enhanced cleaning and disinfecting protocols and procedures like temperature and covid-19 screening questionnaires for the health and safety of our employees , customers and the communities in which we operate . we have provided personal protective equipment ( including masks and gloves ) and hand sanitizer , we have modified office seating , we expect all our employees to maintain appropriate physical distancing , and we continue to restrict employee travel in accordance with the various state health orders . story_separator_special_tag ( 2 ) represents the federal alternative fuel tax credit , that we refer to as aftc , which expired on december 31 , 2016 , but in february 2018 , was reinstated for vehicle fuel sales made in 2017. in december 2019 , the aftc was reinstated retroactively for vehicle fuels sales made in 2018 through 2020. see “ 2018-2020 developments ” below for more information . key operating data in evaluating our operating performance , our management focuses primarily on : ( 1 ) the amount of rng , cng and lng gges delivered ( which we define as ( i ) the volume of gges we sell to our customers as fuel , plus ( ii ) the volume of gges dispensed at facilities we do not own but where we provide o & m services on a per-gallon or fixed fee basis , plus ( iii ) our proportionate share of the gges sold as cng by our joint venture with mansfield ventures , llc , mansfield clean energy partners , llc ( “ mcep ” ) , ( 2 ) our station construction cost of sales , ( 3 ) our gross margin ( which we define as revenue minus cost of sales ) , and ( 4 ) net income ( loss ) attributable to us . the following tables present our key operating data for the years ended december 31 , 2018 , 2019 and 2020 : replace_table_token_3_th rng sold as vehicle fuel is included in the cng or lng amounts in the table above as applicable based on the form in which it was sold . gges of rng sold as vehicle fuel for the years ended december 31 , 2018 , 2019 and 2020 , were as follows : replace_table_token_4_th replace_table_token_5_th 36 rng sold as vehicle fuel is included in the table above as applicable based on the services provided . gges of rng sold as vehicle fuel for the years ended december 31 , 2018 , 2019 and 2020 , were as follows : replace_table_token_6_th replace_table_token_7_th ( 1 ) as noted above , amounts include our proportionate share of the gges sold as cng by our joint venture mcep . gges sold by this joint venture were 0.5 million , 0.4 million and 0.3 million for the years ended december 31 , 2018 , 2019 and 2020 , respectively . ( 2 ) represents gges at stations where we provide both fuel and o & m services . ( 3 ) includes $ 26.7 million , $ 47.1 million and $ 19.8 million of aftc revenue for the years ended december 31 , 2018 , 2019 , and 2020 , respectively . ( 4 ) gross margin includes an unrealized gain ( loss ) from the change in fair value of commodity swap and customer fueling contracts of $ 10.3 million , $ ( 6.6 ) million and $ 2.1 million for the years ended december 31 , 2018 , 2019 and 2020 , respectively . see note 7 for more information regarding the commodity swap and customer contracts . 2018 -2020 developments total joint venture . on december 21 , 2020 , we announced a memorandum of understanding with total to create a joint venture to develop carbon negative rng production facilities in the united states , as well as credit support to build additional downstream rng infrastructure . total will provide $ 50.0 million , and we will provide $ 30.0 million for the proposed joint venture . total will also be providing credit support of $ 65.0 million to support our development in the rng value chain , including $ 45.0 million for contracted rng fueling infrastructure . bp joint venture . on december 18 , 2020 , we entered a memorandum of understanding ( “ mou ” ) with bp products north america inc , a subsidiary of bp . pursuant to the mou the company and bp intend to create a joint venture to develop , own , and operate rng production facilities at dairies . contemporaneous with the execution of the mou , the company and bp executed a loan agreement whereby bp advanced $ 50.0 million ( in the form of a loan ) to fund capital costs and expenses incurred prior to formation of the joint venture . we expect that all unpaid principal and accrued interest outstanding under the loan agreement will be contributed to the joint venture , provided that if the joint venture is not formed by april 30 , 2022 the company is obligated to repay the outstanding principal and accrued interest within five days of april 30 , 2022 . chevron adopt-a-port . in june 2020 , we entered into an agreement with chevron corp. ( “ chevron ” ) to provide truck operators serving the ports of los angeles and long beach with cleaner , carbon negative rng to reduce emissions . under the agreement , chevron will provide funding to allow truck operators to subsidize the cost of buying new rng-powered trucks and will supply rng to our stations near the ports . aftc . the aftc , which had previously expired on december 31 , 2016 , was reinstated on february 9 , 2018 to apply to vehicle fuel sales made from january 1 , 2017 through december 31 , 2017. as a result , all aftc revenue for vehicle fuel we sold in the 2017 calendar year , which totaled $ 25.2 million , was recognized and collected during the year ended december 31 , 2018. in addition , during the year ended december 31 , 2018 , the internal revenue service approved , and we recognized as revenue , $ 1.5 million of aftc credit claims related to prior years .
| results of operations the discussions below compare our results of operations in 2020 and 2019. historical results are not indicative of the results to be expected in the current period or any future period . 45 2020 compared to 2019 the table below presents , for each period , each line item of our statement of operations data as a percentage of our total revenue for the period . the narrative that follows provides a comparative discussion of certain of these line items between periods . replace_table_token_8_th revenue . revenue decreased by $ 52.3 million to $ 291.7 million for 2020 , from $ 344.1 million for 2019. this decrease was primarily due a decrease in volume-related revenue and lower aftc revenue , partially offset by the favorable change in fair value of our commodity swap and customer contracts entered into in connection with our zero now truck financing program and an increase in station construction sales . volume-related revenue , excluding the effect of the change in fair value of our commodity swap and customer contracts entered into in connection with our zero now truck financing program , decreased by $ 37.2 million between periods , primarily attributable to covid-19 which resulted in a decrease in gallons delivered and a lower effective price per gallon delivered . volume-related revenue was favorably impacted by $ 8.7 million as a result of the change in fair value of our commodity swap and customer contracts entered into in connection with our zero now truck financing program , as we recognized an unrealized loss of $ 6.6 million in 2019 compared to an unrealized gain of $ 2.1 million in 2020 ( see note 7 for more information ) .
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debt issuance costs – we capitalize costs related to the issuance of debt . debt issuance costs directly related to our term loan b are presented within noncurrent liabilities as a reduction of long-term debt in our consolidated balance sheets . the amortization of such costs is recognized as interest expense using the effective interest method over the term of the respective debt issue . amortization related to deferred debt issuance costs and original discount costs was $ 1.2 million , $ 1.1 million and insignificant for the years ended december 26 , 2020 , december 28 , 2019 and december 29 , 2018 , respectively . 56 cohu , inc. notes to consolidated financial statements share-based compensation – we measure and recognize all share-based compensation under the fair value method story_separator_special_tag overview cohu is a leading supplier of semiconductor test and inspection handlers , micro-electromechanical system ( mems ) test modules , test contactors and thermal subsystems , semiconductor automated test equipment and bare board printed circuit board ( pcb ) test systems used by global semiconductor and electronics manufacturers and test subcontractors . we offer a wide range of products and services and our revenue from capital equipment products is driven by the capital expenditure budgets and spending patterns of our customers , who often abruptly delay or accelerate purchases in reaction to variations in their business . the level of capital expenditures by these companies depends on the current and anticipated market demand for semiconductor devices and printed circuit boards and the products that incorporate them . our consumable products are driven by the number of semiconductor devices and printed circuit boards that are tested and by the continuous introduction of new products and new technologies by our customers . as a result , our consumable products provide a more stable recurring source of revenue and generally do not have the same degree of cyclicality as our capital equipment products . for the year ended december 26 , 2020 , our net sales increased 9.0 % year-over-year to $ 636.0 million . our consolidated net sales for the years ended december 26 , 2020 and december 28 , 2019 , include xcerra 's sales for the full year ( all twelve months ) totaling $ 331.2 million and $ 300.8 million , respectively . the year ended december 29 , 2018 , includes xcerra 's sales for the three months subsequent to the merger on october 1 , 2018 , which totaled $ 94.4 million . in 2019 and 2020 , the global semiconductor market was impacted by u.s. and china trade tensions which impacted our customers ' ability to supply product to certain end users resulting in customer test cell utilization below levels that have historically triggered the need for additional capacity . during the first half of 2020 our net sales were negatively impacted by movement control orders and the subsequent supply disruptions caused by the rapid and global spread of covid-19 and weakness in the automotive market . demand for equipment used in testing mobility semiconductor applications , data centers and personal computers strengthened during the second half of 2020 driven by the launch and accelerated ramp of our reddragon rf module for testing 5g , wi-fi 6 and ultra-wideband devices , and new customers for our neon inspection platform . we also began to see improved demand from semiconductor automotive and industrial customers and orders for pcb test equipment were at near record levels . based on improved business conditions , during the second half of 2020 , we took action to reduce outstanding principal , by $ 36.4 million , under our term loan b debt associated with the financing of the xcerra acquisition in october 2018. while our total sales for the twelve months of 2020 were negatively impacted by the global economic downturn caused by the covid-19 pandemic , we saw strong demand for our products in the second half of the year and our long-term market drivers and market strategy remain intact . we are encouraged by positive order momentum across our main market segments , and customer traction with our new products going into 2021. we remain optimistic about the long-term prospects for our business due to the increasing ubiquity of semiconductors , the future rollout of 5g networks , increasing semiconductor complexity , increasing quality demands from semiconductor customers , increasing test intensity and continued proliferation of electronics in a variety of products across the automotive , mobility and industrial markets . we are focused on cross-selling opportunities and supporting our customers ' deployment of 5g rf capabilities on next generation smartphones and growing our sales to semiconductor and electronics manufacturers and test subcontractors . 29 application of critical accounting estimates and policies our discussion and analysis of our financial condition and results of operations is based upon 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 financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . we base our estimates on historical experience , forecasts and on various other assumptions that are believed to be reasonable under the circumstances ; however actual results may differ from those estimates under different assumptions or conditions . the methods , estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements . some of our accounting policies require us to make difficult and subjective judgments , often as a result of the need to make estimates of matters that are inherently uncertain . story_separator_special_tag while we believe that our allowance for credit losses is adequate and represents our best estimate of future losses we will continue to monitor customer liquidity and other economic conditions , including the impact of the covid-19 pandemic , which may result in changes to our estimates . we adopted accounting standards update ( “ asu ” ) 2016-13 , financial instruments-credit losses ( topic 326 ) : measurement of credit losses on financial instruments , on december 29 , 2019 the first day of our fiscal 2020. the asu required a cumulative-effect adjustment to the statement of financial position as of the date of adoption . periods prior to the adoption that are presented for comparative purposes are not adjusted . based on our analysis of historical and anticipated collections of trade receivables , the impact of adoption of topic 326 was insignificant . inventory : the valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality . the determination of obsolete or excess inventory requires us to estimate the future demand for our products . the demand forecast is a direct input in the development of our short-term manufacturing plans . we record valuation reserves on our inventory for estimated excess and obsolete inventory and lower of cost or net realizable value concerns equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future product demand , market conditions and product selling prices . if future product demand , market conditions or product selling prices are less than those projected by management or if continued modifications to products are required to meet specifications or other customer requirements , increases to inventory reserves may be required which would have a negative impact on our gross margin . income taxes : we estimate our liability for income taxes based on the various jurisdictions where we conduct business . this requires us to estimate our ( i ) current taxes ; ( ii ) temporary differences that result from differing treatment of certain items for tax and accounting purposes and ( iii ) unrecognized tax benefits . temporary differences result in deferred tax assets and liabilities that are reflected in the consolidated balance sheet . the deferred tax assets are reduced by a valuation allowance if , based upon all available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . establishing , reducing or increasing a valuation allowance in an accounting period generally results in an increase or decrease in tax expense in the statement of operations . we must make significant judgments to determine the provision for income taxes , deferred tax assets and liabilities , unrecognized tax benefits and any valuation allowance to be recorded against deferred tax assets . our gross deferred tax asset balance as of december 26 , 2020 , was approximately $ 122.8 million , with a valuation allowance of approximately $ 86.1 million . the tax act was enacted on december 22 , 2017. the accounting for the tax effects of the enactment of the tax act was completed in 2018. the accounting for the cares act , enacted on march 27 , 2020 , was incorporated in 2020. see note 9 , “ income taxes ” , included in part iv , item 15 ( a ) of this form 10-k , which is incorporated herein by reference . segment information : we applied the provisions of asc topic 280 , segment reporting , ( “ asc 280 ” ) , which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products , major customers and the geographies in which the entity holds material assets and reports revenue . an operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available . we have determined that our four identified operating segments are : test handler group ( “ thg ” ) , semiconductor tester group ( “ stg ” ) , interface solutions group ( “ isg ” ) and pcb test group ( “ ptg ” ) . our thg , stg and isg operating segments qualify for aggregation under asc 280 due to similarities in their customers , their economic characteristics , and the nature of products and services provided . as a result , we report in two segments , semiconductor test & inspection and pcb test . 31 goodwill and indefinite-lived intangibles , other intangible assets and long-lived assets : we evaluate goodwill and other indefinite-lived intangible assets , which are solely comprised of in-process research and development ( “ ipr & d ” ) , for impairment annually and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . we test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting unit or asset , in the case of in-process research and development . if the fair value is determined to be less than the book value , a second step is performed to compute the amount of impairment as the difference between the fair value of the reporting unit and it 's carrying value of goodwill . we estimated the fair values of our reporting units primarily using the income approach valuation methodology that includes the discounted cash flow method , taking into consideration the market approach and certain market multiples as a validation of the values derived using the discounted cash flow methodology . forecasts of future cash flows are based on our best estimate of future net sales and operating expenses , based primarily on customer forecasts , industry trade organization data and general economic conditions .
| results of operations recent transactions impacting results of operations on october 1 , 2018 we completed our merger with xcerra corporation and the results of its operations have been included in our consolidated financial statements only since that date . due to the timing of the merger our results for 2018 only include xcerra for the three months ended december 29 , 2018 whereas the periods ended december 26 , 2020 and december 28 , 2019 include xcerra for the full twelve months . previously , management determined that the fixtures services business , that was acquired as part of xcerra , did not align with cohu 's long-term strategic plan and management divested this portion of the business in february 2020. the assets of our fixtures business were considered “ held for sale ” as of december 28 , 2019 and the operating results of our fixtures business are presented as “ discontinued operations ” for the periods ended december 26 , 2020 , december 28 , 2019 and december 29 , 2018. unless otherwise indicated , the discussion below covers the comparative results from continuing operations . the following table summarizes certain operating data as a percentage of net sales : replace_table_token_7_th please refer to “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 in our 2019 annual report on form 10-k , filed with the sec on march 10 , 2020 , for comparative discussion of our fiscal years ended december 28 , 2019 and december 29 , 2018 .
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for the years ended december 31 , 2019 , 2018 and 2017 , 3.7 million , 3.3 million , and 3.1 million shares issuable for equity-based awards , respectively , were excluded from the computation of diluted loss per share because the effect of their inclusion would have been anti-dilutive . in periods in which a net loss has occurred , as is the case for years ended december 31 , 2019 , 2018 and 2017 , the dilutive effect of story_separator_special_tag ( 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 approximately2 million tons and shipment capacity of 1.5 million tons . our portfolio includes special bar quality ( sbq ) bars , seamless mechanical tubing ( tubes ) , value-added 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 : automotive ; oil and gas ; industrial equipment ; mining ; construction ; rail ; defense ; heavy truck ; agriculture ; power generation ; and octg . 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 . 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-added 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 . in the fourth quarter of 2019 , our board of directors approved a plan to close our timkensteel material services facility during the first quarter of 2020. see “ note 6 - disposition of non-core assets ” in the notes to the consolidated financial statements for additional information . 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 2019 . 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 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 . story_separator_special_tag src= '' https : //www.sec.gov/archives/edgar/data/0001598428/000159842820000017/chart-f37d23093d2b5d83995.jpg '' style= '' height:286px ; width:324px ; '' / > sg & a expense for the year ended december 31 , 2019 decreased by $ 6.4 million , or 6.5 % , compared with the year ended december 31 , 2018 . the decline in 2019 is primarily the result of the company 's profitability improvement plans that targeted , among other areas , a reduction in salaried employees , as well as lower professional services fees and post-retirement benefit costs . these reductions were partially offset by executive severance of $ 5.6 million . additionally , variable compensation decreased in 2019. sg & a expense for the year ended december 31 , 2018 increased $ 7.7 million , or 8.5 % , compared to the year ended december 31 , 2017 . the increase was due primarily to an increase in variable compensation of $ 1.5 million and executive severance of $ 1.7 million . story_separator_special_tag we used the net proceeds to repay a portion of the amounts outstanding under our credit agreement . revenue refunding bonds 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 credit agreement in effect as of december 31 , 2019 and december 31 , 2018 : replace_table_token_8_th ( 1 ) as of december 31 , 2019 , timkensteel had less than $ 400 million in collateral assets to borrow against . 28 our principal sources of liquidity are cash and cash equivalents , cash flows from operations and available borrowing capacity under our credit agreement . as of december 31 , 2019 , taking into account our view of automotive , industrial , and energy market demands for our products , our 2020 operating and long-range plan , we believe that our cash balance as of december 31 , 2019 , projected cash generated from operations , and borrowings available under the amended credit agreement , will be sufficient to satisfy our working capital needs , capital expenditures and other liquidity requirements associated with our operations , including servicing our debt obligations , for at least the next twelve months and through the maturity date of our amended credit agreement . to the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated , and cash on hand or credit availability is insufficient , we would seek additional financing to provide additional liquidity . we regularly evaluate our potential access to the equity and debt capital markets as sources of liquidity and we believe additional financing would likely be available if necessary , although we can make no assurance as to the form or terms of any such financing . we would also consider additional cost reductions and restructuring , changes in working capital management and further reductions of capital expenditures . regardless , we will continue to evaluate additional financing or may seek to refinance outstanding borrowings under the amended credit agreement to provide us with additional flexibility and liquidity . any additional financing beyond that incurred to refinance existing debt would increase our overall debt and could increase interest expense . for additional details regarding the credit agreement , the amended credit agreement and the convertible notes , please refer to “ note 14 - financing arrangements ” in the notes to the consolidated financial statements , and for our discussion regarding risk factors related to our business and our debt , see risk factors in this annual report on form 10-k. cash flows the following table reflects the major categories of cash flows for the years ended december 31 , 2019 and 2018 . for additional details , please refer to the consolidated statements of cash flows included in item 8 - financial statements and supplemental data of this annual report . replace_table_token_9_th operating activities net cash provided by operating activities for the year ended december 31 , 2019 was $ 70.3 million compared with net cash provided of $ 18.5 million for the same period 2018 . the increase in cash provided by operating activities of $ 51.8 million was primarily due to an increase in cash provided from working capital , partially offset by a net loss of $ 110.0 million and lower accrued liabilities , primarily due to lower variable compensation . the improvement in cash used for working capital between periods was due to inventories and accounts receivable , partially offset by accounts payable . the increase in cash provided for inventory was driven by the impact of declining scrap prices combined with a lower quantity of inventory on hand during the year ended december 31 , 2019 as compared to the opposite trend during the same period in the prior year . the increase in cash provided by accounts receivable was primarily due to declining sales for the year ended december 31 , 2019 , which resulted in collections exceeding billings , as compared to increasing sales in the same period in the prior year . accounts payable offset these increases due to lower production and declining scrap prices . refer to the consolidated statements of cash flows in the consolidated financial statements for additional information . net cash provided by operating activities for the years ended december 31 , 2018 and 2017 was $ 18.5 million and $ 8.1 million , respectively . the improvement in net cash provided by operating activities was primarily due to an increase in gross profit partially offset by benefit payments for our domestic pension plans and an increased use of cash for working capital to support customer demand . investing activities net cash used by investing activities for the years ended december 31 , 2019 , 2018 and 2017 was $ 38.0 million , $ 39.0 million , and $ 33.0 million , respectively . in 2019 , we focused our capital investment spend on enhancing our value-added components capabilities as well as ongoing investments to support our steel manufacturing operation . 29 net cash used by investing activities for the years ended december 31 , 2018 and 2017 was $ 39.0 million and $ 33.0 million , respectively . cash used for investing activities primarily relates to capital investments in our manufacturing facilities . capital spending in 2018 increased $ 7.0 million from 2017 due to an increase in strategic spending on our capital investments . our business requires capital investments to maintain our plants and equipment to remain competitive and ensure we can implement strategic initiatives .
| results of operations during the fourth quarter of 2019 , timkensteel elected to change its method for valuing its inventories that previously used the last-in , first-out ( lifo ) method to the first-in , first-out ( fifo ) method . total inventories accounted for under the lifo 21 method represented approximately 70 % of the company 's total inventories prior to this change in method . the company believes that the fifo method is preferable as it improves comparability with our peers , more closely resembles the physical flow of our inventory , and aligns with how the company internally manages the business . the effects of the change in accounting principle have been retrospectively applied to all periods presented in item 7. refer to “ note 1 - basis of presentation ” in the notes to the consolidated financial statements . net sales the charts below present net sales and shipments for the years ended december 31 , 2019 , 2018 and 2017 . net sales for the year ended december 31 , 2019 were $ 1,208.8 million , a decrease of $ 401.8 million , or 24.9 % , compared to the year ended december 31 , 2018 . the decrease was due to a reduction in volume of 301 thousand ship tons , resulting in a decrease in net sales of $ 311.9 million and lower raw material surcharge revenue of $ 151.9 million . the primary driver in the decrease in volume was lower customer demand across all key end markets . we also experienced a loss in sales of approximately $ 10 million due to a strike at one of our automotive customers . the decrease in surcharges was primarily due to lower volumes and decreasing scrap prices throughout 2019. these decreases were partially offset by favorable price/mix of $ 60.9 million , as the company realized the benefit of previous price increases and lower billet product shipments .
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2016-12 “ narrow-scope improvements and practical expedients ” ( “ asu 2016-12 ” ) , which amends the guidance on transition , collectability , noncash consideration and the presentation of sales and other similar taxes . in december 2016 , the fasb further issued asu 2016-20 , “ technical corrections and improvements to topic 606 , revenue from contracts with customers ” ( “ story_separator_special_tag our management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) includes the following : a business overview that provides a high-level summary of our strategies and initiatives , financial results and bookings trends that affect our business ; a more detailed analysis of our results of operations ; our liquidity and capital resources , which discusses key aspects of our statements of cash flows , changes in our balance sheets and our financial commitments ; and a summary of our critical accounting policies and estimates we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . our md & a should be read in conjunction with item 8 , financial statements and supplementary data , of this annual report on form 10-k. the following discussion contains forward-looking statements that are subject to risks and uncertainties . actual results may differ from those referred to herein due to a number of factors , including but not limited to risks described in item 1a , risk factors , in this annual report on form 10-k. business overview strategies and initiatives during fiscal 2017 , our growth initiatives continued to generate significant free cash flow . we utilized our cash to enhance shareholder value through investments in long-term growth initiatives and our share repurchase programs . while we continued to offer on-premise solutions for many customers who prefer to install and run our software in-house , we continued our expansion into cloud-based solutions in our applications and decision management software segments to provide growth opportunities with customers that can benefit from the affordability and simplicity of these solutions . the majority of our software solutions are available through the fico® analytic cloud , and during fiscal 2017 , we added amazon web services , inc. ( “ aws ” ) as our primary cloud infrastructure provider . we have migrated several core applications , including the decision management suite , to aws and will migrate additional applications over the next three years . our cloud bookings accounted for 24 % and 26 % of our total bookings during fiscal 2017 and 2016 , respectively , directly demonstrating the willingness among our customers to engage our cloud-based solutions . for our scores segment , our industry leading business-to-business fico ® scores expanded further into the larger , faster growing u.s. consumer market . the fico ® score open access program , which allows our participating clients to provide their customers with a free fico ® score along with content to help them understand the fico ® score their lender uses , continued its expansion during the current year . we commenced this program in 2014 and now have more than 250 million consumer accounts with access to their free fico® score . the partnership agreement we launched in fiscal 2015 with experian , a leading global information services provider , also continued to accelerate during the current year . this partnership provides consumers the fico ® score that lenders most commonly use in evaluating credit when determining applicant eligibility for new credit cards , car loans , mortgages or other lines of credit and can be accessed through experian.com . during fiscal 2017 , we announced the fico financial inclusion initiative , a global effort to increase access to affordable credit for consumers and businesses with limited or no credit history , through the use of alternative data . we continue to pursue additional partners to distribute fico ® scores with their product offerings sold directly to consumers . in addition , we are pursuing opportunities to make fico ® scores available to third-parties for affinity , white-labeled programs to further penetrate and expand the markets where our scores are available . we also returned significant cash to shareholders through our stock repurchase program . during fiscal 2017 , we repurchased approximately 1.5 million shares at a total repurchase price of $ 193.3 million . as of september 30 , 2017 , we had $ 36.7 million remaining under our then-current stock repurchase program . 28 overview of financial results total revenues for fiscal 2017 were $ 932.2 million , an increase of 6 % from $ 881.4 million in fiscal 2016 . revenue in each of our segments increased , with our scores segment the primary driver increasing by 10 % in fiscal 2017 compared to fiscal 2016 . our applications and decision management software segments increased by 4 % and 5 % in fiscal 2017 compared to fiscal 2016 , respectively . we derive a significant portion of revenues internationally , and 36 % of total consolidated revenues were derived from clients outside the u.s. during each of fiscal 2017 and 2016 . a significant portion of our revenues are derived from the sale of products and services within the banking ( including consumer credit ) industry , and 74 % and 72 % of our revenues were derived from within this industry during fiscal 2017 and 2016 , respectively . in addition , we derive a significant share of revenues from transactional or unit-based software license fees , transactional fees derived under credit scoring , data processing , data management and saas subscription services arrangements , and annual software maintenance fees . arrangements with transactional or unit-based pricing accounted for 70 % and 69 % of our revenues during fiscal 2017 and 2016 , respectively . revenue fluctuations in our business are primarily driven by changes in the transactional volume and license fees . story_separator_special_tag million in fiscal 2016 from 2015 primarily due to an $ 11.3 million increase in our originations solutions , a $ 10.9 million increase in our customer communication services , and a $ 5.1 million increase in our compliance solutions , partially offset by a $ 19.2 million decrease in our fraud solutions . the increase in originations solutions was primarily attributable to an increase in services revenue . the increase in customer communication services was primarily attributable to an increase in transactional revenues as a result of our growth in the mobile communication market . the increase in compliance solutions was primarily attributable to our acquisition of tonbeller in january 2015. the decrease in fraud solutions was primarily attributable to a decrease in software revenues mainly driven by decreased number of large multi-year license deals occurring during our fiscal 2016. scores replace_table_token_8_th scores segment revenues increased $ 25.3 million in fiscal 2017 from 2016 due to a $ 14.2 million increase in our business-to-business scores revenues and an $ 11.1 million increase in our business-to-consumer services revenue . the increase in business-to-business scores was primarily attributable to an increase in our transactional scores driven by new originations , prescreen and account management . the increase in business-to-consumer services was primarily attributable to an increase in royalties derived from scores sold indirectly to consumers through credit reporting agencies . scores segment revenues increased $ 34.1 million in fiscal 2016 from 2015 due to a $ 17.8 million increase in our business-to-consumer services revenues and a $ 16.3 million increase in our business-to-business scores revenue . the increase in business-to-consumer services was primarily attributable to revenue generated from the agreement with experian that launched in december 2014 and made fico ® scores available to consumers on experian.com . the increase in business-to-business scores was primarily attributable to an increase in our transactional scores driven by new originations , account management and prescreen . during fiscal 2017 , 2016 and 2015 , revenues generated from our agreements with experian , transunion and equifax , collectively accounted for approximately 20 % , 19 % and 16 % , respectively , of our total revenues , including revenues from these customers recorded in our other segments . 31 decision management software replace_table_token_9_th decision management software segment revenues increased $ 5.0 million in fiscal 2017 from 2016 primarily attributable to an increase in services revenue related to our fico ® decision optimizer , partially offset by a decrease in license revenue related to our fico ® blaze advisor ® . decision management software segment revenues increased $ 2.2 million in fiscal 2016 from 2015 primarily attributable to an increase in services revenue , largely due to an increase in our fico ® decision management platform product partially offset by a decrease in our fico ® blaze advisor product . 32 operating expenses and other income ( expense ) , net the following tables set forth certain summary information related to our consolidated statements of income and comprehensive income for the fiscal 2017 , 2016 and 2015 : replace_table_token_10_th replace_table_token_11_th 33 cost of revenues cost of revenues consists primarily of employee salaries and benefits for personnel directly involved in developing , installing and supporting revenue products ; travel costs ; overhead costs ; outside services ; internal network hosting costs ; software royalty fees ; and credit bureau data and processing services . cost of revenues as a percentage of revenues increased to 31 % during fiscal year 2017 from 30 % during fiscal 2016. the $ 22.0 million increase was primarily attributable to a $ 14.6 million increase in personnel and labor costs and a $ 7.4 million increase in allocated facilities and infrastructure costs . the increase in personnel and labor costs was primarily attributable to an increase in professional services delivery cost driven by higher services revenue and an increase in salaries and benefit costs as a result of our increased headcount . the increase in allocated facilities and infrastructure costs was primarily attributable to increased resource requirements due to our expanded investment in product delivery , support and infrastructure operations . cost of revenues as a percentage of revenues decreased to 30 % during fiscal year 2016 from 32 % during fiscal 2015. the $ 5.4 million decrease was primarily attributable to a $ 12.9 million decrease in outside services , partially offset by a $ 4.6 million increase in personnel and labor costs and a $ 2.4 million increase in direct materials cost . the decrease in outside services was primarily attributable to a decrease in our billable consulting projects utilizing temporary resources . the increase in personnel and labor costs was primarily attributable to an increase in incentive cost and share based compensation cost , partially offset by a decrease in professional services delivery cost . the increase in direct materials was primarily attributable to an increase in telecommunications cost associated with the increase in our customer communications services subscription based revenue . in fiscal 2018 , we expect cost of revenues as a percentage of revenues will be consistent with those incurred during fiscal 2017 . research and development research and development expenses include the personnel and related overhead costs incurred in the development of new products and services , including the research of mathematical and statistical models and the development of new versions of our products . the fiscal year 2017 over 2016 increase of $ 7.2 million in research and development expenses was primarily attributable to a $ 5.0 million increase in personnel and labor costs and a $ 2.6 million increase in facilities and infrastructure costs , mainly driven by our continued investment in the areas of cloud computing and saas , as well as new products primarily in the decision management software segment .
| summary of cash flows replace_table_token_17_th cash flows from operating activities our primary method for funding operations and growth has been through cash flows generated from operating activities . net cash provided by operating activities totaled $ 225.6 million in fiscal 2017 compared to $ 210.3 million in fiscal 2016. the $ 15.3 million increase was mainly attributable to a $ 20.0 million decrease in our deferred income tax provision and an $ 18.8 million increase in net income , partially offset by a $ 24.2 million excess tax benefit related to share-based payments that was recorded as an increase to additional paid-in capital in the prior year but was recorded as a reduction of income tax expense in the current year as a result of our early adoption of asu 2016-09 effective october 1 , 2016. net cash provided by operating activities totaled $ 210.3 million in fiscal 2016 compared to $ 146.8 million in fiscal 2015. the $ 63.5 million increase was mainly attributable to a $ 22.9 million increase in net income and a $ 22.9 million decrease in income tax payments . cash flows from investing activities net cash used in investing activities totaled $ 20.6 million in fiscal 2017 compared to $ 27.6 million in fiscal 2016. the $ 7.0 million decrease was primarily attributable to a $ 5.7 million decrease in net cash used for acquisitions and a $ 2.1 million decrease in net cash used for purchases of property and equipment . net cash used in investing activities totaled $ 27.6 million in fiscal 2016 compared to $ 81.9 million in fiscal 2015. the $ 54.3 million decrease was attributable to a $ 51.3 million decrease in net cash used for acquisitions and a $ 3.0 million decrease in net cash used for purchases of property and equipment .
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our primary sources of funds are deposits and principal and interest payments on loans and securities . at june 30 , 2020 , we had total assets of $ 515.6 million , total deposits of $ 421.1 million and total equity of $ 88.3 million . a significant majority of our assets consist of long-term , fixed-rate residential mortgage loans and , to a much lesser extent , investment-quality securities , which we have funded primarily with deposit accounts and the repayment of existing loans . our results of operations depend primarily on our net interest income . net interest income is the difference between the interest income we earn on our interest-earning assets , consisting primarily of loans , investment securities ( including u.s. government and federal agency securities , mortgage-backed securities and municipal securities ) and other interest-earning assets , primarily interest-earning deposits at other financial institutions , and the interest paid on our interest-bearing liabilities , consisting primarily of savings and transaction accounts and certificates of deposit . our results of operations also are affected by our provisions for loan losses , noninterest income and noninterest expense . noninterest income currently consists primarily of service charges on deposit accounts and miscellaneous other income . noninterest expense currently consists primarily of compensation and employee benefits , occupancy and equipment expenses , data processing , professional and supervisory fees , office expense , provision for real estate owned and related expenses , and other operating expenses . 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 . other than our loans for the construction of one-to-four family residential mortgage loans , we do not offer `` interest only '' mortgage loans on one-to-four family residential properties ( where the borrower pays interest for an initial period , after which the loan converts to a fully amortizing loan ) . we also do not offer loans that provide for negative amortization of principal , such as `` option arm '' loans , where the borrower can pay less than the interest owed on his or her loan , resulting in an increased principal balance during the life of the loan . we do not offer `` subprime loans '' ( loans that generally target borrowers with weakened credit histories typically characterized by payment delinquencies , previous charge-offs , judgments , bankruptcies , or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios ) or alt-a loans . critical accounting policies we consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . additional discussions of these policies are discussed in note 1 “ summary of significant accounting policies ” to the accompanying consolidated financial statements contained in item 8. we consider the following to be our critical accounting policies : allowance for loan losses . our allowance for loan losses is the estimated amount considered necessary to reflect probable losses inherent in the loan portfolio at the balance sheet date . the allowance is established through the provision for loan losses , which is charged against income . in determining the allowance for loan losses , management makes significant estimates and judgments , which to some extent involve assumptions about borrowers ' abilities to continue to make future principal and interest payments . these estimates and judgments involve a high degree of judgment and subjectivity and are based on facts and circumstances that existed at the date in which the allowance is determined . changes in the macro and micro economic environment can have a significant impact on these estimates and judgments in the future that could result in changes to the allowance for loan losses . 34 integral to our allowance methodology is the use of a loan grading system whereby all loans are assigned a grade based on the risk profile of each loan . loan grades are initially assigned at origination and are routinely evaluated to determine if grades need to be changed . through our internal credit review function , ongoing credit monitoring , and continuous review of past due trends , loan grades are adjusted by management either to respond to improvements in or deterioration of credit . loan grades are determined based on an evaluation of relevant information about the ability of borrowers to service their debt such as current financial information , historical payment experience , credit documentation , public information , and current economic trends , among other factors . the allowance methodology consists of two parts : an evaluation of loss for specific loans and an evaluation of loss for homogenous pools of loans , commonly referred to as the specific and general valuation allowance . certain loans exhibiting signs of potential credit weakness are evaluated individually for impairment . a loan is considered to be impaired if it is probable that we will not receive substantially all contractual principal and interest payments . the amount of impairment , or specific valuation allowance , is measured by a comparison of the present value of expected future cash flows less selling expenses to the loan 's carrying value , or in the case of collateral dependent loans a comparison to the fair value of the collateral less selling costs . to the extent the carrying value of the loan exceeds the present value of a loan 's expected cash flows less selling expenses , a specific allowance is recorded . if the carrying value is less than the present value of the impaired loan 's expected future cash flows , no specific allowance is recorded however the loan is not included in the determination of the general valuation allowance . story_separator_special_tag these judgments and estimates are reviewed on a continual basis as regulatory and business factors change . business strategy we have continued our primarily focus on the execution of our community oriented retail banking strategy . highlights of our current business strategy include the following : continue to focus on residential lending . we have been and will continue to be primarily a one-to-four family residential mortgage lender for borrowers in our market area . as of june 30 , 2020 , $ 289.7 million , or 81.5 % , of our total loan portfolio consisted of one-to-four family residential mortgage loans ( including home equity loans ) . in the future , we may gradually increase our residential construction and home equity loan portfolios . maintain a modest portfolio of nonresidential real estate loans . we have historically maintained a small portfolio of nonresidential real estate loans . our nonresidential real estate loans were $ 15.8 million , or 4.4 % of our total loan portfolio at june 30 , 2020. manage interest rate risk while maintaining or enhancing , to the extent practicable , our net interest margin . subject to market conditions , we have sought to enhance net interest income by emphasizing controls on the cost of funds , particularly on the deposit products that we offer , rather than attempting to maximize asset yields , as loans with high yields often involve greater credit risk and may be repaid during periods of decreasing market interest rates . in addition , in view of our strong capital position , from time to time , we place more emphasis on enhancing our net interest income than on limiting our interest rate risk . rely on community orientation and high quality service to maintain and build a loyal local customer base and maintain our status as an independent community-based institution . we were established in 1924 and have been operating continuously in oconee county since that time . by using our recognized brand name and the goodwill developed over years of providing timely , efficient banking services , we have been able to attract a solid base of local retail customers on which to continue to build our banking business . we have historically focused on promoting relationships within our community rather than specific banking products , and we expect to continue to build our customer base by relying on customer referrals and referrals from local builders and realtors . we extend this strategy to the rabun and stephens counties as well . adhere to conservative underwriting guidelines to maintain strong asset quality . we have emphasized maintaining strong asset quality by following conservative underwriting guidelines , sound loan administration , and focusing on loans secured by real estate located within our market area only . our nonperforming assets totaled $ 2.9 million , or 0.56 % of total assets at june 30 , 2020. our total nonperforming loans to total loans ratio was 0.77 % at june 30 , 2020. total loan delinquencies , 30 days or more past due , as of june 30 , 2020 , were $ 3.3 million , or 0.9 % of total loans . total loan delinquencies , 30 days or more past due , as of june 30 , 2019 , were $ 8.7 million , or 2.4 % of total loans . 36 comparison of financial condition at june 30 , 2020 and june 30 , 2019 our total assets decreased by $ 12.2 million , or 2.3 % , to $ 515.6 million at june 30 , 2020 from $ 527.9 million at june 30 , 2019. our total cash decreased by $ 2.1 million , or 5.7 % , to $ 34.6 million at june 30 , 2020 from $ 36.7 million at june 30 , 2019. this decrease was primarily due to normal fluctuations . our total cash and deposit balance includes the deposits of oconee federal , mhc . securities available-for-sale decreased $ 4.7 million from june 30 , 2019 to june 30 , 2020. the association is not actively replenishing security repayments and maturities with purchases due to the funding needs of the company . total gross loans decreased $ 4.4 million to $ 355.7 million at june 30 , 2020 from $ 360.1 million at june 30 , 2019. the majority of the decrease was in our one-to-four family loans and non-residential real estate loans , which decreased by $ 5.1 million and $ 3.5 million , respectively , from june 30 , 2019 to june 30 , 2020 and was offset by increase in other loan categories . this decrease was primarily a result of loan originations generally not matching loan repayments during the year ended june 30 , 2020. our total deposits increased to $ 421.1 million at june 30 , 2020 from $ 419.1 million at june 30 , 2019. this increase was primarily due to normal fluctuations . we generally do not accept brokered deposits and no brokered deposits were accepted during the year ended june 30 , 2020. we had $ 5.0 million and $ 19.0 million in advances from the fhlb as of june 30 , 2020 and june 30 , 2019 , respectively . we had credit available under a loan agreement with the fhlb in the amount of 25 % of total assets , or approximately $ 126.0 million and $ 128.1 million at june 30 , 2019 and june 30 , 2019 , respectively . our total shareholders ' equity increased $ 8 thousand to $ 88.31 million at june 30 , 2020 from $ 88.30 million at june 30 , 2019. the small increase is primarily the result of net income for the year ended june 30 , 2020 of $ 3.9 million and $ 1.8 million in other comprehensive income being offset by $ 3.9 million of stock repurchases and $ 2.3 million in dividends distributed .
| general . net income increased by $ 144 thousand , or 3.9 % , to $ 3.9 million for the year ended june 30 , 2020 from $ 3.7 million for the year ended june 30 , 2019. in further detail , there was a decrease in net interest income before the provision for loan losses of $ 437 thousand , or 2.9 % . this decrease in income was offset with an increase in noninterest income of $ 347 thousand , or 20.5 % . , a decrease in loan loss provision of $ 168 thousand , or 77.1 % , and a decrease in noninterest expense of $ 92 thousand , or 0.8 % . tax expense increased $ 26 thousand , or 3.0 % . interest income . interest income decreased by $ 136 thousand , or 0.7 % , to $ 18.7 million for the year ended june 30 , 2020 from $ 18.8 million for the year ended june 30 , 2019. the decrease was primarily the result of a decrease in our average yield on interest-earning assets . the average yield on interest-earning assets decreased to 3.95 % for the year ended june 30 , 2019 from 4.00 % for the year ended june 30 , 2019. the average balance of interest-earning assets increased to $ 473.2 million for the year ended june 30 , 2020 from $ 470.7 million for the year ended june 30 , 2019. interest income on loans increased $ 210 thousand , or 1.3 % , to $ 16.4 million for the year ended june 30 , 2020 from $ 16.2 million for the year ended june 30 , 2019. the average balance of our loans increased to $ 358.3 million for the year ended june 30 , 2020 from $ 351.8 million for the year ended june 30 , 2019. the increase in the average balance of our loans is reflective of a peak in our loan portfolio size beginning at the end of fiscal
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65 body and mind inc. notes to consolidated financial statements for the year ended 31 july 2020 u.s. dollars 11. capital stock – continued stock options – continued on 1 october 2019 , the company issued 250,000 stock options with an exercise price of cad $ 0.93 per share for a term of five years expiring on 1 october 2024. the options are subject to vesting provisions such that 25 % of the options vest six months from the date of grant , 25 % of the options vest twelve months from the date of grant , 25 % of the options vest eighteen months from the date of grant and 25 % of the options vest twenty-four months from the date of grant . the total fair value of the stock options granted was calculated to be $ 145,045 ( cad $ 191,960 ) using the black-scholes option pricing model with the following assumptions : expected life of the options 3.125 years expected volatility 194 % expected dividend yield 0 % risk-free interest rate 1.37 % during the year ended 31 july 2020 , the company recorded a stock-based compensation of $ 103,570 ( cad $ 139,338 ) related to these options . on 23 january 2020 , the company issued 200,000 stock options with an exercise price of cad $ 0.88 per share for a term of five years expiring on 23 january 2025. the options are subject to vesting provisions such that 25 % of the options vest six months from the date of grant , 25 % of the options vest twelve months from the date of grant , 25 % of the options vest eighteen months from the date of grant and 25 % of the options vest twenty-four months from the date of grant . the total fair value of the stock options granted was calculated to be $ 68,645 ( cad $ 90,608 ) using the black-scholes option pricing model with the following assumptions : expected life of the options 3.125 years expected volatility 173 % expected dividend yield 0 % risk-free interest rate 1.43 % during the year ended 31 july 2020 , the company recorded a stock-based compensation of $ 35,470 ( cad $ 47,719 ) related to these options . on 1 march 2020 , the company issued 250,000 stock options with an exercise price of cad $ 0.41 per share for a term of five years expiring on 1 march 2025. the options story_separator_special_tag the following management 's discussion and analysis of the company 's financial condition and results of operations contain forward-looking statements that involve risks , uncertainties and assumptions including , among others , statements regarding our capital needs , business plans and expectations . in evaluating these statements , you should consider various factors , including the risks , uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the sec and , including , without limitation , this annual report on form 10-k filing for the fiscal year ended july 31 , 2020 , including the consolidated financial statements and related notes contained herein . these factors , or any one of them , may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document . refer to “ forward-looking statements ” and item 1a . risk factors . introduction the following discussion summarizes the results of operations for each of our fiscal years ended july 31 , 2020 and 2019 and our financial condition as at july 31 , 2020 and 2019 , with a particular emphasis on fiscal 2020 , our most recently completed fiscal year . story_separator_special_tag style= '' height:15px '' > 42 liquidity and capital resources the following table sets out our cash and working capital as of july 31 , 2020 and 2019 : as of july 31 , 2020 as of july 31 , 2019 cash reserves $ 1,352,130 $ 9,004,716 working capital ( deficiency ) $ 2,791,289 $ 10,262,959 financings on may 17 , 2019 , the company closed a private placement of 11,780,904 units at a price of $ 0.93 ( cad $ 1.25 ) per unit for aggregate gross proceeds of $ 10,956,241 ( cad $ 14,726,130 ) . each unit is comprised of one common share and one common share purchase warrant . each warrant entitles the holder to acquire one common share of the company at an exercise price of cad $ 1.50 for a period of 48 months following the closing date , subject to adjustment in certain events . the agents received a cash commission of $ 589,499 ( cad $ 793,938 ) . the agents also received as additional consideration 635,150 non-transferable broker warrants . each broker warrant entitles the holder to acquire one unit at an exercise price of cad $ 1.25 per unit for a period of 48 months following the closing date . a corporate finance fee of $ 63,774 ( cad $ 84,750 ) was also paid . on may 28 , 2019 , the company issued 12,793,840 common shares upon exercise of 12,793,840 warrants by australis at a price of cad $ 0.50 per common share for aggregate proceeds of $ 4,733,721 ( cad $ 6,396,920 ) . the proceeds were used , in part , to fully repay the outstanding senior secured note in the amount of $ 4,495,890 owing to australis by the company . on july 16 , 2019 , the company issued 7,333 common shares upon exercise of 7,333 warrants at a price of cad $ 0.90 per common share for aggregate proceeds of $ 5,057 ( cad $ 6,600 ) . story_separator_special_tag we do not yet know the full extent of any impact on our business or our operations , however , we will continue to monitor the covid-19 situation closely , and intend to follow health and safety guidelines as they evolve . off-balance sheet arrangements there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . subsequent events on september 1 , 2020 , our wholly owned subsidiary , nmg long beach llc , received all approvals and final license transfer for the showgrow long beach dispensary . on september 9 , 2020 , our wholly owned subsidiary , nmg oh 1 llc , received all approvals and final license and name transfer from the ohio department of pharmacy for the clubhouse dispensary located in elyria , ohio . 44 on september 23 , 2020 , we announced the launch of pretzel bite edibles into california . on october 21 , 2020 , we issued 793,466 shares of common stock in connection with the nmg ohio transaction . on october 22 , 2020 , we announced the closing of the nmg ohio transaction and outlined a complaint for disciplinary action by the nevada cannabis compliance board ( the “ ccb ” ) with respect to nevada medical group llc ( nmg ) , the company 's nevada operating subsidiary . the ccb 's complaint alleges that certain employees were on site without valid agent cards and , additionally , that nmg failed to maintain security measures , restricting access to the establishment building . the disciplinary action sought includes fines , as well as licence termination . nmg intends to contest or resolve the complaint through the prescribed legal process mandated by the ccb . nmg will continue to operate without interruption while fully co-operating with the investigation . on october 28 , 2020 , we announced we had been awarded best dispensary in arkansas by ark420.com . on november 9 , 2020 , we corrected a prior news release on the nmg ohio transaction to announce that we provided the final consideration to the members of nmg ohio , other than nmg nevada , and the participants pursuant to the definitive agreement in order to acquire the remaining 70 % interest in nmg ohio , however , the transfer of the remaining 70 % interest in nmg ohio to nmg nevada will not occur until all of the closing conditions under the definitive agreement have been satisfied . outstanding share data at december 9 , 2020 , we had 108,377,778 issued and outstanding common shares , 9,055,000 outstanding stock options and 12,415,284 outstanding warrants . critical accounting policies our financial statements and accompanying notes have been prepared in accordance with united states generally accepted accounting principles applied on a consistent basis . the preparation of financial statements in conformity with u.s. generally accepted accounting principles 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 periods . we regularly evaluate the accounting policies and estimates that we use to prepare our financial statements . in general , management 's estimates are based on historical experience , on information from third party professionals , and on various other assumptions that are believed to be reasonable under the facts and circumstances . actual results could differ from those estimates made by management . we believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements . income taxes the determination of deferred income tax assets or liabilities requires subjective assumptions regarding future income tax rates and the likelihood of utilizing tax carry-forwards . changes in these assumptions could materially affect the recorded amounts , and therefore do not necessarily provide certainty as to their recorded values . 45 foreign currency the company determines the functional currency through an analysis of several indicators such as expenses and cash flows , financing activities , retention of operating cash flows , and frequency of transactions with the reporting entity . fair value of financial instruments management uses valuation techniques , in measuring the fair value of financial instruments , where active market quotes are not available . in applying the valuation techniques , management makes maximum use of market inputs wherever possible , and uses estimates and assumptions that are , as far as possible , consistent with observable data that market participants would use in pricing the instrument . where applicable data is not observable , management uses its best estimate about the assumptions that market participants would make . such estimates include liquidity risk , credit risk and volatility may vary from the actual results that would be achieved in an arm 's length transaction at the reporting date . the assessment of the timing and extent of impairment of intangible assets involves both significant judgements by management about the current and future prospects for the intangible assets as well as estimates about the factors used to quantify the extent of any impairment that is recognized . intellectual property the recoverability of the carrying value of the intellectual property is dependent on numerous factors . the carrying value of these assets is reviewed by management when events or circumstances indicate that its carrying value may not be recovered . if impairment is determined to exist , an impairment loss is recognized to the extent that the carrying amount exceeds the recoverable amount . stock-based compensation the option pricing models require the input of highly subjective assumptions , particularly the expected stock price volatility . changes in the subjective input assumptions
| overview our principal business is the production and cultivation of medical and recreational marijuana in nevada pursuant to licenses held by nmg operating under the marquee brand name of body & mind and produces flower , oil , extracts and edibles and are available for sale in dispensaries in nevada . in addition , we have retail/ dispensary operations in ohio pursuant to the licenses held by nmg , retail/dispensary operations in california pursuant to licenses held by nmg sd and nmg lb and brand directors services and licensing arrangements with a licensed manufacturer in california providing body and mind branded products to dispensaries in california . we anticipate brand expansion into ohio and arkansas . results of operations for the years ended july 31 , 2020 and 2019 the following table sets forth our results of operations for the fiscal years ended july 31 , 2020 and 2019 : replace_table_token_8_th 40 revenues for the year ended july 31 , 2020 we had total net sales of $ 5,287,289 and cost of sales of $ 3,778,898 for a gross margin of $ 1,508,391 compared to total net sales of $ 4,612,218 and cost of sales of $ 2,831,642 for a gross margin of $ 1,780,576 in the year ended july 31 , 2019. during the year ended july 31 , 2020 , the company recorded product sales as follows : replace_table_token_9_th operating expenses for the year ended july 31 , 2020 , general and administrative expenses totaled $ 7,055,199 compared with $ 4,623,179 for the year ended july 31 , 2019. a significant reason for the increase in general and administrative expenses between the years related to increased consulting fees from $ 167,942 to $ 565,472 and business development increased from $ nil to $ 449,949 as a result of various ongoing acquisitions and expansions .
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67 other intangibles identifiable intangibles include the following : replace_table_token_36_th the estimated future amortization expense is as follows : replace_table_token_37_th in connection with the acquisitions of sproutling and fuhu assets during 2016 , mattel recognized $ 11.0 million of amortizable identifiable intangible assets , primarily related to patents . mattel tests nonamortizable intangible assets , including trademarks story_separator_special_tag the following discussion should be read in conjunction with the consolidated financial statements and the related notes . see item 8 `` financial statements and supplementary data . '' note that amounts within this item shown in millions may not foot due to rounding . the following discussion also includes gross sales and currency exchange rate impact , non-gaap financial measures within the meaning of regulation g promulgated by the securities and exchange commission ( `` regulation g '' ) , to supplement the financial results as reported in accordance with gaap . gross sales represent sales to customers , excluding the impact of sales adjustments , such as trade discounts and other allowances . the currency exchange rate impact reflects the portion ( expressed as a percentage ) of changes in mattel 's reported results that are attributable to fluctuations in currency exchange rates . mattel uses these non-gaap financial measures to analyze its continuing operations and to monitor , assess , and identify meaningful trends in its operating and financial performance . these measures are not , and should not be viewed as , a substitute for gaap financial measures . refer to `` non-gaap financial measures '' in this annual report on form 10-k for a more detailed discussion , including a reconciliation of gross sales , a non-gaap financial measure , to net sales , its most directly comparable gaap financial measure . overview mattel 's vision is to `` inspire the wonder of childhood as the global leader in learning and development through play . '' in order to deliver on this vision , mattel is focused on the following five-pillar strategy : build mattel 's power brands ( american girl , barbie , fisher-price , hot wheels , and thomas & friends ) into connected 360-degree play systems and experiences ; accelerate emerging markets growth with digital-first solutions ; focus and strengthen mattel 's innovation pipeline ; reshape mattel 's operations to enable this strategy - leaner , faster , and smarter - via commercial realignment , supply chain transformation , and it transformation ; and reignite mattel 's culture and team . 2017 overview mattel 's 2017 financial highlights include the following : net sales in 2017 were $ 4.88 billion , an 11 % decrease , as compared to 2016 net sales of $ 5.46 billion . gross sales in 2017 were $ 5.51 billion , a 9 % decrease , as compared to 2016 gross sales of $ 6.07 billion . gross margin in 2017 was 37.3 % , a decrease of 950 basis points from 2016 . operating loss in 2017 was $ 342.8 million , as compared to operating income of $ 519.2 million in 2016 . diluted net loss per share in 2017 was $ 3.07 , as compared to diluted earnings per share of $ 0.92 in 2016 . results of operations 2017 compared to 2016 story_separator_special_tag included net tax expense of $ 454.4 million , primarily related to the establishment of a valuation allowance in the third quarter of 2017 on u.s. deferred tax assets that will likely not be realized and an estimate of the impact of u.s. tax reform in the fourth quarter of 2017. the 2017 net tax expense included a provisional income tax benefit of $ 105.3 million related to the remeasurement of the u.s. net deferred tax liabilities from 35 % to 21 % tax rate and revised deferred tax netting from the third quarter of 2017 to the fourth quarter of 2017. mattel has not yet determined a reasonable estimate of the impact of many aspects of tax reform . for additional information on the u.s. tax reform , see part ii , item 8 `` financial statements and supplementary data—note 14 to the consolidated financial statements—income taxes '' . the 2016 income tax provision included net tax benefits of $ 16.8 million primarily related to reassessments of prior years ' tax liabilities based on the status of audits and tax filings in various jurisdictions around the world , settlements , and enacted tax law changes , and the adoption of asu 2016-09. north america segment the following table provides a summary of mattel 's gross sales by brand for the north america segment for 2017 and 2016 : replace_table_token_6_th gross sales for the north america segment were $ 2.54 billion in 2017 , a decrease of $ 499.5 million or 16 % , as compared to $ 3.04 billion in 2016 , with a favorable impact from changes in currency exchange rates of 1 percentage point . the decrease in the north america segment gross sales was primarily due to lower sales of other girls , construction and arts & crafts , fisher-price friends , core fisher-price , and wheels products . as a result of toys `` r '' us filing for bankruptcy , mattel reversed approximately $ 47 million of gross sales in the third quarter of 2017. in addition , mattel began to reduce shipping to toys `` r '' us in early september , which resulted in a loss of revenue in the second half of 2017. of the 54 % decrease in other girls gross sales , 36 % was due to lower sales of monster high products and 17 % was due to lower sales of dc super hero girls products . of the 34 % decrease in construction and arts & crafts gross sales , 31 % was due to lower sales of mega bloks products , primarily driven by licensed properties and mega bloks preschool products . story_separator_special_tag the following table provides a summary of mattel 's consolidated gross sales by brand for 2016 and 2015 : replace_table_token_11_th gross sales were $ 6.07 billion in 2016 , a decrease of $ 209.9 million or 3 % , as compared to $ 6.28 billion in 2015 , with an unfavorable impact from changes in currency exchange rates of 3 percentage points . the decrease in gross sales was due to lower sales of other girls products , partially offset by higher sales of entertainment products . of the 52 % decrease in other girls gross sales , 47 % was due to lower sales of disney princess products . of the 13 % increase in entertainment gross sales , 12 % was due to higher sales of dc comics products . cost of sales cost of sales as a percentage of net sales was 53.2 % in 2016 , as compared to 50.8 % in 2015 . cost of sales in 2016 was flat with 2015 at $ 2.90 billion , as compared to a 4 % decrease in net sales . within cost of sales , product and other costs increased by $ 52.4 million , or 2 % , to $ 2.35 billion in 2016 from $ 2.30 billion in 2015 ; royalty expenses decreased $ 35.7 million , or 13 % , to $ 228.9 million in 2016 from $ 264.6 million in 2015 ; and freight and logistics expenses decreased by $ 10.7 million , or 3 % , to $ 322.7 million in 2016 from $ 333.4 million in 2015 . gross margin gross margin decreased to 46.8 % in 2016 from 49.2 % in 2015 . the decrease in gross margin was primarily due to unfavorable foreign exchange , higher sales adjustments , and higher input costs , partially offset by strategic pricing and funding our future savings . 33 advertising and promotion expenses advertising and promotion expenses primarily consist of : ( i ) media costs , which primarily include the media , planning , and buying fees for television , print , and online advertisements , ( ii ) non-media costs , which primarily include commercial and website production , merchandising , and promotional costs , ( iii ) retail advertising costs , which primarily include consumer direct catalogs , newspaper inserts , fliers , and mailers and ( iv ) generic advertising costs , which primarily include trade show costs . advertising and promotion expenses as a percentage of net sales decreased to 11.6 % in 2016 from 12.6 % in 2015 , primarily as a result of lower media and non-media costs . other selling and administrative expenses other selling and administrative expenses were $ 1.40 billion , or 25.7 % of net sales , in 2016 , as compared to $ 1.55 billion , or 27.1 % of net sales , in 2015 . the decrease in other selling and administrative expenses was primarily due to funding our future net savings of approximately $ 60 million , lower incentive and equity compensation of approximately $ 36 million , and lower severance and restructuring charges of approximately $ 32 million . other non-operating expense/income , net other non-operating expense was $ 23.5 million in 2016 , as compared to other non-operating income of $ 1.1 million in 2015 . the increase in other non-operating expense was primarily due to the change in the remeasurement rate used by mattel 's venezuelan subsidiary , which resulted in an unrealized foreign currency exchange loss of approximately $ 26 million , in the first quarter of 2016. provision for income taxes mattel 's provision for income taxes was $ 91.7 million in 2016 , compared to $ 94.5 million in 2015 . mattel 's effective tax rate on income before income taxes in 2016 was 22.4 % , as compared to 20.4 % in 2015 . the 2016 income tax provision included net tax benefits of $ 16.8 million primarily related to reassessments of prior years ' tax liabilities based on the status of audits and tax filings in various jurisdictions around the world , settlements , and enacted tax law changes , and the adoption of a new accounting pronouncement . the 2015 income tax provision included net tax benefits of $ 19.1 million primarily related to reassessments of prior years ' tax liabilities based on the status of audits and tax filings in various jurisdictions around the world , settlements , and enacted tax law changes . 34 north america segment the following table provides a summary of mattel 's gross sales by brand for the north america segment for 2016 and 2015 : replace_table_token_12_th gross sales for the north america segment were $ 3.04 billion in 2016 , a decrease of $ 47.7 million , or 2 % , as compared to $ 3.08 billion in 2015 , with an unfavorable impact from changes in currency exchange rates of 1 percentage point . the decrease in the north america segment gross sales was primarily due to lower sales of other girls products , partially offset by higher sales of entertainment and barbie products . of the 51 % decrease in other girls gross sales , 47 % was due to lower sales of disney princess products . of the 19 % increase in entertainment gross sales , 12 % was due to higher sales of dc comics products and 5 % was due to initial sales of fuhu tablets . the 13 % increase in barbie gross sales was due to sales of the fashionistas and i can be product lines , and the new younger girl product line , barbie dreamtopia , as well as licensing revenue recorded during the second quarter . cost of sales decreased 2 % in 2016 , as compared to a 2 % decrease in net sales , primarily due to lower product and other costs and lower royalty expenses . gross margins in 2016 were flat with 2015 .
| consolidated results net sales for 2017 were $ 4.88 billion , an 11 % decrease , as compared to $ 5.46 billion in 2016 . net loss for 2017 was $ 1.05 billion , or a loss of $ 3.07 per diluted share , as compared to net income of $ 318.0 million , or earnings of $ 0.92 per diluted share , in 2016 . the net loss for 2017 was impacted by lower gross profit , a higher advertising rate , higher other selling and administrative expenses , higher interest expense , a $ 59.0 million non-operating expense related to the discontinuation of mattel 's venezuelan subsidiary , and a net tax expense of $ 454.4 million primarily related to the establishment of a valuation allowance on u.s. deferred tax assets that will likely not be realized and an estimate of the impact of u.s. tax reform . 26 the following table provides a summary of mattel 's consolidated results for 2017 and 2016 : replace_table_token_4_th sales net sales for 2017 were $ 4.88 billion , an 11 % decrease , as compared to $ 5.46 billion in 2016 . the following table provides a summary of mattel 's consolidated gross sales by brand results for 2017 and 2016 : replace_table_token_5_th 27 gross sales were $ 5.51 billion in 2017 , a decrease of $ 559.6 million , or 9 % , as compared to $ 6.07 billion in 2016 , with a favorable impact from changes in currency exchange rates of 1 percentage point . the decrease in gross sales was due to lower sales of other girls , construction and arts & crafts , american girl , and fisher-price friends products , partially offset by higher sales of entertainment products . the decrease in gross sales was partially a result of the reversal of approximately $ 47 million of gross sales related to toys `` r '' us filing for bankruptcy .
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accordingly , if the company does not generate sufficient cash flow from operations to fund our working capital needs and planned capital expenditures , and its cash reserves are depleted , the company may need to take further actions in the company 's control , such as further reductions or delays in capital investments , additional reductions to the company 's workforce , reducing or delaying strategic investments or other actions . additionally , the covid-19 outbreak continues to grow both in the u.s. and globally and is adversely affecting the economy and financial markets and story_separator_special_tag introduction the following discussion and analysis of financial condition and results of operations is qualified by reference to and should be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere in this annual report on form 10-k. this annual report on form 10-k , including the following management 's discussion and analysis of financial condition and results of operations , may contain certain “ forward-looking ” information within the meaning of the private securities litigation reform act of 1995. this information involves risks and uncertainties . our actual results may differ materially from the results discussed in the forward-looking statements . overview our company we are an interactive media company that manages shophq , our nationally distributed shopping entertainment network , bulldog shopping network and media services . shophq offers a mix of proprietary , exclusive and name-brand merchandise in the categories of jewelry & watches , home & consumer electronics , beauty & wellness , and fashion & accessories directly to consumers 24 hours a day in an engaging and informative shopping experience via television , online and mobile devices . shophq programming is distributed in more than 84 million homes through cable and satellite distribution agreements , agreements with telecommunications companies and arrangements with over-the-air broadcast television stations . shophq programming is also streamed live online at shophq.com , a comprehensive digital commerce platform that sells products which appear on its television shopping network as well as an extended assortment of online-only merchandise , and is available on mobile channels and over-the-top ( `` ott '' ) platforms . our programming and products are also marketed via mobile devices , including smartphones and tablets , and through the leading social media channels . our nascent , but growing media services offers creative and interactive advertising and third-party logistics . during the fourth quarter of fiscal 2019 , we launched the bulldog shopping network , a niche television shopping network geared towards male consumers and acquired float left and j.w . hulme . new corporate name and branding on july 16 , 2019 , we changed our corporate name to imedia brands , inc. from evine live inc. effective july 17 , 2019 , our nasdaq trading symbol also changed from evlv to imbi . on august 21 , 2019 , we changed the name of our primary network , evine , back to shophq , which was the name of the network in 2014. shophq products and customers products sold on our digital commerce platforms include jewelry & watches , home & consumer electronics , beauty & wellness , and fashion & accessories . historically jewelry & watches has been our largest merchandise category . while changes in our product mix have occurred as a result of customer demand and other factors including our efforts to diversify our offerings within our major merchandise categories , jewelry & watches remained our largest merchandise category in fiscal 2019 . we are focused on diversifying our merchandise assortment within our existing product categories as well as by offering potential new product categories , including proprietary , exclusive and name-brands , in an effort to increase revenues , gross profits and to grow our new and active customer base . the following table shows our shophq segment merchandise mix as a percentage of total digital commerce net merchandise sales for the years indicated by product category group . we have recast certain fiscal 2018 and fiscal 2017 product category percentages in the accompanying table to conform to our new segment structure . replace_table_token_1_th our product strategy is to continue to develop and expand new product offerings across multiple merchandise categories based on customer demand , as well as to offer competitive pricing and special values in order to drive new customers and maximize margin dollars per minute . during the first quarter of fiscal 2019 , we started implementing a new strategy to shift airtime and merchandise mix into higher contribution margin categories , such as jewelry & watches and beauty & wellness , to drive better 24 customer engagement , and improve our merchandising margin and shipping margin . we also expect this changed mix will lower our variable costs as a percentage of revenue . our core digital commerce customers — those who interact with our network and transact through television , online and mobile devices — are primarily women between the ages of 45 and 70. we also have a strong presence of male customers of similar age . we believe our customers make purchases based on our unique products , quality merchandise and value . company strategy imedia is a leading interactive media company managing a growing portfolio of niche television networks , niche national advertisers and media services . our strategy includes developing and growing multiple monetization models , including tv retailing , e-commerce , advertising and service fees , to grow our business . we expect that these initiatives build upon our core strengths and provide us an advantage in the marketplace . our strategy includes offering our curated assortment of proprietary , exclusive ( i.e. , products that are not readily available elsewhere ) , emerging and name-brand products . our programming is distributed through our video commerce infrastructure , which includes television access to more than 84 million homes in the united states , primarily on cable and satellite systems as well as over-the-air broadcast and ott platforms . story_separator_special_tag in our television shopping and digital commerce operations , we compete for customers with other television shopping and e-commerce retailers , infomercial companies , other types of consumer retail businesses , including traditional `` brick and mortar '' department stores , discount stores , warehouse stores and specialty stores , catalog and mail order retailers and other direct sellers . our direct competitors within the television shopping industry include qvc , inc. and hsn , inc. , which are owned by qurate retail inc. both qvc , inc. and hsn , inc. are substantially larger than we are in terms of annual revenues and customers , and the programming of each is carried more broadly to u.s. households , including high definition bands and multi-channel carriage , than our programming . multimedia commerce group , inc. , which operates jewelry television , also competes with us for customers in the jewelry category . in addition , there are a number of smaller niche retailers and startups in the television shopping arena who compete with us . we believe that our major competitors incur cable and satellite distribution fees representing a significantly lower percentage of their sales attributable to their television programming than we do , and that their fee arrangements are substantially on a commission basis ( in some cases with minimum guarantees ) rather than on the predominantly fixed-cost basis that we currently have . at our current sales level , our distribution costs as a percentage of total consolidated net sales are higher than those of our competition . however , we have the ability to leverage this fixed expense with sales growth to accelerate improvement in our profitability . we anticipate continued competition for viewers and customers , for experienced television commerce and e-commerce personnel , for distribution agreements with cable and satellite systems and for vendors and suppliers - not only from television shopping companies , but also from other companies that seek to enter the television shopping and online retail industries , including telecommunications and cable companies , television networks , and other established retailers . we believe that our ability to be successful in the video and digital commerce industry will be dependent on a number of key factors , including continuing to expand our digital footprint to meet our customers ' needs and increasing the lifetime value of our customer base by a combination of growing the number of customers who purchase products from us and maximizing the dollar value of sales and profitability per customer . story_separator_special_tag additionally , the company plans to utilize j.w . hulme to craft private-label accessories for the company 's existing owned and operated fashion brands . float left is a business comprised of connected tvs , video-based content , application development and distribution , including technical consulting services , software development and maintenance related to video distribution . the company plans to utilize float left 's team and technology platform to further grow its content delivery capabilities in ott platforms while providing new revenue opportunities . the purchase consideration included the issuance of 291,000 and 100,000 shares of our common stock to the sellers of j.w . hulme and float left . additional details of the business acquisitions are contained in note 12 - `` business acquisitions `` in the notes to our consolidated financial statements . transaction , settlement and integration costs during fiscal 2019 , we incurred contract settlement costs of $ 1.2 million ; business acquisition and integration-related costs of $ 246,000 to acquire float left and j.w . hulme ; costs incurred related to the implementation of our shophq vip customer program and our third-party logistics service offerings of $ 658,000 , costs incurred to amend our articles of incorporation and to effect a one-for-ten reverse stock split of our common stock of $ 121,000 , partially offset by a $ 1.5 million gain for the sale of our claim related to the payment card interchange fee and merchant discount antitrust litigation class action lawsuit . results of operations the following table sets forth , for the periods indicated , certain statement of operations data expressed as a percentage of net sales . replace_table_token_2_th 28 key operating metrics replace_table_token_3_th ( a ) the company 's most recently completed fiscal year , fiscal 2019 , ended on february 1 , 2020 , and consisted of 52 weeks . fiscal 2018 ended on february 2 , 2019 and consisted of 52 weeks . fiscal 2017 ended on february 3 , 2018 and consisted of 53 weeks . ( b ) digital net sales percentage is calculated based on net sales that are generated from our transactional websites and mobile platforms , which are primarily ordered directly online . program distribution shophq , our 24-hour television shopping program , which is distributed primarily on cable and satellite systems , reached more than 84 million homes during the twelve months ended february 1 , 2020 and february 2 , 2019 . our television home shopping programming is also simulcast 24 hours a day , 7 days a week on our shophq website , broadcast over-the-air in certain markets and is also available on all mobile channels and on various video streaming applications , such as roku and apple tv . this multiplatform distribution approach , complemented by our strong mobile and online efforts , ensures that our programming is available wherever and whenever our customers choose to shop . in addition to our total homes reached , we continue to increase the number of channels on existing distribution platforms and alternative distribution methods , including reaching deals to launch our programming on high definition ( `` hd '' ) channels . we believe that our distribution strategy of pursuing additional channels in productive homes already receiving our programming is a more balanced approach to growing our business than merely adding new television homes in untested areas . we believe that having an hd feed of our service allows us to attract new viewers and customers .
| summary results for fiscal 2019 , 2018 and 2017 consolidated net sales during the 52-week fiscal 2019 were $ 501.8 million compared to $ 596.6 million during the 52-week fiscal 2018 , a 16 % decrease . consolidated net sales during the 52-week fiscal 2018 were $ 596.6 million compared to $ 648.2 million during the 53-week fiscal 2017 , an 8 % decrease . we reported an operating loss of $ 52.5 million and a net loss of $ 56.3 million for fiscal 2019 . the operating loss and net loss for fiscal 2019 include restructuring costs of $ 9.2 million ; a non-cash inventory write-down of $ 6.1 million ; executive and management transition costs of $ 2.7 million ; rebranding costs of $ 1.3 million ; and transaction , settlement and integration costs , net , totaling $ 694,000 . we reported an operating loss of $ 18.6 million and a net loss of $ 22.2 million for fiscal 2018 . the operating loss and net loss for fiscal 2018 include executive and management transition costs of $ 2.1 million ; transaction , settlement and integrations costs of $ 1.5 million ; and a gain of $ 665,000 related to the sale of our boston television station . we reported operating income of $ 3.2 million and net income of $ 143,000 for fiscal 2017 . the operating and net income for fiscal 2017 include executive and management transition costs of $ 2.1 million and a gain of $ 551,000 related to the sale of our boston television station . the net income for fiscal 2017 also included a loss on debt extinguishment of $ 1.5 million and an income tax benefit of $ 3.4 million , which primarily resulted from the reversal of our long-term deferred tax liability in connection with our television station sale .
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management strongly believes that the historical strength of the company 's growth and earnings is attributable to the following main factors : industry leading order fill rates and responsive customer service product innovations and product line expansions based on listening to and understanding customer needs and market trends low cost manufacturing operations , resulting from a state-of-the-art manufacturing complex low distribution and freight costs due in large part to the “ one campus ” business model a focused management team leading an incentivized work force low general and administrative overhead costs , and a team of experienced independent manufacturers ' representatives with strong customer relationships across the united states . these factors , and others , have allowed encore wire to grow from a startup in 1989 to what management believes is one of the largest electric building wire companies in the united states of america . encore has built a loyal following of customers throughout the united states . these customers have developed a brand preference for encore wire in a commodity product line due to the reasons noted above , among others . the company prides itself on striving to grow sales by expanding its product offerings where profit margins are acceptable . senior management monitors gross margins daily , frequently extending down to the individual order level . management strongly believes that this “ hands-on ” focused approach to the building wire business has been an important factor in the company 's success , and will lead to continued success . the construction and remodeling industries drive demand for building wire . in 2015 , unit sales were down 1.5 % in copper wire versus 2014. it should be noted , however , that 2015 had a slow start , due in part to rough winter and spring weather . unit sales volumes were down 9.4 % for copper through the first five months of 2015 versus the first five months of 2014. however , unit sales volumes were up 4.4 % for copper in the last seven months of 2015 versus the same period in 2014. in 2016 , unit sales were up 2.4 % in copper wire versus 2015. in 2017 , unit sales increased 5.6 % in copper wire versus 2016. general the company 's operating results are driven by several key factors , including the volume of product produced and shipped , the cost of copper and other raw materials , the competitive pricing environment in the wire industry and the resulting influence on gross margins and the efficiency with which the company 's plants operate during the period , among others . price competition for electrical wire and cable is intense , and the company sells its products in accordance with prevailing market prices . copper , a commodity product , is the principal raw material used by the company in manufacturing its products . copper accounted for approximately 69.7 % , 65.2 % and 72.1 % of the company 's cost of goods sold during 2017 , 2016 and 2015 , respectively . the price of copper fluctuates , depending on general economic conditions and in relation to supply and demand and other factors , which causes monthly variations in the cost of copper purchased by the company . additionally , the sec allows shares of physically backed copper exchange traded funds ( “ etfs ” ) to be listed and publicly traded . such funds and other copper etfs like it hold copper cathode as collateral against their shares . the acquisition of copper cathode by copper etfs may materially decrease or interrupt the availability of copper for immediate delivery in the united states , which could materially increase the company 's cost of copper . in addition to rising copper prices and potential supply shortages , we believe that etfs and similar copper-backed derivative products could lead to increased price volatility for copper . the company can not predict copper prices in the future or the effect of fluctuations in the cost of copper on the company 's future operating results . wire prices can , and frequently do change on a daily basis . this competitive pricing market for wire does not always mirror changes in copper prices , making margins highly volatile . historically , the cost of aluminum has been much lower and less volatile than copper . with the volatility of both raw material prices and wire prices in the company 's end market , hedging raw materials can be risky . historically , the company has 11 not engaged in hedging strategies for raw material purchases . the tables below highlight the range of closing prices of copper on the comex exchange for the periods shown . comex copper closing price 2017 replace_table_token_4_th comex copper closing price 2016 replace_table_token_5_th comex copper closing price 2015 replace_table_token_6_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in 2016 and $ 880.9 million in 2015 . the copper costs included in cost of goods sold were $ 702.6 million in 2017 compared to $ 535.4 million in 2016 and $ 635.2 million in 2015 . copper costs as a percentage of net sales were 60.3 % in 2017 compared to 56.9 % in 2016 and 62.4 % in 2015 . the increase from 2016 to 2017 of copper costs as a percentage of net sales was due to copper costs increasing significantly . as noted above , copper costs are the largest component of costs and therefore the most significant driver of sales prices of copper wire . accordingly , the increase in copper prices in 2017 caused most of the other costs to decrease in terms of their percentage of net sales dollars . story_separator_special_tag however , we have reasonably estimated the effects of the 2017 tax act and recorded provisional amounts in our financial statements as of december 31 , 2017 , including a provisional tax benefit for the impact of the 2017 tax act of approximately $ 13.5 million . this amount is primarily comprised of the remeasurement of federal net deferred tax liabilities resulting from the permanent reduction in the u.s. statutory corporate tax rate to 21 % from 35 % . additional information that may affect our provisional amounts would include further clarification and guidance on how the irs will implement tax reform , further clarification and guidance on how state taxing authorities will implement tax reform , including 14 the related effect on our state income tax returns , completion of our 2017 tax return filings and the potential for additional guidance from the sec or the fasb related to tax reform . we may make adjustments to the provisional amounts as a result of this additional information and those adjustments may materially impact our provision for income taxes in the period in which the adjustments are made . our effective tax rate was 16.1 % in 2017 , 33.4 % in 2016 and 34.2 % in 2015. the differences between the provisions for income taxes and the income taxes computed using the federal income tax statutory rate are primarily due to changes in tax laws and the effects of permanent differences between transactions reported for financial reporting and tax purposes , primarily the domestic production activity deduction . the provisional favorable impact of the 2017 tax act reduced the 2017 effective tax rate by 16.9 % . the domestic production activity deduction reduced the effective tax rate by approximately 3.1 % in 2017 , 3.4 % in 2016 and 1.2 % in 2015. the 2017 tax act eliminated the qualified domestic production activities deduction beginning in 2018. as a result of the foregoing factors , the company 's net income was $ 67.0 million in 2017 , $ 33.8 million in 2016 and $ 47.6 million in 2015 . off-balance sheet arrangements the company does not currently 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 , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to investors . liquidity and capital resources the following table summarizes the company 's cash flow activities ( in thousands ) : replace_table_token_9_th the company maintains a substantial inventory of finished products to satisfy customers ' prompt delivery requirements . as is customary in the industry , the company provides payment terms to most of its customers that exceed terms that it receives from its suppliers . in general , the company 's standard payment terms result in the collection of a significant majority of net sales within approximately 75 days of the date of the invoice . therefore , the company 's liquidity needs have generally consisted of working capital necessary to finance receivables and inventory . capital expenditures have historically been necessary to expand and update the production capacity of the company 's manufacturing operations . the company has historically satisfied its liquidity and capital expenditure needs with cash generated from operations , borrowings under its various debt arrangements and sales of its common stock . at december 31 , 2017 and 2016 , the company had no debt outstanding . the company is party to a credit agreement ( as amended , the “ credit agreement ” ) with two banks , bank of america , n.a. , as administrative agent and letter of credit issuer , and wells fargo bank , national association as syndication agent . the credit agreement extends through october 1 , 2021 , and provides for maximum borrowings of $ 150.0 million . in the third quarter of 2016 , the company signed a third amendment to the credit agreement , which , along with other minor changes , eliminated the restriction of maximum borrowings based on the amount of eligible accounts receivable plus the amount of eligible finished goods and raw materials , less any reserves established by the banks . additionally , at our request and subject to certain conditions , the commitments under the credit agreement may be increased by a maximum of up to $ 100.0 million as long as existing or new lenders agree to provide such additional commitments . borrowings under the line of credit bear interest , at the company 's option , at either ( 1 ) libor plus a margin that varies from 0.875 % to 1.75 % depending upon the leverage ratio ( as defined in the credit agreement ) , or ( 2 ) the base rate ( which is the highest of the federal funds rate plus 0.5 % , the prime rate , or libor plus 1.0 % ) plus 0 % to 0.25 % ( depending upon the leverage ratio ) . a commitment fee ranging from 0.15 % to 0.30 % ( depending upon the leverage ratio ) is payable on the unused line of credit . at december 31 , 2017 , there were no borrowings outstanding under the credit agreement , and letters of credit outstanding in the amount of $ 1.3 million left $ 148.7 million of credit available under the credit agreement . obligations under the credit agreement are the only contractual borrowing obligations or commercial borrowing 15 commitments of the company . obligations under the credit agreement are unsecured and contain customary covenants and events of default . the company was in compliance with the covenants as of december 31 , 2017 .
| results of operations the following table presents certain items of income and expense as a percentage of net sales for the periods indicated . replace_table_token_7_th 12 the following discussion and analysis relates to factors that have affected the operating results of the company for the years ended december 31 , 2017 , 2016 and 2015 . reference should also be made to the consolidated financial statements and the related notes included under “ item 8. financial statements and supplementary data ” of this annual report . net sales were $ 1.164 billion in 2017 compared to $ 940.8 million in 2016 and $ 1.018 billion in 2015 . the 23.8 % increase in net sales dollars in 2017 versus 2016 is primarily the result of a 26.6 % increase in copper wire sales . sales dollars were driven higher primarily by a 19.8 % increase in average selling price of copper wire , coupled with a 5.6 % increase in copper wire pounds shipped . average selling prices for wire sold were primarily driven higher by rising copper commodity prices . in the fourth quarter of 2017 , net sales dollars increased 25.9 % versus the fourth quarter of 2016 . the increase in net sales was due to a 29.9 % increase in copper net sales , driven by an increase in unit sales volume of copper of 5.8 % , and an average selling price increase of 22.8 % in copper wire in the fourth quarter of 2017 versus the fourth quarter of 2016 . on a sequential quarter comparison , net sales dollars in the fourth quarter of 2017 increased 3.2 % versus the third quarter of 2017 , due primarily to a 5.7 % increase in average copper wire selling prices , offset somewhat by a 1.7 % decrease in copper wire unit sales .
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the $ 428,000 is the net of the tap fees received by the company of $ 567,490 , decreased by ( i ) royalties to the land board of $ 34,522 ; and ( ii ) 65 % of the total payments made to external caa holders or $ 104,136 . in each of the three fiscal years ended august 31 , 2009 , 2008 and 2007 , the company recognized approximately $ 14,300 of tap fee revenue . at august 31 , 2009 , approximately $ 384,800 of these tap fees are still deferred . the total construction funding of $ 1.25 million is deferred and will be recognized as revenue over the expected service period , which is also story_separator_special_tag overview the discussion and analysis below includes certain forward-looking statements that are subject to risks , uncertainties and other factors , as described in risk factors and elsewhere in this annual report on form 10-k , that could cause our actual growth , results of operations , performance , financial position and business prospects and opportunities for this fiscal year and the periods that follow to differ materially from those expressed in , or implied by , those forward-looking statements . readers are cautioned that forward-looking statements contained in this form 10-k should be read in conjunction with our disclosure under the heading : safe harbor statement under the united states private securities litigation reform act of 1995 on page 4 . - 20 - the following management 's discussion and analysis ( md & a ) is intended to help the reader understand the results of operations and our financial condition and should be read in conjunction with the accompanying financial statements and the notes thereto included in part ii , item 8 of this annual report on form 10-k. the following sections focus on the key indicators reviewed by management in evaluating our financial condition and operating performance , including the following : revenue generated from providing water and wastewater services ; expenses associated with developing our water assets ; and cash available to continue development of our water rights and service agreements . our md & a section includes the following items : our business a general description of our business , our services and our business strategy . critical accounting policies and estimates a discussion of our critical accounting policies that require critical judgments , assumptions and estimates . results of operations an analysis of our results of operations for the three fiscal years presented in our financial statements . we present our discussion in the md & a in conjunction with the accompanying financial statements . liquidity , capital resources and financial position an analysis of our cash position and cash flows , as well as a discussion of our financing arrangements . our business we are a water and wastewater service provider that contracts with land owners , land developers , home builders , cities , and municipalities to design , construct , operate and maintain water and wastewater systems using our balanced water portfolio consisting of surface water and groundwater supplies , surface water storage , aquifer storage , and reclaimed water supplies . we generate cash flows and revenues by ( i ) selling taps ( connections ) to our water and wastewater systems and or ( ii ) monthly service fees and consumption charges from metered deliveries . critical accounting policies and use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the financial statements . the most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the timing of revenue recognition , the impairment analysis of our water rights , management 's valuation of the tap participation fee , and share-based compensation . below is a summary of these critical accounting policies . revenue recognition our revenues consist mainly of tap fees and monthly service fees . as further described in note 2 to the accompanying financial statements , proceeds from tap sales are deferred upon receipt and recognized in income based on whether we own or do not own the facilities constructed with the proceeds . we recognize tap fees derived from agreements for which we construct infrastructure others own as revenue , along with the associated costs of construction , pursuant to the percentage-of-completion method . the percentage-of-completion method requires management to estimate the percent of work that is completed on a particular project , which could change materially throughout the duration of the construction period and result in significant fluctuations in revenue recognized during the reporting periods throughout the construction process . we did not recognize any revenues pursuant to the percentage-of-completion method during the fiscal years ended august 31 , 2010 , 2009 or 2008 . - 21 - tap fees derived from agreements for which we own the infrastructure are recognized as revenue ratably over the estimated service life of the assets constructed with said fees . although the cash will be received up-front and most construction will be completed within one year of receipt of the proceeds , revenue recognition may occur over 30 years or more . management is required to estimate the service life , and currently the service life is based on the estimated useful accounting life of the assets constructed with the tap fees . the useful accounting life of the asset is based on management 's estimation of an accounting based useful life and may not have any correlation to the actual life of the asset or the actual service life of the tap . story_separator_special_tag for our paradise water supply , we determined the undiscounted cash flows by estimating the proceeds we could derive from the leasing of the water rights to commercial , industrial , and agricultural users along the western slope of colorado , and based on the impairment analysis we completed at august 31 , 2010 , we believe the paradise water supply is not impaired and the costs are deemed recoverable . tap participation fee in 2006 we acquired approximately 17,500 acres of irrigated land together with approximately 60,000 acre-feet of arkansas river water rights from hp a & m . along with common stock issued to hp a & m , we agreed to pay hp a & m 10 % ( this may increase to 20 % under circumstances described in note 7 to the accompanying financial statements ) of tap fees we receive from the next 40,000 water taps we sell from and after the date of the arkansas river agreement , of which 38,937 water taps remain to be paid as of august 31 , 2010. the tap participation fee is payable when we sell water taps and receive funds from such water tap sales or other dispositions of property purchased in the hp a & m acquisition . the tap participation fee liability is valued by estimating new home development in our service area over an estimated development period . this was done by utilizing third party historical and projected housing and population growth data for the denver metropolitan area applied to an estimated development pattern supported by historical development patterns of certain master planned communities in the denver metropolitan area . this development pattern was then applied to projected future water tap fees determined by using historical water tap fee trends . based on updated new home activity in the denver metropolitan area , we updated the estimated discounted cash flow analysis as of february 28 , 2009. we completed an update to our analysis of the fair value of the tap participation fee as of august 31 , 2010. we determined that changes in the projected estimated discounted cash flows did not materially impact our february 28 , 2009 fair value analysis . actual new home development in our service area and actual future tap fees inevitably will vary significantly from our estimates which could have a material impact on our financial statements as well as our results of operations . an important component in our estimate of the value of the tap participation fee , which is based on historical trends , is that we reasonably expect water tap fees to continue to increase in the coming years . tap fees are a market based pricing metric which in part demonstrates the increasing costs to acquire and develop new water supplies . it is thus a market metric which in part demonstrates the increasing value of our water assets . we continue to assess the value of the tap participation fee liability and update its valuation analysis whenever events or circumstances indicate the assumptions used to estimate the value of the liability have changed materially . the difference between the net present value and the estimated realizable value will be imputed as interest expense using the effective interest method over the estimated development period utilized in the valuation of the tap participation fee . obligations payable by hp a & m 60 of the 80 properties we acquired pursuant to the arkansas river agreement are subject to outstanding promissory notes with principal and accrued interest totaling approximately $ 11.0 million at august 31 , 2010. these notes are secured by deeds of trust on the properties . we did not assume any of these promissory notes and are not responsible for making any of the required payments under these notes . this responsibility remains solely with hp a & m . however , in the event of default by hp a & m , we may make payments on any or all of the notes and cure any or all defaults . if we do not cure the defaults , we will lose the properties securing the defaulted notes and the water rights associated with said properties . if hp a & m defaults on any of the promissory notes , we can foreclose on a defined amount of pure cycle stock issued to hp a & m being held in escrow and reduce the tap participation fee by two times the amount of notes defaulted on by hp a & m . although the likelihood of hp a & m defaulting on the notes is deemed remote , which is the primary reason these notes are not reflected on our balance sheet , we continue to monitor the status of the notes for any indications of default . we are not aware of any defaults by hp a & m as of august 31 , 2010 . - 23 - share-based compensation we estimate the fair value of share-based payment awards made to key employees and directors on the date of grant using the black-scholes option-pricing model . we then expense the fair value over the vesting period of the grant using a straight-line expense model . the fair value of share-based payments requires management to estimate/calculate various inputs such as the volatility of the underlying stock , the expected dividend rate , the estimated forfeiture rate and an estimated life of each option . these assumptions are based on historical trends and estimated future actions of option holders and may not be indicative of actual events which may have a material impact on our financial statements . see note 8 to the accompanying financial statements for further details on share-based compensation expense . results of operations story_separator_special_tag was cash and cash equivalents and marketable securities . subsequent to our fiscal year end , we completed the sale of approximately $ 5.5 million of common stock and we issued the convertible note in the principal amount of $ 5.2 million , raising a combined total of approximately $ 10.7 million .
| executive summary the results of our operations for the fiscal years ended august 31 , 2010 , 2009 and 2008 were as follows : table f summary results of operations replace_table_token_6_th water and wastewater usage revenues our water service charges are based on a tiered pricing structure that provides for higher prices as customers use greater amounts of water . our rates and charges are established based on the average of three surrounding water providers . table b in item 1 business , outlines our tiered pricing structure and changes during the fiscal years ended august 31 , 2010 , 2009 and 2008 , respectively . our wastewater customers are charged flat monthly fees based on their number of tap connections . fiscal 2010 compared to fiscal 2009 water deliveries dropped approximately 2 % in fiscal 2010 because our largest customer closed certain student housing facilities which in turn reduced its water usage . despite the drop in water usage , water revenues increased 2 % during fiscal 2010 primarily as a result of increased usage fees . water delivery gross margin increased 3 % in fiscal 2010. this was due to our efforts to manage costs . in addition , due to reductions in water usage , we were able to positively manage the energy usage at our facilities . finally , we increased water usage fees effective july , 2010. wastewater fees increased approximately 1 % in fiscal 2010 , which is a result of increased monthly fees effectively july 1 , 2010. wastewater gross margin decreased approximately 1 % in fiscal 2010 , which is not a material change . - 24 - fiscal 2009 compared to fiscal 2008 water deliveries dropped approximately 21 % in fiscal 2009 due mainly to higher precipitation in fiscal 2009 , particularly in the late spring and early summer months , the main irrigation months .
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this “ management 's discussion and analysis of financial condition and results of operations ” section contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. for a discussion of indicators of forward-looking statements and specific important factors that could cause actual results to differ materially from those contained in forward-looking statements , see “ risk factors ” under part i — item 1a of this annual report . this “ management 's discussion and analysis of financial condition and results of operations ” section should be read and interpreted in light of such factors . our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors , including those discussed below and elsewhere in this annual report . you may have difficulty evaluating our business , because we completed a partial spin off of rxi on april 26 , 2012. since the partial spin-off , our financial statements have no longer reflected the consolidated financial condition and results of operations of rxi , and we have accounted for our partial ownership of rxi based on the cost method of accounting . for these reasons , the historical consolidated financial information included in this annual report do not necessarily reflect the financial condition , results of operations or cash flows that we will achieve in the future . 45 overview galena biopharma , inc. ( “ we , ” “ us , ” “ our , ” “ galena ” or the “ company ” ) is a biopharmaceutical company focused on developing and commercializing innovative , targeted oncology treatments that address major unmet medical needs to advance cancer care . our strategy is to build value for patients and shareholders by : achieving revenue goals for abstral® ( fentanyl ) sublingual tablets , to which we acquired for the u.s. rights in march 2013 and launched in the fourth quarter of 2013 ; completing the pivotal phase 3 randomized , multicenter present ( prevention of recurrence in early-stage , node-positive breast cancer with low-to-intermediate her2 expression with neuvax treatment ) study of our lead product candidate , neuvax ( nelipepimut-s ) in 700 patients under a u.s. food and drug administration ( fda ) -approved special protocol assessment ( spa ) ; completing the phase 2b randomized , multicenter clinical trial in 300 patients to study neuvax in combination with herceptin® ( trastuzumab ; genentech/roche ) ; completing the phase 2 clinical trials of gale-301 ( folate binding protein ( fbp ) ) cancer immunotherapy trials in both ovarian and endometrial cancers ; initiating a phase 2 clinical trial with gale-401 ( anagrelide controlled release ( cr ) ) , which we acquired in january 2014 , in essential thrombocythemia ( et ) ; and pursuing strategic alliances and acquisitions of other cancer treatments to complement our existing product pipeline and commercialization capabilities . galena is developing peptide vaccine ( off-the-shelf ) cancer immunotherapies , which address patient populations of cancer survivors to prevent disease recurrence by harnessing the patient 's own immune system to seek out and attack any residual cancer . in this case , 25 % of resectable node-positive breast cancer patients , despite having no evidence of disease following surgery and chemo/radiation therapy , will still relapse within three years . increased presence of circulating tumor cells ( ctcs ) predict disease free survival ( dfs ) and overall survival ( os ) - suggesting a dormancy of isolated micrometastases , which over time , leads to recurrence . our lead product , neuvaxtm ( nelipepimut-s ) elicits a robust , specific and durable killer cd8+ cytotoxic t lymphocyte ( ctls ) response to lyse her2 expressing tumor cells . neuvax ( nelipepimut-s ) is the immunodominant nonapeptide derived from the extracellular domain of the her2 protein , a well-established target for therapeutic intervention in breast carcinoma . the nelipepimut sequence stimulates specific ctls following binding to hla-a2/a3 molecules on antigen presenting cells ( apc ) . these activated specific ctls recognize , neutralize and destroy , through cell lysis , her2 expressing cancer cells , including occult cancer cells and micrometastatic foci . the nelipepimut immune response can also generate ctls to other immunogenic peptides through inter- and intra-antigenic epitope spreading . based on a successful phase 2 trial , which achieved its primary endpoint of dfs , the food and drug administration ( fda ) granted neuvax a special protocol assessment ( spa ) for its phase 3 present ( prevention of recurrence in early-stage , node-positive breast cancer with low-to-intermediate her2 expression with neuvax treatment ) study . the present trial is ongoing and additional information on the study can be found at www.neuvax.com . a randomized , multicenter , investigator-sponsored , 300 patient phase 2b clinical trial is also enrolling patients to study neuvax in combination with herceptin® ( trastuzumab ; genentech/roche ) . our second product candidate , gale-301 ( folate binding protein , or “ fbp ” ) , is derived from a protein that is over-expressed ( 20-80 fold ) in more than 90 % of ovarian and endometrial cancers . fbp is a highly immunogenic peptide that can stimulate ctls to recognize and destroy preclinical fbp-expressing cancer cells . the fbp vaccine consists of the fbp peptide ( s ) combined with the immune adjuvant , recombinant human granulocyte macrophage-colony stimulating factor ( rhgm-csf ) . galena 's fbp vaccine is currently in a phase 1/2 trial in two gynecological cancers : ovarian and endometrial adenocarcinomas . 46 our third product candidate , gale-401 ( anagrelide controlled release ( cr ) ) was acquired on january 13 , 2014. gale-401 contains the active ingredient anagrelide , an fda-approved product , which has been in use since the late 1990s for the treatment of essential thrombocythemia ( et ) . gale-401 is a reformulated , controlled release version of anagrelide that is currently only given as an immediate release ( ir ) version . story_separator_special_tag at the end of each financial reporting period prior to vesting , the value of these options , as calculated using the black-scholes option-pricing model , will be re-measured using the fair value of our common stock and the non-cash compensation recognized during the period will be adjusted accordingly . since the fair market value of options granted to non-employees is subject to change in the future , the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested . the fair value of each option grant is estimated using the black-scholes option-pricing model , with the following weighted average assumptions to determine the fair value of all its stock options granted : replace_table_token_3_th the company 's expected common stock price volatility assumption is based upon the volatility of a basket of companies that we consider comparable to us . the expected life assumptions for employee grants were based upon the simplified method provided for under asc 718-10 , which averages the contractual term of the options of ten years with the average vesting term of four years for an average of six years . the expected life assumptions for non-employees were based upon the contractual terms of the options . the dividend yield assumption of zero is based upon the fact that the company has never paid cash dividends and presently has no intention of paying cash dividends in the future . the risk-free interest rate used for each grant was also based upon prevailing short-term interest rates . the company has an estimated annualized forfeiture rate of 15.0 % for options granted to employees , and 8.0 % for options granted to senior management and no forfeiture rate for directors . the company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated . derivative financial instruments during the normal course of business , from time to time , we issue warrants and options to vendors as consideration to perform services . we may also issue warrants as part of a debt or equity financing . we do not enter into any derivative contracts for speculative purposes . 48 we recognize all derivatives as assets or liabilities measured at fair value with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge accounting and are accounted for as such . during the years ended december 31 , 2013 and 2012 , we issued warrants to purchase approximately 7,000,000 and 7,500,000 shares of common stock , respectively , in connection with equity transactions . in accordance with asc topic 815-40 , “ derivatives and hedging — contracts in entity 's own stock ” ( “ asc 815-40 ” ) , the value of these warrants is required to be recorded as a liability , as the holders have an option to put the warrants back to us in certain events , as defined , and the warrants are determined not to be indexed to the company 's own stock . the derivative liabilities are remeasured each period end to the estimated fair value . the fair value of our derivative liabilities is estimated using the black-scholes option-pricing model , with the following assumptions at december 31 : replace_table_token_4_th the company 's expected common stock price volatility assumption is based upon the volatility of a basket of companies that we consider comparable to us . the expected life assumptions for the warrants is estimated to coincide with the contractual terms of the warrants . business combinations and asset purchases we allocate the purchase price of our acquisitions to the assets and liabilities acquired , including identifiable intangible assets , based on their respective fair values at the date of acquisition . some of the items , including property and equipment , other intangible assets , certain accrued liabilities and other reserves require a degree of management judgment . certain estimates may change as additional information becomes available . management finalizes the purchase price allocation within 12 months of the acquisition date as certain initial accounting estimates are resolved . goodwill , other intangible assets and impairment of long-lived assets goodwill and intangible assets — goodwill and indefinite-lived intangible assets are not amortized but are tested annually for impairment at the reporting unit level , or more frequently if events and circumstances indicate impairment may have occurred . factors the company considers important that could trigger an interim review for impairment include , but are not limited to , the following : significant changes in the manner of its use of acquired assets or the strategy for its overall business ; significant negative industry or economic trends ; significant decline in stock price for a sustained period ; and significant decline in market capitalization relative to net book value . goodwill and other intangible assets with indefinite lives are evaluated for impairment first by a qualitative assessment to determine the likelihood of impairment . if it is determined that impairment is more likely than not , the company will then proceed to the two step impairment test . the first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit ( the “ first step ” ) . if the carrying amount exceeds the fair value , a second step must be followed to calculate impairment ( the “ second step ” ) . otherwise , if the fair value of the reporting unit exceeds the carrying amount , the goodwill is not considered to be impaired as of the measurement date . in its review of the carrying value of the goodwill for its single reporting unit and its indefinite-lived intangible assets , the company determines fair values of its goodwill using the market approach , and its indefinite-lived intangible assets using the income approach .
| results of operations for the years ended december 31 , 2013 , 2012 and 2011 for the year ended december 31 , 2013 our loss from operations was $ 33.8 million compared with a loss from operations of $ 21.2 million and $ 12.5 million for the years ended december 31 , 2012 and 2011 , respectively . for the year ended december 31 , 2013 , our net loss was $ 76.7 million compared with a net loss of $ 35.0 million and $ 11.5 million for the years ended december 31 , 2012 and 2011 , respectively . abstral is our first commercial product and revenue was recorded for the first time during the year ended december 31 , 2013 . we expect to continue to incur significant costs and expenses in connection with our commercialization of abstral in the u.s. before realizing a profit from the sale and distribution of abstral . for these reasons , we expect our future results of operation to differ materially from our historical results . further analysis of the changes and trends in our operating results are discussed below . net revenue the company recognize revenue from the sale of abstral to wholesale pharmaceutical distributors and retail pharmacies , net of product-related discounts , allowances , product returns , rebates , chargebacks , and patient assistance benefits , as applicable . net revenue for the years ended december 31 , 2013 and 2012 were as follows ( in thousands ) : twelve months ended december 31 , 2013 2012 $ change net revenue $ 2,487 $ — $ 2,487 50 there was no revenue or net revenue in prior years given the launch of abstral , our first and only commercial product , during 2013. we expect to net revenue to increase throughout 2014 based on anticipated increases in number of abstral prescriptions fulfilled , combined with the execution of programs which are expected to significantly reduce our gross-to-net revenue adjustments .
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and reported within the time periods specified in the sec 's rules and forms . disclosure controls and procedures include , without limitation , controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the exchange act is accumulated and communicated to the issuer 's management , including its principal executive and principal financial officers , or persons performing similar functions , as appropriate to allow timely decisions regarding required disclosure . based upon that evaluation , our chief executive officer and chief financial officer have concluded that , as of june 30 , 2019 , the end of the period covered by this report , our disclosure controls and procedures were effective at a reasonable assurance level . management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting . internal control over financial reporting is defined in rule 13a-15 ( f ) or 15d-15 ( f ) promulgated under the exchange act as a process designed by , or under the supervision of , the company 's principal executive and principal financial officers and effected by the company 's board of directors , management and other personnel , to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the united states of america and includes those policies and procedures that : ( i ) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company ; ( ii ) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the united states of america and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company ; and ( iii ) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition , use or story_separator_special_tag cautionary notice regarding forward-looking statements the following discussion and analysis of our financial condition and results of operations for the years ended june 30 , 2019 and 2018 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report . our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties , such as our plans , objectives , expectations and intentions . actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors , including those set forth under “ risk factors ” and elsewhere in this report . we use words such as “ anticipate , ” “ estimate , ” “ plan , ” “ project , ” “ continuing , ” “ ongoing , ” “ expect , ” “ believe , ” “ intend , ” “ may , ” “ will , ” “ should , ” “ could , ” and similar expressions to identify forward-looking statements . all forward-looking statements included in this report are based on information available to us on the date hereof and , except as required by law , we assume no obligation to update any such forward-looking statements . overview research solutions was incorporated in the state of nevada on november 2 , 2006 , and is a publicly traded holding company with two wholly owned subsidiaries at june 30 , 2019 : reprints desk , inc. , a delaware corporation and reprints desk latin america s. de r.l . de c.v , an entity organized under the laws of mexico . we provide two service offerings to our customers : annual licenses that allow customers to access and utilize certain premium features of our cloud based software-as-a-service ( “ saas ” ) research intelligence platform ( “ platforms ” ) and the transactional sale of published scientific , technical , and medical ( “ stm ” ) content managed , sourced and delivered through the platform ( “ transactions ” ) . platforms and transactions are packaged as a single solution that enable life science and other research intensive organizations to speed up research and development activities with faster , single sourced access and management of content and data used throughout the intellectual property development lifecycle . platforms our cloud-based saas research intelligence platform consists of proprietary software and internet-based interfaces sold to customers for an annual subscription fee . legacy functionality allows customers to initiate orders , route orders for the lowest cost acquisition , manage transactions , obtain spend and usage reporting , automate authentication , and connect seamlessly to in-house and third-party software systems . customers can also enhance the information resources they already own or license and collaborate around bibliographic information . additional functionality has recently been added to our platform in the form of interactive app-like gadgets . an alternative to manual data filtering , identification and extraction , gadgets are designed to gather , augment , and extract data across a variety of formats , including bibliographic citations , tables of contents , rss feeds , pdf files , xml feeds , and web content . we are rapidly developing new gadgets in order to build an ecosystem of gadgets . together , these gadgets will provide researchers with an “ all in one ” toolkit , delivering efficiencies in core research workflows and knowledge creation processes . our platform is deployed as a single , multi-tenant system across our entire customer base . customers securely access the platform through online web interfaces and via web service apis that enable customers to leverage platform features and functionality from within in-house and third-party software systems . story_separator_special_tag we account for share-based payments to non-employees in accordance with topic 505 of the fasb accounting standards codification , whereby the value of the stock compensation is based upon the measurement date as determined at either a ) the date at which a performance commitment is reached , or b ) the date at which the necessary performance to earn the equity instruments is complete . stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures . forfeitures are estimated at the time of grant and revised , as necessary , in subsequent periods if actual forfeitures differ from those estimates . allowance for doubtful accounts we evaluate the collectability of our trade accounts receivable based on a number of factors . in circumstances where we become aware of a specific customer 's inability to meet its financial obligations to us , we estimate and record a specific reserve for bad debts , which reduces the recognized receivable to the estimated amount we believe will ultimately be collected . in addition to specific customer identification of potential bad debts , bad debt charges are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding . we established an allowance for doubtful accounts of $ 100,175 and $ 115,040 as of june 30 , 2019 and 2018 , respectively . 16 foreign currency the accompanying consolidated financial statements are presented in united states dollars , the functional currency of our company . capital accounts of foreign subsidiaries are translated into us dollars from foreign currencies at their historical exchange rates when the capital transactions occurred . assets and liabilities are translated at the exchange rate as of the balance sheet date . income and expenditures are translated at the average exchange rate of the period . although the majority of our revenue and costs are in us dollars , the costs of reprints desk latin america are in mexican pesos . as a result , currency exchange fluctuations may impact our revenue and the costs of our operations . we currently do not engage in any currency hedging activities . the following table summarizes the exchange rates used : replace_table_token_3_th quarterly information ( unaudited ) the following table sets forth unaudited and quarterly financial data for the four quarters of fiscal years 2019 and 2018 : replace_table_token_4_th 17 comparison of the years ended june 30 , 2019 and 2018 story_separator_special_tag 0.5in '' > net cash used in investing activities was $ 15,828 for the year ended june 30 , 2019 and resulted from the purchase of property and equipment . net cash used in investing activities was $ 86,736 for the year ended june 30 , 2018 and resulted from the purchase of intangible assets and property and equipment . financing activities net cash used in financing activities was $ 100,023 for the year ended june 30 , 2019 and resulted from the repurchase of common stock partially offset by proceeds from the exercise of stock options . net cash used in financing activities was $ 152,739 for the year ended june 30 , 2018 and resulted from the repurchase of common stock . we entered into a loan and security agreement with silicon valley bank ( “ svb ” ) on july 23 , 2010 , which , as amended , provides for a revolving line of credit for the lesser of $ 2,500,000 , or 80 % of eligible accounts receivable . the line of credit matures on december 31 , 2019 , and is subject to certain financial and performance covenants with which we were in compliance as of june 30 , 2019. financial covenants include maintaining an adjusted quick ratio of unrestricted cash and net accounts receivable , divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0 , and maintaining tangible net worth of $ 1,500,000 , plus 50 % of net income for the fiscal quarter ended from and after december 31 , 2017 , plus 50 % of the dollar value of equity issuances after october 1 , 2017 and the principal amount of subordinated debt . the line of credit bears interest at the prime rate plus 2.25 % for periods in which we maintain an adjusted quick ratio of 1.3 to 1.0 ( the “ streamline period ” ) , and at the prime rate plus 5.25 % when a streamline period is not in effect . the interest rate on the line of credit was 6.75 % as of june 30 , 2019. the line of credit was secured by our consolidated assets . there were no outstanding borrowings under the line as of june 30 , 2019 and june 30 , 2018 , respectively . as of june 30 , 2019 , there was approximately $ 2,215,000 of available credit . non-gaap measure – adjusted ebitda in addition to our gaap results , we present adjusted ebitda as a supplemental measure of our performance . however , adjusted ebitda is not a recognized measurement under gaap and should not be considered as an alternative to net income , income from operations or any other performance measure derived in accordance with gaap or as an alternative to cash flow from operating activities as a measure of liquidity . we define adjusted ebitda as net income ( loss ) , plus interest expense , other income ( expense ) , foreign currency transaction loss , provision for income taxes , depreciation and amortization , stock-based compensation , income from discontinued operations and gain on sale of discontinued operations . management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations that period . non-gaap adjustments to our results prepared in accordance with gaap are itemized below . you are encouraged to evaluate
| results of operations replace_table_token_5_th 18 revenue replace_table_token_6_th total revenue increased $ 775,481 , or 2.8 % , for the year ended june 30 , 2019 compared to the prior year , due to the following : category impact key drivers platforms ↑ $ 990,052 increased due to additional deployments to new and existing customers , and expansion from existing customers . revenue is recognized ratably over the term of the subscription agreement , which is typically one year , provided all other revenue recognition criteria have been met . billings or payments received in advance of revenue recognition are recorded as deferred revenue . transactions ↓ $ 214,571 decreased primarily due to a reduction in orders from existing customers , largely offset by orders from new customers . cost of revenue replace_table_token_7_th replace_table_token_8_th * the difference between current and prior period cost of revenue as a percentage of revenue total cost of revenue as a percentage of revenue decreased 2.8 % , from 73.8 % for the previous year to 71.0 % , for the year ended june 30 , 2019. category impact as percentage of revenue key drivers platforms ↓ 2.7 % decreased primarily due to proportionally lower third-party data costs . transactions ↓ 0.7 % decreased primarily due to proportionally lower personnel and copyright costs . gross profit replace_table_token_9_th 19 replace_table_token_10_th * the difference between current and prior period gross profit as a percentage of revenue operating expenses replace_table_token_11_th category impact key drivers sales and marketing ↓ $ 102,649 decreased primarily due to lower personnel costs . technology and product development ↑ $ 341,902 increased primarily due to greater personnel costs . general and administrative ↑ $ 103,835 increased primarily due to greater personnel costs .
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conversely , if the company retains earnings at the trs level , no distribution is required and story_separator_special_tag the following discussion should be read in conjunction with our financial statements and accompanying notes included in item 8 , `` financial statements and supplementary data '' of this annual report on form 10-k. overview we are organized as a delaware corporation . we intend to elect and qualify to be taxed as a reit , commencing with our taxable year ended december 31 , 2012. we generally will not be subject to u.s. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our intended qualification as a reit . we also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the 1940 act . we are externally managed and advised by our manager , an sec-registered investment advisor and a wholly-owned subsidiary of legg mason , inc. our manager is responsible for administering our business activities and our day-to-day operations , subject to the supervision of our board of directors . on may 9 , 2012 , we entered into : ( i ) a binding underwriting agreement with a group of underwriters to sell 8.0 million shares of our common stock for $ 20.00 per share in our initial public offering ( `` ipo '' ) for an aggregate offering price of $ 160.0 million ; ( ii ) unit purchase agreements , pursuant to a private placement , with certain institutional accredited investors to purchase 2,231,787 warrant units for $ 20.00 per unit for an aggregate offering price of approximately $ 44.6 million ; and ( iii ) a security purchase agreement to sell 46,043 shares of our common stock , for $ 20.00 per share to our manager 's deferred compensation plan in another private placement for an aggregate offering price of approximately $ 0.9 million . the net proceeds from our ipo and concurrent private placements were received on may 15 , 2012. the net proceeds to us were approximately $ 204.4 million , net of offering expenses of $ 1.2 million for which we agreed to be responsible . our manager agreed to be responsible for all offering expenses in excess of $ 1.2 million , including the underwriting discount and the placement agent fees in the two private placements ( in the aggregate , approximately $ 7.8 million ) . on october 3 , 2012 , we completed a follow-on public offering of 13.8 million shares of common stock , at a price of $ 22.20 per share . we received net proceeds of approximately $ 301.0 million , net of underwriting commissions and offering expenses of approximately $ 5.4 million . on october 3 , 2012 , as a result of the follow-on public offering the exercise price of each of the outstanding warrants was reduced from $ 20.50 to $ 19.44. we have invested the proceeds of our ipo , concurrent private placements and follow-on public offerings primarily in agency rmbs , including mortgage pass-through certificates , agency derivatives , agency interest-only strips , agency inverse interest-only strips , and agency cmos , as well as non-agency rmbs . we have also used `` to-be-announced '' forward contracts , or tbas , in order to invest in agency rmbs . pursuant to these tbas , we agree to purchase , for future delivery , agency rmbs with certain principal and interest terms . at december 31 , 2012 , our portfolio was comprised of approximately $ 5.2 billion of agency rmbs and approximately $ 19.1 million of non-agency rmbs . we use leverage , currently comprised of borrowings under repurchase agreements , as part of our business strategy in order to increase potential returns to stockholders . we accomplish this by borrowing against existing mortgage-backed securities through repurchase agreements . there are no limits on the maximum amount of leverage that we may use , and we are not required to maintain any particular debt-to-equity leverage ratio . we may also change our financing strategy and leverage without the consent of stockholders . 48 as of december 31 , 2012 , we had entered into master repurchase agreements with 14 counterparties and are in discussions with other financial institutions for additional repurchase agreement capacity . as of december 31 , 2012 , we had approximately $ 4.8 billion of borrowings outstanding under our repurchase agreements collateralized by approximately $ 5.0 billion of agency rmbs . we have entered into swaps to effectively fix ( for the life of the swap ) the floating interest rate of approximately $ 2.8 billion of borrowings under our repurchase agreements . in addition , as of year-end , we also owned swaptions on approximately an incremental $ 0.5 billion of borrowings . as of december 31 , 2012 , our aggregate debt-to-equity ratio was approximately 9.2 to 1. recent market conditions and strategy our business is affected by general u.s. residential real estate fundamentals and the overall u.s. economic environment . in particular , our strategy is influenced by the specific characteristics of these markets , including prepayment rates and interest rate levels . we expect the results of our operations to be affected by various factors , many of which are beyond our control . our results of operations will primarily depend on , among other things , the level of our net interest income , the market value of our investment portfolio and the supply of and demand for mortgage-related securities . our net interest income , which includes the amortization of purchase premiums and accretion of discounts , will vary primarily as a result of changes in interest rates , borrowing costs , and prepayment speeds on our rmbs investments , which is a measurement of how quickly borrowers pay down the unpaid principal balance on their residential mortgage loans . story_separator_special_tag this program dubbed `` operation twist '' was originally announced in september 2011. by extending the average maturity of securities held by the u.s. federal reserve board in its portfolio , the expectation is that such action will continue to create downward pressure on longer-term interest rates , which , in turn , will ease financial conditions in the u.s. and provide additional stimulus to support the economic recovery . on september 13 , 2012 , the u.s. federal reserve affirmed its intention to continue to reinvest principal payments received on its agency mortgage-backed bond portfolio in new agency mortgage-backed securities through the end of the year and that it will also purchase an incremental $ 40 billion of agency mortgage-backed securities each month . this most recent action by the u.s. federal reserve board is commonly referred to as `` qe3 '' . in its december 12 , 2012 statement , the u.s. federal reserve board provided additional guidance , stating that it would continue its accommodative monetary policy at least as long as the u.s. unemployment rate remains above 6.5 % and inflation does not exceed 2.5 % . critical accounting policies our financial statements are prepared in accordance with gaap , which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties . in accordance with sec guidance , the following discussion addresses the accounting policies that we will apply based on our expectation of our initial operations . our most critical accounting policies will involve decisions and assessments that could affect our reported assets and liabilities , as well as our reported revenues and expenses . we believe that all of the decisions and assessments upon which our financial statements have been based were reasonable at the time made and based upon information available to us at that time . we have identified what we believe will be our most critical accounting policies to be the following : investments we elected the fair value option for all of our rmbs at the date of purchase , which permits us to measure these securities at fair value with the change in fair value included as a component of earnings . a decline in the fair market value of our assets may require us to recognize an `` other-than-temporary '' impairment against such assets under gaap if we were to determine that , with respect to any assets in unrealized loss positions , we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of such assets . if such a determination is made , we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis , based on the fair value of such assets on the date they are considered to be other-than-temporarily impaired . such impairment charges reflect non-cash losses at the time of recognition ; subsequent disposition or sale of such assets can further affect our future losses or gains , as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale . 51 valuation of financial instruments we disclose the fair value of our financial instruments according to a fair value hierarchy ( levels i , ii , and iii , as defined below ) . in accordance with gaap , we are required to provide enhanced disclosures regarding instruments in the level iii category ( which require significant management judgment ) , including a separate reconciliation of the beginning and ending balances for each major category of assets and liabilities . gaap establishes a framework for measuring fair value in accordance with gaap and expands financial statement disclosure requirements for fair value measurements . gaap further specifies a hierarchy of valuation techniques , which is based on whether the inputs into the valuation technique are observable or unobservable . the hierarchy is as follows : level iquoted prices in active markets for identical assets or liabilities . level iiquoted prices for similar assets and liabilities in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations whose inputs are observable or whose significant value drivers are observable . level iiiprices are determined using significant unobservable inputs . in situations where quoted prices or observable inputs are unavailable ( for example , when there is little or no market activity for an investment at the end of the period ) , unobservable inputs may be used . the level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety . when available , we use quoted market prices to determine the fair value of an asset or liability . if quoted market prices are not available , we consult with independent pricing services or obtain third party broker quotes . if independent pricing service , or third party broker quotes are not available , we determine the fair value of the securities using valuation techniques that use , when possible , current market-based or independently-sourced market parameters , such as interest rates . valuation techniques for rmbs may be based upon models that consider the estimated cash flows of the security . the primary inputs to the model include yields for to-be-announced , also known as tbas , agency rmbs , the u.s. treasury market and floating rate indices such as libor , the constant maturity treasury rate and the prime rate as a benchmark yield . the model incorporates the current weighted average maturity and additional pool level information such as prepayment speeds , default frequencies and default severities , if applicable .
| results of operations the following discussion of our results of operations highlights our performance for the period from may 15 , 2012 ( commencement of operations ) through december 31 , 2012. investments the following table presents certain information about our rmbs investment portfolio at december 31 , 2012 ( dollars in thousands ) : replace_table_token_4_th ( 1 ) net weighted average coupon as of december 31 , 2012 is presented net of servicing and other fees . ( 2 ) agency ios and iios and agency ios and iios , accounted for as derivatives , have no principal balances and bear interest based on a notional balance . the notional balance is used solely to determine interest distributions on interest-only class of securities . ( 3 ) interest on these securities is reported as a component of loss on derivative instruments . as of december 31 , 2012 , our portfolio consisted primarily of fixed rate agency rmbs which our manager believes exhibit prepayment mitigation attributes , including agency rmbs collateralized by low loan balances , loans where the underlying borrower is unable to access the making home affordable program , including the home affordable refinance program or harp or loans which were not originated by third party originators or brokers . 58 investment activity rmbs , agency derivatives and other securities . for the period from may 15 , 2012 ( commencement of operations ) through december 31 , 2012 , we acquired approximately $ 7.7 billion of agency rmbs and agency derivatives , approximately $ 19.1 million of non-agency rmbs and approximately $ 100.7 million of other securities consisting of u.s treasury notes . during the same period , we received principal payments and basis recoveries of approximately $ 105.7 million for agency rmbs and agency derivatives and approximately $ 67 thousand for non-agency rmbs .
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replace_table_token_12_th subsequent to the 2018 study , former peer aceto corporation filed for bankruptcy protection and former peer impax laboratories inc. was combined into the newly-formed company amneal pharmaceuticals , inc. for purposes of a subsequent market pay analysis conducted by pearl meyer in april 2019 , the committee approved a revised peer group consisting of 12 companies , including 8 of the 2018 peers shown above story_separator_special_tag the following discussion and analysis describes significant changes in the financial condition and results of operations , as well as liquidity and capital resources of the company . additionally , it addresses accounting policies that management has deemed are critical accounting policies. this discussion and analysis is intended as a supplement to and should be read in conjunction with the consolidated financial statements , the notes to the consolidated financial statements and other sections of this form 10-k. the following discussion contains forward-looking statements . you should refer to the cautionary statement regarding forward-looking statements set forth in part i of this annual report . we report financial information on a quarterly and fiscal year basis with the most recent being the fiscal year ended june 30 , 2019. all references herein to a fiscal year or fiscal refer to the applicable fiscal year ended june 30. company overview lannett company , inc. ( a delaware corporation ) and its subsidiaries ( collectively , the company , lannett , we or us ) primarily develop , manufacture , package , market and distribute solid oral and extended release ( tablets and capsules ) , topical , liquids , nasal and oral solution finished dosage forms of drugs , generic forms of both small molecule and biologic medications , that address a wide range of therapeutic areas . certain of these products are manufactured by others and distributed by the company . additionally , the company is pursuing partnerships , research contracts and internal expansion for the development and production of other dosage forms including : ophthalmic , nasal , patch , foam , buccal , sublingual , suspensions , soft gel , injectable and oral dosages . the company operates pharmaceutical manufacturing plants in philadelphia , pennsylvania ; carmel , new york and seymour , indiana . the company 's customers include generic pharmaceutical distributors , drug wholesalers , chain drug stores , private label distributors , mail-order pharmacies , other pharmaceutical manufacturers , managed care organizations , hospital buying groups , governmental entities and health maintenance organizations . jsp distribution agreement on march 23 , 2004 , the company entered into an agreement with jsp ( the jsp distribution agreement ) for the exclusive distribution rights in the united states to four different jsp products . on august 19 , 2013 , the company entered into an agreement with jsp to extend the jsp distribution agreement to continue as the exclusive distributor in the united states of three jsp products : butalbital , aspirin , caffeine with codeine phosphate capsules usp ; digoxin tablets usp ; and levothyroxine sodium tablets usp . the amendment to the jsp distribution agreement extended the term of the initial contract , which was due to expire on march 22 , 2014 , for five years through march 23 , 2019. net sales of jsp products totaled $ 202.5 million in fiscal 2019 , $ 253.1 million in fiscal 2018 and $ 187.0 million in fiscal 2017. of that amount , levothyroxine sodium tablets usp net sales totaled $ 197.5 million , $ 245.9 million and $ 174.0 million , with gross margins of approximately 60 % , in fiscal 2019 and 2018 , and 65 % in fiscal 2017. in august 2018 , jsp notified the company that it would not extend or renew the jsp distribution agreement . the company determined that jsp 's decision represented a triggering event under u.s. gaap to perform an analysis to determine the potential for impairment of goodwill . in october 2018 , the company completed the analysis based on market data and concluded that it would record a full impairment of goodwill totaling $ 339.6 million in fiscal 2019. on march 23 , 2019 , the jsp distribution agreement expired and was not renewed or extended . because products covered by the jsp distribution agreement generated a significant portion of our revenues and gross profits , jsp 's decision not to renew or extend its distribution agreement with us have and will materially adversely affect our future operating results and cash flows . when announced on august 20 , 2018 , this resulted in a significant decline in the company 's market capitalization . as noted above , jsp 's decision not to renew or extend its distribution agreement with us will materially adversely affect our future operating results , liquidity and cash flows , which could impact our ability to comply with the financial and other covenants in our amended senior secured credit facility . on december 10 , 2018 , the company entered into an amendment to the senior secured credit facility and the credit and guaranty agreement . pursuant to the amendment , the secured net leverage ratio applicable to the financial leverage ratio covenant was increased from 3.25:1.00 to 4.25:1.00 as of december 31 , 2019 and prior to september 30 , 2020 , and then to 4.00:1:00 as of september 30 , 2020. the amended senior secured credit facility is also subject to a minimum liquidity covenant , which provides that the company shall not permit its liquidity as of the last day of any fiscal quarter to be less than $ 75.0 million . as of june 30 , 2019 , the company was in compliance with its financial covenants . as of june 30 , 2019 , cash and cash equivalents totaled $ 140.2 million in addition to availability under our undrawn revolver totaling $ 125.0 million . story_separator_special_tag upon the recent request of the fda to cease manufacturing and distributing our unapproved cocaine hydrochloride solution product as a result of an approved product on the market , the company committed to not manufacture or distribute cocaine hydrochloride 10 % solution , which has not been sold during fiscal 2019 , as of april 15 , 2019. the company has also agreed to cease manufacturing its unapproved cocaine hydrochloride 4 % solution on june 15 , 2019 and cease distributing the product on august 15 , 2019. the company does not believe the discontinuation will have a material impact on our future expected results of operations as we had anticipated the withdrawal of this product . during the fiscal years ended june 30 , 2019 , 2018 and 2017 , the company 's net sales of the unapproved cocaine hydrochloride solution product were $ 13.6 million , $ 18.9 million and $ 21.5 million , respectively . meanwhile , the fda continues to review the company 's section 505 ( b ) ( 2 ) nda application , and in july 2018 issued a complete response letter ( crl ) which required an additional study and other information . in june 2019 , the company submitted a response to the complete response letter and received a new prescription drug user fee act ( pdufa ) date of december 21 , 2019. the company can not say for certain when or if the application will be approved . the competitor filed a citizen petition with the fda in february 2019 , claiming that the grant of the nce exclusivity blocks the approval of the company 's application for five years and requesting that the fda refuse to accept any further submissions in furtherance of the company 's section 505 ( b ) ( 2 ) nda application , treat as withdrawn any submissions made by the company after december 2017 and withdraw the company 's section 505 ( b ) ( 2 ) application . on april 24 , 2019 , the company filed an opposition to the citizen petition requesting that it be denied . on july 3 , 2019 , the fda denied the competitor 's citizen petition . gastrointestinal . polyethylene glycol ( peg ) 3350 ( glycolax ) on april 2 , 2018 , the fda issued a federal register notice ( docket no . fda-2008-n-0549 ) indicating that it was affirming a preliminary summary judgment decision that the fda issued in 2014 , denying a hearing , and withdrawing all andas for prescription peg 3350 products , including the company 's glycolax product . the fda 's decision is based on the fda finding that there are no meaningful differences between rx peg 3350 products and otc peg 3350 products and , therefore , that the rx products are misbranded . the fda ordered the company 's anda withdrawn effective may 2 , 2018 , after which the company would no longer be permitted to market or sell its glycolax product . the company disputes the fda 's finding that there are no meaningful differences and disputes that summary judgment was appropriate in light of the factual issues raised by the anda holders . on april 9 , 2018 , the company , along with three other peg 3350 anda holders , filed a request for a stay of the fda order pending appeal of the decision to the district of columbia circuit court of appeals . on april 16 , 2018 , the fda granted a stay of its order withdrawing the company 's anda through november 2 , 2018 , after which the company will no longer be permitted to market or sell its glycolax product . the company filed an appeal of the fda withdrawal order to the united states court of appeals for the district of columbia . in july 2018 , the company filed a brief in support of the appeal . all briefing was completed by september 15 , 2018 and an argument hearing was held on october 12 , 2018. in october 2018 , the appeals court issued a ruling affirming the fda 's withdrawal of the anda and on november 2 , 2018 , the anda was withdrawn and the company ceased marketing the product . the company continues to market its otc peg 3350 products . during the fiscal years ended june 30 , 2019 , 2018 and 2017 , the company 's net sales of rx peg 3350 were $ 7.1 million , $ 17.6 million and $ 17.7 million , respectively , although gross profit percentages for this product were in the single-digits in each of these periods . thalomid® the company filed with the fda an anda no . 206601 , along with a paragraph iv certification , alleging that the fifteen patents associated with the thalomid drug product are invalid , unenforceable and or not infringed . on january 30 , 2015 , celgene corporation and children 's medical center corporation filed a patent infringement lawsuit in the united states district court for the district of new jersey , alleging that the company 's filing of anda no . 206601 constitutes an act of patent infringement and seeking a declaration that the patents at issue are valid and infringed . a settlement agreement was reached and the court dismissed the lawsuit in october 2017. pursuant to the settlement agreement , the company entered into a license agreement that permits lannett to manufacture and market in the u.s. its generic thalidomide product as of august 1 , 2019 or earlier under certain circumstances . in the second quarter of fiscal 2019 , the company received a major crl related to issues at its api supplier . the company filed a response to the crl . the company received a second major crl in the first quarter of fiscal 2020 related to continued issues at the api supplier , as well as issues with the rems program hosted by celgene .
| financial summary for fiscal 2019 , net sales decreased to $ 655.4 million compared to $ 684.6 million in the same prior-year period . gross profit decreased $ 45.1 million to $ 243.6 million compared to the prior-year period and gross profit percentage decreased to 37 % compared to 42 % in fiscal 2018. r & d expenses increased 33 % to $ 38.8 million compared to the prior-year period while sg & a expenses increased 7 % to $ 87.6 million . restructuring expenses decreased 42 % to $ 4.1 million compared to the prior-year period . operating loss for fiscal 2019 , which included a $ 375.4 million assets impairment charge , was $ 262.3 million compared to operating income of $ 129.7 million in the prior-year period , which included a $ 15.5 million loss on sale of an intangible asset and a $ 25.0 million assets impairment charge . net loss for fiscal 2019 was $ 272.1 million , or $ 7.20 per diluted share . comparatively , net income in the prior-year period was $ 28.7 million , or $ 0.75 per diluted share . a more detailed discussion of the company 's financial results can be found below . results of operations fiscal 2019 compared to fiscal 2018 net sales decreased 4 % to $ 655.4 million for the fiscal year ended june 30 , 2019. the following table identifies the company 's net product sales by medical indication for the fiscal years ended june 30 , 2019 and 2018 : replace_table_token_4_th the decrease in net sales was driven by decreased average selling price of products of $ 80.2 million , partially offset by increased volumes of $ 51.0 million . average selling prices were negatively impacted by product mix , changes within distribution channels and competitive pricing pressures .
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the tables below illustrate the carrying amount of loans by credit quality indicator as of december 31 , 2015. replace_table_token_54_th replace_table_token_55_th 61 united security bancshares , inc. and subsidiaries notes to consolidated financial statements ( continued ) the tables below illustrate the carrying amount of loans by credit quality indicator as of december 31 , 2014. replace_table_token_56_th replace_table_token_57_th the following tables provide an aging analysis of past due loans by class as of december 31 , 2015. replace_table_token_58_th 62 united security bancshares , inc. and subsidiaries notes to consolidated financial statements ( continued ) replace_table_token_59_th the following tables provide an aging analysis of past due loans by class as of december 31 , 2014. replace_table_token_60_th 63 united security bancshares , inc. and subsidiaries notes to consolidated financial statements ( continued ) replace_table_token_61_th the following table provides an analysis of non-accruing loans by class as of december 31 , 2015 and 2014. replace_table_token_62_th impaired loans : a loan is considered impaired story_separator_special_tag financial condition and results of operations description of the business united security bancshares , inc. , a delaware corporation ( “ usbi ” ) , is a bank holding company with its principal offices in thomasville , alabama . usbi operates one commercial banking subsidiary , first us bank ( the “ bank ” or “ fusb ” ) . as of december 31 , 2015 , the bank operated and served its customers through twenty banking offices located in brent , bucksville , butler , calera , centreville , coffeeville , columbiana , fulton , gilbertown , grove hill , harpersville , jackson , thomasville , tuscaloosa and woodstock , alabama . the bank owns all of the stock of acceptance loan company , inc. , an alabama corporation ( “ alc ” ) . alc is a finance company organized for the purpose of making and purchasing consumer loans . alc 's principal office is located in mobile , alabama . the bank is the funding source for alc . as of december 31 , 2015 , in addition to its principal office , alc operated twenty-one finance company offices located in alabama and southeast mississippi . the bank provides a wide range of commercial banking services to small- and medium-sized businesses , property managers , business executives , professionals and other individuals , while alc 's business is focused on consumer lending . fusb reinsurance , inc. , an arizona corporation and a wholly-owned subsidiary of the bank ( “ fusb reinsurance ” ) , reinsures or “ underwrites ” credit life and credit accident and health insurance policies sold to the bank 's and alc 's consumer loan customers . fusb reinsurance is responsible for the first level of risk on these policies up to a specified maximum amount , and a primary third-party insurer retains the remaining risk . the third-party insurer is also responsible for performing most of the administrative functions of fusb reinsurance on a contract basis . delivery of the best possible financial services to customers remains an overall operational focus of usbi and its subsidiaries ( collectively , the “ company ” ) . we recognize that attention to detail and responsiveness to customers ' desires are critical to customer satisfaction . the company continues to upgrade technology , both in its financial services and in the training of its 278 full-time equivalent employees , to ensure customer satisfaction and convenience . the following discussion and financial information are presented to aid in an understanding of the current consolidated financial position , changes in financial position , results of operations and cash flows for the company and should be read in in conjunction with the company 's audited consolidated financial statements and notes thereto included herein . the emphasis of the discussion is on the years 2015 and 2014. all yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis , unless otherwise indicated . forward-looking statements statements contained in this annual report on form 10-k that are not historical facts are forward-looking statements ( as defined in the private securities litigation reform act of 1995 ) . in addition , the company , through its senior management , from time to time makes forward-looking statements concerning its expected future operations and performance and other developments . the words “ estimate , ” “ project , ” “ intend , ” “ anticipate , ” “ expect , ” “ believe ” and similar expressions are indicative of forward-looking statements . such forward-looking statements are necessarily estimates reflecting the company 's best judgment based upon current information and involve a number of risks and uncertainties , and various factors could cause results to differ materially from those contemplated by such forward-looking statements . such factors could include those identified from time to time in usbi 's securities and exchange commission ( “ sec ” ) filings and other public announcements , including the risk factors described in this annual report on form 10-k for the year ended december 31 , 2015. specifically , with respect to statements relating to loan demand , growth and earnings potential , geographic expansion and the adequacy of the allowance for loan losses , these factors include , but are not limited to , the rate of growth ( or lack thereof ) in the economy generally and in the company 's service areas , the availability of quality loans in the company 's service areas , the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets , and collateral values . forward-looking statements speak only as of the date they are made , and the company undertakes no obligation to revise forward-looking statements to reflect circumstances or events that occur after the dates on which the forward-looking statements are made , except as required by law . story_separator_special_tag a fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability , including the assumptions about the risk inherent in a particular valuation technique , the effect of a restriction on the sale or use of an asset and the risk of nonperformance . fair value is measured based on a variety of inputs that the company utilizes . fair value may be based on 21 quoted market prices for identical asset s or liabilities traded in active markets ( level 1 valuations ) . if market prices are not available , we may use quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market ( level 2 valuations ) . where observable market data is not available , the valuation is generated from model-based techniques that use significant assumptions not observable in the market , but that are observable base d on company-specific data ( level 3 valuations ) . these unobservable assumptions reflect the company 's own estimates for assumptions that market participants would use in pricing the asset or liability . ot her significant accounting policies other significant accounting policies , not involving the same level of measurable uncertainties as those discussed above , are nevertheless important to an understanding of the consolidated financial statements . policies related to revenue recognition , investment securities and long-lived assets require difficult judgments on complex matters that are often subject to multiple and recent changes in the authoritative guidance . certain of these matters are among topics currently under re-examination by accounting standard setters and regulators . specific conclusions have not been reached by these standard setters , and outcomes can not be predicted with confidence . see note 2 , “ summary of significant accounting policies , ” in the notes to the consolidated financial statements , which discusses accounting policies that we have selected from acceptable alternatives . executive overview for the year ended december 31 , 2015 , the company 's consolidated net income was $ 2.6 million , or $ 0.41 per diluted share , compared to $ 3.5 million , or $ 0.57 per diluted share , for the year ended december 31 , 2014. nonperforming assets on the company 's balance sheet were reduced by 36.1 % during the year , and the allowance for loan losses was reduced by 38.7 % . improvement of asset quality has been the most significant strategic focus of management at both fusb and alc since 2012. at the bank , these efforts have included the strengthening of credit standards and the resolution of nonperforming assets . at alc , these efforts have included raising minimum credit score requirements on new loans , exiting from real estate lending and focusing on higher credit quality point-of-sale consumer lending through arrangements with prominent retailers . as a result of this focus , the company has experienced an upward trend over the past several years in the credit quality of assets . this trend continued in 2015. as of december 31 , 2015 , the company 's consolidated ratio of nonperforming assets to total assets was 1.59 % , compared to 2.50 % as of december 31 , 2014. fusb 's ratio improved to 1.17 % at december 31 , 2015 , compared to 2.06 % at december 31 , 2014 , while alc 's ratio improved to 2.76 % compared to 3.52 % as of december 31 , 2015 and 2014 , respectively . while the company 's asset quality metrics continued to improve in 2015 , earnings were reduced compared to 2014 primarily due to reduced loan balances at the bank and the corresponding reductions in interest income . net loans at the bank totaled $ 173.7 million as of december 31 , 2015 , compared to $ 187.5 million as of december 31 , 2014. in part , the volume reductions resulted from management 's efforts to improve the credit quality of the bank 's loan portfolio . during 2015 , a total of $ 16.5 million in loans that did not meet the bank 's current credit standards were transitioned out of the loan portfolio through payoff , charge-off or transfer to oreo . these reductions , coupled with generally soft demand and a highly competitive lending environment within the bank 's primary service territories , resulted in reductions of loan volume at a faster pace than new loan generation for the first three quarters of the year . however , the improvement of the bank 's asset quality during the year enabled bank management to begin to shift more strategic focus to new asset generation during the latter part of 2015. as a result of these efforts , during the fourth quarter , the bank 's net loan volume increased by $ 16.8 million , or 29.8 % on an annualized basis , from levels as of september 30 , 2015. management believes that the bank is well-positioned to grow its commercial lending capabilities and continues to look for opportunities to expand into new service territories or to enhance its presence in existing territories . to that end , the bank completed renovations on a building in downtown tuscaloosa , alabama , and opened a new branch at that location during the fourth quarter of 2015. at alc , net loan volume grew to $ 81.7 million as of december 31 , 2015 , compared to $ 72.0 million as of december 31 , 2014. the increase in volume at alc was largely attributable to growth in point-of-sale lending arrangements with prominent retailers . these lending arrangements are generally of higher credit quality than traditional consumer arrangements , but at reduced yields . this shift in loan mix at alc contributed to the overall decline in net yield on interest-earning assets .
| summary of loan loss experience the following table summarizes the company 's loan loss experience for each of the two years indicated . replace_table_token_21_th deposits total deposits decreased by 0.9 % to $ 479.3 million as of december 31 , 2015 , from $ 483.7 million as of december 31 , 2014. given the level of funding needs for current loan growth , management has not been aggressive in deposit gathering during 2015 and has primarily focused on reducing interest expense . core deposits , which exclude time deposits of $ 250,000 or more , provide for a relatively stable funding source that supports earning assets . core deposits totaled $ 454.2 million , or 94.8 % of total deposits , as of december 31 , 2015 , compared with $ 461.0 million , or 95.3 % of total deposits , as of december 31 , 2014. deposits , in particular core deposits , have historically been the company 's primary source of funding and have enabled the company to successfully meet both short-term and long-term liquidity needs . management anticipates that such deposits will continue to be one of the company 's primary sources of funding in the future , and we will continue to monitor deposit levels closely to help ensure an adequate level of funding for the company 's activities . however , various economic and competitive factors could affect this funding source in the future , including increased competition from other financial institutions in deposit gathering , national and local economic conditions , and interest rate policies adopted by the federal reserve and other central banks . 34 average daily amount of deposits and rates the average daily amount of deposits and rates paid on such deposits are summarized for the periods indicated in the following table .
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our sales efforts are largely targeted towards the foodservice industry , principally chain restaurants and food processors such as chick-fil-a ® , distributors such as us foods and sysco ® and retail customers , including grocery store chains and wholesale clubs such as kroger ® , costco ® , publix ® , and h‑e-b ® . as a vertically integrated company , we control every phase of the production process , which helps us better manage food safety and quality , as well as more effectively control margins and improve customer service . we operate feed mills , hatcheries , processing plants and distribution centers in 12 u.s. states , puerto rico and mexico . our plants are strategically located to ensure that customers timely receive fresh products . with our global network of approximately 4,045 growers , 32 feed mills , 39 hatcheries , 30 processing plants , six prepared foods cook plants , 20 distribution centers , eight rendering facilities and three pet food plants , we believe we are well positioned to supply the growing demand for our products . we are one of the largest , and we believe one of the most efficient , producers and sellers of chicken in mexico . our presence in mexico provides access to a market with growing demand and has enabled us to leverage our operational strengths within the region . the market for chicken products in mexico is still developing with most sales attributed to fresh , commodity-oriented , market price-based business . we believe our mexico business is well positioned to continue benefiting from these trends in the mexican consumer market . additionally , we are an important player in the live market , which accounted for approximately 35 % of the industry 's chicken sales in mexico in 2016. as of december 25 , 2016 , we had approximately 39,600 employees and the capacity to process more than 36.7 million birds per week for a total of more than 10.7 billion pounds of live chicken annually . in 2016 , we produced 8.1 billion pounds of chicken products , generating approximately $ 7.9 billion in net revenues and approximately $ 440.5 million in net income attributable to pilgrim 's . we operate on a 52/53-week fiscal year that ends on the sunday falling on or before december 31. any reference we make to a particular year ( for example , 2016 ) in this report applies to our fiscal year and not the calendar year . 25 executive summary we reported net income attributable to pilgrim 's pride corporation of $ 440.5 million , or $ 1.73 per diluted common share , for 2016. these operating results included gross profit of $ 914.4 million . during 2016 , we generated $ 755.5 million of cash from operations . market prices for feed ingredients remain volatile . consequently , there can be no assurance that our feed ingredients prices will not increase materially and that such increases would not negatively impact our financial position , results of operations and cash flow . the following table compares the highest and lowest prices reached on nearby futures for one bushel of corn and one ton of soybean meal during the current year and previous two years : replace_table_token_10_th we purchase derivative financial instruments , specifically exchange-traded futures and options , in an attempt to mitigate price risk related to our anticipated consumption of commodity inputs such as corn , soybean meal , sorghum , wheat , soybean oil and natural gas . we will sometimes take a short position on a derivative instrument to minimize the impact of a commodity 's price volatility on our operating results . we will also occasionally purchase derivative financial instruments in an attempt to mitigate currency exchange rate exposure related to the financial statements of our mexico operations that are denominated in mexican pesos . we do not designate derivative financial instruments that we purchase to mitigate commodity purchase or currency exchange rate exposures as cash flow hedges ; therefore , we recognize changes in the fair value of these derivative financial instruments immediately in earnings . we recognized $ 4.3 million in net losses related to changes in the fair value of its derivative financial instruments during 2016. we recognized $ 21.8 million and $ 16.1 million in net gains related to changes in the fair value of its derivative financial instruments during 2015 and 2014 , respectively . although changes in the market price paid for feed ingredients impact cash outlays at the time we purchase the ingredients , such changes do not immediately impact cost of sales . the cost of feed ingredients is recognized in cost of sales , on a first-in-first-out basis , at the same time that the sales of the chickens that consume the feed grains are recognized . thus , there is a lag between the time cash is paid for feed ingredients and the time the cost of such feed ingredients is reported in cost of goods sold . for example , corn delivered to a feed mill and paid for one week might be used to manufacture feed the following week . however , the chickens that eat that feed might not be processed and sold for another 42 to 63 days , and only at that time will the costs of the feed consumed by the chicken become included in cost of goods sold . commodities such as corn , soybean meal , sorghum , wheat and soybean oil are actively traded through various exchanges with future market prices quoted on a daily basis . these quoted market prices , although a good indicator of the commodity 's base price , do not represent the final price for which we can purchase these commodities . there are several components in addition to the quoted market price , such as freight , storage and seller premiums , that are included in the final price that we pay for grain . story_separator_special_tag 2015 compared to 2014 net sales . net sales for 2015 decreased $ 403.3 million , or 4.7 % , from 2014. the following table provides additional information regarding net sales : replace_table_token_19_th ( a ) u.s. net sales generated in 2015 decreased $ 503.7 million , or 6.6 % , from u.s. net sales generated in 2014 primarily because of a decrease in net sales per pound . lower net sales per pound , which reflects a slight shift in product mix toward lower-priced fresh chicken products when compared to the same period in the prior year , contributed $ 681.8 million , or 8.9 percentage points , to the sales decrease . an increase in sales volume partially offset the net decrease by $ 178.2 million , or 2.3 percentage points . included in u.s. sales generated during 2015 and 2014 were sales to jbs usa food company totaling $ 21.7 million and $ 39.7 million , respectively . ( b ) mexico sales generated in 2015 increased $ 100.4 million , or 10.7 % , from mexico sales generated in 2014 , primarily because of net sales generated by the acquired tyson mexico operations and an increase in sales volume experienced by our existing operations . the impact of the acquired business contributed $ 250.6 million , or 26.8 percentage points , to the increase in net sales . the sales volume increase experienced by our existing operations contributed $ 24.7 million , or 2.6 percentage points , to the increase in net sales . the impact of of the acquired business and the sales volume increase experienced by our existing operations were partially offset by a decrease in net sales per pound experienced by our existing operations and the impact of foreign currency translation on our existing operations . the decrease in net sales per pound experienced by our existing operations offset the impact of the acquired business and the sales volume increase experienced by our existing operations by $ 24.1 million , or 2.6 percentage points . the impact of foreign currency translation on our existing operation offset the impact of the acquired business and the sales volume increase experienced by our existing operations by $ 150.7 million , or 16.1 percentage points . gross profit . gross profit decreased by $ 139.6 million , or 10.0 % , from $ 1.4 billion generated in 2014 to $ 1.3 billion generated in 2015. the following tables provide gross profit information : replace_table_token_20_th replace_table_token_21_th 31 replace_table_token_22_th ( a ) cost of sales incurred by our u.s. operations in 2015 decreased $ 427.7 million , or 6.6 % , from cost of sales incurred by our u.s. operations in 2014. cost of sales decreased primarily because of a $ 358.2 million decrease in feed ingredients costs , a $ 33.2 million decrease in wages and benefits , a $ 17.0 million decrease in utilities costs and a $ 13.3 million decrease in vehicle costs partially offset by a $ 24.4 million increase in co-pack labor costs , a $ 20.9 million increase in contract labor costs , a $ 20.6 million increase in contract grower costs and a $ 19.7 million increase in supplies and equipment costs . other factors affecting u.s. cost of sales were individually immaterial . ( b ) cost of sales incurred by the mexico operations during 2015 increased $ 164.2 million , or 22.0 % , from cost of sales incurred by the mexico operations during 2014 primarily because of costs incurred by the acquired tyson mexico operations , partially offset by a decrease in cost of sales incurred by our existing operations . cost of sales incurred by the acquired tyson mexico operations contributed $ 249.1 million , or 33.4 percentage points , to the overall increase in cost of sales incurred by the mexican operations . the decrease in cost of sales incurred by our existing operations partially offset the impact of the cost of sales incurred by the acquired business by $ 85.0 million , or 11.4 percentage points . the impact of foreign currency translation contributed $ 126.5 million , or 17.0 percentage points , to the decrease in cost of sales incurred by our existing operations . decreases in both wage and benefits costs and utilities costs along with a gain related to the sale of property , plant and equipment also contributed $ 18.0 million , or 2.4 percentage points , to the decrease in cost of sales incurred by our existing operations . the favorable impact that the items listed above had on cost of sales incurred by our existing operations was partially offset by $ 59.6 million , or 8.0 percentage points , because of higher feed ingredients costs . other factors affecting cost of sales were individually immaterial . ( c ) our consolidated financial statements include the accounts of our company and its majority owned subsidiaries . we eliminate all significant affiliate accounts and transactions upon consolidation . operating income . operating income decreased $ 158.2 million , or 13.2 % , from $ 1.2 billion generated for 2014 to $ 1.0 billion generated for 2015. the following tables provide operating income information : replace_table_token_23_th replace_table_token_24_th replace_table_token_25_th 32 replace_table_token_26_th ( a ) sg & a expense incurred by the u.s. operations during 2015 increased $ 2.3 million , or 1.3 % , from sg & a expense incurred by the u.s. operations during 2014 primarily because of an $ 7.4 million increase in employee wages and benefits , and a $ 2.6 million increase in management fees charged for administrative functions shared with jbs usa food company holdings that were partially offset by a $ 5.3 million decrease in brokerage expenses , a $ 2.0 million decrease in legal services expenses and a $ 0.5 million decrease in advertising and promotion costs . other factors affecting sg & a expense were individually immaterial .
| results of operations 2016 compared to 2015 net sales . net sales for 2016 decreased $ 249.0 million , or 3.0 % , from 2015. the following table provides additional information regarding net sales : replace_table_token_11_th ( a ) u.s. net sales generated in 2016 decreased $ 472.0 million , or 6.6 % , from u.s. net sales generated in 2015 primarily because of decreases in both sales volume and net sales per pound . the decrease in sales volume , which resulted from the unfavorable impact that ongoing operational improvements in one of our prepared foods facilities had on production during the period and lower product demand from our commercial customers , contributed $ 300.5 million , or 4.2 percentage points , to the net sales decrease . lower net sales per pound , which resulted primarily from lower market prices , contributed $ 171.4 million , or 2.3 percentage points , to the net sales decrease . included in u.s. sales generated during 2016 and 2015 were sales to jbs usa food company totaling $ 16.5 million and $ 21.7 million , respectively . ( b ) mexico sales generated in 2016 increased $ 223.0 million , or 21.5 % , from mexico sales generated in 2015 , primarily because of an increase in sales volume and an increase in net sales per pound partially offset by the impact of foreign currency translation . the increase in sales volume contributed $ 310.6 million , or 30.0 percentage points , to the increase in mexico net sales . the increase in net sales per pound contributed $ 133.7 million , or 12.9 percentage points , to the increase in mexico net sales . the increases to net sales was partially offset by the impact of foreign currency translation , which contributed $ 221.3 million , or 21.3 percentage points , to the decrease in mexico net sales . other factors affecting the increase in mexico net sales were individually immaterial . gross profit .
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the company had $ 1,488 in letters of credit as of december 31 , 2012. liabilities assumed through the company 's acquisition of poc and pieps included receivable securitization facilities story_separator_special_tag forward-looking statements please note that in this annual report on form 10-k we may use words such as “ appears , ” “ anticipates , ” “ believes , ” “ plans , ” “ expects , ” “ intends , ” “ future , ” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the private securities litigation reform act of 1995. forward-looking statements are made based on our expectations and beliefs concerning future events impacting the company and therefore involve a number of risks and uncertainties . we caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements . potential risks and uncertainties that could cause the actual results of operations or financial condition of the company to differ materially from those expressed or implied by forward-looking statements in this annual report on form 10-k include , but are not limited to , the overall level of consumer spending on our products ; general economic conditions and other factors affecting consumer confidence ; disruption and volatility in the global capital and credit markets ; the financial strength of the company 's customers ; the company 's ability to implement its growth strategy ; the company 's ability to successfully integrate and grow acquisitions ; the company 's exposure to product liability of product warranty claims and other loss contingencies ; stability of the company 's manufacturing facilities and foreign suppliers ; the company 's ability to protect trademarks and other intellectual property rights ; fluctuations in the price , availability and quality of raw materials and contracted products ; foreign currency fluctuations ; our ability to utilize our net operating loss carryforwards ; and legal , regulatory , political and economic risks in international markets . more information on potential factors that could affect the company 's financial results can be found under item 1a.—risk factors of this annual report on form 10-k. all forward-looking statements included in this annual report on form 10-k are based upon information available to the company as of the date of this annual report on form 10-k , and speak only as the date hereof . we assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this annual report on form 10-k. story_separator_special_tag liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating loss and tax credit carryforwards . we make assumptions , judgments and estimates to determine our current provision for income taxes , our deferred tax assets and liabilities , and our uncertain tax positions . our judgments , assumptions and estimates relative to the current provision for income tax take into account current tax laws , our interpretation of current tax laws , and possible outcomes of current and future audits conductions by foreign and domestic tax authorities . changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of taxable income . actual operating results and the underlying amount and category of income in future years could cause our current assumptions , judgments and estimates of recoverable net deferred taxes to be inaccurate . changes in any of the assumptions , judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates , which could materially affect our financial position and results of operations . · our depreciation policies for property and equipment reflect judgments on their estimated economic lives and residual value , if any . our amortization policies for intangible assets reflect judgments on the estimated amounts and duration of future cash flows expected to be generated by those assets . we review property and definite-lived intangible assets for possible impairment whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of an asset may not be fully recoverable . we test for possible impairment at the asset or asset group level , which is the lowest level for which there are identifiable cash flows . we measure recoverability of the carrying value of an asset or asset group by comparison with estimated undiscounted cash flows expected to be generated by the asset . if the total of undiscounted cash flows exceeds the carrying value of the asset , there is no impairment charge . if the undiscounted cash flows are less than the carrying value of the asset , we estimate the fair value of the asset based on the present value of its future cash flows and recognize an impairment charge for the excess of the asset 's carrying value over its fair value . 33 · indefinite−lived intangible assets , consisting of trademarks are not subject to amortization . rather , we qualitatively evaluate those assets for possible impairment on an annual basis or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset may exceed its fair value . if our analysis leads us to believe that it is more likely than not that the carrying value of an asset may exceed its fair value , we perform a quantitative analysis based on an income approach using the relief−from−royalty method . story_separator_special_tag all inventory acquired , and related purchase accounting fair market value inventory adjustment , was sold in 2012. gross profit consolidated gross profit increased $ 10,912 , or 19.4 % , to $ 67,264 during the year ended december 31 , 2012 compared to consolidated gross profit of $ 56,352 during the year ended december 31 , 2011. consolidated gross margin was 38.2 % during the year ended december 31 , 2012 compared to a consolidated gross margin of 38.7 % during the year ended december 31 , 2011. consolidated gross margin during the year ended december 31 , 2012 increased compared to the prior year due to the inclusion of poc and pieps ; however , it was off-set by a decrease in gross margin of 1.3 % due to the sale of inventory that was recorded at fair value in purchase accounting . selling , general and administrative consolidated selling , general , and administrative expenses increased $ 12,097 , or 24.0 % , to $ 62,590 during the year ended december 31 , 2012 compared to consolidated selling , general , and administrative expenses of $ 50,493 during the year ended december 31 , 2011. the increase in selling , general , and administrative expenses was primarily attributable to the company 's investments in its strategic initiatives and infrastructure to support both current and anticipated future growth and the inclusion of poc and pieps . restructuring charges consolidated restructuring expense decreased $ 768 , or 77.3 % , to $ 225 during the year ended december 31 , 2012 compared to consolidated restructuring expense of $ 993 during the year ended december 31 , 2011. the restructuring expenses incurred during the year ended december 31 , 2012 relate to severance benefits provided to gmp employees at its calexico , ca facility and to certain poc employees at its portsmouth , nh office . the restructuring expenses incurred during the year ended december 31 , 2011 comprised of : ( i ) $ 781 related to the relocation of gmp to the company 's headquarters , and ( ii ) $ 212 related to the disposal of long-lived assets in conjunction with the relocation of the company 's u.s. distribution facilities in salt lake city , ut to a new location in salt lake city , ut as part of integrating gmp . merger and integration costs consolidated merger and integration expense increased to $ 244 during the year ended december 31 , 2012 compared to consolidated merger and integration expense of $ 0 during the same period in 2011 , which consisted of expenses related to the integration of poc and pieps . we expect to incur additional merger and integration expenses in 2013 related to the ongoing integration of poc and pieps . transaction costs consolidated transaction expense increased to $ 2,029 during the year ended december 31 , 2012 compared to consolidated transaction expense of $ 0 during the same period in 2011 , which consisted primarily of professional fees and expenses related to due diligence and the negotiation and documentation of acquisition related agreements in connection with the company 's acquisition of poc on july 2 , 2012 and pieps on october 1 , 2012. interest expense consolidated interest expense increased $ 72 , or 2.5 % , to $ 2,993 during the year ended december 31 , 2012 compared to consolidated interest expense of $ 2,921 during the year ended december 31 , 2011. the increase in interest expense was primarily attributable to debt amounts assumed in connection with the company 's acquisition of poc on july 2 , 2012 and pieps on october 1 , 2012 . 36 other , net consolidated other , net , increased to income of $ 870 during the year ended december 31 , 2012 compared to a consolidated other , net expense of $ 227 during the year ended december 31 , 2011. the increase in other , net , was primarily attributable to the re-measurement gains recognized on the company 's foreign denominated accounts receivable and accounts payable and mark-to-market adjustments on non-hedged foreign currency contracts . income taxes consolidated income tax benefit decreased $ 824 , or 30.7 % , to a benefit of $ 1,864 during the year ended december 31 , 2012 compared to a consolidated income tax benefit of $ 2,688 during the same period in 2011. the decrease in tax benefit is due primarily to the reversal of $ 3,000 of the valuation allowance on the company 's deferred tax asset during the year ended december 31 , 2011 ; whereas , the company reversed $ 1,300 of the company 's valuation allowance on the company 's deferred tax asset and recorded a benefit of $ 564 during the year ended december 31 , 2012. the benefit of $ 564 was primarily driven by the change in enacted foreign statutory rates and change in effective state rate , partially off-set by non-deductible transaction costs incurred related to the acquisitions of poc and pieps . our effective income tax rate was a benefit of 2,118.2 % for the year ended december 31 , 2012 compared to a benefit of 122.0 % for the same period in 2011 . 37 consolidated year ended december 31 , 2011 compared to combined year ended december 31 , 2010 the following presents a discussion of consolidated operations for the year ended december 31 , 2011 compared with the combined year ended december 31 , 2010. the combined year ended december 31 , 2010 represents the results of the company for the year ended december 31 , 2010 and the results of the predecessor for the period from january 1 , 2010 through may 28 , 2010 , the closing date of the mergers . the predecessor does not include gmp . the mergers were accounted for in accordance with asc 805 , business combinations , resulting in a new basis of accounting from those previously reported by the predecessor . however , sales and most operating cost items are consistent with those reflected by the predecessor .
| overview black diamond , inc. ( which may be referred to as “ black diamond , ” “ company , ” “ we , ” “ our , ” or “ us , ” ) is a global leader in designing , manufacturing , and marketing innovative active outdoor performance products for climbing , mountaineering , backpacking , skiing , cycling , and a wide range of other year round outdoor recreation activities . our principal brands include black diamond® , gregory , poc , and pieps and are targeted not only to the demanding requirements of core climbers , skiers and cyclists , but also to the more general outdoor performance enthusiasts , and consumers interested in outdoor-inspired gear for their urban activities . our black diamond® , gregory , poc and pieps brands are iconic in the active outdoor industry and linked intrinsically with the modern history of the sports we serve . we believe our brands are synonymous with the performance , innovation , durability , and safety that the outdoor and action sports communities rely on and embrace in their active lifestyle . we offer a broad range of products including : rock-climbing equipment ( such as carabiners , protection devices , harnesses , belay devices , helmets , and ice-climbing gear ) , technical backpacks and high-end day packs , travel luggage , lifestyle packs , tents , trekking poles , headlamps and lanterns , and gloves and mittens . we also offer advanced design helmets , body armor , and goggles for skiing , mountain and road cycling , eyewear , skis , ski poles , ski bindings , ski boots , ski skins , and ski safety products , including avalanche transceivers , shovels , and probes , as well as satellite-based devices for messaging , tracking , and navigation . on may 28 , 2010 , we acquired black diamond equipment , ltd. ( which may be referred to as “ black diamond equipment ” or “ bdel ” ) and gregory mountain products ( which may be referred to as “ gregory mountain products ” or “ gmp ” ) ( the “ mergers ” ) .
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cash and cash equivalents the company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents . restricted cash restricted cash consists of balances held in deposit with certain banks to collateralize conditional stand-by letters of credit in the names of the company 's landlords pursuant to certain operating lease agreements . the company also separately disclosed on its consolidated balance sheet restricted cash and cash equivalents ( alios ) as of december 31 , 2012. the company deconsolidated alios story_separator_special_tag overview we are in the business of discovering , developing , manufacturing and commercializing small molecule drugs . we invest in scientific innovation to create transformative medicines for patients with serious diseases in specialty markets . our business is focused on developing and commercializing therapies for the treatment of cystic fibrosis , or cf , and advancing our other research and early-stage development programs , while maintaining our financial strength . since mid-2011 , we have obtained approval for , and initiated commercial sales of , our first two products : kalydeco ( ivacaftor ) and incivek ( telaprevir ) . kalydeco is approved in the united states and international markets for the treatment of patients six years of age and older with cf who have a specific genetic mutation in their cystic fibrosis transmembrane conductance regulator , or cftr , gene , which is referred to as the g551d mutation . incivek is approved in the united states and canada for the treatment of adults with genotype 1 hepatitis c virus , or hcv , infection . our collaborators , janssen pharmaceutica nv , or janssen , and mitsubishi tanabe pharma corporation , or mitsubishi tanabe , market telaprevir in other international markets . our fourth quarter 2013 net product revenues included kalydeco net product revenues of $ 109.4 million and incivek net product revenues of $ 19.4 million . cystic fibrosis our plan is to ( i ) increase the number of patients eligible for treatment with ivacaftor , ( ii ) evaluate ivacaftor in combination with lumacaftor for the treatment of patients with cf who have the most prevalent mutation in their cftr gene and ( iii ) research and develop earlier-stage compounds for the treatment of cf . our net product revenues from kalydeco have increased on a quarterly basis since we obtained marketing approval in the first quarter of 2012. kalydeco was approved in 2012 in the united states and european union as a treatment for patients with cf six years of age and older who have the g551d mutation in their cftr gene . we believe that most patients with cf six years of age and older who have the g551d mutation in the united states and europe have started treatment with kalydeco . in 2013 , we submitted a supplemental new drug application , or snda , to the u.s. food and drug administration , or fda , and a marketing authorization application , or maa , variation in the european union seeking approval to market ivacaftor for the treatment of patients with cf six years of age and older who have specified other mutations in their cftr gene , which were studied in our first label-expansion clinical trial for ivacaftor . the fda has set a target date of march 27 , 2014 to complete its review of this snda under the prescription drug user fee act ( pdufa ) . we also are seeking to expand the number of patients eligible for treatment with ivacaftor by ( i ) evaluating ivacaftor as a potential treatment for patients with cf who have residual cftr function , including patients with cf who have the r117h mutation in their cftr gene , and ( ii ) evaluating ivacaftor as a potential treatment for patients with cf two to five years of age who have specific mutations in their cftr genes . in addition , we are in discussions with relevant agencies in australia and canada regarding public reimbursement of the cost of kalydeco for patients with cf six years of age and older in these countries who have the g551d mutation in their cftr gene . in october 2013 , we completed enrollment in a phase 3 development program to evaluate combinations of ivacaftor and lumacaftor , our most advanced investigational cftr corrector compound . the phase 3 development program includes two phase 3 clinical trials , referred to as traffic and transport , that each enrolled patients 12 years of age and older with cf who have two copies ( homozygous ) of the f508del mutation in their cftr gene . we expect data from traffic and transport in mid-2014 . if traffic and transport are successful , we plan to submit a new drug application , or nda , to the fda and an maa in the european union , in the second half 2014. we are evaluating vx-661 , a second investigational cftr corrector , in combination with ivacaftor , in phase 2 clinical development . we also are seeking to identify and develop next-generation cftr corrector compounds that could be evaluated in regimens combining ivacaftor with two cftr corrector compounds . hcv infection over the past several years , we have obtained most of our product revenues from incivek sales and focused a large portion of our resources on commercializing incivek and seeking to develop other drug candidates for the treatment of hcv infection . our incivek net product revenues have been declining on a quarterly basis since reaching a peak in the fourth quarter of 2011 , and declined rapidly over the course of 2013 , including a 77 % decline in incivek net product 52 revenues in the fourth quarter of 2013 as compared to the third quarter of 2013. we expect this trend to continue as a result of the introduction in the fourth quarter of 2013 of new competitive therapies for the treatment of hcv infection . story_separator_special_tag most chemical compounds that are investigated as potential drug candidates never progress into development , and most drug candidates that do advance into development never receive marketing approval . because our investments in drug candidates are subject to considerable risks , we closely monitor the results of our discovery research , clinical trials and nonclinical studies , and frequently evaluate our drug development programs in light of new data and scientific , business and commercial insights , with the objective of balancing risk and potential . this process can result in relatively abrupt changes in focus and priority as new information becomes available and we gain additional understanding of our ongoing programs and potential new programs as well as those of our competitors . if we believe that data from a completed registration program support approval of a drug candidate , we submit an nda to the fda requesting approval to market the drug candidate in the united states and seek analogous approvals from comparable regulatory authorities in foreign jurisdictions . to obtain approval , we must , among other things , demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities , processes and controls for the manufacture of the drug candidate are adequate . the fda and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease , and could delay , limit or deny regulatory approval . if regulatory delays are significant or regulatory approval is limited or denied altogether , our financial results and the commercial prospects for the drug candidate involved will be harmed . regulatory compliance our marketing of pharmaceutical products , which began in 2011 , is subject to extensive and complex laws and regulations . we have a corporate compliance program designed to actively identify , prevent and mitigate risk through the implementation of compliance policies and systems and the promotion of a culture of compliance . among other laws , regulations and standards , we are subject to various u.s. federal and state and comparable foreign laws pertaining to health care fraud and abuse , including anti-kickback and false claims statutes , and laws prohibiting the promotion of drugs for unapproved , or off-label , uses . anti-kickback laws make it illegal for a prescription drug manufacturer to solicit , offer , receive or pay any remuneration in exchange for , or to induce , the referral of business , including the purchase or prescription of a particular drug . false claims laws prohibit anyone from presenting for payment to third-party payors , including medicare and medicaid , claims for reimbursed drugs or services that are false or fraudulent , claims for items or services not provided as claimed or claims for medically unnecessary items or services . we expect to continue to devote substantial resources to maintain , administer and expand these compliance programs globally . continuous manufacturing we are planning to use a continuous manufacturing process to manufacture co-formulated lumacaftor and ivacaftor tablets . we have established continuous manufacturing capabilities at our third-party manufacturer in the united kingdom , which was used to produce a portion of the clinical trial supplies for our phase 3 clinical trials of lumacaftor in combination with ivacaftor , and are in the process of establishing continuous manufacturing capabilities and seeking validation for these capabilities at our new facility located in boston , massachusetts . we are upgrading the continuous manufacturing process at our third-party manufacturer and are scheduled to begin producing co-formulated lumacaftor and ivacaftor intended for commercial use in mid-2014 . continuous process manufacturing connects the processes used in traditional batch manufacturing and uses on-line monitoring in order to increase control of the manufacturing process . while we believe continuous process manufacturing has a number of benefits , we have not previously designed a continuous manufacturing process to produce commercial quantities of a pharmaceutical product , and we believe that we would be the first company to seek approval for an nda or an maa using this method of manufacturing . as a result , we also have designed and tested a 54 non-continuous process for manufacturing co-formulated lumacaftor and ivacaftor tablets that we would seek to utilize if we experience delays associated with the continuous manufacturing process . operations we are moving our corporate headquarters from a number of buildings in cambridge , massachusetts into our new facility in boston , massachusetts . a majority of our massachusetts-based employees were relocated to our new corporate headquarters in january 2014. we expect to complete the relocation of our massachusetts-based employees to our new facilities in the first half of 2014. this move allows us to consolidate our headquarters into one campus and update our physical infrastructure , including our laboratories and other research facilities . in order to manage the expansion of our international operations and move to our new headquarters , we will need to enhance our cross-functional operational , financial and management processes while continuing to attract and maintain highly skilled employees . we are decommissioning our existing laboratory facilities at our cambridge locations . we expect to incur restructuring charges related to lease obligations for facilities in cambridge through 2018 , with the majority of these charges being incurred during 2014 . 55 story_separator_special_tag > increased by $ 15.1 million in 2013 as compared to 2012 principally due to a $ 13.1 million increase in royalty revenues from sales of incivo by janssen . our royalty revenues increased by $ 91.5 million in 2012 as compared to 2011 due to $ 117.6 million of revenues recognized in 2012 from sales of incivo by janssen for which there were limited comparable revenues in 2011 .
| results of operations replace_table_token_9_th net income ( loss ) attributable to vertex net income ( loss ) attributable to vertex , revenues and operating expenses have been affected by rapidly fluctuating incivek and kalydeco net revenues and significant intangible asset impairment charges and inventory write-offs during the three year period ended december 31 , 2013. in 2014 , we expect most of our revenues will be due to kalydeco sales and that we will incur a substantial net loss . comparison of net income ( loss ) attributable to vertex 2013 vs. 2012 net loss attributable to vertex was $ 445.0 million in 2013 compared to net loss attributable to vertex of $ 107.0 million in 2012 . our revenues decreased in 2013 as compared to 2012 due to a $ 695.5 million decrease in incivek revenues partially offset by a $ 199.6 million increase in kalydeco revenues and a $ 165.7 million increase in collaborative revenues . our operating costs and expenses increased in 2013 as compared to 2012 primarily due to an aggregate of $ 663.5 million in intangible asset impairment charges related to vx-222 and vx-135 and a $ 112.6 million increase in research and development expenses , partially offset by a $ 74.5 million decrease in sales , general and administrative expenses and an aggregate of $ 133.2 million in cost of product revenues due to charges for excess and obsolete incivek inventories that we incurred in 2012. in 2013 , the deconsolidation of alios resulted in a gain of $ 68.2 million attributable to vertex .
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we distribute our products through our direct to consumer channels , including our retail stores , e-commerce websites and restaurants , and our wholesale distribution channel , which includes better department stores , specialty stores , national chains , specialty catalogs , mass merchants and internet retailers . in fiscal 2011 , more than 90 % of our consolidated net sales were to customers located in the united states , with the remainder primarily being sales of our ben sherman products in the united kingdom and europe . we source substantially all of our products through third party manufacturers located outside of the united states and united kingdom . we operate in highly competitive domestic and international markets in which numerous u.s.-based and foreign apparel firms compete . no single apparel firm or small group of apparel firms , dominate the apparel industry and our direct competitors vary by operating group and distribution channel . we believe that the principal competitive factors in the apparel industry are design , brand image , consumer preference , price , quality , marketing and customer service . we believe our ability to compete successfully in styling and marketing is related to our ability to foresee changes and trends in fashion and consumer preference , and to present appealing products for consumers . in some instances , a retailer that is our customer may compete directly with us by offering certain of their own competing products , some of which may be sourced directly by our customer , in their own retail stores . additionally , the apparel industry is cyclical and dependent upon the overall level of discretionary consumer spending , which changes as regional , domestic and international economic conditions change . often , negative economic conditions have a longer and more severe impact on the apparel and retail industry than the conditions have on other industries . the global economic conditions and resulting economic uncertainty that began in fiscal 2008 continues to impact each of our operating groups , and the apparel industry as a whole . although declines in consumer spending in the u.s. have moderated and our product sales have generally increased during fiscal 2010 and fiscal 2011 , unemployment levels remain high , the retail environment remains highly promotional and a significant amount of economic uncertainty remains . while we anticipate sales of our products may continue to be negatively impacted as long as there is an elevated level of economic uncertainty , we believe that our operating groups have significant opportunities for long-term growth . we believe that each of our lifestyle brands has opportunities for growth in its direct to consumer businesses through expansion of our retail store footprint as well as increases in same store sales . we also believe that our lifestyle brands provide an opportunity for moderate sales increases in our wholesale businesses primarily from our current customers adding to their existing door count and the selective addition of new wholesale customers . although the challenging economic conditions continue to have an impact on our business and the apparel industry as a whole , and we continue to focus on minimizing inventory markdown risk and promotional pressure , we were slightly more aggressive in our inventory purchases for fiscal 2011 and anticipate continuing to purchase inventory more aggressively in fiscal 2012 if the economic conditions continue to show improvement . the second half of fiscal 2011 was impacted by pricing pressures on raw materials , fuel , transportation , labor and other costs necessary for the production and sourcing of apparel products , particularly in our ben sherman and lanier clothes operating groups . we anticipate that these increased product costs will continue to impact our operating results through the first half of fiscal 2012 , but may moderate in the second half of fiscal 2012 . 41 we continue to believe it is important to focus on maintaining a strong balance sheet and ample liquidity , and we believe that our strong balance sheet and liquidity coupled with positive cash flow from operations will provide us ample resources to fund future investments in our lifestyle brands . further , we believe that we have a significant opportunity beginning on july 15 , 2012 to improve our capital structure , when we can redeem our 11 3 / 8 % senior secured notes at 105.688 % of the principal amount plus accrued and unpaid interest , which redemption price will decrease in subsequent years , which could result in substantial interest savings for us after that date if we can replace these notes with more attractive borrowing alternatives . in the future , we may add additional lifestyle brands to our portfolio , if we identify appropriate lifestyle brands which meet our investment criteria ; however , we believe that we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands even absent any future acquisition . the following table sets forth our consolidated operating results ( in thousands , except per share amounts ) for fiscal 2011 compared to fiscal 2010 : replace_table_token_11_th the primary reasons for the improvement in earnings from continuing operations were : an increase in net sales and operating income primarily driven by the $ 94.5 million of net sales related to lilly pulitzer , which we acquired on december 21 , 2010 and was not included in our results of operations for a full year in fiscal 2010 , and a sales increase in the direct to consumer channel of distribution at tommy bahama . story_separator_special_tag the brand is somewhat unique among women 's brands in that it has demonstrated multi-generational appeal , including young women in college or recently graduated from college ; young mothers with their daughters ; and women 43 who are not tied to the academic calendar . lilly pulitzer products can be found in our owned lilly pulitzer stores , in lilly pulitzer signature stores and on our lilly pulitzer website , www.lillypulitzer.com , as well as in certain department and independent specialty stores . we also license the lilly pulitzer name for various product categories . ben sherman is a london-based designer , marketer and distributor of men 's branded sportswear and related products . ben sherman was established in 1963 as an edgy , `` mod '' -inspired shirt brand and has throughout its history been inspired by what is new and current in british art , music , culture and style . the brand has evolved into a british modernist lifestyle brand of apparel targeted at style conscious men ages 25 to 40 in multiple markets throughout the world . ben sherman products can be found in better department stores , a variety of independent specialty stores and our owned and licensed ben sherman retail stores , as well as on ben sherman e-commerce websites . we also license the ben sherman name for various product categories . lanier clothes designs , sources and markets branded and private label men 's tailored clothing , including suits , sportcoats , suit separates and dress slacks across a wide range of price points , with the majority of the business at moderate price points . our lanier clothes branded products are sold under certain trademarks licensed to us by third parties including kenneth cole , dockers , geoffrey beene and ike behar . additionally , we design and market products for our owned billy london and arnold brant brands . billy london is a modern , british-inspired fashion brand geared towards the value-oriented consumer , while arnold brant is an upscale tailored brand that is intended to blend modern elements of style with affordable luxury . in addition to the branded businesses , lanier clothes designs and sources certain private label tailored clothing products for certain customers . significant private label brands for which we produce tailored clothing include lands ' end , stafford , alfani , structure , and kenneth roberts . our lanier clothes products are sold to national chains , department stores , specialty stores , specialty catalog retailers and discount retailers throughout the united states . corporate and other is a reconciling category for reporting purposes and includes our corporate offices , substantially all financing activities , elimination of inter-segment sales , lifo inventory accounting adjustments , other costs that are not allocated to the operating groups and operations of our other businesses which are not included in our four operating groups . the operations that are included in corporate and other include our oxford golf business and our lyons , georgia distribution center , which were previously included in our former oxford apparel operating group , prior to the disposal of substantially all of the operations and assets of oxford apparel on january 3 , 2011. for further information regarding our operating groups , see note 10 to our consolidated financial statements and part i , item 1 , business , both included in this report . story_separator_special_tag of operations classification of certain expenses may vary by company . sg & a replace_table_token_15_th the increase in sg & a was primarily due to fiscal 2011 including ( 1 ) $ 40.6 million of sg & a associated with lilly pulitzer , ( 2 ) the incremental sg & a associated with the costs of operating tommy bahama retail stores which opened during fiscal 2010 and fiscal 2011 , ( 3 ) certain infrastructure and other costs related to the tommy bahama international expansion and ( 4 ) the net impact of certain retail store asset impairments offset by any associated write-offs of deferred rent credits associated with the impaired assets that were closed or are anticipated to be closed . these increases were partially offset by the death benefit of a corporate owned life insurance policy of approximately $ 1.2 million in fiscal 2011. in fiscal 2010 , sg & a was impacted by $ 3.2 million of restructuring charges in ben sherman , $ 0.8 million of transaction costs associated with the lilly pulitzer acquisition and a $ 2.2 million reduction of an environmental reserve liability . sg & a as a percentage of net sales benefitted from leveraging , as our net sales increased at a greater rate than the increase in sg & a , as certain sg & a costs do not fluctuate with sales levels . amortization of intangible assets , which is included in sg & a and totaled approximately $ 1.2 million and $ 1.0 million in fiscal 2011 and fiscal 2010 , respectively , reflects the amortization of acquired intangible assets for tommy bahama , lilly pulitzer and ben sherman . we anticipate that amortization of intangible assets for fiscal 2012 will be approximately $ 0.9 million . 47 change in fair value of contingent consideration fiscal 2011 fiscal 2010 $ change % change change in fair value of contingent consideration $ 2,400 $ 200 $ 2,200 nm in connection with the acquisition of the lilly pulitzer brand and operations , we entered into a contingent consideration agreement with the sellers , whereby we will be obligated to pay certain contingent consideration amounts based on the achievement of certain performance criteria by our lilly pulitzer operating group , which may be as much as $ 20 million in the aggregate over the four years subsequent to the acquisition . in accordance with u.s. gaap , we have recognized a liability in our consolidated balance sheets for the fair value of this liability .
| results of operations the following table sets forth the specified line items in our consolidated statements of earnings both in dollars ( in thousands ) and as a percentage of net sales . we have calculated all percentages based on actual data , but percentage columns may not add due to rounding . individual line items of our consolidated statements of earnings may not be directly comparable to those of our competitors , as 44 classification of certain expenses may vary by company . for purposes of the tables below , `` nm '' means not meaningful . replace_table_token_12_th fiscal 2011 compared to fiscal 2010 the discussion and tables below compare certain line items included in our statements of operations for fiscal 2011 to fiscal 2010. each dollar and percentage change provided reflects the change between these periods unless indicated otherwise . each dollar and share amount included in the tables is in thousands except for per share amounts . net sales replace_table_token_13_th consolidated net sales increased $ 155.0 million , or 25.7 % , in fiscal 2011 compared to fiscal 2010 primarily due to the net sales related to the lilly pulitzer business and the increase in net sales at tommy bahama , each as discussed below . tommy bahama : the increase in net sales for tommy bahama was primarily driven by increased direct to consumer sales resulting from a low double digit increase in comparable full-price retail store sales and sales at retail stores opened during fiscal 2010 and fiscal 2011 as well as an e-commerce sales increase exceeding 50 % .
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the following table summarizes the amortized cost and estimated fair value of the available-for-sale securities within our investment portfolio based on stated maturities as of september 27 , 2013 and september 28 , 2012 , which are recorded within cash equivalents and both short-term and long-term investments in our consolidated balance sheets ( in thousands ) : replace_table_token_33_th accounts receivable accounts receivable consists of the following ( in thousands ) : replace_table_token_34_th replace_table_token_35_th 58 inventories inventories are stated at the lower of cost ( first-in , first-out ) or market and consist of the following ( in thousands ) : replace_table_token_36_th inventory with a consumption period expected to exceed twelve months is recorded within other non-current assets in our consolidated balance sheets . we have included $ 4.0 million and $ 6.5 million of raw materials inventory within other non-current assets in our consolidated balance sheets as of september 27 , 2013 and september 28 , 2012 , respectively . story_separator_special_tag the following discussion contains forward-looking statements that are subject to risks and uncertainties . actual results may differ substantially from those referred to herein due to a number of factors , including but not limited to risks described in item 1a , “ risk factors ” and elsewhere in this annual report on form 10-k. we disclaim any duty to update any of the forward-looking statements to conform our prior statements to actual results . story_separator_special_tag present a challenge for content creators and device manufacturers seeking consistent audio quality . we believe this challenge provides opportunities whereby we can provide solutions to optimize the audio experience across the online and portable device markets . with the continued evolution of consumer entertainment choices and our efforts to provide competitive audio and video technologies for a wide variety of devices , the composition of our optical and non-optical based licensing revenue has changed . our optical disc-based revenue is generated from the licensing of technologies that enable dvd or blu-ray disc playback , including those incorporated in the microsoft windows 7 and 8 operating systems , independent pc dvd software players , and consumer dvd and blu-ray disc players . non-optical disc based licensing revenue includes revenue derived from products such as tvs , set-top boxes , and mobile phones , as well as our post-processing technologies on a range of devices . the portion of our total licensing revenue comprised of our non-optical disc based licensing has been increasing over time , as shown in the following table : replace_table_token_9_th broadcast market in our broadcast market we derive the majority of our revenue from licensing our technologies to oems of televisions and set-top boxes . the efficiency and quality of our multichannel technologies are well suited to digital broadcast bandwidth requirements and to delivering a premium hd content experience . as evidenced by the high percentage of global sales of tv and set-top boxes shipped with our technologies , we continue to maintain strong market share . 25 as countries within emerging markets convert to digital television , we are well positioned to benefit from this transition , and our growth in this market is dependent in part upon continued adoption of our technologies . broadcast services that operate under bandwidth constraints , such as terrestrial broadcast or internet protocol television ( “ iptv ” ) services , benefit from dolby technologies , which enable the delivery of high quality audio content at reduced bit rates , thereby conserving bandwidth . pc market our technologies are in the majority of pcs sold today due to their incorporation in microsoft windows 8 for disc and online content playback and , for versions prior to windows 8 , primarily because of their inclusion in dvd and blu-ray disc playback functionality . historically , we have licensed our technologies to a range of pc licensees , including independent software vendors ( “ isv ” ) , pc oems , and operating system providers . the release of new versions of major pc operating systems has sometimes resulted in changes in the mix of our pc licensees . the impact on us from the transition to windows 8 will depend on several factors , including the extent to which windows 8 is adopted , unit shipments in the marketplace , and our direct licensing relationships with pc oems . consumer electronics ( `` ce '' ) market our ce market is primarily driven by revenue attributable to dvd and blu-ray disc players and recorders . sales of dvd players are declining as a result of the maturity of the dvd platform and a shift to blu-ray players and other connected devices capable of delivering content . the decline in dvd revenue is only partially offset by revenue from blu-ray players which have not reached the annual volumes generated by dvd players in prior periods . this is in part due to the large number of competing products and services that currently deliver content over the internet . mobile market our mobile market is largely driven by sales of smartphones and tablet devices that incorporate our technologies . our growth in this market is dependent not only on the performance of the mobile device market as a whole , but also on our success of collaborating with manufacturers of mobile devices to incorporate our technologies . currently , these devices include various android smartphones and tablets , certain amazon kindle models , and microsoft windows 8 smartphones and tablets . however , the rate of new product development in this sector is rapid and can result in dramatic swings in consumer adoption trends . as a result , we must continue to align our technologies with a shifting array of mobile devices in order to maintain and grow the use of our solutions in mobile devices . other markets revenue generated from our other markets typically stems from gaming devices and peripherals , automotive and licensing services . story_separator_special_tag we actively encourage our customers to place our trademarks on their products in conjunction with the inclusion of our technologies . the inclusion of the dolby trademark on a product informs audiences and consumers that the product incorporates our technologies and meets our quality standards , and we believe this helps oems sell their products . we will continue to encourage the use of our trademarks throughout the entertainment industry as an indicator to both professionals and consumers of consistently high quality . addressing ongoing content creator needs technology innovations for entertainment are often adopted first for professional use , as filmmakers , music producers , broadcasters , and video game designers look for ways to excite their audiences . we are collaborating with industry professionals to develop new technologies that facilitate and improve content recording , distribution , and playback . our professional solutions often have applicability to the consumer arena , and when they apply , we intend to continue to adapt these technologies for use in consumer applications . our noise reduction , multichannel sound , and digital audio technologies were all initially developed for professional use and later adapted for use in consumer products . we believe that our success in developing technologies for professional use contributes greatly to the appeal of our technologies and brand for consumer use . promoting the adoption of dolby technologies in industry standards as the entertainment industry develops technical standards for content creation , delivery , and playback , we are often actively involved in those efforts , and we seek to have our technologies included in industry standards . we actively develop , maintain , and strengthen relationships across the broad spectrum of entertainment industry participants , professional organizations , and global standards-setting bodies . revenue from significant customers revenue from samsung represented approximately 12 % of our total revenue in fiscal 2013 , and consisted primarily of licensing revenue from our mobile and broadcast markets . revenue from samsung did not exceed 10 % of our total revenue in the prior periods presented . although revenue from microsoft did not exceed 10 % of our total revenue in fiscal 2013 , revenue from microsoft did represent approximately 14 % and 13 % of our total revenue in fiscal 2012 and fiscal 2011 , respectively , and included licensing revenue from our pc , ce , and other markets . under the windows 8 licensing agreement , we now receive certain royalties directly from pc oems , which differs from the prior windows 7 arrangement where these royalties came from microsoft . 28 critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. ( “ gaap ” ) , and pursuant to securities and exchange commission ( “ sec ” ) rules and regulations . the preparation of these financial statements requires us to establish accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingencies as of the date of the financial statements , and the reported amounts of revenue and expenses during a fiscal period . the sec considers an accounting policy and estimate to be critical if it is both important to a company 's financial condition and or results of operations and requires significant judgment on the part of management in its application . on a regular basis , we evaluate our assumptions , judgment , and estimates . we have discussed the selection and development of the critical accounting policies and estimates with the audit committee of our board of directors . the audit committee has reviewed our related disclosures in this annual report on form 10-k. although we believe that our judgments and estimates are appropriate and correct , actual results may differ from these estimates . we consider the following accounting policies and estimates listed below to be the most critical due to both their importance on our financial condition and results of operations and the level of management judgment required . if actual results or events differ materially , our reported financial condition and results of operation for future periods could be materially affected . historically , our estimates and assumptions have not significantly differed from actual results . the estimates and or assumptions relevant to these critical policies have not significantly changed in recent years , nor do we anticipate them to significantly change in the future . for additional information describing all of our significant accounting policies and methods used in the preparation of our financial statements , refer to note 2 , “ summary of significant accounting policies ” of the notes to the consolidated financial statements in part ii , item 8 , while further information regarding the potential risks to our future results of operations are included within “ risk factors ” in part i , item 1a of this form 10-k. goodwill , intangible assets , and long-lived assets description we test goodwill for impairment annually during our third fiscal quarter and whenever events or changes in circumstances indicate that the carrying amount may be impaired . intangible assets with definite lives are amortized over their estimated useful lives . our intangible assets principally consist of acquired technology , patents , trademarks , customer relationships and contracts , which are amortized on a straight-line basis over their useful lives ranging from three to seventeen years . we review long-lived assets , including intangible assets , for impairment whenever events or a change in circumstances indicate that an asset 's carrying value may not be recoverable . recoverability of an asset is measured by comparing its carrying value to the total future undiscounted cash flows that the asset is expected to generate . if it is determined that an asset is not recoverable , an impairment loss is recorded in the amount by which the carrying value of the asset exceeds its estimated fair value .
| executive summary at the beginning of fiscal 2013 , we highlighted several priorities that we planned to focus on during the year . the following represents a summary of our progress made in these priority areas to date : mobile . we expanded the use of our technologies in high-end smartphones and tablets , further establishing our strong position across the mobile ecosystem . in the windows ecosystem , our technologies are embedded in the windows 8 operating system for tablets and pcs , and netflix is now sending dolby-enabled content to select windows 8 devices . in the android ecosystem , our technologies are now on a growing share of smartphones and tablets , and various service providers send dolby-enabled content to android devices . likewise , in the amazon ecosystem , amazon instant video is distributing movies and tv shows with dolby digital plus soundtracks to various kindle models . broadcast . in broadcast , we strengthened our position as the adopted standard in digital television and high definition content in north america and throughout much of europe . we also extended the use of our technologies in a number of emerging markets . in china , new operators have adopted dolby digital plus in their set-top boxes and we estimate that dolby technologies are deployed in over half of the high definition channels on air in china . in addition , several new operators in malaysia , vietnam and the philippines adopted dolby digital plus in their set-top boxes . our technologies are now featured in a number of over-the-top services including itunes , netflix , amazon , hbo go , vudu , and cinema now . additionally , target has included our technology in target ticket , their new digital video service that launched during the fourth quarter of fiscal 2013 . cinema .
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management estimates that the current funds on hand will not be sufficient to continue operations . management is currently seeking additional funds , primarily through the issuance of debt and equity securities for cash to operate our business , and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable . f- 7 stl marketing group , inc. & subsidiaries notes to the consolidated financial statements december 31 , 2015 and 2014 no assurance can be given that any future financing will be available or , if available , that it will be on terms that are satisfactory to the company . even if the company is able to obtain additional financing , it may contain undue restrictions on our operations , in the case of debt financing or cause substantial dilution for our stock holders , in case of equity financing . the ability of the company to continue as a going concern is dependent on management 's plans , which include further implementation of its business plan and continuing to raise funds through debt and or equity raises . note 2 – summary of significant accounting policies estimates the preparation of financial statements in conformity with generally accepted accounting principles requires management 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 expenses during the reporting period . the more significant estimates and assumptions by management include , among others , the accrual of potential liabilities , and the assumptions used in valuing derivatives and share-based instruments issued for services and financing . actual results could differ from those estimates . cash and cash equivalents the company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents . property and equipment property and equipment is stated at cost . depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets , which ranges from three to seven years . the company evaluates property and equipment for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable . the company had no such impairments at december 31 , 2015 and 2014. income taxes the company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences , and deferred tax liabilities are recognized for taxable temporary differences . temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will be realized . deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . share-based compensation the company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs . the company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the financial accounting standards board ( fasb ) whereas the value of the award is measured on the date of grant and recognized over the vesting period . the company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the fasb whereas the value of the stock compensation is based upon the measurement date as determined at either a ) the date at which a performance commitment is reached , or b ) at the date at which the necessary performance to story_separator_special_tag story_separator_special_tag font-size : 10pt '' > hound software on august 3 , 2015 the company entered into a letter of intent with a software developer , kinetos , s.a .. the board of directors is reviewing documentation to implement the letter of intent in a more formal manner between the partners . the kinetos software platform is being branded under the name hound software . the company will release information on this as soon as it is available . we look forward to making this public . management and legal counsel have reviewed previous agreements and believe , pursuant to the stock purchase and share exchange agreement effective as of january 31 , 2009 ( the “ 2009 agreement ” ) entered into by the company ( then known as image worldwide , inc. , a colorado corporation ) . image worldwide marketing , inc. , a delaware corporation and subsidiary of the company ( “ image worldwide marketing delaware ” ) , and st. louis packaging , inc. , an illinois corporation , that image worldwide delaware should have assumed all liabilities of the company as of or prior to the 2009 agreement . management believes this amounts to $ 308,333 of debt ( including $ 265,000 of convertible debt ) , plus its related interest and derivatives . the company is currently reviewing and weighing its options and will proceed accordingly . at december 31 , 2015 and 2014 this debt is included on the accompanying consolidated financial statements . for the years ended december 31 , 2015 and 2014 for the period ended december 31 , 2015 and 2014 , the company reported a net loss of $ ( 1,155,951 ) and $ ( 220,734 ) , respectively . the change in net loss between the periods ended december 31 , 2015 and 2014 is primarily due to a decrease in the derivative liabilities . operating expenses decreased by $ 344,563 during the period ended december 31 , 2015 , as compared to the period ended december 31 , story_separator_special_tag management estimates that the current funds on hand will not be sufficient to continue operations . management is currently seeking additional funds , primarily through the issuance of debt and equity securities for cash to operate our business , and estimates that a significant amount of capital will be necessary to advance the development of our projects to the point at which they will become commercially viable . f- 7 stl marketing group , inc. & subsidiaries notes to the consolidated financial statements december 31 , 2015 and 2014 no assurance can be given that any future financing will be available or , if available , that it will be on terms that are satisfactory to the company . even if the company is able to obtain additional financing , it may contain undue restrictions on our operations , in the case of debt financing or cause substantial dilution for our stock holders , in case of equity financing . the ability of the company to continue as a going concern is dependent on management 's plans , which include further implementation of its business plan and continuing to raise funds through debt and or equity raises . note 2 – summary of significant accounting policies estimates the preparation of financial statements in conformity with generally accepted accounting principles requires management 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 expenses during the reporting period . the more significant estimates and assumptions by management include , among others , the accrual of potential liabilities , and the assumptions used in valuing derivatives and share-based instruments issued for services and financing . actual results could differ from those estimates . cash and cash equivalents the company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents . property and equipment property and equipment is stated at cost . depreciation is calculated on a straight-line basis over the estimated useful lives of the related assets , which ranges from three to seven years . the company evaluates property and equipment for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable . the company had no such impairments at december 31 , 2015 and 2014. income taxes the company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences , and deferred tax liabilities are recognized for taxable temporary differences . temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some portion or all of the deferred tax assets will be realized . deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . share-based compensation the company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs . the company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the financial accounting standards board ( fasb ) whereas the value of the award is measured on the date of grant and recognized over the vesting period . the company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the fasb whereas the value of the stock compensation is based upon the measurement date as determined at either a ) the date at which a performance commitment is reached , or b ) at the date at which the necessary performance to story_separator_special_tag story_separator_special_tag font-size : 10pt '' > hound software on august 3 , 2015 the company entered into a letter of intent with a software developer , kinetos , s.a .. the board of directors is reviewing documentation to implement the letter of intent in a more formal manner between the partners . the kinetos software platform is being branded under the name hound software . the company will release information on this as soon as it is available . we look forward to making this public . management and legal counsel have reviewed previous agreements and believe , pursuant to the stock purchase and share exchange agreement effective as of january 31 , 2009 ( the “ 2009 agreement ” ) entered into by the company ( then known as image worldwide , inc. , a colorado corporation ) . image worldwide marketing , inc. , a delaware corporation and subsidiary of the company ( “ image worldwide marketing delaware ” ) , and st. louis packaging , inc. , an illinois corporation , that image worldwide delaware should have assumed all liabilities of the company as of or prior to the 2009 agreement . management believes this amounts to $ 308,333 of debt ( including $ 265,000 of convertible debt ) , plus its related interest and derivatives . the company is currently reviewing and weighing its options and will proceed accordingly . at december 31 , 2015 and 2014 this debt is included on the accompanying consolidated financial statements . for the years ended december 31 , 2015 and 2014 for the period ended december 31 , 2015 and 2014 , the company reported a net loss of $ ( 1,155,951 ) and $ ( 220,734 ) , respectively . the change in net loss between the periods ended december 31 , 2015 and 2014 is primarily due to a decrease in the derivative liabilities . operating expenses decreased by $ 344,563 during the period ended december 31 , 2015 , as compared to the period ended december 31 ,
| results of operations the following discussion of our plan of operation and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this annual report . this discussion contains forward-looking statements that relate to future events or our future financial performance . these statements involve known and unknown risks , uncertainties and other factors 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 these forward-looking statements . these risks and other factors include , among others , those listed under “ forward-looking statements ” and “ risk factors ” and those included elsewhere in this annual report . plan of operation the company has reported the delays in private power generation in costa rica and its effects on the company . at this time , there is no clear timing on when the government 's policies and views will change , if ever . as previously reported , the company has significantly reduced or eliminated any expenditures or work in costa rica . if the delays in costa rica take much more time to resolve themselves , it is entirely possible that the company will cease pursuing the power purchase agreement . information pertaining to these efforts can be found in previous filings . as a result of the delays in costa rica , the company has pivoted to technology , an area where executive management has significant expertise and sales experience .
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the operating lease right-of-use asset is reduced by lease incentives included in the agreement . as the existing leases do not contain an implicit interest rate , the company estimates its incremental borrowing rate based on information available at commencement date in determining the present value of future payments . the company includes options to extend the lease in the lease liability and right-of-use asset when it is reasonably story_separator_special_tag you should read the following discussion and analysis together with the financial statements and the related notes to those statements included elsewhere in this report . this discussion contains forward-looking statements that involve risks and uncertainties . as a result of many factors , such as those set forth in the section of this report captioned “ risk factors ” and elsewhere in this report , our actual results may differ materially from those anticipated in these forward-looking statements . throughout this discussion , unless the context specifies or implies otherwise , the terms “ nanostring ” , “ we ” , “ us ” and “ our ” refer to nanostring technologies , inc. and its subsidiaries . overview we develop , manufacture and sell products that unlock scientifically valuable and clinically actionable information from minute amounts of biological material . our core technology is a unique , proprietary optical barcoding chemistry that enables the labeling and counting of single molecules . this proprietary chemistry may reduce the number of steps required to conduct certain types of scientific experiments and allow for multiple experiments to be conducted at once . as a result , we are able to develop tools that are easier for researchers to use and that may generate faster and more consistent scientific results . we use our technology to develop tools for scientific and clinical research , primarily in the fields of genomics and proteomics . we currently have two commercially available product platforms , our ncounter analysis system and our geomx digital spatial profiling , or dsp , system , both of which include instruments and related consumables . ncounter can be used to analyze the activity of up to 800 genes in a single experiment . ncounter is also used by clinicians to analyze gene activity relevant for diagnostic applications . geomx dsp , which was made commercially available in 2019 , is designed to enable the field of spatial genomics . while ncounter and other existing technologies analyze gene activity as a whole throughout the totality of a biological sample , geomx dsp is used to analyze specifically selected regions of a biological sample in order to see how gene activity might vary across those regions or in certain cell types . geomx dsp operates by enabling users to prepare and select certain regions of a sample in which to study gene activity , and then use our ncounter system to subsequently evaluate , or read out . the activity of up to 96 genes in each of the selected regions . we market and sell our instruments and related consumables to researchers in academic , government and biopharmaceutical laboratories for research use , both through our direct sales force and through selected distributors in certain markets . as of december 31 , 2019 , we had an installed base of approximately 855 ncounter systems , which our customers have used to publish more than 3,200 peer-reviewed papers . as of december 31 , 2019 , we had received over 90 orders for geomx dsp systems . we shipped 44 geomx dsp systems to customer sites and installed 35 systems as of december 31 , 2019. in addition , we continue to provide access to geomx dsp 's capabilities by offering selected potential customers the opportunity to send biological samples to our seattle facility to be tested in our lab prior to purchasing a geomx dsp system . to date , we have conducted over 200 projects for approximately 125 customers pursuant to this technology access program , or tap . we derive a substantial majority of our revenue from the sale of our products , which consist of our ncounter and geomx dsp instruments and related proprietary consumables . our instruments are designed to work only with our consumable products . accordingly , as the installed base of instruments grows , we expect recurring revenue from consumable sales to become an increasingly important driver of our operating results . our consumables include our standardized ncounter and geomx dsp panel products and ncounter custom codeset products that contain a specific set of targets for scientific analysis as requested by a customer . we also derive revenue from processing fees related to proof-of-principle studies , including from our geomx dsp tap , which we conduct for potential customers . for both our ncounter and geomx dsp systems , we offer and derive revenue from extended service contracts . additionally , we generate revenue through product development collaborations . we use third-party contract manufacturers to produce the instruments comprising our ncounter and geomx dsp systems . we manufacture consumables at our greater seattle , washington area facilities . we focus a substantial portion of our resources on developing new technologies , products and solutions . we invested $ 68.0 million , $ 61.6 million and $ 46.9 million in 2019 , 2018 and 2017 , respectively , in research and development and intend to continue to make significant investments in research and development to support our existing instrument platforms and related consumable offerings , as well as research and development of new technologies . in december 2019 , we entered into a license and asset purchase agreement , or lapa , and service and supply agreements , or ssas , with veracyte , inc , or veracyte . pursuant to the lapa , we completed a license of intellectual property and a sale of certain assets to veracyte relating to our ncounter flex system for use in clinical diagnostic applications . story_separator_special_tag upon entering into and pursuant to the terms of the lapa with veracyte , in future periods prosigna will be manufactured and sold at fixed transfer prices by us to veracyte , which will result in the revenue we recognize for sales of prosigna being approximately one-third of the previous per unit revenue , and veracyte will then sell prosigna to clinical diagnostic customers . as a result , our selling prices and gross margins for prosigna in future periods will be lower than our historical selling prices and gross margins , and , as a result , average annualized consumables revenue per installed system may be lower in future periods . service revenue service revenue consists of fees associated with service contracts and conducting proof-of-principle studies . we include a one-year warranty with the sale of our instruments and offer service contracts , which are purchased by a majority of our customers . we selectively provide proof-of-principle studies and or technology access programs to prospective customers in order to help them better understand the benefits of our ncounter analysis system , our geomx dsp system , or other technologies under development , for which we generate data and perform analysis services on their behalf . collaboration revenue collaboration revenue has been derived primarily from our collaborations with lam , and historically , our terminated collaborations with celgene , merck and medivation/astellas . as of december 31 , 2019 , we have received a total of $ 122.8 million from these collaboration agreements , of which $ 20.7 million , $ 22.8 million and $ 42.3 million has been recorded as collaboration revenue in 2019 , 2018 and 2017 , respectively . as of december 31 , 2019 , we have customer deposits of approximately $ 5.5 million related to future development costs which we expect will be substantially completed during the first half of 2020. we do not expect to receive further development funding from lam in future periods , and the original commitment from lam to provide up to $ 50.0 million in development funding has been fully satisfied . collaboration revenue also includes revenue recognized under several smaller collaborations . revenue by geography we sell our products through our own sales forces in the united states , canada , singapore , israel and certain european countries . we sell through distributors in other parts of the world . as we have expanded our european direct sales force and entered into agreements with distributors of our products in europe , the middle east , asia pacific and south america , the amount of revenue generated outside of north america has generally increased , although there have been significant quarter-to-quarter fluctuations . in the future , we intend to continue to expand our sales force and establish additional distributor relationships outside the united states to better access international markets . the following table reflects total revenue by geography based on the geographic location of our customers , distributors and collaborators . for sales to distributors , their geographic location may be different from the geographic locations of the ultimate end customer . americas consists of the united states , canada , mexico and south america ; and asia pacific includes japan , china , south korea , singapore , malaysia , vietnam , thailand , india and australia . replace_table_token_2_th most of our revenue is denominated in u.s. dollars . our expenses are generally denominated in the currencies in which our operations are located , which is primarily in the united states . changes in foreign currency exchange rates have not materially affected us to date ; however , they may become material to us in the future if our operations outside of the united states expand . cost of product and service revenue cost of product and service revenue consists primarily of costs incurred in the production process , including costs of purchasing instruments from third-party contract manufacturers , consumable component materials and assembly labor and overhead , installation , warranty , service and packaging and delivery costs . in addition , cost of product and service revenue includes royalty costs for licensed technologies included in our products , provisions for slow-moving and obsolete inventory , and non-cash expenses including depreciation and amortization associated with various assets used in the production of our - 49 - products and stock-based compensation expense . we provide a one-year warranty on each ncounter analysis system and geomx dsp system and we establish a reserve for warranty repairs based on historical warranty repair costs incurred . operating expenses research and development research and development expenses consist primarily of salaries and benefits , occupancy costs , laboratory supplies , engineering services , consulting fees , costs associated with licensing molecular diagnostics rights and clinical study expenses to support the regulatory approval or clearance of diagnostic products , and non-cash expenses including depreciation and amortization associated with various assets used in the research and development of our products and stock-based compensation expense . we have made substantial investments in research and development since our inception . our research and development efforts have focused primarily on the tasks required to enhance our technologies and to support development and commercialization of new and existing products and applications . we believe that our continued investment in research and development is essential to our long-term competitive position and expect to continue to make investments in research and development activities , with an expected focus on spatial genomics . to date , we have found that it has been effective for us to manage our research and development activities on a departmental basis . accordingly , other than pursuant to terms of certain of our collaborations , we have neither required employees to report their time by project nor allocated our research and development costs to individual projects .
| results of operations comparison of years ended december 31 , 2019 and 2018 revenue replace_table_token_5_th instrument revenue for the year ended december 31 , 2019 increased as compared to the prior year , due primarily to the first commercial shipments of our geomx dsp system . in addition , we experienced an increase in the number of ncounter flex and ncounter max instruments sold , which generally have higher average selling prices , as compared to the number of ncounter sprint instruments sold during the year . consumables revenue increased for the year ended december 31 , 2019 , primarily as a result of our growing installed base of ncounter analysis systems , as well as growth in sales of our standardized panel consumable products . in vitro diagnostic kit revenue represents sales of prosigna assays , which were approximately flat for the year ended december 31 , 2019 as compared to the prior year . prosigna revenues were impacted during the fourth quarter of 2019 subsequent to entering into the lapa and prosigna supply agreement with veracyte , which reduced our average selling price on prosigna kits sold during the period . service revenue for the year ended december 31 , - 52 - 2019 increased , primarily related to growth in the number of projects relating to our geomx dsp technology access program , and , to a lesser extent , increases in the number of installed instruments covered by service contracts . our product and service revenue may continue to increase in future periods as a result of the growth in sales of our geomx dsp instruments , the growth in sales of our ncounter and geomx dsp consumable products as driven by our increasing installed base of these systems and the introduction of new ncounter and geomx dsp consumable products .
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